Arman Financial Services Limited (NSE: ARMANFIN) Q4 2025 Earnings Call dated May. 30, 2025
Corporate Participants:
Aalok Patel — Joint Managing Director
Vivek Modi — Chief Financial Officer
Analysts:
Shreepal Doshi — Analyst
Abhishek — Analyst
Apoorv Singh — Analyst
Kartik Srinivas — Analyst
Saravanan — Analyst
Ashlesh Sonje — Analyst
Amit Mantri — Analyst
Anant Mundra — Analyst
Bharat Barmecha — Analyst
Amit Goyal — Analyst
Sanfu Jain — Analyst
Presentation:
Operator
Ladies and gentlemen, you have been connected to Arman Financial Services Q4 and FY ’25 Earnings Conference Call. Please stay connected. This meeting will begin shortly. Ladies and gentlemen, you have been connected to Arman Financial Services Q4 and FY ’25 Earnings Conference Call. Please stay connected. The call will begin shortly hello, ladies and gentlemen, good day and welcome to the Arman Financial Services Q4 and FY ’25 Earnings Conference Call hosted by Equirus Securities. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch from telephone.
This conference may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations from the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr Sheepal Doshi from Equirus Securities. Thank you, and over to you, sir.
Shreepal Doshi — Analyst
Thank you. Thank you,. Good evening, everyone. I welcome you all to the earnings conference call of Arman Financial Services to discuss the Q4 and FY ’25 financial performance and business update. Today, we have the senior management team of the company, represented by Mr Alok Patel, Joint Managing Director; and Mr Vivek Modi, Group CFO. I will now hand over the call to Mr Alok Patel for his opening remarks, post which we can open the forum for question-and-answer. Over to you, Mr Alok.
Aalok Patel — Joint Managing Director
Yeah, good evening, and hopefully I’m audible to everybody. On behalf of Armal Financial Services Limited, I warmly welcome all of you to our Q4 and FY ’25 earnings call. I’m joined today by our Vice-Chairman, Managing Director, Mr Patel; our Group Chief Financial Officer, Mr Vivek Modi; and the Investor Relations team from SBA. I trust you had the opportunity to review the earnings documents, including the quarterly and annual results, the investor presentation and our press release, all of which are available on the stock exchanges and our company’s website.
I would like to begin with an overview of industry developments, highlighting key trends in business, followed by financial and operational performance. The financial results for the quarter and the full-year ended 31st March 2025 reflect the challenging environment that the microfinance sector has been facing. In ’20 — in FY ’25, our wholly-owned microfinance subsidiary Numbra Finance reported a net profit of INR7.8 crores compared to INR138.3 crores in FY ’24. However, in Q4 FY ’25, Numbra posted a marginal loss of INR26 lakhs against a profit of INR38.8 crores in the same quarter last year. The key driver behind Numbra’s performance or lag thereof was the higher provisioning, largely due to ongoing stress in the rural pockets. We have been prudent in aligning — aligning our provisions with on-ground realities and have proactively taken accelerated write-offs when necessary. That said, we remain confident in the long-term potential of microfinance sector. However, we believe the overall growth rate in MFI segment is unlikely to normalize until the sector deleverages and adapts to the evolving dynamics in rural markets. Over the years, we’ve taken several steps to adapt to both temporary and structural changes in the industry. Our philosophy has always been to stay agile, to seize opportunities if and when they arise, but also be prudent enough to step-back when needed. As of, 31 March 2025, number of finances AUM declined by 23% from INR2193 crores in FY ’24 to INR1,686 crores in FY ’25. Similarly, our overall consolidated AUM declined by 15% from INR2639 crores to INR20 crore INR45 crores over the same-period. For number of finance, quarterly disbursements stood at INR393 crores, reflecting a year-on-year decline of 26%. For the full-year, disbursements amounted to INR1,232 crores compared to INR1,895 crores in FY ’24. In FY ’25, the company undertook two key strategic decisions aimed at ensuring long-term sustainability and growth of the business. First, we have begun to completely separate the credit and recovery function from the branch operations. These decisions are based on data and logic rather than sentiment. While we would love for rural borrowing culture to return to its earlier form, the current evidence so-far indicates that this not — this may not happen entirely. Traditionally, the MFI industry has operated under foundation of Joint Liability Group model and population-based credit decisioning frameworks. These include rules such as any one customer cannot have more than X number of lenders or a customer cannot have more than Y amount of outstanding or an EMI burden cannot exceed a certain amount. While these standardized norms serve the industry well in the past, we believe this one-size-fits-all approach is no longer adequate. Our systems must involve to assess each customer-based on their individual merits and unique circumstances. Achieving this will require building a strong and independent credit culture on-the-ground level along with fully eliminating the longstanding conflict of interest between credit and sales that has existed in microfinance since the industry’s inception. Naturally, this decision will result in higher operating cost. However, the alternative is to accept elevated credit cost. Between the two, we are far more comfortable with the former. The decision to establish collections as a separate vertical was not particularly difficult. Field officers will continue to handle regular collections and early-stage delinquencies to ensure the customer relationship and the essence of JLG culture will remain intact. Higher delinquency buckets will be taken over by recovery officers. Currently, we have implemented the new credit structure in about 140 of our 391 branches with the remaining branches to be implemented by Q2 of FY ’26. Early indicators in asset quality for loans originated under the new credit structure are quite encouraging. In addition, starting from November 2024, all disbursements in the MFI segment are now covered under the credit Guarantee Fund for micro unit or CGFMU scheme. As of March 2025, 34% of our MFI AUM is now covered under this scheme and this will increase significantly quarter-on-quarter. We are also fully compliant with the new guide drains as of March-end and we have successfully — also successfully completed an ERC transaction in March of 2025. For the MFI book zero bucket collection efficiency for the quarter stood at about 98.5% and improved to 98.8% in March 2025. While still below our expectations, it does represent a meaningful improvement over Q3 FY ’25. On a consolidated basis, collection efficiency for the quarter stood at 95.3 for all buckets combined. On the other side, our standalone segment, which includes MSME, and two-wheeler financing have continued to perform well and show resilience. As of, 31 March 2025, standalone AUM stood at INR560 crores, registering a year-on-year growth of 25%. Disbursement in FY ’25 was INR481 crores, up 20% compared to FY ’24. Importantly, this portfolio continues to maintain a relatively healthy asset quality with gross NPA at 3.38%. March zero DPD collection efficiency in MSME portfolio was 99.5% and 99% plus for the quarter as a whole. The standalone business benefits from a diversified customer-base, lower delinquency levels and although not in a relatively stable operating environment. Focused execution and prudent credit policies in these segments have helped us offset some of the pressures seen in the microfinance vertical. Our consolidated balance sheet remains strong, supported by healthy debt-equity ratio of 1.3 times and surplus liquidity of INR269 crore rupees. This gives us the financial flexibility and resilience needed to navigate the current operating landscape. While near-term economic outlook remains cautious, our strategy remains clear, stabilize the portfolio, drive operational efficiency and further strengthen asset quality. The last one, of course, being the most important. Coming to the consolidated operational and financial highlights of Q4 and FY ’25, gross total income for FY ’25 stood at INR730 crores, registering a year-on-year growth of 10%. Gross total income for FY — for Q4 FY ’25 grew by 9% year-on-year to INR199 crores. Net income for FY ’25 amounted to INR491 crores, registering a 24% year-on-year growth. Net total income for Q4 FY ’25 grew by 23% year-on-year to INR148 crores. Pre-provisioning operating profit or PPOP for FY ’25 registered a 14% year-on-year growth to INR33 crores. PPOP for Q4 FY ’25 grew by 15% for year-on-year to INR102 crores. Profit-after-tax for FY ’25 stood at INR52 crores, reflecting a year-on-year decline of 70%. PAT for Q4 FY ’25 stood at INR13 crores. Our continuous emphasis on collection and underwriting processes helped us improve our asset quality. As of 31st March 2025, our gross non-performing assets stood at 3.37%, representing an improvement of 75 basis-points from 4.13% in December 2024. In FY ’25, the company has adopted an aggressive provisioning policy with cumulative provisions for the year standing at INR117 crores, covering 5.23% of the consolidated AUM and 6.55% of the on-book AUM. As of 31st March 2025, the capital adequacy ratio stood at 37.34 for our standalone business and a robust 48.37% for number of finance. Before I open the floor for questions, I’d like to take the opportunity to thank all the stakeholders and especially our employees for their continued support and commitment to our man. Thank you very much. And operator, please open the floor for the Q&A session.
Questions and Answers:
Operator
Thank you very much. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use answers while asking your question. Ladies And gentlemen, we’ll wait for a moment while the question queue assembles. Thank you. The first question is from the line of Abhishek from AB Capital. Please proceed.
Abhishek
Hello, am I audible?
Operator
Yes, sir.
Abhishek
Yeah. I just wanted to know like what is the status on-the-ground? Like are we seeing improvement or it is the same since Q3? Like is it giving us confidence to grow in FY ’26?
Aalok Patel
So definitely there was an improvement in Q4. So the continuous decline had kind of stopped and there was an upturn also in the repayment rate, especially a market improvement in the zero DPD bucket, which is like the first sign of trouble kind of a bucket, if you look at it. So that went from a low of about, I think 97.3% in Q3 in — what was in November, I guess in November of 2024 to 98.8% in March of 2025. Now as far as your question about has the situation improved enough where we are confident of growing well in FY ’26, I would say my honest answer would be no, it has not improved to a level where I would be comfortable, but we are not too far away. Let will reassess and maybe ask me the same question next quarter.
Vivek Modi
Okay. Okay. And what percentage of our book is — by the way,
Aalok Patel
Excuse me, I’m sorry, I’ve been living and breathing. Vivek, thank you. So this is applicable only to the MFI book. Of course, our other books, which is MSME, two-wheeler and, which are now over 30% of the overall book, these we are quite confident and we are also expanding in those segments with branch openings and other factors. And those will definitely continue to grow well in this financial year.
Abhishek
Okay. So what percentage of our book is exposed to Karnataka?
Vivek Modi
It’s under 1% — under 1%,
Abhishek
Frankly, we had just gone in and now we are kind of stable at that point. So we have a very small portfolio. Okay. So which states is showing maximum signs of stress in our books?
Aalok Patel
I mean, honestly that changes every — every state seems to be taking its own turn. So if you were to ask me right now it’s probably Rajasthan I mean Maharashtra is showing significant improvement so is NP certain areas of Gujarat have trouble so eastern Gujarat side. UP is showing signs of improvement. Bihar for us at least is showing signs of improvement. I know some people are reporting the other way, but I’m not exactly sure. For us it is showing signs of improvement. So yeah, I think overall, if you consider the states right now, which are for us at least, it would be parts of Gujarat, Rajasthan, which are more deeply impacted
Abhishek
Okay. Got it.
Aalok Patel
And in this —
Abhishek
Yes, sir.
Aalok Patel
No, no, no. Please go-ahead.
Abhishek
And in this quarter, we saw that like in comparison to last year, ROE has come down. So what kind — what kind of ROE you think we will end with in FY ’26?
Shreepal Doshi
I don’t think I’m comfortable giving an estimate at this point.
Abhishek
Okay. Thank you. Thank you, sir. Thank you.
Aalok Patel
Sure. Thank you.
Operator
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Singh from Mr investors. Please proceed.
Apoorv Singh
Hi am I audible?
Operator
Yes, sir.
Apoorv Singh
Yeah, just wanted to ask how are you look? How are we handling the extraposition between the asset quality and growth because every time growth in AUM or dispersonal is, you might be alter in asset quality.
Aalok Patel
I didn’t get the last part of your question. Every time what did you say?
Apoorv Singh
So every time — so my question was, how are we handling how are we balancing between the asset quality versus the growth in AUM?
Aalok Patel
I mean, growth is really not our priority at this point. As I said, we are we are in a kind of a situation right now where you know specifically about Armal historically, whenever there is uncertainty in the market, you know, we take a step-back and kind of evaluate the situation and not really grow until we are comfortable with the asset quality, right? And so this has happened during, COVID and other times of our history. When the opportunities available to us, especially right after the crisis, we have grown very, very quickly also. So I think consistent growth is trying to achieve consistent growth is really not advisable in this business.
And so in this case, we are at least trying to maintain the portfolio at least for the next couple of quarters and then we’ll concentrate on growth during Q3 and Q4. So there are other also considerations on growth right now. So for example, there is — the entire sector is trying to deleverage. That is the purpose of the new guardrails. So overall industry portfolio has gone, I believe from a high of INR4.5 lakh crore to INR3.9 lakh crore in December, I don’t think I have the exact March numbers might be close to INR3.7 lakh crore. So with you know our rejection rate, I think in the micro book.
And in the MSME book also is almost 80%, right? So while the inquiry is there, there is just a lot of stress in the rural markets. People have been really, if you look at real income growth, it has not happened in the last four years but debt on a household level, retail debt on a household level has gone up by 50%. So that has to deleverage. And I think until that happens, it’s of course, very painful when you stop access to liquidity in any market, but unfortunately, it’s a bitter medicine that has to be followed through. Only then you can start looking at growth. I don’t know if that answers your question.
Apoorv Singh
Got it. Actually, actually I wanted to ask basically why growing what are the things which we concentrate so that the asset quality doesn’t get impaired, that was what I was wanting to understand. What are the measures say that we are growing?
Aalok Patel
We are doing everything. So we are following the guardrails now, now frankly speaking, guardrails is not the — I mean, it is required, but it is not a long-term solution. It is a short-term solution to deleverage the entire segment. As I made in my opening remarks, what we feel is that the market has evolved to a point now where you must manage instead of having a one-size fits-all credit policies, which MFIs are typically used to.
We must evolve to a place where we are able to assess each customer on his or her own specific attributes and condition some judgments. So we have separated at the patients level completely remove that conflict of credit. We have started putting on a new structure called BCRs who essentially in control of approving or rejecting loans. So when you put people like that, obviously your rejection rate again is going to go up, right, and over and above the guardrails, you have a special, special credit person that will be in-place. So I mean we are taking all necessary steps as much as it is humanly possible to ensure that fresh disbursements that we make are pristine quality.
I’ll just give you one statistic that even though credit scores are not all customers in the MFI segment have them, but about 72% of all disbursements that we did or not even 72%, sorry, 76% of all disbursements that in Q4 for the MFI book where 100 plus scores which are considered, you know top of That customers. So whatever is possible to do, we are doing it. Now over how that rest is up to if you are superstatious, rest is up to God, I guess going quality is more important than growth. Vivek, you had something to add to
Vivek Modi
I think this covered up kind of enhancing the credit through the VCI model. Yes, it’s when we are covered it.
Aalok Patel
You know, it’s surprising that another thing is that, see why we are confident on this model if you look at our M&E book, I mean, it’s largely servicing similar customers as MFI, maybe slightly one-step above or two steps above MFI customers. But from the same-area and definitely there is some stress there too, it would be very surprising if there but the stress is nowhere close to the kind that we are seeing in the MFI book. And if we kind of really look at what we as a company are doing differently in MFI versus MSME is that complete separation of credit and sales, right?
So that also gave us some level of safety or some level of confidence if this is something that could work.
Apoorv Singh
Got it. Just last question is, do we expect the accelerated provisioning to slow-down or we might need to keep on provisioning that?
Aalok Patel
No, I mean, so in absolute numbers, you will see it definitely come down according to me. But you know sometimes you also see a reverse denominator effect when the portfolio, if the portfolio declines you are running into the reverse denominator where if the denominator is declining faster than the numerator, then the percentages might look higher. So anybody, in absolute terms, yes, we are expecting lower provisions.
Vivek Modi
Additionally, what has also gone here, Ankur is that we’ve already subscribed to the,
Apoorv Singh
Correct.
Vivek Modi
So the credit guarantee being offered to the NCC by the government of India itself for this kind of borrowers, 34% of the portfolio as of March is covered under the scheme and this will continue to kind of increase. And there the coverage liquidity is 75% of the default is covered by the. Hence I think from the provisional aspect, I think one can expect things to improve because of that.
Apoorv Singh
Thank you. Thanks so much. All the best. Thank you.
Operator
Thank you. The next question is from the line of Kartik Srinivas from Unifi Mutual Fund. Please proceed.
Kartik Srinivas
Hello. Good afternoon, sir. Thank you. Thank you for your time. Sir, first question, how much percentage of the borrower base of your borrower base will have versus key lenders in the MFI segment? And that’s the first question. The second question is, what will be the frequency that a company has to report agencies for so as far as your second question
Aalok Patel
First, so by RBI law, I think they are expected to report it on a monthly basis at least. We are reporting on a daily basis. So — and I think most larger MFIs are reporting it on a daily basis. As far as this thing about only Arman and plus 1, 2 and 3 and 4, honestly I we are not tracking it much anymore because I did not find frankly I know a lot of people have been doing it so I don’t want to maybe people find good use out of it.
I did not find too much correlation anymore not too much help to concentrate on it. Obviously the new disbursements that we have made have been less than 3 or even lower than that on a household level. So Vivek, but if you track those numbers, if you have fresh numbers, but I think 3 plus would be about 26% ’23, I think it would have come down to 23%. So that’s probably a close answer. It might be plus or 2% — plus or minus 1% here and there, somewhere among those lines.
Kartik Srinivas
Yeah. Sir, one more question. So now that at branch level, we have introduced the individual credit business and the credit culture, the branch level so how do you expect the interest cost to go up at the branch level? And do you see that these type of measures will help us you know, tackling recent cycles better?
Aalok Patel
Yeah. So yeah, so as far as operating cost is concerned, we expect this to add I mean the new recovery function and credit function to add at least 1% to the opex to the OpEx overall, that was our initial estimates. Now I’ll only come out ahead if I’m able to save more than 1% in credit cost. I’m very confident that it will. And in fact, when we see it’s too early to tell, but there is a 3x difference between early delinquencies in DCM originated customers versus non-BCM originated customers.
So it’s — as I said, it’s too early to tell right now, but early indicators are quite encouraging for us. But — and what was your other question? Sorry,
Kartik Srinivas
Yeah, that was. But would you — if you want to continue the credit guarantee scheme and creating parallel credit structure both at the same time or would you discontinue this credit guarantee scheme because
Aalok Patel
We might consider to discontinue it down the line if things stabilize enough you know I people ask me why are you being so careful you have CGF and you and I said that you know, just because you bought insurance, life insurance doesn’t mean you should go out and play in traffic. It’s something that I hope that we don’t have to use, but it’s available if we need to use it. Now in this case, of course, we will use it.
The question is that what-if that the premium that we paid is more than the eventually claims that are there. If that happens, there’ll be nobody happier than myself. Let me tell you. So I’m not worried about that. But the expectation is, given the scenario in the market and overall deleveraging which is happening right now, the claims will — despite your best efforts, the claims will be higher than the premium that you’re paying.
Kartik Srinivas
And my last question, what’s the attrition rate at the level for class officers or to sales officers.
Aalok Patel
So yeah, I think last year we ended at about 62% or 63%, which is — overall, it had reached all the way to like 68%, I believe. So Q4 was a lot better. But still it is very, very-high. We need to get that number. So the target is to get that number down to about 40% in the first-half of this year.
Vivek Modi
Second, look, this is the reference to microfinance. Arman in the MSME and the is much bigger.
Kartik Srinivas
Yeah. It’s still high, Vivek.
Vivek Modi
Yeah, it’s better than comparatively, comparatively is better
Aalok Patel
But you know overall, no matter how hard you try until the credit cycle improves, the attrition is not really going to I mean you can give more benefits, you can give more salary, you can give more better working environment and everything but when you are facing select that a lot of people can handle by handling it, to be honest with you so until that problem gets resolved, I don’t think we are going the industry itself is going to manage the attrition
Kartik Srinivas
Got it. That’s all from my side, sir. All the very best and thank you so much.
Operator
Thank you. Thank you. The next question is from the line of Saravan from Unifi Mutual Fund. Please proceed.
Saravanan
Thanks for the opportunity. So post-COVID RBI deregularized interest rates that provided room for MFI companies to recover some of the COVID losses. And then last year, we also had a RBI pull-up few MFI institutions for — maybe on the — on account of overcharging interest rates. So where does this leave this industry? So on the other hand, interest rates have been deregularized. We — also RBI is pulling up institutions for core charging. So in the current cycle, do we have room to increase our interest rates and recover the credit costs cost
Aalok Patel
I mean that’s a complicated question. I’m sorry, that’s a complicated question. If I could, I would, but I don’t see a scope right now. RDI has been very clear about what is acceptable and what is not acceptable to them and we are not, we are not looking to buy ourselves out of this by raising interest rates unless you know the industry as a whole kind of follows that practice but based on my research I don’t think anybody really is drastically increasing interest rates to kind of take care of this issue. And honestly it’s I mean you know raising the interest-rate by percent or something is not going to solve the issue in the NFI book so we’ll have to unfortunately take the more difficult route which is figuring it out what is causing this and solving it?
Saravanan
Got it. So see one of the guardrails is to restrict the number of lenders per borrower. So do you expect a some consolidation to happen in the industry and
Aalok Patel
Yes, I do believe that there will be some level of consolidation, but not until the green shoots are there of definite improvement and getting out of this, because realistically I mean in micro-finance, I don’t think anybody has the cuts I want to say of purchasing or making acquisitions until and unless you know what you know what the future may hold. I don’t know, Vivek, you have question.
Vivek Modi
On the consolidation in terms of an inorganic way, maybe, yes, there could be some room for some specific areas, but at a borrower level, mean, you really don’t have any very robust cash flows to be able to analyze to kind of move your ticket sizes from existing 15 to 75 brands to a 2 lakh if you meant that by consolidation.
Saravanan
Did you mean debt consolidation?
Vivek Modi
No, no, no. I meant only from a lot of MFI entities might be up for-sale.
Saravanan
So like you had — I think you had partially answered the question. You will wait for some green shoots, not only you, I think the large — the players with high capital adequacy may not rush to buy the weaker assets, they may in fact wait-and-watch for some more time.
Aalok Patel
Correct. Correct. Yes, absolutely.
Saravanan
Okay. And the second question is on — specifically on the credit guarantee premium that we are paying. So what is the — see, one, you quantified the increase in opex cost because of your adding credit at the branch, which is — which is I think structurally a very progressive step for the industry as well as for Arman. And if all of them follow suit. But in the time — in the time-being, you are also taking credit insurance. So what’s the cost of that insurance on a per annum basis?
Aalok Patel
So it’s about 1% of the portfolio outstanding of the customer per year. So that should come out to be about a percent and what 0.6%, 0.75% for the life of the customer because the average loan tells is two years only.
Vivek Modi
Yeah. Right.
Aalok Patel
So, yeah, I think I’m not considered that in the OpEx because I think that will definitely be offset by the credit cost.
Saravanan
Got it. Okay. Yeah, that was my clarification. Thank you. All the very best.
Aalok Patel
Yeah. Thank you.
Operator
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Thank you. The next question is from the line of Jay from Kotak Securities. Please proceed.
Ashlesh Sonje
Hi, team, good afternoon. Sir, first question is around this revamp in the team structure that you have done. Can you specifically talk about what is the task that the credit officer will do and more recently how the rejection rates trended for you?
Aalok Patel
Yeah, so the rejection rate I would say in so from inquiry to actual disbursement, I believe it was 22% in March for the MFI book. And I think it was about 23% or 24% in MSME book.
Ashlesh Sonje
But in MSME, it’s always been there.
Aalok Patel
That’s always been there. I mean, I think MSME was closer to about 70% rejection that has bumped up to about 75% given the scenario. So that is fine within expectations overall. Whatever kind of work that we see? Yeah, and different. So there’s a different kind of pilots going on and but largely speaking, he is responsible for evaluating the customer. On an individual customer basis, that means he has to do the house visit, fill out the forms, do a scoring of the customer, talk to the customer, and there is a whole kind of system that we have created.
We have hired a new credit head to oversee that who is reporting to the CRO. And as I said we are in different states we are trying slightly different modified versions to see which one works best. We have also developed an internal scoring mechanism. So after they punch-in all the different parameters of the customers, it does give out a scoring. And the other thing that we are doing, which is actually the most important is to do a good guesstimate on their household income. So earlier that task was there with the operational people.
Obviously, they could not do it right because of that conflict of interest. And so we are hoping the BCMs have a better luck or whatever you want to Call-IT in indoors. This is what would definitely create a better-quality in terms of income. Yeah. So with BMs and everything just by removing that conflict of interest, I would say that 1% will be well worth it.
Ashlesh Sonje
Sir, one follow-up on that remark. Are you able to now get a good estimate about at least the household leverage because I understand there is going to be operational issues in getting bureau records for other members of the household.
Aalok Patel
We get good hits on the bureaus. I would say at least 80% hit rate is there in the bureaus now. We are getting we are of course pulling it for at the household level the spouse both. Our system combines those and gives an output on the overall indebtedness. Listen to be quite honest with you it’s not 100% but given the scenario today it is as good as it can possibly get, the way to make it better is actually if the government allows us to use to seed them with cards and use obviously at the industry level we need to ensure that we are using biometric or some kind of verification tool.
So only then will we get to a system which is much better. Today at Arman level we are taking our — you know we are doing e-signatures for every customer. So obviously the gets verified automatically that way. But we are Not allowed to share their numbers or seed the numbers in the credit bureau data. So until like we get on a common ground. So what we have internally decided is water ID and then a secondary ID, whichever one that you want to take, that is fine. Primary would be a voter ID for credit bureau. So that’s how the industry is getting by that. Now water ID you will find a lot of fakes you will find multiple water IDs with the same people state-to-state handles it in a different way. so theoretically it’s possible for some customer who has a bad credit to go out and get a new KYC number and pretend these are new to credit if that makes sense. And does that happen? Yes, of course it can we prevent it not always unfortunately so why that hopefully that answers your question. Yes, I mean take that the way to improve it better is to just have everybody start using a unique identifier.
Ashlesh Sonje
Understood. Sir, and just lastly, can you speak about the competitive intensity now in the MFI industry?
Aalok Patel
I don’t know what can I say? I mean there is still plenty of competition but everybody is thankfully I mean minus a few cowboys, I guess this I’ll shall not name, but apart from that, it is everybody is being very cautious and everybody’s books are sort of declining.
Vivek Modi
Yeah, I think everybody has made peace with the fact that de-growth is not a bad word.
Ashlesh Sonje
Yeah, it happens. It happens and market quality is going to be the key concern.
Aalok Patel
Yeah, you grew, you grew for 15 years straight. It’s fine one year and I’ve made my peace with it along with everybody else. Else. So-so everybody is kind of following along, but you know, the problem will come into be is that we have a very wide variety of opinions and correctly, you, I mean, it’s — because there are some people who are saying that we got to go back-to-basics, others are saying that we have to move forward with the new realities.
And so there is not real consensus amongst industry practitioners about what to do and actually there is not much consensus on the nature of the problem also, while there are many, many factors which are leading to this. So I have made a decision that credit is the way forward separating credit completely and individually assessing these customers because I’m of the opinion that JLG culture has diluted to a level where it is not going to go back to what it was let’s say five 10 years ago and so you must evolve your systems to accept the new reality and there are many who are saying that no we must go back-to-basics and try to revive the GLG culture.
So neither I am wrong, neither that other person is wrong. It is just a matter of perspective and what your expectations are. But somewhere along the line you have to draw your line, right, what you are comfortable with.
Vivek Modi
And additionally, I think as the digital footprint also keeps on improving, though the pace has been pretty slow but still as it keeps on improving in the NFI, I think it’s bending towards leaning towards more-and-more individual kind of a model. And when you talk of digital footprint, MSME was all doorstep cash collection, but in the last year or so, it has moved to almost 20% 25% in certain districts is as high as 35%, 40%,
Aalok Patel
Correct. So correct. So honestly, if we can do a 100% plus model, which we are trying — I mean, looks like where that is headed towards. I’m okay making individual loans as well. I know that to say in the open but maybe JLG now is a concept which has outlet out use usefulness and I’m open to that. I’m not saying that is something that I’m thinking about.
Vivek Modi
The models which some people are talking about is where the will keep on happening, but it payment will come or payments are coming, right.
Aalok Patel
People are doing. So or in Telan Ghana where we have started, we are doing 100% cashless. So it’s possible. You know, if you really put your head — if you really kind of make sure on-the-ground level from inception of a branch and this is the only way we want to do it any other way we don’t want their business. It’s possible to do it.
Ashlesh Sonje
Perfect, sir. Thank you for sharing your thoughts. Very useful. Thanks.
Operator
Thank you. The next question is from the line of Amit from Capital. Please proceed.
Amit Mantri
Yeah. Hi, Alok. Hi, Vivek. Just wanted to understand how the trends have been in April and May with the new guardrails coming in with the 2.0. Has that also further resulted in some deterioration in ex-market collections.
Aalok Patel
Yeah. So April — April and May have been quite slow for the industry. So disbursements have come down quite a bit. Zero DPD buckets have stabilized, but are not improving overall. So there might be a marginal improvement in May.
Of course, we’ll know better in the next couple of days back overall, so the industry — it’s very typical actually for the industry to for a lot of industries actually to have a weak first-quarter, right, because 4th-quarter is usually quite high-up there and then and this has historically been the case for us as well but yeah unfortunately not that booming recovery that I was hoping for in the first-quarter
Amit Mantri
Okay. And on the collection — sorry on the cost of borrowings front, how is that trending? Visible stable — stable,
Vivek Modi
Amit in fact, the marginal cost of borrowing for the last six months has incrementally kind of come down only by about 25 to 50 basis-points. And though immediately, we’re not seeing any direct benefit coming in from the RBI reduction in the repos, but still I think as we move towards the next couple of quarters, maybe the overall interest softening should start happening.
Amit Mantri
Okay none of our borrowings are linked to the repo rate, is it?
Vivek Modi
No, not directly repo rate, but MCLR has not really come down. Okay. None of the banks have really brought down the MCLR, which is the expectation, which probably would always carry that if softening rates that somewhere the benefit will start passing off to the ultimate number but maybe that might happen with a lag effect of one or two quarters.
Amit Mantri
Yeah, it’s very typical. Increases get passed on right away and decreases are take some time. Take some time. And on this INR36 crores of income from ARC sale, just wanted to understand this is the sale is in cash or is in security receipts?
Aalok Patel
SRs,
Vivek Modi
This SRs. I mean cash LSRs, cash and FX and
Amit Mantri
What is the provision that has been taken against the security receipts?
Vivek Modi
So just to explain, this has been completely — the written-off book for FY ’24-’25 accounted for about 95% of the INR185 crores, which has been assigned to the ARC.
Amit Mantri
185, right?
Vivek Modi
INR185% about 95% was the write-off done in ’24-’25 itself right and the balance a year-earlier. So the valuation that we got was about INR35 crores INR75 crores for this entire pool of assets. The transaction has happened on 28th of March and so this 75% is the mark-to-market kind of value
Aalok Patel
Is about 19%.
Amit Mantri
And historically that is what we wind-up collecting between about 20% or so of these kinds of assets. So this is — so basically — typically other banks when they sell to SRC, they take a provision against the security receipts and that’s — and then later on when there is any collection against those receipts, that gets booked As income. So for us in accounting, we haven’t done that, is it?
Vivek Modi
For the accounting, it’s actually very simple. All the assets that we sold, we have written-off and whatever proceeds we got, we recognized as incoming. So I mean it’s really a done deal. What additional other provisions would I require. So Amit, to our best of our understanding that what you’re saying is not apply here.
Aalok Patel
Yeah. So I guess these there are you dozens of different structures with these ARCs. Certainly I’m not an expert. This is the first time we have done it.
Amit Mantri
Okay. Maybe I’ll separately reach-out.
Aalok Patel
That is to say that I’m not exactly sure what you’re talking about.
Amit Mantri
Yeah, maybe I’ll — I’ll reach-out separately on this. Thank you. Thank you all for you. Thank you very much.
Aalok Patel
Thanks.
Operator
Thank you. The next question is from the line of Anand from My Tample Capital. Please proceed.
Anant Mundra
Hello. Thank you for the opportunity. So just following-up from the earlier participant question. How much of the SR — so the proceeds from the ARP sale was cash income and how much of SR?
Vivek Modi
Yeah. So it’s a, 15 85, 85 is.
Anant Mundra
So, 36, 36 37 that we realized out of that 85% is and 15 is cash. Yeah, INR31 crores. Okay. So would you like be kind of testing this quarterly to understand what kind of further provision would be all taken on the asset?
Vivek Modi
Absolutely. So I’m you right, this will have to be tested quarterly and our valuation has to be done on a quarterly basis after. So I think the first valuation is likely to happen now in probably Q1 or Q1 or Q1, Q1 or June
Anant Mundra
Q1 but we have already booked I think INR3.5 crores was already recovered
Vivek Modi
In the recovery. Recovery in the first one itself was about — I mean, four days and back-in itself in about INR3.5 crores, INR3.3 crores that has been done. And then the recovery seems to be okay.
Anant Mundra
Yeah. Okay, got it, got it. And the second question was, how much of the provision that we carry-on the Stage 1 and Stage 2 assets in number?
Aalok Patel
So can you separately this will.
Vivek Modi
This will be something to the tune of almost — out-of-the INR92 crores that we provided for about 58 crores would be in 1, 2.
Anant Mundra
Hello? Sorry, I missed out on the number
Vivek Modi
3492 crores of provision in Numbra, approximately INR55 crores INR56 crores would be on Stage 2.
Anant Mundra
Okay, okay, and how big would our stage two bucket be number?
Vivek Modi
Just give me a second. It’s okay we can move to the next question will answer your question once.
Anant Mundra
Thank you. That’s it from my end.
Aalok Patel
Thank you. So just to give you that number. These the Stage 1 and Stage 2 provisioning that we have for number of terms and 38 crores is the provision against Stage 2 assets.
Vivek Modi
The total Stage 2 assets being about INR85 crores. The INR85 crores of Stage 2 assets has INR38 crores of provisioning and balance INR15 crores will be one Phase-1 being defined as current and one to 30 bucket.
Anant Mundra
Good answer. Thank you so much. This is for micro fans. Got it, got it.
Operator
Thank you. The next question is from the line of Bharat from Dexter Capital. Please proceed.
Bharat Barmecha
Hello. Yeah. Hi, Alok. Hi, Vivek. Good evening. Thanks for the opportunity. I just wanted to understand the opex increase that we have. I can understand the AUM degrowth is a conscious decision we have taken, but the opex relatively has increased by 50% if I’m looking at the annual number, right?
So if we just want to look at this and on cost to asset side, if you look at it, it is about 7%, right, which is last year it was about 3.8%. So this is a very, very large increase. Branches about increase — branches increase is about 20%, right?
Aalok Patel
So I just wanted to understand this extra opex and where-is this coming from? And also how does this look like in next year, Q1, Q2 and in FY ’26, so if you look at overall opex last year-on average AUM, it will be higher than what you quoted. And the same thing right now in a scenario where it is declining, if you look at average AUM, let’s say, beginning of the year and plus end-of-the year divided by 2%, it is slightly lower than 7%.
But I take your point, it has increased and honestly, the only answer I can give you is that we are in the midst of a crisis. I mean our number of people have increased by almost 25%. I need people to go and collect the money which is a very human-intensive kind of a job. And frankly speaking, while the inquiries per FOs have remained somewhat even that has declined quite a bit in fact, but the number of disbursements per field officer has almost halved you know so I’m just not getting the efficiency that I need right now from the field officers to collect money you have to do R&Rs you have to do incentives, you have to do many, many things that people don’t like so that is also pushing up the operating cost.
As I told you we have hired around almost 160 BCMs which more expensive normally than other people in the team, so plus the structure above them will be another 30 people plus another 600 or so recovery officers are on the team right now. Travel has drastically increased travel allowances because people are travelling a lot more to take the money. So all of these things are contributing to higher opex and while we are trying our best to keep that under control unfortunately this is just the reality of the situation.
Bharat Barmecha
Do you think it will stabilize on next year, how do you see it going-forward?
Aalok Patel
Portfolio starts increasing again, it will definitely come down, 100% come down. So this is a temporary phenomenon. Even with the BCM structure, I don’t think from a percentage perspective, this will remain a constant. It will come down to about — I mean, 5.5%, 5.5%.
Vivek Modi
Initially this is supposed to add as an incremental cost. But once the DCM starts taking the credit aspect of the matrix, the field team is freed up for raising the number of inquiries, so the efficiencies which have come down because of the overall stress in the sector are likely to go back once things normalize and the disbursements per will start picking-up from there thereon. Plus as we said recovery team is also being revamped and kind of — is investing there as well. So the typical hard market collection kind of with the recovery officers, hence again the has more bad work for the portfolio growth. Once — once we are in a situation to kind of start looking at the portfolio growth more aggressively.
Bharat Barmecha
So obviously from a portfolio growth perspective, percentage-wise, it will come Come down, right? If you could give some color on how it looks like on an absolute basis because this is a very sharp move and I’m hoping this will not grow much in the coming quarters?
Aalok Patel
Yeah. So on an absolute amount, it will stabilize. So we don’t expect any of those operating costs to drastically increase on a quarter-over-quarter basis. Depending on the portfolio behavior, if we are able to stabilize the portfolio decline, then obviously in that case on a percentage level, it still might increase, but absolute amounts will remain somewhat stable.
Bharat Barmecha
So-far the portfolio decline has been stabilized, right?
Vivek Modi
Yeah, in Q1, it was stabilized, but — or I’m sorry, in Q4, it was stabilized. In fact, it increased in Q4. But in Q1, you know, April and May honestly have been a little slow. Some will actually expect that every year to be honest. But I don’t know-how June will go. If June goes hopefully slightly better, then it will be stable. Otherwise there might be some minor decline as well.
Bharat Barmecha
So thanks, Anand. This is again in the micro book.
Vivek Modi
This is again in the micro book. In the MSME book, it will definitely be stable. Q1s are usually stable. There’s not a lot of growth in first quarters for finance companies.
Bharat Barmecha
Of course, of course. Sure, sir. Thank you. All the best. Thank you.
Operator
Thank you. The next question is from the line of Sheepal Doshi from Equirus Securities. Please proceed.
Shreepal Doshi
Hi, thanks for giving me the opportunity. Sir, my question was on transition from MFIE or GLV to MSME. How much percentage of our MSME customers are typically the JLG customers
Aalok Patel
Very few. I mean, we don’t really target the same customers by design and it, but I think most people consider MSME as customers graduated from MFI into MSME. So we look at it that way. So we are targeting an entire different subset of customers, which is not to say some level of cross movement does not occur, but somewhere around not more than 5% to 6%.
Shreepal Doshi
So in that case, will we be launching a newer product like individual loan product or within JLB construct only, we will try to deploy the credit manager model and continue with that.
Aalok Patel
So within — so we are not doing — right now, we are not doing individual in the microfinance. We are still following the Group group. Down the line there has been discussion internally especially amongst the upper management whether this is something that is viable or doable. We’ll probably launch a pilot, I think sometime late this quarter or early next quarter, and we’ll see where things go. Okay, got it. And give it a finance product is what I mean.
Shreepal Doshi
Right. Right, right. Got it. Just a couple of two more — a couple of questions on data side. So you highlighted that we have Arman plus 3% at closer to 23%. So is that customer data or is it loan book data?
Aalok Patel
Customer data.
Shreepal Doshi
Okay. And this number, how much was it probably, let’s say, September ’24?
Aalok Patel
26% 27%, I don’t remember. I think we had disclosed it.
Vivek Modi
And at that point of time, in fact was the number that you disclosed was at number plus 4% also, number plus four was I think, 12%, 13%, number plus was about 26 27%.
Shreepal Doshi
Something new. So that’s helpful. And just one more data keeping question was on par zero. So I mean, as you also highlighted that the stress levels are sort of coming off, at least we are moving towards the right direction. So just wanted to understand what is — how is the par zero shaped up — shaped up for us, let’s say, from September 24 to March 25
Aalok Patel
November was about 97.4 was the 1 2 30 kind of you know zero bucket goes at 9.7.4%. We peaked at about 98.8 in March and about 98.5% in April, May is yet to get over, but somewhere around that neighborhood is or slightly higher is what we are expecting.
Shreepal Doshi
So this is customers paying you, okay, this is what is zero to 30 bucket.
Aalok Patel
No, no, this is zero DPD.
Shreepal Doshi
Zero DPD. That means the customer who had paid last month, you are zero portfolio at-risk, so par zero plus basically.
Vivek Modi
So look at multiple buckets. So-far we have 1 to 30, probably that will be like close to 18% or somewhere around that near ago.
Shreepal Doshi
So 1 to 30 would be
Aalok Patel
About 17 all the portfolio of customers who are come overdue by even one rupee, what is their principle. So in that case, it will be about close to 18%. But I don’t know what the amount is once you remove the write-offs.
Shreepal Doshi
Right, right, that will be lower, right?
Aalok Patel
So our today is 18% that the — you know, whatever we have to collect. So I’m giving you more of the operational number. So only be taking. There is an accounting write-off and there is an operational write-off. So accounting write-off happens much, much, much before operational write-off.
Shreepal Doshi
Operations will continue to follow-up sometimes for years if there is a chance of getting it back.
Aalok Patel
So that just depends because once we do operational write-off that means all efforts completely stop. There is no further efforts that go into recovery.
Shreepal Doshi
Got it. I think that’s it from my end. I’ll take it offline maybe. So yeah. Thank you. Thank you for answering my questions. Sure.
Operator
Thank you. The next question is from the line of Amit from Big Wealth Manager. Please proceed.
Amit Goyal
Hello. Yes, sir. Yes. Before I just want to ask two questions from organization. First question is, what is the effect of monsoons on your business? For example, this year there is a chance that the monsoons are going to be very, very good for India. So do good monsoons have any positive effect on your business?
Aalok Patel
Definitely. I mean it has a positive effect on the country and the economy as a whole. So obviously, it would have a good impact, good monsoons will have a good impact on us. But it’s a dual ed sword because it creates a lot of temporary issues for us in terms of collections and disbursement sometimes, especially in the peak monsoons, there are many areas that have really heavy rain, become inaccessible, other issues. So operationally speaking, it does raise some challenges, but overall good rails are definitely good for us.
Amit Goyal
And I think most of your business is in rural and semi-urban area. So monson will — do they have a direct effect on the income of those families which your services, sir?
Aalok Patel
I mean we don’t do a lot of direct agri, to be honest, but as I said there is a chain reaction that reaches all the way to you know across the entire economy. So while there is no direct, I mean there would be minimal direct impact as well, but most of the benefits would be indirect.
Amit Goyal
Okay, thank you. And one more question will be asked by my colleague is Mr Santo please.
Sanfu Jain
Sir, like this quarter we have major income come from sale of financial assets. So when are we expecting to get profitable without these additional income? Next sale on financial instruments.
Aalok Patel
Well, I mean, here’s the thing. So we are — I mean on a consol level, we are profitable even without the honestly, by Q2, we are expecting even micro to be independently profitable. But I mean, don’t hold me to that. We are trying our best. Consolidated, we should continue to remain profitable.
Sanfu Jain
Thank you so much, sir, for answering our questions. Thank you so much.
Aalok Patel
Thank you.
Operator
Thank you. Due to time constraints, that was the last question. I now hand the conference over to Mr Doshi. I now hand the conference over to Mr Sheepal Doshi for his closing comments.
Shreepal Doshi
Yeah. Hi, Shuti. Thanks and thank you, Alok sir, for giving us the opportunity and have a good weekend ahead. Thank you.
Aalok Patel
Thank you all. Thank you. Bye.
Operator
Thank you. On behalf of Equirus Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines