Arman Financial Services Limited (NSE: ARMANFIN) Q3 2026 Earnings Call dated Feb. 16, 2026
Corporate Participants:
Unidentified Speaker
Aalok J Patel — Joint Managing Director
Analysts:
Unidentified Participant
Karthik Srinivas — Analyst
Rudraksh Raheja — Analyst
Presentation:
operator
Ladies and gentlemen, you had been connected to Armand Financial Services Limited Conference call will begin shortly. Please stay connected. Ladies and gentlemen, you had been connected to Arman Financial Services Limited. Conference call Call will begin shortly. Please stay connected. SA. Foreign. Ladies and Gentlemen, good day and welcome to the Amman Financial Services Limited Q3FY26 earnings conference call. This conference call may contain forward looking statements about the company which are based on the beliefs of opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will win the 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 than zero on attached in phone.
Please note that this conference is being recorded. I would now hand the conference over to Mr. Alok Patel, Joint Managing Director from Arman Financial Services Limited. Thank you and over to you sir.
Aalok J Patel — Joint Managing Director
Thank you so much Musk and have a very good afternoon to everybody. Thank you for joining us today. On behalf of Arman Financial Services Ltd. I extend a very warm welcome to all of you to our Q3 and 9 month ended FY26 earning call. I am joined by our US Executive Director and Group CFO Mr. Vivek Modi in the Investor Relations team from SGA. I trust all of you had the opportunity to review our results, the investor presentation and the press release which are all available on the stock exchanges and our company website. Hopefully so I’m audible to everybody because we are working on some new hardware here.
So Muskan, please interrupt me if there’s any problem with hearing me.
Unidentified Speaker
Yes Sir.
Aalok J Patel — Joint Managing Director
Before I move on to the business performance, I would like to highlight important leadership transition at Armaan. Mr. Jayendra Patel, the founder of Arman has transitioned from the role of Vice Chairman and Managing Director and now will continue as the whole time Director. He wrote a letter explaining his decision to the shareholders which is definitely a good read. In this new capacity he will remain closely associated with the company and actively engage with the board and senior management in providing strategic guidance, mentoring the leadership team and ensuring a smooth transition with continuity and stability for a matter of a worst now I step into the role of Vice Chairman and Managing Director of course pending shareholder approval.
I’ve had the privilege of being with the company for over 16 years now. Tried my best to learn everything from the bottom up. I deeply value the trust placed in me by the board and remain committed to carrying forward our legacy while steering Arman into the next phase of long term value driven growth. I’m also pleased to share that Mr. Vivek Modi has been appointed as Executive Director again pending shareholder approval. In addition to continuing as the group cfo, Vivek has been with the company for the past eight years and in his new role he will help execute the strategic goals of the company.
His financial discipline and structured approach will continue to strengthen our institutional framework as we enter the next phase of growth. We congratulate Vivek on his new role and wish him best of luck on his added responsibilities. For sure he will need it Moving on to the Business Performance the past one and a half years has had its own share of challenges, which I have discussed in excruciating details. Over the past four to five calls, the industry had to navigate a series of events including overleveraging, low growth in real incomes in the rural household, changing JLG culture, regulatory uncertainty, regional political developments and broader macroeconomic pressures.
While these factors created short term uncertainty and affected industry sentiment, it also pushed the MFI companies to become more disciplined, risk focused and structurally stronger. During this period, MFI tightened underwriting standards, strengthened monitoring mechanisms and recovery processes. In many ways, this period helped the sector build stronger systems and operate with better prudence. I’m happy to say that the industry continues to learn from every crisis and pushes forward. Notably, much of that uncertainty has now eased. Now we are seeing clean, broad based recovery taking shape. Repayment behavior has improved across key geographies, collection efficiencies are much stronger and fresh delinquencies are moderated to a great extent.
Borrower cash flows on the ground remain subdued, but our systems have evolved to better assess household cash flows and demand across our business segment is showing healthy sustainable traction. At Armand2 we took a step back, assessed the situation carefully and focused on getting the fundamentals right again. Over the past few quarters we tightened our underwriting, strengthened our recovery processes and enhanced monitoring across verticals. One important step we took was clearly separating the underwriting and recovery teams. This has brought better accountability, sharper credit decisions at the time of disbursement and more focus upon collections. This structure is now in place across a majority of branches and we’re already seeing the benefits in terms of more stable portfolio behavior and stronger execution on the ground.
As a result, our business performance has strengthened. Our consolidated aum stood at 2,274 crore, registering a sequential growth of almost 7%, reflecting improving demand and calibrated disbursements. Disbursement momentum gathered pace across segments with consolidated disbursements reaching 612 crore during the quarter compared to 475 crores in Q2FY26 marking a strong 30% sequential growth in disbursements. This growth has been supported by sharper credits screening at the loan officer level and improve confidence on collections. Q4 seems to be shaping up even better on the financial front. Gross total income for the quarter stood at 160 crore, remaining largely stable on a sequential basis.
Gross total income for 9 month FY26 to that 470 crore. Pre provisioning operating profit PPOP stood at 55 crore in Q3 FY26 and 100 crore for 9 month ended FY26 reflecting steady operating performance. Even as we continue to invest in people and technology, strengthen our systems and building long term capabilities, we are improving on ground conditions and stronger repayment discipline. Impairment costs have moderated consistently over the past few quarters declining from 76 crore in Q3FY25 to 26 crore in Q3FY26. This reduction reflects the benefits of tighter underwriting standards, better early stage controls and sustained focus on collections.
As a result, profitability has improved. While sequential growth may not always be the most appropriate metric to assess profitability, profit after tax for Q3FY26 to lakh 22 crore registering a sequential increase of 177% for nine months FY26 profit after taxes to that 16 crore. This improvement in our view is a strong indicator of the broader normalizations largely by our MFI business and other operating trends. Asset quality trends have also strengthened GNPA as of December 2025student 3.4% improving from 4.13% in Q3FY25 and 3.69% in Q2FY26 while NNP is 2.77%. Early delinquency indicators are also moving in the right direction with par 3090 bucket showing sequential improvement particularly in the microfinance segment.
Collection continues to show steady improvements supported by tighter monitoring mechanisms and disciplined field execution. Collection efficiencies improved to 96.3% in December compared to 96% in September 2025 reflecting strengthening borrower behavior and sustained recovery momentum. Operationally, we added 15 new branches this quarter taking our total branch count to 524 while remaining focused on strengthening our presence in core geographies. On the liquidity and capital front, the board has Approved raising up to 500 crore through NCDs on a private placement basis providing us with additional financial flexibility to support future growth. During the quarter we also raised 522 crore of debt further strengthening our balance sheet.
We remain very well capitalized with capital adequacy ratio of 38.3% for the standalone entity Arman and 52.3% for the subsidiary number of finance, both very comfortable and well above regulatory requirements. In addition, our liquidity position remains healthy with 247 crore in cash and bank balances liquid investments undrawn CC limits which ensures adequate headroom to support business expansion. Now moving on to the subsidiary number of Finance which is where the MFI portfolio is kept. Our MFI portfolio grew by 7.3% sequentially to16.18 crore supported by strong disbursements of 455 crore. During Q3FY26 we are seeing strong traction in the new individual loan portfolio which now stands at 285 crore.
While growth has resumed, we have remained measured in our approach, ensuring that expansion is supported by disciplined underwriting and strong risk controls, especially in the current operating environment. Gross total income for FY or Q3FY26 stood at 107 crore while for nine months FY26 it stood at 316 crore. Pre provisioning operating profit was for the quarter was 35 crore reflecting a sequential decline of 2.2%. For nine month FY26 PPOP stood at rupees 102 crore. OP should also start improving once AUM starts increase and generating more interest income. Importantly, we return to profitability for NAMRA this quarter after four consecutive quarters of loss losses with profit after tax standing at 13 crore for the nine month period we continue to report a loss of 16 crores as we steadily work through the stress seen in the earlier year.
Earlier in the year, sorry, our net interest margins have also began to improve with Q3FY26 margins at 14.77%. This is driven by two factors, our ability to raise borrowing at competitive rates and new portfolio being built at healthier yield levels. Asset quality trends continue to move in the right direction. GNPA stood at 3.4% and NNTA at 0.66% reflecting improving portfolio stability. Collections have strengthened on month to month basis with December collection efficiency at 96.4% and ex bucket collections of 99.3% in the MFI book. Early trends for January and February also indicate continued improvements. As of December 2025, 82% of our MFI portfolio is covered under the CGSMU scheme providing an additional layer of risk protection and balance sheet comfort.
Overall, we believe we are past the most challenging phase and now on a steady path of recovery with improving fundamentals, stronger controls and renewed confidence across the portfolio. Now moving on to the standalone Arman business. During the quarter we have piloted a new product offering solar loans. This initiative, started in November is aimed at supporting households and small businesses in adopting clean and sustainable energy solutions. The product carries an average ticket size of about 2 lakhs and has been rolled out across sorry has been rolled out in selected areas across Gujarat. The initial response has been encouraging.
As of December 2025 we have dispersed approximately 56 lakhs under this portfolio in two months. The product has a loan tenure ranging from 12 to 16 months with an average tenure of approximately 30 months offering a balanced mix of profitability and manageable repayment structure. Beyond this, our non MFI portfolio continues to witness strong traction. Disbursements during the quarter stood at 163 crore comprising of 115 crore in the MSME book, 32 crore in the two wheeler book and 16 crore in the micro lab book. Our EUM stood at 657 crore registering a year on year growth of 28% with 74% of this portfolio in the MSME book.
Now we continue to see healthy demand across these segments supported by disciplined underwriting and improving on ground confidence. For Q3FY26 gross total income stood at 54 crore registering the growth of 20.2% quarter on quarter and 3.6% year on year. For the nine month ended FY26 gross total income grew by 20.2% year on year 257 crore pre provisioning operating profit or PPOP for Q3FY26 stood at 19 crore. For the nine month FY26 PPOP stood at 40 crore reflecting largely stable performance on a year on year basis despite significant headwinds. Profit after tax for the quarter stood at 9.4 crore marking a sequential growth of 5.4% for the nine month FY26 that stood at 31 crores registering a modest growth of 1% year on year.
Asset quality improved sequentially across our stand alone portfolio. As of December 25th GNPA for MSME stood at 3.74% for the lap book at 0.31% and for the two wheeler segment at 4.28%. Collections have also strengthened across these segments. In December 2025 collection efficiency of the MSME portfolio stood at about 96% while the two wheeler portfolio reported collection efficiency of 95.6% reflecting stable repayment behavior and disciplined follow up largely as the environment continues to improve. We remain focused on building a stronger and more resilient company. With disciplined growth, prudent risk management and committed team on the ground.
We are confident of delivering sustainable performance in the quarters ahead. With that, I believe we can now open the floor for questions. Thank you very much.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask question may press star and one on the Touchstone telephone. If you wish to remove yourself from question queue, you may press star into. Participants are requested to use handsets while asking a question. Ladies and gentlemen will wait for a moment while the question queue assembles. The first question is from the line of Kartik Srinivas from Unifi Mutual Fund. Please go ahead.
Karthik Srinivas
Thank you so much. Congratulations team for the good set of numbers and organizational change. So I had two or three questions. One being what will be the percentage of the loan book that would represent the loans raised in FY26? Now sir, what would be the percentage of the loan book that. That is. That represents FY26. The loans that have been raised in FY26.
Aalok J Patel
The loans that we have given out. How much of the AUM will contribute to loans that were dispersed in 26? Is that, is that the question? Did I get that right?
Karthik Srinivas
Yeah. FY26. Yeah. Right.
Aalok J Patel
You have that number. So not being readily available, Karthik, but generally if I could give a good guesstimate, It’ll be about 70%. Yeah, 65. 70% would be a good guess also from me. We can pull that number out and give it out to you. Sure.
Karthik Srinivas
Sir, when you just mentioned about the collection efficiency. 96.4% for MFI. So while the peers have reported collection efficiencies of 90% and above, what would be the difference in the calculation? So how do we compute visa we collection efficiency? How do we, you know, understand the collection efficiency in right metric or how do we compare it? So that’s.
Aalok J Patel
So that’s a good question. So there are two kinds of collection efficiencies which are reported. So one is typically called zero bucket collection efficiency. Or other is the overall total across all buckets. So the number that you are most likely seeing is the X bucket or the zero bucket collection efficiency for which ours is about 99.3%.
Karthik Srinivas
Got it sir. Sure. Understood sir. Now. And sir, if I may ask one question, what are the key changes to your. Episode versus vis a vis as it is now and see that going forward. So as our ECL model strengthened, how have we strengthened our ECL model to accommodate such kind of shocks? So what would be the key parameters. That have changed in the ECL model?
Aalok J Patel
In the ECL model you are saying.
Karthik Srinivas
Yeah, right. In your assumption.
Aalok J Patel
The all we can do is provide more management overlay. ECL model is evaluated semiannually, semi annually and whatever needs to change in that, that is the problem. I mean you know once, once account goes into one plus dpd that’s when the ECL model kicks in. And then obviously there is some bit of provisioning which is there on the zero bucket as well. In addition look if I can add. Yeah, so in 2425 when you really saw the asset quality duration, ECL is. One way of ensuring, covering yourself up. For probable future losses.
Unidentified Speaker
But as a strategy it was also important for us to ensure that at. A sector level if the stress continues then how do we safeguard ourselves? And that’s wherein you’re probably one of. The few who took the leap of. Forward and started subscribing to the CGFMU coverage. And as Alok during his opening remarks commented that we already have 82% of our microfinance book in NAMRA being covered under the CDSNU cover which kind of came into existence since October 2024.
Aalok J Patel
Right, right. So I think that’s a, that’s an excellent point Vivek. So provisioning, I know a lot of people put a lot of emphasis on the provisioning figure but I mean you know, from a non accounting standpoint aside, only thing the provisioning helps is to, it’s just a balance sheet figure. So I mean, yeah, I guess that provides comfort to some people but you know, like having adequate liquidity, sufficient capital available, you know, and other factors play a lot bigger part for companies to get out of any jam that they find in themselves in during a down cycle.
So CGFMU was definitely one of those calls where if there was a way to sort of hedge away the risk by paying some premium, I think it was a no brainer. And that’s what we jumped into and that is basically the, the insurance policy available to us today in case something drastically goes wrong again in a short period of time.
Karthik Srinivas
Just a follow up question, so in that case, will your provision PCR come down now that you’re 82% of your books a book is now covered by the scheme?
Aalok J Patel
Yes, you’re right because you know you’re. Paying for the default guarantee cover and. You’Re covered for every 100 rupee that you kind of take a coverage for the default guarantee cover applies to about 75% of it. Right. So the provisioning requirement to that extent will come down. Right. So in some ways the OPEX would increase because you are paying for the COVID and subsequently your provisioning might decrease to the percentage that that cover is guaranteeing for those particular assets which are in default.
Karthik Srinivas
Got it, sir. And last question is on the growth rate. So now that the entire sector is on a steady state, like coming out of the woods. So just talking about growth rate, do you see, sir, now that the number of lenders is capped and then you have a high rejection ratio, so going forward, what will be the strategy to grow then? So would you have to seek more and more penetration or would you have to give how do you grow then? So in terms of your strategy, so the growth.
Aalok J Patel
See, there are a couple of things here. So first of all, let me say that hopefully people like myself and the industry has learned enough lessons where just because the market is improving, we don’t really go into not just unreasonable growth. You can grow fine, but you know, not just put growth ahead of whatever the lessons that were learned during these crisis. Right. People have a tendency to sort of forgive and forget and move on after a couple of years. And so my fear is that is exactly what’s going to happen again. And hopefully that does not happen.
So whatever growth comes in has to be calibrated. It has to be well thought out. But to answer your specific question, you are right as far as JLG and things are concerned. You know, I mean the culture is diluted. You are restricted with underwriting and every. You are restricted in terms of number of MFIs and total leveraging and other factors. And so honestly, as a company, we have already started to redefine of what is microfinance. Right. Because it’s not just the JLG model that might be a model that is there and still is a substantial part of your books.
But I personally feel that the future is in product innovation and better underwriting. If we are able to assess the customer better, and that’s what we are trying to do with the BCM model, that’s what we are trying to do with technology, with new algorithms and stuff that we are starting soon, that if we can assess the customer better, we don’t need them in a group, we can service them individually. And we have been doing that in the MSME book as well for many, many years, successfully, perhaps even more successfully than the JLG model. So I believe that the next phase of growth is going to come with innovating the product structure itself.
So we are not saying reinvent the wheel and find new customers, but the segment that you are servicing, can you evaluate them better and service them with different products? Basically.
Karthik Srinivas
Sure. Sir, thanks so much. That’s it. All the very best.
operator
Thank you. The next question is from the line of Rudra Kraheja from I thought Financial Consulting. Please go ahead. Can you speak little louder please?
Rudraksh Raheja
Yeah. Am I audible little move sir, we can’t hear you properly. Yeah, I wanted to check sir, what kind of growth rates would be, would we be comfortable now? The industry books has all been cleaned up and all of that.
Aalok J Patel
That’s an interesting question and that’s probably one that I also struggle with. Is there a growth rate that we can target or should the growth naturally as a function of all the things that all the changes and all that you are trying to do? So I mean I would say in FY27, roughly speaking I would be comfortable growing maybe 25%. Just throwing a figure in the air. But I think we are going to stop doing those kinds of things that okay, we want to grow at 40% and what do we need to get there? I think it needs to be a function of many, many different things and the growth figure has to be reverse engineered in that perspective.
So usually there are right after a crisis there are short term opportunities available. Typically we have. So you might see a sort of strong growth in the last quarter of this year, for example, when a lot of the MFIs are still kind of coming out of crisis, working through liquidity issues, leadership issues and other things. So that creates sort of a temporary vacuum where we can sort of take over market share and then typically that slows down. Right. So I don’t have an exact growth percent to give you. Certainly I don’t think we can expect growth out of the industry that we have.
The market has been historically been used to very honestly. But that said, I think FY27 you can expect at least 25% growth.
Rudraksh Raheja
Understood, sir, understood. And sir, would it be fair to assume that non MFI book would grow at a much higher rate than MFI book going forward?
Aalok J Patel
I would say the non JLG will grow much much faster, whether that is in the subsidiary NAMRA or in the standalone Arman through MSME LAP and two Wheeler loans. So I would say JLG will be a lot slower or even I dare say growth. And while these other products will continue to Grow faster.
Rudraksh Raheja
Understood. And sir, for business going forward, what level of debt to equity would we be comfortable before getting into the market and raising more equity and diluting? So what is the peak debt to.
Aalok J Patel
Equity that we foresee? We are usually comfortable at about 4 1/2 x which we are. I mean. Right now our debt equity is less than two. In fact less than one and a half for that matter. Yeah, but having said that, I mean with the new normal in the first milestone would be to reach a debt equity of at least three, three and a half. And looking at the overall how market. Behaves, we might have to go forward. And largely we can say that at a, at an organizational level, group level till a AUM size of about 5000 I think we should be comfortable with a capital adequacy of upward of 25%. So largely not really seeing that as a challenge in our 12.
Rudraksh Raheja
Understood sir. And last question sir, from my side. Would we be like stepping up disbursements a lot on the MSME book now or will be we will be focusing more on more new products like one you mentioned this quarter we have done a pilot on solar goods etc. So what is going to be focus on non MFI side?
Aalok J Patel
No, I mean, I mean there are no here for sure. If I can grow the MSME book a lot faster, sure I’ll take the opportunity to do that. But that product has always been sort of slow and steady kind of a growth for us and that has worked very well for us during both Covid and whatever you call this new crisis. So you know, I would rather not take my chances. I’ve been lucky with that product for the past many, many years. So I think the growth rate in the MSME book should be similar to whatever you have seen in the past three, four years.
Rudraksh Raheja
Understood sir. Thanks a lot.
operator
Thank you. The next question is from the line of Ronak Chera from Auriga Capital Advisors llp. Please go ahead.
Unidentified Participant
Am I audible?
Aalok J Patel
Yes.
Unidentified Participant
Hi. Congratulations on the disbursement growth. I have two questions. One is on the pilots which we were running especially on lab products etc. Just wanted to check on the progress. Have we met internal benchmarks for you know to kind of now see a significant scale up on these products? In your past answers you really mentioned about adding more products. So. So what is the status there and will we use Namra’s distribution kind of, you know to go ahead and ramp up this product significantly?
Aalok J Patel
Yeah, so. So definitely the, the lab is doing reasonably well. Little bit of sort of fear which is a good fear in the, you know, the micro lap in the affordable housing space. Obviously there are murmurs of something of quality related issues that might, may or may not happen in the short term. But you know, we are steadily growing, I think Vivek, what are we now? About six and a half crore disbursement on the lab and growing about, you know, probably 5 to 10% every month. And so yeah, as far as we are concerned we are on schedule for whatever we had envisaged for it.
But you know, I’m very cautious about blowing anything up. So we’ll continue with that slow and steady approach and we’ll see. As far as performance goes, we are facing no significant so far in the lab book. Lab portfolio is about close to 90. Crores more close to 90 crore land.
Unidentified Speaker
I think we are out of that project phase because today we kind of doing it across at least three states and as we move into up, I mean north in terms of UP even, I mean that way we can clearly say that it’s definitely not a project phase and looking at scaling it up in all these geographies where we’re comfortable with.
Aalok J Patel
Right. And so as far as some of the other pilots I think we had mentioned we started in November, the rooftop solar financing. And again that’s just probably an experiment and also a limited opportunity in the market because there are, you know, government subsidies available directly to the customer. So it has become a very popular option. But what we found is that most of the marketing is being done in the urban, you know, metropolitan cities and tier one cities. I don’t think that reach has developed in the rural yet for these rural these, you know, these rooftop solars and arguably they probably needed more than the urban people, you know.
So you know, we have started this pilot, let’s see where it goes. I mean we have done very small volume so far, about only about 56 lakhs. The goal is in this quarter to reach about 1 crore of disbursement monthly by March hopefully. So we’ll keep you posted on that.
Unidentified Participant
My question was more on lab. Given that it’s at a critical size, can this go to like 500 crores where we are? MSME book is over next two, three years. Given that if the internal benchmarks are made, you just roll it out across your different geographies where you already are doing unsecured. So the question was more on the lab side.
Aalok J Patel
It’s definitely possible even going past that because you know, the lab ticket sizes are larger and the stickiness is higher as well. Because the portfolio, because the tenure is higher. But you know, these are not. Honestly speaking from my perspective, you have to take a balanced approach because LAB does not. Well the OPEX is low in lap as well, so let’s not compare it to msme. But the margins are also low, lower and the secured book. So it’s, it’s not a matter of being secured or unsecured. I think you have to take a calibrated approach and yeah, over two, three years I think it’s definitely possible for it to even surpass the MSME portfolio for the reasons which I said.
But I won’t really feel comfortable making long term predictions.
Unidentified Participant
And second question is on mfi. So given that the guardrails are in place now, a lot of the borrowers who may have defaulted in the last cycle are already out of the system. So just wanted to check on the on ground credit growth demand and is that aggressive enough for us to step up on disbursement? Is there enough growth? And the second part is, are the fintechs, etc. Which were active in the last cycle still relevant as competition or you seeing some of the competition with various startups exiting the market and there are a handful of players now catering to this demand.
So just wanted to check on this front.
Aalok J Patel
Yeah, so to answer your second question first, definitely there are lot fewer players serving the same customers as we were today than they were, let’s say about two years ago or something. So yeah, I would say again I don’t have any numbers to back it up. This is just the feedback which I received from operations team that definitely their overall presence in the markets that we are servicing is significantly lower. Number one, your first question was, remind me again, what was your first question about? Yeah, so that is, I mean again we struggle with these kinds of questions very often as well that, you know, during COVID you had a significant serviceable population drop out because of defaults.
During this cycle you have another significant portion. So the market is becoming, from a client perspective, becoming smaller and smaller because for most MFIs, being a past defaulter is, is an auto reject, right? I mean, no, no human eye has to even look at it. The system will automatically reject the customer. And so over the long run what do we do with these customers? You know, I mean, I don’t know. It’s really a valid question that the industry needs to get together and try to figure out that if we keep removing customers who have ever defaulted from the, from the overall pool of potential customers, you have that in and of itself is a problem.
But on the other hand nobody’s going to really risk giving loans to customers who had higher defaults. Right. So that is one aspect of it and that is something that we face on a day to day basis. That is what pushes up our rejection rate significantly as well. So you were asking about inquiry. So the inquiries have increased. The rejection rate has improved slightly by 2,3% where it was, let’s say about 80% earlier. Now it is closer to 77,75,77%. So it’s improved slightly and the inquiries have also increased over the last two to three months.
You know, I think our staff is now better trained or have better experience that which customers will have a higher chance of getting approved. And so that is what the pipeline gets pushed into the system as well. But there are a lot of contributing factors that would, you know, determine how much we can and cannot disperse. Obviously past default is a huge, is a huge issue that the industry would have to solve in the next year or two.
Unidentified Participant
And my last question is on your recoveries. Given that now the disbursement request you.
operator
To rejoin the queue for the following.
Unidentified Participant
I’ll come back in a few. Thank you so much for answering my questions.
operator
Thank you. Ladies and gentlemen. In order to ensure that management is able to address questions from all the participants in the country, please limit a question to two question per participant. Do you have follow up question? We request you to rejoin the queue. The next question is from the line of Tinman Nema from Prison Capital Investments. Please go ahead.
Unidentified Participant
Hi sir. Hope I’m audible.
Aalok J Patel
Yes, a little louder if you can please.
Unidentified Participant
Sure, sir. Sir, Just wanted a little better, better understanding of the trend in power on the microfinance side. So one, if you could explain what has led to such a sharp decline in the 30 to 90 book in the last two quarters. So have the collections been better or have the fresh inflows have been significantly lower? And secondly the same trend is not visible on the 90 plus book, which I believe is a book on which you would have had all the write offs. So if you could explain that as well.
Aalok J Patel
Yeah, so you know, it’s the reduction in PAR figures is, you know, at the expense of overusing this a function of many different things. So first of all, whatever pain points we saw were essentially disbursements made prior to March 2024. And typically when you work with a 24 month cycle in the MFI pool, long story short, you know, either those customers have mostly repaid you back or they have defaulted and we have written them off or are provided for and are already at 90 plus. Whatever new pool was created post September or November that we are tracking closely with new underwriting standards with guardrails in place with, you know, very, very calibrated kind of disbursements, we were looking at their performance and following up on their performance in terms of quality basis very, very closely.
So the reduction is largely replacing bad customers with good customers. That’s number one. That’s probably 80% of the reason. The 20% is probably slightly better macroeconomics and better collection team on the ground level. Vivek, anything to add? I don’t know.
Unidentified Speaker
So again, just from a more statistical point of view, because you would have seen that the X bucket collection efficiency or the zero bucket collection efficiencies have been constantly improving in the sector. And also for a number which automatically.
Aalok J Patel
Means the slippage ratios into the 90. To 30 will, you know, in a phase manner come down because when the, when the trouble was at the peak in let’s say quarter 2 of the last fiscal, then the collection, the zero bucket collection efficiencies have come down to as low as 95.9, 7.5 or something. And today they’re upwards of 99. That clearly means that you’re adding so many less defaulters every month.
Unidentified Speaker
Correct? Correct. Yeah. So that’s also a very interesting point. So, right. The zero DPDs is something that in the MFI pool you follow very closely. Usually speaking again this is a very rough statistic, but a customer who goes into one plus bucket, depending on what crisis it is, whether it’s Covid or demon or others, there is about a 30 to 50% chance or 30 to 40 write them off. Right. So they’ll keep going into different buck into 30, 60, 60, 90. So the idea is that you don’t want things to slip into even one plus bucket because then the probabilities are very, very high that eventually you’ll have to provide for them and write them off completely.
So yeah, that has come down significantly as well and for reasons which I just explained to you.
Unidentified Participant
Under. Sir, thank you.
operator
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Kabbi, please go ahead.
Unidentified Participant
Yeah. Hi sir, Good afternoon and thank you for giving the opportunity. So sir, first question is on your opex. So for nine months we can see that the OPEX in absolute terms has increased to around 40 odd crores and around 1718 crore is being contributed by the MFI business. So I am guessing some part of it is related to the premiums that you might have paid. But if you can explain, you know, what has led to this sort of an increase in the OPEX and how we should look at OPEX ratios going forward.
Aalok J Patel
Yeah, so OPEX has definitely increased. There is no denying it. I mean I’ve covered this in previous. Calls as well but. You know largely we added the whole DCM structure which is expensive. We separated operations completely from credit and so that adds to the opex. We have a big recovery team which is in place which is collecting a good bit of money that otherwise would have gone into NPAs and proceeding and write offs. So definitely we are getting more value from them than what we are spending at this point point for sure. But that has also increased the overall OPEX related to employee costs. And as you mentioned the CGFMU we are paid 7 crore this year.
So that has also. There is honestly the only way to. I don’t think it’s going to be possible. All we can do is that at the existing levels you increase the portfolio and therefore the interest income that you are earning that will increase the ppop. I don’t think it is a good strategy today to that absolute number of opex. But certainly from a percentage standpoint it will slowly start coming down.
Unidentified Participant
But even in the standalone piece I think the OPEX has increased by almost 50%. So MFI, we understand collection teams and credit structure and premiums but in standalone what has contributed to this high opex?
Unidentified Speaker
Standalone. You’re talking of Armani.
Unidentified Participant
Yes.
Aalok J Patel
Okay, so standalone Arman, we’ve kind of added team on the lab and there has been expansion of the Armand team itself into states like up utra. Yeah, additionally just expansion basically. So basically expansion and then we’ve added this entire, you know, solar energy or green energy team. So it’s not a very, very large team. But still that’s something that has come up in the quarter three, sir. Well I think if you look at it, we have opened new branches, we have opened new divisions, you know cost are going up just like many other companies in all over India. So I don’t have any better explanation than that. And additionally, also to address, while this number in absolute terms may not be very high because two Wheeler itself is not a very big portfolio. It’s just about less than 10% or around 10% for the standalone. But quarter three is the highest performance quarter quarter for the two wheeler and that’s where the expense also kind of peaks for the thing.
Unidentified Speaker
Yeah, I think he’s talking about the nine months. So Kind of.
Unidentified Participant
And where should it settle sir? Where are your OPEX ratios going to settle if you can give some guidance on that?
Aalok J Patel
You know I would love for them to at about four and a half. Well for micro console level, let’s say about probably four and a half to five, about five percent or typically I think the good new target.
Unidentified Participant
Okay. And so this quarter, I think last quarter we felt that you know you are slowing down a little bit on the MSME piece and increasing other product segments more than msme. But this quarter I think again we have seen a sharp increase in the MSME disbursements visa vis other products.
Unidentified Speaker
Is that what you are saying?
Unidentified Participant
No. So last quarter I think going by the comment rate looked like, you know you are relatively preferring other products which are lower ticket lower yielding products within your standalone business. But this quarter I think again MSME has grown the most in the disbursement so. So has there been any change there?
Aalok J Patel
Let’s first kind of. Misunderstood. We have never kind of wanting to. Slow down our unsecured. In fact we started or ramped up our branch network in New York states as well. So maybe you know I say a. Lot of things sometimes I don’t remember it. So it wasn’t probably. In a. Probably that I don’t remember. But no, my intent was never to slow down msm. So let me. Very well.
Unidentified Participant
Okay. So thank you and all the best.
operator
Thank you. The next question is from the line of Srinivas V from Bellwether. Please go ahead.
Unidentified Participant
Hi Alok, just wanted to take forward. From Raunak’s question on loan against property. So what we’re kind of looking for is a slightly more nuanced and detailed understanding of how do you plan plan to roll out this product and what kind of customer occupancies have you seen join in or cohorts where it’s worked out well and if you can share between the three markets how has been behavioral pattern and one of the issues in this particular product has been that there’s been some level of over leveraging at the end client. And what are your thoughts on that and how have you built a credit process to kind of keep a check because if the customers not been that over leveraged the collections in these products are phenomenal.
So generally you want to get a perspective of how you’re seeing this product and its nuances over like a three year window.
Aalok J Patel
So let me tell you that the. NDAs in this segment are pretty much very very low at this point. I think it’s only 30 bits. So I don’t have enough data to develop that nuance. Is one occupation better than other? Is one region better than other? I’ve not noticed anything that you can from, at least from the BI perspective we don’t, we track all of these things, but nothing really has emerged as more or less risky in terms of lab. Now we are rolling them out in our MSME branches which are located in Gujarat, mp, Rajasthan, Telangana and Maharashtra. We are not rolling out, but obviously we have in Maharashtra as well.
So so far we have ruled them out in mp, Telangana and Gujarat. We have not ruled them out in. Rajasthan yet, not even in Rajasthan that way. But very few cases we might have tried there to just to get the flavor of the place.
Unidentified Participant
Right.
Aalok J Patel
But the major buy for the lab portfolio as we talk today stands in Gujarat, which is more than 60% of the entire. And then as we scale up, maybe up might be also one of the larger. Yeah, right. So in the MSME side we are pushing our branches towards and so that can be another place that we can start micro lab in the UP market. Now, in terms of underwriting, you’re absolutely right. See in the, I don’t know so much about the lab, but at least in the affordable housing, you know, some players are better than others. Some are just considering something as secured and just not doing a lot of underwriting checks. And I mean they are, they are making sure that all of their loan agreements and mortgage deeds and everything are absolutely clean.
But as far as assessing whether the customer can actually repay the loan, I don’t think a lot of players, in. My limited opinion are doing a very. Very good job just getting comfort from the fact that it’s a secured product. You know, and I believe that in the Indian context it’s very, very difficult to, you know, repossess somebody’s house, their primary residence. And so whether it’s secured or unsecured, you have to make sure that the underwriting is all the underwriting you do. That’s, you know, assuming that it’s going to be very difficult to get comfort from the security itself. So we are doing everything that we can. I mean, obviously we are doing reasonably well income assessment and making sure that, you know, on the ground level doing all kinds of checks that we possibly can.
Income proofs are difficult to get in some of these segment markets. But in the event income proof is not available, our BCM go in and make sure that they get a good guesstimate around it by supporting evidence. So I don’t know if that Answers your question or not? Yeah, perfect.
Unidentified Participant
So Effectively we have 120 MSME branches. So over the period of time most of these branches will also service Micro Lab. Would that be a fair understanding?
Aalok J Patel
I would say most. Not all for sure, but most. Most would.
Unidentified Participant
Yes. Got it. And these, these are separate teams completely sitting there, right? Because last time I checked the credit appraisal team of the Micro Lab is completely different. So it’s basically one infrastructure housing two different teams.
Aalok J Patel
It’s one infrastructure housing two separate teams. But in many cases we are using. So there are two levels of bcms that we have. The more senior BCM structure we have can do the evaluation for both MSME and microlab. And of course there are other branches where it is separated also. So it just depends on based on branch to branch nuances. Got it, got it.
Unidentified Participant
Just one last question is in MF5. We’Ve had a credit officer in many of these branches. Just wanted to circle back. Even last time you had very encouraging feedback on this practice. How has been your assessment of loans that have been dispersed post this particular addition? And in those branches have you particularly seen quality of book being better when there is a person kind of overlooking the specifics, so on and so forth.
Aalok J Patel
And that’s a great question. So on average non BCM originated customers post let’s say November of 2024 compared to BCM originated cases post November 2024 there’s almost a 50% difference in the default rates. So but the default rate is low as it is, you know, so, so if one, let’s say if it was non BCM originated where you know, 2%, this is close to 1%. So there is a broad difference right now whether that carries forward during credit cycles is anybody’s guess because you know, it’s easy to say 50% when your default rates are low, but whether that same thing carries forward when the default rates are high, I don’t know.
And there’s no way to know until you reach that. Right. So but I’m very bullish on it. And having bcms apart from having, apart from reduction in overall credit cost also serves another benefit in terms of culture and having the ability to introduce new products. Right. So if you are just doing the same jlg, you know, one could argue, well, you know, given the cost and what you are saving, it’s probably it might not be worthwhile to have BCM. But having VCMs, every new product that we introduce is always like okay, this requires a lot more evaluation. It’s higher ticket size, it’s something we haven’t done. And so it allows us a lot more flexibility to be agile in terms of offering new products or changing our products.
Unidentified Participant
Perfect. Perfect. Congratulations. That sounds good. I’ll get back into the question queue. Thanks a lot.
operator
Thank you. The next question is from the line of Jay Prakash from Koman Capital Investment. Please go ahead.
Unidentified Participant
Hi. Hi sir. So my first question is on the this provisioning and nnpa. So we’ve seen some rise in the NNPA from generally I think your last three quarters were about 0.5 and now this has changed up to 0.8. So does it mean that you have confidence in terms of your GNP accretion. To these lower going forward? And that’s why. And you’re comfortable with that kind of.
Aalok J Patel
Number two things that have happened here. Over the last one year is given the overall market scenario, we’ve been slightly aggressive in our write offs and hence the on balance sheet books, the average DPDs of the NPAs are far lower when you compare on a yoy basis. Right. So that means something which sits at an average of let’s say 180bpd in my NPA book visa vis an average that would have been, let’s say 225 days. My NPA provisioning requirement based on the analysis will slightly come down, taper down. So to that extent there is an. Improvement in the the overall collection efficiencies and the quality of the NPA book.
Unidentified Participant
Got it, got it. And so just a follow up, just. A question on this. You said product innovation and new products. Right. If you can give some more color around that site like we see that solar financing as a new product launch. And can you provide your some thoughts. On new perk launches in the foreseeable period?
Aalok J Patel
So the individual loan portfolio in the microfinance number side is one such thing where I think what is the book now? That 280, 285. 85 crores. Yeah. So that is one part where we are using the bcms to evaluate customers almost similar to how we evaluate them in the MSME book. Right. And we are focusing on. See one of the main purposes of JLG was also the OPEC side because we were doing doorstep collections. And so instead of going to one customer to collect at their doorstep, it’s a lot easier to go to 5 and collect at their doorstep.
Right. So there was, apart from the risk mitigation part there was a good case in terms of operating cost as well. So with these customers we are targeting cashless And I think last month, until last month, in this entire portfolio, I believe 75 to 80% of the money was coming through cashless mechanisms, primarily the UPI mandate, UPI mandates or NAT mandates. So that is the full model. We are not waiting for the customers to initiate a cashless payment, but we are directly pulling it out of their bank accounts. So as long as it remains that way, you know, even if it maybe slightly goes slightly lower, I’m very, very comfortable with the individual book.
In fact, more so because we are doing a lot more underwriting. The only problem with individual that I had was, you know, the OPEC side. But as long as it continues to perform well in cashless payments, I don’t foresee much of an issue there. So that is the individual loan side. Other than that, obviously we had started Microlab. We have talked in quite a bit of detail in this call about that. I won’t get into that. Solar is just an experiment. I mean, I don’t want to spend too much time talking about it. People who have been following the company knows that we do these occasional pilots and experts.
I think let’s talk more about it in next quarter. It’s really too early to kind of get into a lot of details about that. Got it.
Unidentified Participant
Thank you.
operator
Thank you. The next question is from the line of Sham Sampath from MSE Capital Partners. Please go ahead.
Unidentified Participant
Hello, sir. Good afternoon. I want to understand firstly on the. MSME book rate we had spoken about earlier with another participant, how the book. Grew and it contributes a significant portion. Of the high yield book. So because this is a high touch cash collection model, I wanted to understand, do the current branches and manpower infrastructure that we have, does it support further scaling of this vertical if required, without diluting the underwriting standards. The current interest. So what you are asking is, can I push the portfolio higher without increasing operating cost? Is that correct? Correct.
Aalok J Patel
Correct. Yeah, yeah, yeah, yes, but not by much. Maybe 10, 20%. I take that back. I mean we have a, we have a lot new branches, maybe by about 20, 25 for sure. Can we can just, you know, we can scale up without increasing opex. Will we? I don’t know. I mean, you know, it’s a continuous process. You’ve got open branches, invest in people, a caseload of around 300 or something. In the MSME, I have to hire another ICO once the branch reaches a certain portfolio, I have to get Assistant VM once the branch reaches a certain portfolio in the credit side instead of one.
And then there’s a whole support team above it. So MFI 100% I can tell you that we can scale that up quite a bit before need to hire new people at least in terms of portfolio and disbursement. New branches, I’m not too sure.
Unidentified Participant
Okay sir. Understood sir. And the next question with regards to in the presentation we had mentioned that digital collections are now about 25% and you’re. So I want to understand with that are we analyzing the credit behavior of digital peers versus cash peers and if in case we’re doing that and if digital peers show a lower default rate, are we thinking of any differential pricing with lower interest rates to incentivize digital adoption?
Aalok J Patel
That’s a good question. So I mean at origination space or that cash payers and cashless because we encourage all customers to become cash origination. I don’t. I mean that’s an interesting point. We would have to look into that at that point right now. No, we are not distinguishing cash payers versus cashless players. It’s hard to tell them apart during the origination side in terms of offering better rates to people who are paying cashless in further cycles. Of course happy to do so because the operating cost would be much lower. So yeah I think if a customer is paying a significant their EMIs through cashless mechanisms, definitely we can pass on some.
Unidentified Participant
Okay sir, got it. So next I wanted to understand you had mentioned there were commentary around like visible signs of normalization and credit behavior is improving. Right. Like industry wide. So given that our MFI GNP has moderated down to 3.4% or do you think that this is the bottom of the credit cost cycle that we’re seeing or in the coming quarters, can we expect more write offs?
Aalok J Patel
You know, I’m not sure exactly how to answer that. Would GNT is continue to go down from the three and a half percent? My judgment tells me that yes, definitely four it should go down further. But you are the accountant also. So primarily if you can look at that the GNPA plus 12 month trailing write off, if we can put it that way as a figure that that definitely has been tapering downwards for the last three quarters and we feel that this will continue to kind of keep coming down with the overall improvement in the sector and also you know with the kind of checks and balances that you put into place, This will be probably expecting it to perform better than. The market for a number. But you know where the industry stands today it would be hard for me to say we will ever go below 3% for example. So I mean good cycles where you are growing very fast and due to the denominator effect to under 3% but it would be very say that it it in the long run on average it will go below 3% but happy to be proven wrong.
Unidentified Participant
Okay sir, got it. There was a slight disturbance but I think I get the gist of what you’re saying.
Unidentified Speaker
Sorry.
Unidentified Participant
No, no worries sir, no worries. Next. I wanted to understand sir, around the MFI customers we are down to about 5 lakhs and our disbursements are rising. So is this because we are increasing the ticket size for borrower to drive growth and do you see this as a risk of increasing delinquencies? Is next fy.
Unidentified Speaker
So. So yes I would say it would be hypocritical of me to not acknowledge the fact that the average ticket sizes have increased especially not in the JLG products. I think in the JLG products they have decreased or are in stagnant but in the other products like the individual loans they are obviously much higher. But that said being a sort of a conservative kind of a guy myself in terms of risk, I am not very uncomfortable even despite the higher ticket sizes in the individual products because again we are being very, very careful, very selective.
To give you an example, in the individual product all of our customers have like a credit score of 300 plus, you know and they all have credit history. So we are not really doing a lot of new to credit borrowers unless you know the, the checks and balances around that are even much stronger. So it’s just a different product, you know. So I would be a lot more uncomfortable if the JLG ticket sizes are increasing in this product. We are taking ample precautions and. Still. I agree it’s still at an early stage to say whether it’s less or less risky, more risky. But it seemed like the right strategic decision and I still stand by that this was the right, right direction to go towards.
Unidentified Participant
Okay sir. Understood sir. Sir.
Aalok J Patel
And on the. I heard on the. Are we disconnected?
operator
Yes sir. The participant left the queue. So that was the last question question for the day. I would now hand the conference over to Mr. Alok Patel, joint managing director for closing comments. Over to you sir.
Aalok J Patel
Nothing much to add I think. Nice long call. Thank everybody for being a part of this call and hopefully answered all the questions to the best of our abilities. And you know if you need more information please feel free to contact the investor relations team. You know their contact available in the presentations and I appreciate everybody’s time. Thank you. Very much.
operator
Thank you. On behalf of Armand Financial Services Ltd. That concludes this conference. Thank you for joining us. And you may now disconnect your lines. Thank you. Thanks, sa.