CSL Finance Limited (BSE: 530067) Q4 2025 Earnings Call dated May. 26, 2025
Corporate Participants:
Rachita Gupta — Whole-Time Director
Rohit Gupta — Managing Director
Chandan Kumar — Head of Strategy and Business
Atul Kumar Agrawal — President of Finance and Treasury
Analysts:
Sayam Pokharna — Analyst
Sanjay Ladha — Analyst
Dhwanil Desai — Analyst
Nirvana Laha — Analyst
Ankit Gupta — Analyst
Dhiraj Sachdev — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the CSL Finance Limited Q4 FY ’25 Earnings Conference Call hosted by TIL Advisors Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sayam Pokharna from TIL Advisors Private Limited for opening remarks. Thank you, and over to you.
Sayam Pokharna — Analyst
Thank you, Ryan. Good evening, and thank you for joining us in this Q4 and FY ’25 Earnings Conference Call of CSL Finance Limited. The investor presentation has already been uploaded on the stock exchange and on the company website. If you wish to be added to our mailing list, please feel free to write to us.
To take us through today’s results, we have with us from the management team, Mr. Rohit Gupta, Managing Director; Mr. Naresh Chandra Varshney, Chief Financial Officer; Mr. Chandan Kumar, Head Strategy and Business; Ms. Rachita Gupta, Whole-Time Director; Mr. Atul Agarwal, President, Finance and Treasury; Mr. Chirag Gupta, Credit Head, Wholesale. We will begin with a brief overview of the quarter and of the year from Ms. Rachita Gupta, followed by a Q&A session.
Please note that any forward-looking statement made during this call should be considered in conjunction with the risks and uncertainties that we face. These risks and uncertainties have been outlined in our annual reports.
With that, I would now like to hand over the call to Ms. Gupta. Over to you.
Rachita Gupta — Whole-Time Director
Thank you, Sayam. Good afternoon, everyone, and thank you for joining us today. I’m pleased to share the highlights of CSL’s performance for Q4 and FY ’25. As you can see, it has been a year of consolidation for the company, primarily on the SME retail front. At the same time, wholesale vertical continued to demonstrate resilience and growth in FY ’25. This underscores the importance of our diversified business model during challenging periods.
To begin with, our AUM registered a growth of 5% quarter-on-quarter and 25% year-on-year in Q4, reaching INR1,195 crore. Parallelly, our loan book stood at INR1,157 crores as of year end. We fell short of our initial AUM target due to changing and dynamic circumstances in the industry’s operating environment over the past year.
Over the last year, several issues emerged in the unsecured credit segments with their effects spilling over into the secured lending portfolio across the industry. Although CSL Finance operates purely in secured lending, we did witness the impact of the overall slowdown in the industry. Slippages increased and concerns about overleveraged borrowers became more prominent.
In the face of these challenges, the industry tightened its credit policies. CSL went a step further, adopting even stricter credit policies and choosing to prioritize caution over rapid growth. Our response included changes in credit policies, structural adjustments to our teams and certain leadership roles as well as improvements to our systems and processes to enhance underwriting and employee productivity. We ensured that we emerge stronger from this consolidation period.
All of this led to a year of consolidation in the SME retail vertical, shifting our AUM mix in favor of the wholesale segment, which continued to grow. Currently, the SME retail to the wholesale AUM mix stands at 34% is to 66% for financial year ’25.
Looking ahead, we believe that with all the changes and transitions now in place, the SME retail segment will become more resilient, independent and team-driven as well as operationally efficient and competitive, supported by the continued investments in our tech stack. At the same time, we’ll continue to balance our wholesale vertical for better overall company performance.
Now, coming to our asset quality. Slippages increased in FY ’25, resulting in a rise in gross NPA and net NPA by 2 basis points and 9 bps, respectively, over the previous financial year. This was solely on the SME retail front as explained earlier as well as some impact from a pilot project that is Suvidha loans during the first half of the year.
While write-offs increased in FY ’25, we wanted to assure our stakeholders that the company is confident in making decent recoveries from these cases over the next 12 to 18 months. We should have a good track record in this domain, and recoveries from these elevated numbers should begin accruing from financial year ’26.
The net interest income stood at INR146 crores in FY ’25, which was an increase of 21% year-on-year. NII performance could have been stronger if not for the negative carry on excess liquidity maintained during certain parts of the year. PAT for the year stood at INR72 crores, registering an increase of 14% year-on-year. PAT reflected the impact of higher provisioning, write-offs and increased operating expenses from the recent branch expansion. We expect operating costs to normalize as new branches mature and begin contributing to AUM growth. At the same time, elevated provisioning and write-offs should also subside in the coming year.
I would now also like to update you on some of our operational developments during the year. We significantly expanded our lender portfolio this year with the addition of nine lending partners, bringing it to a total of 32 lending partners. While access to debt funds have improved with a larger portfolio of lending partners, there is a scope for further improvement as we grow our SME retail portfolio. We will also start to see some benefit on our average cost of borrowing given the recent rate cuts by the RBI. The benefits of the earlier rate cuts from February should start to accrue from Q1 and subsequently from the April rate cut.
We have also made some structural alignments in our product portfolio, including the addition of a new product at lower ROI. Overall, we expect some moderation in average yields as well as due to a mix of reducing ROI as well as changed product policies.
On the branch network front, we saw net additions of 14 branches, bringing the total to 43 branches in FY ’25. We also made some adjustments to existing branch locations and consolidated a few underperforming branches as a part of our regular review activities. We plan to further expand the branch network in FY ’26, ensuring that recent additions start contributing to the AUM growth. The focus remains on improving employee and branch level efficiency.
Our off-book AUM also took a backseat during FY ’25 as we saw a moderation in SME retail disbursements and did not have enough AUM to down sell with the primary focus being on organic growth.
Now for the coming financial year, we remain cautiously optimistic. The Wholesale segment should continue to perform well and SME retail is expected to return to the growth track following the consolidation in FY ’25. We have implemented many learnings from last year into our models, whether in refining our product niche, enhancing our leadership and team structure or strengthening our credit policies and organizational systems. With growth returning to the SME retail front, the AUM mix should rebalance in favor of SME retail and the profitability metrics are expected to improve as SME growth accelerates.
I’m also pleased to announce that the Board has recommended a dividend of INR3 per equity share. CSL Finance continues its dividend paying policy, demonstrating our commitment to fair value creation for all our stakeholders.
Thank you, and I open the floor to questions and answers.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question comes from the line of Sanjay from Bastion Research. Please go ahead.
Sanjay Ladha
Hi sir. Thank you for the opportunity. So my first question would be in FY ’24 or early Q1 FY ’25, our rating has been upgraded during that time. And that time, we are saying that there would be an improvement in the cost of borrowing by 50 basis points to 70 basis points. While for full year, the cost of borrowing has been increased by 104 basis point. So can you please throw some light as why the cost has been increased and also what is the going forward as well?
Rohit Gupta
Yes. First, I think we have some wrong numbers. Our cost of borrowing only went up by 0.10 in the whole year. And secondly, yes, our rating was increased. But in the last year, we witnessed because of the turbulence regarding the MFIs and unsecured the whole lending industry was a little cautious first on the lending to NBFCs and the rate negotiations were becoming a little difficult. So now the effect of those repo rate cuts, we have already started seeing, and we have 0.25 basis point already reduced in most of the loans, which have been linked with those repo rates.
And going forward, now liquidity position is much more easier than what was last year. And now the — I would say the overall environment of the lenders towards NBFCs is far better. And so those — some benefit we will start seeing in this financial year. And it has not increased by 104 bps, which we have — it has actually increased by 0.10 bps only.
Sanjay Ladha
Sir, I’m just saying so the cost of borrowing for full year is 10.8% for FY ’25. And for FY ’25, 9.4%. If the number is wrong, I would check it out and get back to you.
Rohit Gupta
No, I don’t know, sir. So neither it was 9.4% ever. We never had 9.4% and neither it was 10.8%. Our weighted average cost of borrowing was 11.12%, and it went up to 11.22.
Sanjay Ladha
Sir, my next question would be on loan book side. So this year, we have seen growth in loan book primarily because of wholesale book, while our major focus area has been on SME side. And I understand the SME side of the book for the full year has been quite sluggish because of the industry dynamics. So going forward, how do we see — as you — as the opening remarks says that SME will be growth focused area going forward as well and wholesale will pick up the growth. So how the mix has been changing going forward? And what is the growth we are expecting?
And also, sir, on wholesale book, I have — the growth and the asset quality has been unmatched for us. Two questions to ask you here is, is scale a barrier in the wholesale loan book? And if it is not scale a barrier, then in the asset quality would be deplete going forward if the scale happens. And so therefore, why I’m asking is we are not saying that wholesale would be our growth chunk going forward as well. So just trying to understand how should we think on this terms?
Rohit Gupta
Yes. Taking your second question first regarding the wholesale. We have no challenge in growing this book. We are already managing INR700 crores under the co-lending model, which is not under off book, but which is being managed by us. So effectively, we want to have a decent mix of both wholesale and retail. Our target was to increase our retail in last two years, and we have targeted ourselves to increase to 60% by FY ’27. And still we will strive for that. We may not be able to achieve that 60% but definitely, we will be in the range of 50% to 60% in the next 18 to 24 months. So our approach is to have a right mix of both. It also reduces the mix.
And so — and SME, yes, the growth was sluggish. We have already highlighted in our presentation and mentioned the various factors behind that. And so the focus — we have already expanded through 17 more branches last year. The benefits of that will start reflecting in this financial year and will be — have more expansion plans.
Yes, definitely, we became a little cautious and tightened our policies. There were certain regulatory changes. First four, five months of the last financial year was marked by elections and a very strong heat wave accompanied by the very strong monsoon. So the segment we are in, we are in the lowest strata of the population, the bottom 30%, 40% and — which is, I would say, semi-rural or a little rural side and they have a direct impact on that.
And because of the slippages, which we have seen on the MFIs and unsecured segment, it’s a little bit slipped into the secured segment also, and we tightened our policies. There were certain regulatory changes. And with the new structure and we made some structural changes in the team also at the senior level also. And wherever we found that there were certain slackness or there were certain needs to be improved, we have improved the areas which we need to do it. And hopefully, we should have better numbers from SME. And I have Chandan with me, who is our Head of Strategy and Business, he can put more light on this part.
Chandan Kumar
Sanjay, strategy for the coming year for growing our SME book is mainly towards the expansion plan and stabilizing the branches, which we have already opened last year that Rohit has rightly told you about that we have opened around 17 branches. The idea is to going — penetrating the business of these branches more into the area where they are already established themselves through the marketing activities.
So now we have started focusing on the per employee productivity as well as the per branch productivity targets were given to the business team. And onwards, like from last three, four months, the business has started showing its numbers. We are picking up our numbers month-on-month and targeting good numbers in coming financial year itself.
Rohit Gupta
From the last year, most of whatever we disbursed the same quantity of the foreclosures happened. That was prepayments partially through their own sources or in certain cases, it was taken over by other lenders. So the whole of the additional disbursement, which we did last year, we had the same amount of foreclosures. And you can see that our foreclosure charges income was substantial in last financial year.
Sanjay Ladha
Okay. And sir, my another question would be what would be the benefit of adding more lenders? Just trying to understand we have added 32 lenders in our side, and we are keep on increasing it. So just trying to understand these additional lenders, what will be the benefit going forward? How do you guys see why are we keep adding these lenders in our pocket list, if you can share any thoughts from…
Rohit Gupta
I’ll just give you one or two lines and Atul will detail in a little bit more. First, the more diversified lender book we have, sometimes initially lender comes with a small exposure. And it helps us to grow our book size, help us to make borrowings much easier. And the more the lenders, it becomes more comfortable for other lenders to board in and to increase their exposure. So it is always better for NBFCs to have a diversified lending — lenders with us and in terms of negotiations and the supply of debt to us. So that is the primary reason and every NBFC would like that the more diversified and the larger the lenders, it is better instead of dealing with few lenders. And yes, Atul.
Atul Kumar Agrawal
Definitely Borrowing money from the bank is a primary objective for NBFC. And it is for — it is their raw material. So to have better negotiation with the lenders, we have a number of lenders instead of one or two lenders on which we can rely upon. So in case of a scenario, something like an IndusInd Bank, so we can have a more lender base with us to negotiate for our personal lending. And it’s basically, it’s our bread and butter and it’s our daily job. It’s not like a manufacturing industry wherein the organization require money once in a year or twice in a year.
We need day in, day out money. So we need such chunk of lenders and all type of lenders, including NBFC, big banks and small finance bank, private bank, every bank, including the FIIs, foreign institutional investors as well. So better the base, better the negotiation terms we are having.
Sanjay Ladha
On the — sir yes, I’m just asking that from the lending book side, the total borrowing, which we have from the lenders, how much is from PSU banks, how much is from private banks and how much is from NBFC, if you can share the split between those?
Atul Kumar Agrawal
So 72% is from the bank, which includes private, public sector banks and the small finance banks and 28% from NBFC as on March 31. And for a better split among the banks, I’m giving you a number in a while.
Sanjay Ladha
Sure sir. Thank you. I will come back at the queue. Thank you so much for answering.
Operator
Thank you. The next question comes from the line of Dhwanil Desai from Turtle Capital. Please go ahead.
Dhwanil Desai
Hi. Good afternoon, everyone. So my first question is in the initial remarks, we talked about moderating yields because of the product mix changes. And also, we talked about the benefit of the lower cost of funds kind of coming through from Q1. So, how should we see the interplay of both in terms of NIMs going into FY ’26, if you can dwell a bit on that?
Rohit Gupta
Mr. Desai, overall IRR — the weighted IRR will remain the same. It’s only that we are hiring, we have started — we are starting with one product, which will be a little lower IRR targeting the prime borrowers. But at the same time, we will be targeting with a little higher IRRs, less than INR10 lakh kind of a segment. So the weighted IRRs will remain the same, more or less. And the NIMs will be the same. It’s only that our product horizon will increase. And in certain branches where you are able to target prime borrowers more, which are based in bigger cities. So these are the products mainly for those branches.
And — so based on our feedback and the experience, we thought that we need to add one more prime product also that will help us to increase our volumes. But — and still, that product in the overall weightage of the SME, which is like 34% as of now, and it will not be more than 5% to 10% of the total book even after the full financial year.
Dhwanil Desai
Okay. Got it. Sir, second question is, so how should we look at — I think last year, we were targeting around INR1,400 crores-odd, and then we scaled it down to INR1,250 crores to INR1,300 crore AUM. So going into FY ’26, now that the environment is slightly better and our — again, we are — we are trying to refocus on the SME growth. How should we look at AUM growth for next year?
And also to achieve, let’s say, INR1,400 crores, INR1,500 crores kind of a number in FY ’26, our disbursement needs to go to a significant level because we generally get collections of INR850 crores-odd more or less around that range. So we need to do disbursement of maybe INR1,400 crores, INR1,500 crores to do incremental AUM of INR400 crores, INR500 crores. So if you can talk a bit about that?
Rohit Gupta
Yes, even in spite of all the challenges, which we have been facing in the last two, three years. So we have been able to grow in every year, I think 20% to 25% growth we have given in each of the last three years. But our focus will remain on SME. In terms of — we have thought that in the first two quarters, we will not be giving any target because we missed that target. We gave very first time and we missed that target last year. And so we’ll be more confident, and after seeing these two quarters, we’ll be able to give better guidance.
But definitely, to grow what we have been growing in the last two, three years, that should be the bare minimum growth, which we should be targeting as a company. But in our internal targets, it are much higher, and we’ll be able to give a far better guidance after six months at the completion of two years — two quarters, but definitely what kind of growth which we have achieved in the last two, three years, year-on-year, that should be the bare minimum we should be able to do.
Dhwanil Desai
Okay. Got it.
Operator
I do apologize to interrupt you there, but we are not able to hear you.
Dhwanil Desai
Are you able to hear me now? Is it better?
Operator
Yes. This is better. Please go ahead.
Dhwanil Desai
Yes. So, last question, and I’ll come back in the queue. So Rohit, if I look at the last three, four years, we have invested on scaling up SME and our branch network has also expanded. And of course, we have grown almost 3x from what we were three, four years ago. But employee cost as a percentage of revenue has remained in the same range of 12%, 13%. So going into FY ’26 and FY ’27 as we kind of get more benefits out of the branch that we have set up three years ago, which is a very substantial portion as per your presentation, around 57%, 58%. So do we see this percentage coming down and some operating leverage flowing through in FY ’26 and FY ’27?
Rohit Gupta
Yes, definitely. But we invested in a lot of senior team in the last two years, middle-level at the senior levels. Now, as we told last year also, so we will not be requiring people, senior and middle-level people for our expansion for the next, I would say, 12 to 18 months. It will only be at the branch level, the more people will be coming. So going forward, as we increase our spending on our branches, the proportionate increase in employee cost will not be there. Yes, definitely, in the last two years, the kind of expenses, which we were incurring on the — will not be able to get the corresponding revenue in terms of low performance on the SME side.
And yes definitely we are — and we are very much hopeful that this year going forward, we will start correcting that analogy which has been there on the SME. And so the revenue will start reflecting, yes, proportionately, it will definitely come down as our SME numbers start going up.
Chandan Kumar
But — Anit, I just want to add one point. But in absolute numbers, it is not going to impact much, reason being we have a good target for expanding our branch network this year also, which will be impacting increasing our employee cost vis-a -vis in that proportion itself.
Dhwanil Desai
The overall number should eventually go down, right? Because that’s the idea of kind of more mature branches becoming more and more profitable. So…
Rohit Gupta
Yes, definitely, it has to come down. It is only that the performance was subpar in last year on the SME side. And as the projected numbers have started picking up from this year, you will see that this percentage will come down. And if you compare with the industry, I would say we still have, because of our mix with wholesale, our overall cost-to-income and overall employee cost is far better. And that is why we have kept both the products so that we are able to have a decent profitability year-on-year, which helps us to increase our net worth and at the same time, strengthen our risk-taking ability.
Dhwanil Desai
Great to hear that and wish you all the best. Thank you.
Operator
[Operator Instructions] The next question comes from the line of Nirvana Laha from Badrinath Holdings. Please go ahead.
Nirvana Laha
Hi, sir. Thank you for the opportunity. Sir, my first question is a little strategic in nature. So if I look at other companies in the SME secured space, which have become big and successful now, for example, in the South, you have Five Star Finance, you can maybe size Capri Global or HBFC Finance. They all do small-ticket SME secured lending, something similar to the model that we have chosen to enter. So if you look at all the history, sir, they started with some entrepreneurs. Early on in their journey, the funding or external capital came in.
And presumably, along with capital, they brought in technology and the ability to scale, etc., etc. So all of these companies have the same kind of journey. From about INR1,000 crores, INR2,000 crores AUM, external capital came in. And since then, they have grown to INR10,000 crores, INR20,000 crores, INR25,000 crores AUM, and they are still growing at 25%, 30% every year. Whereas we were a wholesale lender, we have now come into SME retail. We are trying to build it out on our own. And we are still at the same kind of growth as the much larger companies, like 20%, 25%.
So, sir, my question to you is, what is your strategic vision for the company? Because the wholesale lending part, it seems to us that it has certain limitations because of our expertise in certain geographies. So if SME retail is going to be our growth engine, and compared to the examples that I’ve given you, as an investor, sir, what is the vision I can look forward to from CSL as a company over the next five years, seven years? If you can talk a little about that. How are we finally going to grow, because we are still at INR1,000 crores AUM? So, is there an aim to be an INR10,000 crore AUM company anytime soon? I would like to hear about that.
Rohit Gupta
Thank you. I think the question is very valid. And all of the three company, which we have — so that is our benchmark also, and we aim that we are able to do that. So us — in terms of immediate strategy for next one or two years, one, yes, our focus is on SME and its starts kicking, and we will — you will see that our mix will start improving in the favor of SME. And you said that others have brought risk capital and raised huge money, and that will help us to also raise at the right moment.
Now the focus is to build our SME and able to show that we are able to do those kind of numbers and raising equity at appropriate levels, sometimes depending on the market conditions should not be a limitation. And in terms of developing our technology, I would say, given the size we are, the kind of technology we have developed and we are working with, it is better than most of our peers in our size. And so a lot of groundwork has been done.
And yes, the only where we have been able is the numbers. And yes, the focus is to build those numbers and our existing book and existing ability to raise debt for next one, 1.5 years will be more than sufficient and — which will give us an opportunity to raise that kind of big leap capital also. So we just want that we are able to prove ourselves and be more confident on the retail side of doing those numbers. And then raising that kind of equity should not be a challenge. And strategically, I would not like to give numbers but definitely, as you said, once those — that kind of infusion also happens, then the growth becomes much more faster.
Still, the numbers, which we have set for ourselves are fairly decent on the SME side. And once it start picking up, I think the ball should start rolling in our case also. Definitely, the last year was not good. And so this year, we are very hopeful that our performance should be able to improve.
Chandan Kumar
Just want to add a few points, Nirvana. The names which you have taken like the peers, I’m not going to take the name exactly, but yes, the names which you have taken, we have also benchmarked those competitors as well as the peers in terms of growth as well as the capital infusion and all that thing. The only single point that we need to understand that the space that we are talking about the same book that the competitors or the peers were having around 2016 or ’17 kind of phase, they were at the same level. And we have also like — but at that point of time, the competition space, technology, AI, all those things, product mapping, all those things are quite different. That’s why they are both different.
Now we think that we are ready for our growth engine, and we have planned ourselves a lot. We did a lot of research on the groundwork that what would be our growth strategy and how we are going to grow this book. So we are very much sure that — pretty much that in coming two, three years down the line, and the numbers will start reflecting from the next year or down the line two years onwards. And with the vision of coming — like you are asking about five or seven odd years vision, definitely, we are going to be a very big business in coming five to seven years kind of with in line.
Nirvana Laha
Sure. Thank you for that. So one related question is, if I look into our history as a company, we have been a very conservative lender, which is a good thing as an investor. But ultimately, we are also a small company which needs to consistently grow at these high rates, especially because, as I mentioned, our peers, much larger peers are able to grow much faster. So my question is, like I’ve noticed whenever there has been some kind of crisis in the environment, or any kind of pressure and things are not absolutely good in the credit ecosystem, CSL Finance as a company tends to take a safety-first approach and therefore, stops the growth momentum and takes care of credit quality, although we have always had very good credit quality parameters.
So my question is, sir, was the lack of technology leading us to always sort of press the brakes on growth every time there was something a little off in the credit ecosystem? And if that was the reason, have we now sort of overcome that? And are we now confident that irrespective of the environment, we should be able to grow as a small company at about 30% year-on-year. Do we have that kind of confidence? Or is there still some journey for us to cover before we reach there?
Rohit Gupta
I’ll just let Chandan add, and I will also come.
Chandan Kumar
First of all, Nirvana, I just want to clarify that as a company on a whole, the AUM part, the growth, you need to understand from the two perspective that the wholesale business that we want to keep stable and grow our co-lending book. Definitely, the overall book size is growing, but we are growing our co-lending book from which we are earning a kind of fees income, right? Like now just adding up my dominator, from absolute forefront, the growth would be definitely more than that what numbers you are expecting or you are telling right now. We are expecting a very good business that has like the 30% odd growth you are targeting, definitely, we are going to achieve that in terms of that.
Now coming on that technology or being a little bit credit conservative company part, what we have as a strategy decided that we would be targeting increasing our product bucket this year and which will be — and keeping our yield constant. So we would be adding some high yield products into our bucket as well as the low bucket — low yield generating products this year also so that we would be able to tap a good business, volume business this year from the prime customers as well as with the high yield customers, we would be able to maintain our average yield from the customer part. So it is not impacting my top line as well as the book would be growing in a good way that we are targeting.
Rohit Gupta
So to some extent, you are right that sometimes when the external situations are bad, we tend to be a little cautious. But — so as we just — frankly, what happened in the SME, whenever we wanted to accelerate, now we have built our technology part, our policies has been laid out. And what we have learned in last two years that we have to stick to our parameters. And we will not dilute on ad hog basis just to achieve numbers, and that is where the slippages start coming up. And now the whole team is aligned to that thing. And one good thing has happened due to regulatory changes also that earlier, a lot of SME cases, reasonable sanction used to happen but actual disbursement was not there due to a large proportion of cancellations, which has been completely stopped.
And now our cancellation is practically zero for last three, four years. So whatever numbers what we are seeing are the actual numbers. So a lot of effort has been done on correcting the core part of the whole — the SME part. And so yes, for a company, we see that if the numbers and equivalently, the quality start giving us, achieving those accelerating ourselves will not be a problem. And yes, though we are a little late that this whole process is taking time. But in last two, three years, even with the lower business on the SME, a lot of learnings have come. And from this year onwards, we are much more confident in terms of putting all those things in place. And the focus is only to build the book right now.
And the players, which you have mentioned, HBFC and Capri, not to name but they are definitely working at the lower IRR between 12% to 14%, where our average bracket is between 17% to — 16.5% to 22%, 23% on the SME side. So you can’t — accept Five Star business, which is into the same IRR range. And even Five Star took some time after that, they started accelerating themselves very fast. And if you see the growth has come even those companies in the last four, five years, and they also took time in building up their SME business. So that is the initial year we are also building up. And hopefully, the things should be — will be better in the next coming one to two year.
Nirvana Laha
Sure, sir, I hope you are able to grow your SME business by 30%, 40% each year. Sir, last question from my side is what is this new products that you’re introducing, which will be lower yield in the SME segment? If can talk about that.
Chandan Kumar
The product would be similar. Only the target segment of the customer would be different, Nirvana. We would be targeting much more prime customers with no kind of like — nothing kind of or the collateral part would be the very strong and LTV part. These kind of customers are a little riskier on the rate of interest part. So they would be requiring a kind of 16 or 15 odd kind of ROI. So we implemented the [Indecipherable] kind of model. So the customer is their profile, the rate of interest would be charged from 16% to a kind of 22% based on their profiles and all that kind of…
Rohit Gupta
Yes. We have built up auto builder where all the parameters will be put and the rate of interest will be decided. Yes, definitely, we do have a discretionary power to change that some negotiation is required but we have built the auto system. So it becomes very easier for branches offer the rate to their customers by putting those parameters into their system.
Nirvana Laha
Sure. And what can be the ticket size here, sir? And how is it different from our existing SME midsize LAP where we are already doing high ticket size?
Rohit Gupta
These cases will primarily be more in Cat A, Cat B locations first. Ticket size will be roughly between INR20 lakh plus, maybe going up to INR50 lakhs, INR55 lakhs, INR60 lakhs. So because that is the minimum requirement of the customer and there is the collateral quality and the value is much higher. So that is the minimum ask that the customer also asked. And so the only challenge we used to – and we have also from last year, started working with the DSAs.
On last three months, we have opened DSAs and connector platform also, which was not there earlier. Certain cases used to come in directly from them. Now we have opened it directly and where even larger companies are working with those kind of platforms only. So we have also opened that in the last three, four months to get business for this kind of segment from those players.
Operator
Thank you. The next question comes from the line of Ankit Gupta from Bamboo Capital. Please go ahead.
Ankit Gupta
Sure. Thanks for the opportunity. Sir, my question is a bit of – if we go back to our history over the past three, four years, we have had a lot of operational changes, plus new products haven’t worked out. So first, we were trying to establish our technology on the SME side. Then we had SME Head, which just left us a few months back. And then there were some product introductions also like Suvidha loan and higher ticket size loan of around INR40 lakhs and above, which hasn’t worked out for us.
And so if we look at the current juncture now, are we done with all the changes, all the policy implementations we have are behind us? And now this is the time that if environment remains pretty decent we should be able to scale up now and the operational challenges and our product strategies and all are fully clear, and we should now see a growth in, let’s say, a ticket size of around INR7.5 lakh to INR30 lakh?
Chandan Kumar
Ankit, just to articulate or re-articulate your question, we don’t find that any of our products, only the nomenclature has been changed. We were earlier also into the LAP kind of product and we are right now also into the LAP kind of product. Only thing is that the depth of the bucket, of the product line has been increased so that we would be able to target — earlier we were targeting a niche segment of around kind of 17, 18 plus kind of customers and leaving behind below that kind of customers as we are targeting a higher end. Strategy-wise, we are now increasing our target area and we are now focusing that we would be targeting and we would not be losing any customer that is of a kind of prime kind of structure.
Why we have implemented that thing? Reason being this was what we have built from our last learning that it is creating a mind block in the mind of our sales guys or the business guys that we generally do a kind of subpar kind of customer who are — which can be targeted at 18 plus kind of ROI. So we have just opened them that we are okay to do all kind of products that is LAP. Only the nomenclature that earlier it was called as kind of Unnati, Pragati, all that kind of schemes over there. It has been now simplified into LAP — SENP and LAP salaried.
We were earlier also doing LAP kind of product. Now we are also doing the LAP product. Only thing is that ROI bucketing has been increased. So we are targeting much more broader segment, depth segment into the customer, and we are targeting much more prime customers so that the volume and the business can be increased, keeping our yield at the same level. Yes, we do agree that one of the products that is the Suvidha that is majorly on a kind of pilot project, right? Pilot project and we have kept a kind of cap, and we were into the collaboration kind of subvention kind of scheme with APL Apollo, that is one of the known company and…
Rohit Gupta
I can explain what happened in that product, primarily two, three reasons. It’s a product where…
Ankit Gupta
Sorry to interrupt you. But my question is like all the operational and strategic changes are behind us now and we have identified and have we identified that a sweet spot of around INR7.5 lakh to INR30 lakh that we’ll be — is the segment that we’ll be targeting and we should now be looking to grow in that segment itself, and it can give us a growth of 30% to 40% in the AUM. This is my question.
Rohit Gupta
Ankit, so you are right on certain things that, yes, definitely, there has been certain ups and downs in the last three, four years, and we have talked certain things. And in the early phase of the company and sometimes you do have some learning with you. When we started Suvidha business, we didn’t thought when we accounted that it was — the community dominated segment where the cash collection was 100% was cash collection who — where the operating cost was too high.
And so we thought that it will be very difficult to make operating profits out of that and we are to maintain a 90 day cycle, DPD cycle through that segment was difficult. And neither we could yield or increase our yields through that segment because neither we could target 26% to 30% kind of yield from those kinds of borrowers.
So that was a pilot, and we thought that it will do good. But based on the assessment of the — we had joint venture or through which we were doing it based on their assessment that the segment is very good. But when we actually did it and there were certain lapses internally also. So we thought that as a company, we’ll only be doing the secured side, and we stopped that. And yes, a lot of effort in terms of time has gone into that product last year.
And yes, I would say the learnings from last three, flows [Phonetic] we should be on the far better position. And those, I would say, the ups and downs, which we have witnessed will be far lesser going forward from the learnings which we have made in last three, four years. The clarity of thought is far better as compared to what we were in the previous year, we used to experiment a few products. And now we are very clear that how we want to go forward.
Chandan Kumar
Just to sum up, Ankit, I just want to answer giving you and the answer of your question very precisely that, yes, the product and strategy is ever evolving for us. But right now, what we have, we believe that it is a time to move from the kind of a start-up kind of culture to the growth phase of the company itself. We are definitely damn sure that onwards, the products are ready, everything is ready, and we would be doing a good growth the coming years onwards.
Ankit Gupta
That’s good to hear. And secondly, on the environment side, if you guys can talk about how is the environment on the ground currently in terms of last year was a pretty challenging front, especially on the unsecured and low ticket lending side. So how is the environment currently? How has the improvement been there? And if you can talk about – and how do you see the next coming few quarters in terms of this environment, the improvement that we have been hearing from other lenders, are you guys seeing it? And how do you see the next few months or few quarters?
Rohit Gupta
Yes, Ankit, in last — I think we definitely see a huge slippage in MFA and unsecured segment. Now I think the companies have also taken a few steps. And I think the certain customers, which were over leveraged we are seeing that the companies have also become a little conservative and the things should be better going forward. And everybody is more cautious in terms of lending to those customers, and attrition has come down. And the companies are more prudent. At the same time, we are seeing that even borrowers are becoming a little more prudent, and that will help, I would say, the serious companies which are doing this business. Only a few start-ups and the unsecured segment, they were very aggressive in targeting and were diluting all those parameters just for the sake of increasing the AUM.
And right now and in the last two, three quarters, the growth with quality has taken precedent and rather than only the AUM growth, and that should help us — help those companies, which are cautious of quality also. And the attrition rate has come down. That was also one of the very negative factor, which was happening to the industry in last three years.
Ankit Gupta
And lastly, on the — we have seen two rate cuts already in the past few months and a few more hopefully should happen if the inflation remains benign. So how do you see this impacting our cost of borrowing as well as the rate at which we lend to our customers?
Rohit Gupta
So Atul, I think you were able to hear the question. So Ankit, we have already seen that all those cases which was linked with the repo and even with T-bills, we have seen that our cost of borrowing has come down with 0.25 basis. Sometimes there is a reset clause. In certain borrowings, the reset clause is three months, six months. So as those clause will start hitting up, our rates will go down. And in further borrowing, — our leverage has increased as compared to six months back.
At that time, the talk was that the funds are not available, everybody — the banks are more cautious towards NBFCs, but that kind of environment is not there as of now. And banks are still cautious on MFIs and unsecured, that is helping the secured segment. Even banks have to lend. And for them, they are targeting the secured segment. And so in a way, that is helping those companies which are into secured a little better place as compared to the MFIs and unsecured companies.
So the environmental, I would say, the environment has a little bit improved. And yes, the last year, even the external conditions in terms of we witnessed two months were lost in elections and followed by a very hard weather followed by monsoon. So that’s also disrupted the whole repayment behavior of the set of borrowers. Yes. The only concern I have is that still the lowest of 40%, 50% people, which is our target audience. We are not having the same kind of growth, which we may — as a country, we are witnessing.
And with the improved infrastructure, the penetration moving to Tier 2, Tier 3 cities, which we are very confident as the more infra and the expressways are reaching and the ability of the Tier 3 and Tier 4 cities to integrate themselves with the larger cities, that will help us to grow — the income will grow and that will help us in those companies which are targeting that segment. And so overall, I would say the environment is better what it was six, nine months back.
Ankit Gupta
Okay. Thank you and wish you all the best.
Operator
Thank you. [Operator Instructions] The next question comes from the line of Dhiraj from Roha Asset Managers. Please go ahead.
Dhiraj Sachdev
This is Dhiraj from ROHA Ventures. So on the reduction on cost of borrowing that you mentioned about and mix changing in favor of SME again back this year, which is a higher-yielding vertical. Can we assume more than 15% higher NII growth because 15% was what you did last year. So this year, the NII growth should be much higher than 15% because of these two factors alone.
Rohit Gupta
Yes, sometimes some of the borrowing cost going down a little bit has to be passed on to the borrowers also. We are working on a fixed rate model. And though our yields — effective yields on the wholesale is also in the similar range, maybe 100 bps lower. So if we have already seen 14% to 15% growth on NIMs in this year and at least we should have the same growth. And with SME kicking up, we can see 100 to 200 bps more in the coming financial year.
Dhiraj Sachdev
Yes. So broadly NII growth should be higher than last year because last year was a consolidated…
Rohit Gupta
It should be. It should be. It should be. Yes.
Dhiraj Sachdev
And Rohit, what’s the average cost of fund right now on an average.
Rohit Gupta
It’s 11.22%. We include the PF and all those, which we pay. We amortize that cost. Even the base will be around 10.75%. And when we add to the processing cost, which generally normally all things charge and amortize over the tenure of the loan. So that is the effective cost which is coming to us.
There was a lot of negative carry also. What used to happen, most of the disbursement and the sanction used to happen at the quarter end. And sometimes we used to receive INR200 crores, INR250 crores in a span of seven days and a lot of money used to be parked in the short-term liquid funds and FDs. So that used to give us a lot of negative carry. And I think hopefully, that kind of scenario will not be there in this financial year. So that was also one part that I would say certain percentage of NIMs were absorbed, I would say we were hit by that negative carry also.
Dhiraj Sachdev
Okay. And I appreciate that you have been conservative in a tough year and all throughout maintaining asset quality in a very pristine manner. But the point of being 1.28 times leverage and especially when I think there are a lot of products like you mentioned about you’re looking at new products but whether it’s secured working capital or secured term loans or financing equipment and machinery for a factory or supply chain finance or secured invoice discounting, lease rent discounting.
Rohit Gupta
Hello. Hello, Dhiraj? Please repeat your question.
Dhiraj Sachdev
Yes. Am I audible now?
Rohit Gupta
Yes. I have understood your question. Dhirajji, one thing is very clear. As a NBFC and the size we are in, we are very much clear that we don’t want to compete with the larger — very big NBFCs or banks when we talk about supply chain.
Dhiraj Sachdev
Allow me to just complete my question. So even in this segment, there are yields which are more than 13%, 14%, 15%, 16%, depending upon, as you mentioned, targeting the right customer in the SME side. So you will not be competing with larger ones. And if your cost of fund is 11%, the marginal cost in principle is suggesting that even if you are 300 basis points, 400 basis points more than the cost of funds, why are you under leveraged and neglecting growth?
So I agree that — and we all appreciate that you have really managed the balance sheet quality of assets pretty well. But even the categories that we talked about are so many new categories, which are evolving and where for SME companies or SME kind of self-employed individuals, etc., there are avenues, which can give you 14% to 16%, and you’re not going to compete with larger ones.
So in that sphere, you may have to just tilt somewhat and balance the equation of being conservative and managing asset quality and also pursue relatively higher growth maybe gradually across many of these products. I mean that’s the kind of — maybe the feedback that I was thinking of just providing as an insight.
Rohit Gupta
Dhiraj ji, I’ll take now your question if you’re finished. So we have already started one little prime segment and it will target these areas which we have mentioned. And in certain supply chain and all those mostly range between 9% to 12%. Equipment finance, we do take care within this prime product also, we’ll be taking care with that. And equipment finance, you are not able to get a secured asset, you are getting the — only the movable plant and machinery, which is coming to you and which is only a deterrent and sometimes in case of when you want to — I would say, you can’t specialize that security in case of the customer default.
Yes, the prime product will take care most of those products, the requirements of our borrowers that will be coming in those segments. But at the same time, we want to increase our penetration, want to build ourselves the way we have built in the wholesale by targeting a particular class and a particular segment that will help us to build knowledge and that will be a differentiator as compared to the larger ones.
So just fighting on the IRR, we don’t want to do into those 9% to 12%, 13% kind of a segment. Yes, with the prime segment opening up, we’ll be able to take care of most of the borrowers, which we have highlighted. But definitely, we would like to have a secured asset as a collateral instead of taking any movable assets in the immediate scenario. And then this is a continuous evolving process. Then we’ll evolve ourselves and we may open up the equipment financing going forward.
Yes, Chandan, you want to add?
Chandan Kumar
Dhiraj, just want to add on one of on Rohit’s point. Look, as a strategy and as a company, we have decided to first work on the product depth, then we will start working on the product itself. At present scenario, considering the present scenario, we are finding that there is ample opportunity in LAP market itself, where the project can be categorized into the LRD kind of residential purchase.
We have opened these kinds of products for that customer base. We have opened a lower rate of interest. So we were now focusing on targeting a bigger strata of the customer within the areas where we are already available. [Indecipherable] increasing kind of horizontal growth in terms of product, we would be focusing on the next phase.
There is nothing like no, no kind that we are not going to. We are not thinking about expanding our product base itself like into the machinery loan, kind of bill discounting or kind of invoice discounting. Definitely, these will increase our kind of volume business but on the other hand, we believe that it will kill our time as well as the resource as well.
So now we are focusing as on date that definitely this kind of segment, we would be targeting definitely in the next phase itself. And some announcement that we are not committing as of now, we are experimenting with the product in collaboration with someone so that will increase our revenue in terms of fees from the project, which you have suggested.
Rohit Gupta
Supply chain, we are doing — we have just started. And it’s at an evolving stage where it will not be on our books initially. And so we’ll be experimenting where all of the origination will be done by us with a small fees and a little, I would say, the IRR will be lesser with some association with one or two NBFCs. And as we were the originators and we’ve been managing that book. And later on, we can add that product to our on book also.
So we would not like to talk too much on that product because still — we have just started it and want to see that phase one or two phases in the next six months. And then after September, we’ll be able to talk much comment on that.
Dhiraj Sachdev
No, no. I think that’s helpful. And just that eventually, we have to improve our ROE and even though we may have to sacrifice or compromise on some element of yield factor, I think that should be the final go…
Rohit Gupta
This year, I would say if we are going through an expansion if the numbers start picking up from the existing branches, you will see a little more expansion on the SME, which may be take a little hit on the bottom line, but I would say it will be compensated in the coming years, but that will start happening when we just want to make the existing branches productive and we are already working on the expansion program on the SME side also.
Dhiraj Sachdev
Yes. Sir, just taking this answer from where you left, Rohit, how will that hit in the bottom line happen if you’re expanding your SME book?
Rohit Gupta
Initially, branches take time to stabilize. So I would say nine months to 12 months. So branches will always give you a negative bottom line. And it’s only after that, they become breakeven and they start giving you on the profitability part.
Dhiraj Sachdev
Okay, fine. Thanks and all the best to you.
Operator
Thank you. We take the next question from the line of Nirvana Laha from Badrinath Holdings. Please go ahead.
Nirvana Laha
Hi, thanks for the opportunity again. Sir, on leverage, what is our thought process? We are currently at 1.3 times leverage with a fully secured lending book. So over the next two years, where do we want this number to be?
Rohit Gupta
So the leverage, I think I have already told you, I think 12, 15 months back also, we have kept ourselves that we will leverage 1.5 times to 2 times wholesale book and 3 times to 4 times in initial phase in coming 12 — I would say, 18 months to 24 months. So leveraging is not an issue, which is only that our growth was not there on the SME. So leverage was not stopping us anywhere. So we were sitting on a reasonable liquidity for the whole of the period. Our collections were very strong on the wholesale. And we told you even some negative carry also hit us in the last financial year. So leverage is not an issue that we don’t want to leverage ourselves.
So — and we still have — we very well know that we do have a scope to leverage ourselves, and that is also the reason that it is better to leverage in next 12 to 18, 24 months. And even if we require an aggressive flow of funds, our wholesale will take care to fund our retail. And then we can look for equity dilution to a reasonable big player at that time. So getting ourselves leverage is not a factor, which has been stopping us. It is only that the SME numbers in last year on the parameters, which we are building ourselves was not there.
Nirvana Laha
Sure, sure. So 2.5 times debt-to-equity ratio, we should be comfortable as a management, right? That’s what you’re saying.
Rohit Gupta
You can interpret that way. So SME, we said we are comfortable going 4 times and retail wholesale 1.5 times to 2 times. And that is also the initial leverage. And as we reach that threshold, so we’ll be comfortable with the higher leverage. And sometimes we have to see what is the industry scenario and to what extent the banks are and the lenders are comfortable with. And if you see right now, most of the companies are deleveraged, even the larger peers, they are also not leveraged even 5 Star and HDFC and C and all those. I think less than 2 times.
Chandan Kumar
Actually, this is a factor of two things, that is the equity as well as the debt itself. So if we are performing well, we are able to bring in some good equity players, then definitely it will be coming down in coming years. So the thing is that we are targeting good numbers and the growth, the leverage would be a factor of these two factors itself, that is the debt and equity.
Rohit Gupta
And frankly, as a company, we never had any challenge any time of the year or during the last 24, 36 months or even in COVID period. And either we faced any kind of, I would say, issues regarding our ability to raise debt, which certain MFIs or certain unsecured segment was facing in last six to nine months.
Nirvana Laha
Sure. Thank you. That’s helpful. All the best.
Operator
Thank you. ladies and gentlemen, as there are no further questions, I would now hand the conference over to Mr. Rohit Gupta, Managing Director, for his closing comments.
Rohit Gupta
So thanks, Sayam, and your team for this conference call and with our — interaction with our investors and stakeholders. We hope that we come out with more positive numbers and a better scenario after six months as we meet after September results. And so thank you all. Thank you very much.
Operator
[Operator Closing Remarks]