AU Small Finance Bank Ltd (NSE: AUBANK) Q3 2025 Earnings Call dated Jan. 24, 2025
Corporate Participants:
Prince Tiwari — Head of Investor Relations
Gaurav Jain — President of Finance and Strategy
Sanjay Agarwal — Managing Director and Chief Executive Officer
Mayank Markanday — Chief of Credit Card Business and Merchant Solution Group
Rajeev Yadav — Deputy Chief Executive Officer
Unidentified Speaker
Yogesh Jain — Chief of Staff
Analysts:
Kunal Shah — Analyst
Rohan Mandora — Analyst
Sameer Desai — Analyst
Madhuchanda Dey — Analyst
Prakhar Agarwal — Analyst
Pranuj Shah — Analyst
Ritika Dua — Analyst
Shailesh Kanani — Analyst
Piran — Analyst
Nitin Aggarwal — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the AU Small Finance Bank Q3 FY ’25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Prince Tiwari, Head of Investor Relations. Thank you, and over to you, sir.
Prince Tiwari — Head of Investor Relations
Thank you, Sagar, and good evening, everyone, and welcome to AU Small Finance Bank’s earnings call for the third quarter of FY ’25. If you haven’t spoken earlier, then Happy New Year to all of you. We thank you all for joining the call today on this Friday evening.
On today’s call, we have our Founder, MD and CEO, Mr. Sanjay Agrawal; our Executive Director and Deputy CEO, Mr. Uttam Tibrewal; our Deputy CEO, Mr. Rajeev Yadav; and other senior members of the management to answer any questions that you may have. We’ll start today’s call with a 20 to 25 minutes opening remarks by Mr. Gaurav Jain, President, Finance and Strategy, highlighting the Bank’s performance, positioning and outlook. We will then follow it up, though we’ll then follow the opening remarks with 40 to 45 minutes of Q&A for the participating analysts and investors. For the benefit of all the participants, I would humbly request each participant to keep the — restrict the number of questions to two, so that everyone can take the calls. We can take questions from everyone. And then if you have further questions, you can kindly join back-in the queue. If you have any data keeping questions, you may reach-out to the IR team at any point after this call and we’ll be happy to assist.
With that, I will now request Gaurav Jain, President, Finance and Strategy, to share his opening remarks. Gaurav, over to you.
Gaurav Jain — President of Finance and Strategy
Thank you, Prince. Good evening, everyone, and thank you for joining us today. I will start with an update on the operating environment. We saw uptick in the economy at the end of Q2 continuing in the festive month of October. Post October, however, there was a slowdown in economic activity on-the-ground. Whilst there are some signs of bounce-back in rural consumption and government capex, overall momentum remains below expectation. In the banking system, liquidity continues to remain in deficit despite the CRR cut in December ’24.
Additionally, persistent inflation has also kept interest rates higher for longer. The economic slowdown has affected overall credit demand and we remain watchful in our underwriting. Despite these economic headwinds, our bank is in a good shape overall. Let me talk about each of our businesses in detail, starting with our deposits franchise. We assess the performance of our deposits franchise in terms of the following key metrics, growth, CASA ratio, LCR, proportion of stable deposits, CD ratio and cost of funds. Our aim is to optimize across these core metrics, keeping in view bank’s overall strategy and prevailing market conditions.
Our deposits franchise is scaling well and total deposits stand at INR1,112,000 crores. This financial year, we have delivered growth of around 15% year-to-date in total deposits and 9.4% in CASA. This growth rate is nearly twice the growth rate of total deposits in the banking system and faster than growth rate of private sector banking peers. Whilst we benefit from our smaller-scale, as a new bank on the SMB platform, we have to work harder to gather deposits. On a quarter-on-quarter basis, our deposit book grew by 2.3%. However, there was an outflow of 3% in CASA, primarily due to withdrawals from certain government accounts which were transactional in nature. Despite this, average quarterly balances of CAR NSA deposits increased by 5.9% and 4.4%, respectively on a quarter-on-quarter basis. Our CASA ratio stands around 31%. We maintained an average LCR of 115% during the quarter, which was an increase of 3% from last quarter. Our stable deposits, which include CASA, retail term deposits and bulk non-callible deposits stand at 80% of total deposits and our CD ratio excluding refinance stands at 81%. Throughout the year, we have maintained a strong focus on securing the right mix of deposits at optimal pricing and effectively managing our cost of funds, which stands at 7.05% year-to-date and 7.06% for the quarter. Notably, our incremental cost of funds has improved, declining from 7.7% in FY ’24 to 7.4% year-to-date. However, the current market conditions are challenging, liquidity remains tight and competition for deposit continues to be intense. This week, we adjusted our savings and fixed deposit rates to-market conditions, introducing 10 bps increase on our pick peak fixed deposit rate and widening the slabs in savings accounts offering 7.25% interest rates. Even with this increase, we expect to be at the lower-end of our guided range of 7.10% to 7.15% for cost of funds for the year. We are mindful of the ongoing pressures on liquidity, inflation, currency, GDP growth and external headwinds. If these pressures persist and lead to a delay in easing cycle, our cost of funds would be impacted in the coming quarters. Now in terms of our key initiatives around deposits franchise. Our banking — our branch banking strategy is focused around driving growth in top-20 cities, which contribute around 57% of total deposits in the country. 75% to 80% of our deposit book is from 400 urban branches, of which 60% are located in top-20 cities. Within these cities such as Delhi, Bangalore and Jaipur are doing very well and we are working on improving productivities in cities like Mumbai, Chennai, Hyderabad and Calcutta. We have fully-integrated 100 plus urban deposit branches from Fincare in terms of people, product, process and technology. Now our efforts are focused on driving productivity and we expect these branches to drive growth from next year onwards. Additionally, we plan to open around 70 to 80 new branches in the next year, mostly in top cities with a focus on raising deposits and enable another 75 existing asset centers in district and headquarters to start taking deposits. In terms of our product breadth, on savings account side, we have established a strong proposition backed by cutting-edge digital channels. We have industry-leading deposit products for various segments, which includes recently launched remittance products and comprehensive wealth and insurance distribution platform our wealth AUM has scaled to around INR1,250 crores and in our insurance business, we are partnering with most of the leading insurance companies. On current account side, we are working to create a right to win in terms of product, services and distribution. This is a tough market and results will take some time. We also did a lot of work on improving branch profitability. 44% of branches which were in existence in December ’23 were profitable in Q3. This was driven both by higher productivity and focus on overall cost-efficiency in overhead and marketing spend. Further, all the key building blocks like people, leadership, technology and customer service are in-place for growing the franchise sustainably. Now moving on to our assets franchise. Our loan portfolio has reached around INR1,900 crores with a growth of 13% year-to-date, which is 1.6 times of the system loan growth and faster than growth of private sector and banking peers in similar periods. As you know, we have four broad asset classes, retail secured assets, commercial banking, inclusive finance, which includes MFI, SMS and SPO and digital retail unsecured, which includes credit cards and personal loans. I will take a moment to talk about each of these businesses. Our retail secured assets book, which stands at around INR73,000 crores and forms 67% of our total loan portfolio includes wheels, mortgages and gold loan. This is our flagship franchise with a vintage of over two decades and it is a unique combination of scale, growth, high-yield and strong asset quality. We have a very strong right to win in this business with our deep distribution and underwriting expertise in informal segments in semi-urban and rural areas, strong operational processes and collection framework and robust people practices. This segment is performing very well with growth of 14% year-to-date. We have a long-run growth runway in this segment as we expand gradually to pan-India. We will particularly benefit from increased distribution through Fincare touchpoints in South India. Asset quality remains broadly in-line with our expectations. We are not seeing any signs of contagion with unsecured assets. December was strong from asset quality perspective as-is historically the trend and we expect asset quality to improve further in Q4. Now let me talk about the key products within retail secured. First is wheels. Our wheels book is around INR34,000 crores, which is 32% of our total GLP. It includes personal and commercial cars, SCVs, LCVs, tractors and two-wheelers. Wheels GLP grew by 7% quarter-on-quarter and 19% year-to-date. Growth for the full-year is expected to be more than 25% and remains in the top-tier of peer banks in NBFC. Book yield has increased by 25 bps over FY ’24 and is north of 14% year-to-date. Asset quality also remains broadly in-line with credit cost of 1.1% year-to-date annualized. Slippages were higher in the festive period as per trend with some parts of the book such as SCVs and LCVs, which are given to small transporters impacted by market slowdown. December was strong and we are expecting further pullback in Q4. Wheels book is present in around 570 touchpoints, which is only 35% of our total touch points excluding BOBC outlets. This implies significant room to expand distribution within our existing network. By the end of FY ’26, we are expecting to expand to another 250 to 300 touch points, including UP and South India. Second product within our retail secured franchise is our mortgages product, which stands at around INR36,000 crores and forms 33% of the total GLP. It includes micro-business loans and home loans. These are both granular products with average ticket size of INR12 to 13 lakhs and yield around 15% and 12% respectively. There is no comparable peer operating scale and yield in MBL. Growth remains on-track with the book growing by 10% year-to-date and 4% quarter-on-quarter. Within this, MBL and home loans respectively grew by 8% and 16% year-to-date. For full-year, MBL is expected to grow in low-teens and home loans in a range of 20% to 25%. Asset quality remains robust and there is no major impact from the slowdown. Credit cost is 0.6% year-to-date annualized. In terms of our strategic initiatives in mortgages, we have a big opportunity to expand our distribution. We are present in around 900 touch points in MBL, which is 55% of our total touchpoints. In FY ’26, we would expand our presence by another 130 to 150 touchpoints. In-home loans, we are present in around 600 touchpoints and the business tends to follow MBL with a lag. We are also fully integrating Fincare’s mortgage business, which was started six to seven years back. Teams are already integrated and integration of product, processes and technology would finish by March-end. This significantly accelerates AU’s entry into key southern markets of Karnataka, Tamil Nadu, Telangana and Andhra. The third product within retail secured assets is gold, which has a GLP of around INR2,000 crore and forms 2% of the total loan portfolio. Expertise in this business comes from Fincare, which has done a good job in-building distribution franchise and processes. Gold portfolio grew by 29% year-to-date and yields around 16%. We believe the latest RBI guidelines on gold loan create a level-playing field for banks to compete against NBFCs. We remain compliant with the guidelines and believe there is an opportunity to build and scale our gold franchise. We are working on our strategy and we’ll update the market in next one to two quarters. The second key asset segment is commercial banking, which is 21% of the total loan portfolio and includes five businesses, business banking, agri Banking, NBFC, real-estate and transaction banking. We started lending to NBFC and real-estate businesses 11 years ago and business banking and agri banking around seven to eight years back. Our competition is mainly with other private sector banks. We have developed a full product suite and tech capability, including the AD1 business, which we started earlier this year. Growth and asset quality remain on-track with some cyclical challenges in agri commodity-linked businesses. Total GLP grew 22% year-to-date and 6.4% quarter-on-quarter and is expected to grow north of 30% for the full-year. Credit cost for nine months was 46 bps annualized. The commercial banking businesses are important from liability franchise perspective as well and generated around INR11,000 crore of deposits. We plan to move this business to Mumbai over the next one to two years, which will provide an opportunity to stitch this business even more closely with our deposit franchise and other asset businesses. We are expanding our distribution in Fincare deposit branches. This year, we have started business in a few locations of Andhra, Telangana, Tamil Nadu and Karnataka and plan to expand deeper in southern states and other existing geographies within our overall distribution network next year. Further, we have created dedicated teams for specific sectors such as renewal energy and infrastructure. We believe there is a large opportunity to grow in these segments. Our AD1 business is gaining traction. This is an important business for cross-sell, current account flows and export-import. ForEx flows in this quarter increased by more than 50% quarter-on-quarter and achieved a run-rate of greater than INR2,000 crores. These includes flows from export-import, NR and retail remittances. With most of the products being already live, we will continue to scale this business. The third asset book is our inclusive finance book for Bottom of Pyramid customers, which includes MFI and lending to small marginal farmers and SPOs. This book is key for fulfilling our financial inclusion charter and meeting our PSL obligations in SMF and Agri. Total book is around INR7,400 crores, which is around 7% of total GLP. MFI is the biggest product in this segment with GLP of INR7,150 crores. We have a strong MFI franchise with conservative underwriting policies and strong operational processes. We have one of the lowest average exposure in the industry at INR25,000 per customer. Our book is well-diversified across more than 60,000 villages. Top three districts contribute around 6% and all remaining districts are less than 1.5%. No state has more than 13% concentration. MFI industry continues to face the challenge of customer indebtedness, which has resulted in elevated slippages, lower disbursements and high credit costs. However, we believe that the long-term fundamentals of the industry remain sound and we are cautiously optimistic of a gradual turnaround. We expect MFIN guidelines to improve overall industry discipline and with tightered underwriting being prevalent in the industry for the last few months, customer indebtedness should gradually reduce as well. Additionally, we have taken some corrective actions in terms of strengthening our correction efforts and increasing disbursements under the CG FMU guarantee scheme with 60% of Q3 disbursement covered in CG FMU. We expect this to increase to 70% to 75% in Q4. This will help reduce both risk-weight and future credit costs. In terms of our financial performance in this segment. MFI GLP declined by 10% year-to-date and 6% quarter-on-quarter in-line with the industry. Credit cost was 5.4% for nine months annualized. GNPA stands at 4.1% and SMA pool is around 4.4% at the end of Q3. There are some signs of collection efficiency having bottomed-out with marginal improvement in Q3 versus Q2. December months saw some improvement in both collection efficiency and disbursement versus November, and we expect the improvement to continue in Q4. Slippages are expected to stay elevated in Q4 as well and credit costs will remain elevated for the next two, 3/4 due to lower collection efficiency in the earlier quarters. We are keeping a close watch and will provide a further update in next quarter’s call. The fourth asset segment is retail digital unsecured, which includes our credit card and personal loans business. Total GLP is around INR4,000 crores, which is 4% of the total portfolio and credit cost on this book stands at 9.2% year-to-date annualized. Personal loan GLP is around INR1,000 crores and is primarily for our existing customers. This book is performing broadly in-line with industry from an asset quality perspective. We have tightened the underwriting criteria for asset customers and as a result, book has degrown by 10% year-to-date. In our credit card business, we got a few things wrong, which included not getting digital underwriting correct, higher reliance on card for card sourcing and issuing higher credit limits. There are some industry-level challenges as well driven by over leverage, inflation and misuse of certain merchant categories through fintech aggregators. But our performance has been worse than the industry leaders. Total outstanding book has declined by 2% year-to-date and 9% quarter-on-quarter as a result of decalibration of our business. Getting this business right is important from a long-term perspective as it provides a hope for deposit customers and increases bank’s brand. We have taken a number of corrective steps. These include strengthening credit team, tightening underwriting criteria to include documented income only and reducing credit limits both for new issuances and existing cards based on risk assessment. We have also done a detailed evaluation of existing customer-base and taken appropriate preemperive actions on potentially delinquent customers. We have strengthened daily transaction monitoring to identify and restrict misusing customers and merchants and have proactively blocked certain misused categories of merchants such as rent and education. These actions will take a couple of quarters to have an impact. We will update on the progress, including future outlook in the next one to two quarters. Now I will update on our profitability for the quarter. Pre-provision operating profit increased by 6% quarter-on-quarter, driven by strong control in operational costs and growth in interest and growth in interest income. Profit-after-tax was down 7% quarter-on-quarter at INR528 crores due to higher credit costs in MFI. EPS for nine months is up 24% and book-value per share is up 23% year-over-year. We achieved an ROA of 1.6% year-to-date and 1.5% for Q3. Net interest margin declined by 23 bps from 6.1% in Q2 to 5.9% in Q3. This was driven by higher mix of investment book on average during the quarter, which had an impact of 10 bps, adverse loan mix because of lower MFI and higher-cost of funds, which had an impact of 9 bps and interest reversal loan NPAs, which had an impact of 4 bps. Other income was in-line with Q2 after adjusting for lower treasury gain. Core fee income continues to be robust with contributions from assets, banking fee, third-party distribution as well as credit cards and AD1 businesses. Insurance distribution income in this quarter saw some impact due to changes in regulations around revenue recognition on general insurance and surrender value in-life insurance. We continue to focus on managing our opex, which declined by 3% from Q2. Cost-income ratio was 54% in Q3 and 57% year-to-date. The saving on opex has been achieved through merger synergies, control over manpower and overhead costs and tech-led efficiency gains. Expenses in next quarter would be higher as per seasonal trends and we expect to finish the year at cost-to-income ratio of 57% to 58%. Credit cost was elevated and came in at 1.5% of GLP for nine months annualized. As mentioned earlier, this was primarily driven by higher credit costs in MFI and credit card. Overall, our strong performance in opex and sustained performance in other income was offset by underperformance in asset quality. In terms of outlook for the next quarter, credit cost will stay elevated driven by unsecured, but we expect to be within striking range of our ROE ROA guidance of 1.6%. Overall, GLP growth is expected to be around 20% with secured assets growing around 23% to 24% and continued degrowth in MFI and credit cards portfolio. Finally, regarding our Universal Bank license application, we are in touch with the regulators on progress of our application. As you would be aware, the Reserve Bank of India has recently-announced setting up of a standing external advisory Committee, which will evaluate applications for universal banks. Whilst we don’t have clarity on timing, this is a welcome step and should speed-up the process of evaluation of our application. To conclude, as we have mentioned earlier, it takes about 10 years for a bank to settle fully. We are now successfully completing eight years and the bank is shaping up well across all key areas of product, distribution, operations and technology, people and governance. Our brand is improving. Both customers and peers are noticing us on the street and we continue to focus on strengthening our foundations and executing well to create a sustainable forever bank.
With this, I will hand it back to Prince for Q&A.
Prince Tiwari — Head of Investor Relations
Thank you, Gaurav. Sagar, we can now open for Q&A.
Questions and Answers:
Operator
Sure. Thank you very much. [Operator Instructions] Our first question comes from Kunal Shah from Citigroup. Please go-ahead.
Kunal Shah
Stress particularly on the MFI side as well as PL and credit card, where we are in terms of the cycle and you indicated in terms of, say, improving collection efficiency, but at the same point in time, we have almost like 4.4% in SMA as well as 17% of loans wherein there are more than three lenders. So even during the transitioning that could have an impact. So what is the — maybe the extent of — if you can just help in terms of understanding what could be the extent of the pain that has to be further recognized and how you have built-up the collections out there?
Sanjay Agarwal
Yeah, hi, Kunal. Sanjay this side. We have Rajeev and of course Mayank on this call, so they can elaborate further. But my take on MFI is this that this is not an even risk, you know, this is more about over leverage and maybe a rational lending to that sector. Not much has been arrested in last two quarters. That’s my personal understanding and personal belief. We already have gone to this level of what now 5.4 credit cost in our balance sheet and the way we have handled it in terms of overall, we just want to take one more quarter to really have the full color on it. But I think we are expecting our credit cost overall, yearly basis, maybe we are north of 6%. You know, it might at 7% too. And that is why we have commented that our overall credit cost of the year would be in the range of 1.55% and 0.6%, right? But I think you have to give us one more quarter because it’s just a 7% of our book. So we are not heavy loaded there. And there are green shoots in terms of overall approach like the guideline from, the way the customer are responding, the H2 is better than H1 and those segment itself is getting some money through various things. The activity has been started. We are focusing more on collection than on disbursement. So — and of course, it’s an important book for us because it gives us SMF, which is the obligatory to do a lending on us. So I would only say that the quarter two — quarter-four has some maybe heat going on, but next year, you have to give us one more quarter, then only we’ll have the clarity. And same thing is in credit card. Lot much has been arrested there too. The entire team has come on the subject. We have also not building up credit card on digital mode anymore. We are doing underwriting basis now physical applications or physical data. We have stopped not many payment system available online, which actually people don’t use money for the — for the merchandise or for services. They were more about cash-out. We have reduced the credit line there. So I think this quarter, in my opinion, will be peak there, you know, and then you will see us coming back next year-on this subject. But overall, if you see, if you move away from this 10% of our book, the 90% book is well — well in control where the whole strength of organization is there for so many years, be it secured assets or the commercial assets, you know, people are expecting that there would be some pain or there should be some kind of effect, but that has not seen. Quarter three has become more stronger than the H1 and I believe that overall, the 90% of assets by the end-of-the March would be much better in entire look and shape. And this — both the books should be also good enough for next year.
But Rajeev, you want to add on or — on the subject, okay, you want to add-on something on this, the paid.
Mayank Markanday
So just to add what Sanjay has said this is Mayank. I manage credit cards. So what we have done is we have not only containing the existing portfolio, but we have worked a lot on our underwriting capabilities on the new acquisition. So both the things simultaneously we are working out. And wherever the digital capabilities were not enough to manage the underwriting this thing. So we have contained them and our credit underwriting criterias. So I think another one or two quarters will help us to give a better picture on it. But yes, things should come under control after these tightening controls.
Kunal Shah
Sure. And in terms of the numbers, so as you indicated, 6% credit cost for the full-year. So that clearly suggests 8% to 10% in MFI continuing. Same way on credit card, if we look at it like still being more than 10-odd percent for this quarter, so would that run-rate also be still there and maybe getting forward, so are we like yet to…
Mayank Markanday
So this quarter, yes. This quarter, yes.
Kunal Shah
Okay. In 4Q also, this will continue.
Mayank Markanday
Yeah, that’s why we said that overall, we will be touching around 1.55%, 1.6 overall credit cost because we believe that the other asset classes will perform better than the quarter three.
Kunal Shah
Sure. Get it. Got it. Okay. Yeah, thanks and all the best, yeah.
Operator
Thank you. The next question comes from Renish from ICICI. Please go-ahead. Renish, your line is unmuted. Please proceed with your question you. As there is no response from the line of current participant, we’ll move on to the next question. Our next question comes from Rohan Mandora from Equirus Securities. Please go-ahead.
Rohan Mandora
Good evening, sir. Thanks for the opportunity. I just wanted to understand what’s the provision that we are currently carrying on the MFI SMA book? That’s one. And second, the OpEx central that we are seeing on account of merger synergies, how should one think on that for FY ’26? And related question was that we have given a slide wherein we are talking about the addition of touch points across products, across geographies in next year. So how should one look at the interplay between OpEx on these two things?
Sanjay Agarwal
So I think the — I think your question is around the Fincare integration is going on perfectly well. As we stated in our presentation that from 1st January, the entire MDL OBLEC AHL, which is affordable housing and gold loan has come under the one umbrella of secured retail assets. So the North, South, East-West has been fully-integrated so — and the integration plan is in-place. Rajeev is looking now tech and of course, the entire MFI business, you know. And of course, by year — this year end, this year-end, we’ll be integrating in terms of our tech also. So that is there in terms of integration, not much operational efficiency has come in because now the leadership has been aligned with the verticalization. So there would be — there would — there was so many leadership at Bangalore under Fincare unit, which has been now aligned with the entire verticalization of AU. So we are saving not much cost there. And so I would say by this quarter-end, we won’t be having a much cost-based on — based because of this two unit existence. Entire cost will be — we will be aligned with the bigger umbrella of AU. So that operational efficiency will be achieved in next year — next financial year. In terms of the distribution, you know, Fincare had an amazing 1,200 crore kind of touch point to operate for their microfinance business. Out of INR1,200 crores, the 800 branches were used for macrofinance in that 70% were around Tesil headquarters, 20% were on districts and Tesile headquarter actually gives you lot much opportunity to build deposit in those markets where we were not in. So we want to use the entire 800 branches of macrofinance to really build the other product-line and also the deposits franchise. So in that close to maybe 80 to 90 branches will actually experiment this year. So I think the full integration will be on because of the availability of the distribution in that sense, that is there. The other question was around the…
Rohan Mandora
SMA.
Prince Tiwari
Rohan, Prince here, on the MFI book or any book for that matter, on the SMA, we only have standard provision on the MFI book, specifically, we had created a INR17 crore contingency. So that continues. We haven’t utilized it. Yeah. And just a last point on what Sanjay added for the — and to your question, on this entire product expansion into existing geographies that you referred to, we have given on Slide 22, these are all existing infrastructure. So as of yet, we are not planning to add any newer infrastructure in these positions in these places. Probably there’ll be some cost in terms of people and manpower and systems, but no infra cost is expected. We have also articulated that we are going to open 16 newer branches. That’s where the opex will come in. But that’s the regular BAU business.
Rohan Mandora
Sure. Just on that — yeah. Just on the synergy piece, see, if I look at the quarter, in the first 3/4, we have been holding around that 14.7 billion 14.3 billion kind of run-rate and we have been gaining some benefit. So just into next year, what kind of cost escalation will we see on the core business or how should we look at it with the synergy benefits, how should that move into FY ’26? That’s what I was trying to understand on the opex part.
Sanjay Agarwal
Cost-to-income — cost to opex, no. So I think cost-to-income is overall for nine months is around 57.7%. So for quarter-four or entire year, I’m expecting to be north of 58%, but of course, lesser than 60% because the quarter-four will have more expense because we’ll have a more business and everything. So this is not a standard number which we have given you for quarter three. But the idea is to really look for a lesser than a 55% cost-to-income in next two years, you know. So let’s go through this quarter, figure out our realistic cost-to-income, which will be around, 58% 59 and then of course look for some kind of I would say effort or the room available for us, but definitely the focus has come back strongly on working on an operational efficiency. We are using not much digital. We are using not much productivity now. We don’t want to hire people for the sake of hiring. The whole expansion has been put with a purpose. So I think you will see us lot much calibrated organized in terms of our cost-to-income and will we keep having around because — but there is not much variable, you know. So it’s difficult to predict, but the approach is this that our cost-to-income has to go-around 55% in next two years and it’s absolute best effort basis because there are quite many things we couldn’t control as we move forward, but lot more sincerity has come in. I can assure you about that only.
Rohan Mandora
Sure. Thanks.
Operator
Thank you. The next question comes from the line of Sameer Desai from JM Financial. Please go-ahead.
Sameer Desai
Yeah, hi. Thanks for the opportunity. I have a couple of questions. I mean, I understand we are banking on the — on the secured side of the book to kind of do well incrementally as well. But if I see there is some minor changes on asset quality there sequentially on a growing book. So how confident are we that 4Q could actually be better? While I understand it is seasonal, but just wanted some confidence around that. And then I’ll come back with a follow-up question.
Sanjay Agarwal
No, I think, I just want to give one assurance to the street that secure retail asset we are doing from last now close to two decades and we have seen the cycles. We have gone through every type of challenges, you know this year is no different about it. You know about it that we were actually hoping that our country will grow by north of 7%, but we might grow only by 6%. So we are not a flute in every sense, right? It is a relativeness and the pain is there into that kind of segment where we actually lend because this is more of an informal segment, the touch and field, we back ourselves, we back our credit team, we back our operational efficiency, we back our collection team. So there are certain things which might go here and there. But overall as I say secured book, build-on productive assets, small-ticket, we risk the price, you know. So I think I would say that we are fairly confident that this will remain our strongest point in terms of our entire asset classes and we should not go wrong there and we neither has gone this year too. If you see our data in terms of comparison with the competitors, you will find us far, far better there, you know. So I think I would only say you that this looks very promising and this has also — December remained very strong month, you month-in terms of everything. I would say the collection efficiency for this particular December month has surprised us a lot and I hope that will continue for this quarter too and we have also want to build more expansion in this business so that the growth, the yield, the ROA and of course with a strong asset quality which is the hallmark of us over the years, you know. So remain there, remain there.
Sameer Desai
Thank you. That’s helpful. Just wanted to get a sense because it’s quite a fluid situation in the segment that we operate.
Sanjay Agarwal
No, I don’t think so. I don’t think so. This is a huge situation. Honestly, again, want to repeat that 90% of our asset class remain very strong because I’m again saying that we are not exclude, we are relative, right? But market also has not gone so bad. We expect that quarter three, quarter-four as a GDP also will recover, right? So if you recover, then you will see not much better performance of us in this books and these are secured books.
Gaurav Jain
Rohan, if I — Sameer, sorry, if I can add. If you go back to our last quarter commentary, I think we had mentioned at that time as well that typically first-half is relatively not so great for retail secured assets. Second-half October, November, January festive seasons, you see slippages and then December onwards, December, Jan, Feb, March, DJFM as we Call-IT, you start seeing the better performance, recoveries, resolutions, right, and economic momentum also supports that. So if I follow the same theory and I look at the numbers internally, the same thing has played out. October, November, we did see some higher slippages and that’s what you were seeing. But by December, as — said, across be it collections, be it your credit cost, be it your slippages, across all the secured retail asset buckets, we have started seeing a decent jump, right? And so that gives us hope that historical DJ FMs will play-out in Jan, Feb, March as well.
Sameer Desai
Precisely, that’s why I asked that it sticks to the to the playbook. Secondly, on OpEx, now obviously, if we enter this kind of an economic environment, you would want to invest more on collections, how are we positioned there, especially in some of the core categories? Are you investing more on that? And how does that kind of drive overall opex numbers? I reckon Sanjay ji just mentioned that this year would be upwards of 58%. So just wanted to — if you could sharpen a bit on that front.
Sanjay Agarwal
My friend, if you see our last year data, we were around 63, 64 and what our endeavorance is this year is that if we want to be in the range of 50%, 59%, it will be a super achievement because in-spite of such a headwind, you know, in terms of the deposits, in terms of unsecured book, we already invested a lot in every aspect. I don’t think that by putting an extra 100 people for collections, we’ll have even a needle shift in our book because we already become a large balance sheet. We have a large budget for our expense. So — but the idea is not about not take — not putting money on the right purpose, right? We will always put our money on the right purpose and right cost because that’s the way business should be. But idea is to really be very cognizant of the other facts that we should not just unnecessarily build for the future, right, when things are not clear at this point of time. So I don’t think that we want to be — it should be lesser than what we have done this year. So the allurance is that next year, our cost-to-income should be lesser than maybe 1% or 2% of this year, right, so that we can achieve the ultimate goal of 55% in near-term.
Sameer Desai
Sure. This is helpful. Thank you and all the best.
Sanjay Agarwal
Thank you.
Gaurav Jain
Thank you.
Operator
Thank you. The next question comes from the line of Madhuchanda Dey from MCPro. Please go-ahead.
Madhuchanda Dey
Hi, good evening. I have two questions. Sir the first question is a little long-term. See, you have had an excellent track-record with what you understand best, which is secured assets. So with, you’ve got the MFI principally and that met with the sectoral headwinds. And then you yourself admitted that your experience with credit card, the way you have done the business has not been that great. So going-forward, will it make you recalibrate your strategy with respect to lending, you will kind of stick to that of what you understand best, which is secure. And in that context of how would you like to revise or give a roadmap of your aspired ROA of 2%?
Sanjay Agarwal
No, no, great. Good evening. I mean, good question. So I would say that when I started my career in lending, I started with wheels, right. Over the period, we got to know-how the — about the lending around mortgages, then we build-on the commercial banking business, then we build-on the branch banking distribution, right? So it’s never been so easy, honestly. And I won’t say that it was an honest confession that we might would have made some mistake in-building up the credit card, but the environment was also not-so-good, right, because everything was given through digital-only. Everything — everybody was really backing on the credit scorecard, right? And we were not knowing that people can misuse the credit card online through some, you know, I don’t know the word, but sorry, yeah, because we never — I never believe honestly that people can take cash-out so easily, which we all know that is a risk, right? So — but we have taken the post correction and I strongly believe that credit card still is one of the most important payment methods and we need to correct it. We can’t go away with that and — but it’s a curve we are going through. Through and I still want to back my team and learn from these mistakes. This is not that large mistakes, maybe INR100 crore here and there, but this is the way the bank should give the cost or the lending cost comes in. So I still believe that if we really want to be a good bank, we need to learn about unsecured lending and of course, unsecured products, which will keep on doing it, keep on doing it. But I think this learning will give us lot much, I would say, the assurance that we should not do mistakes like which is very evident. So that’s about credit card and unsecured piece. As we always remain very strong in terms of our commenting that macrofinance business is very important for our whole inclusive kind of framework, you know, and they give us lot of SMS in this INR7,000 crore also, INR4,000 crore is the SMF, which helps us to build our 18% obligation, right? And we have also seen that last two quarters, we are going to build now MFI through the other secured measures like there is a guidelines, there is a credit guarantee available on this book. We are actually now building up around 50% incremental book under that umbrella, right? So there is no challenge around risk rate on that book. So I think — and it’s a cyclic business, we understand. If you take my number, right, we would have expected that this book should have given us a 4% ROA this year. They might be giving us a 1% or 1.5% ROA this year instead of that. So it’s fine, right? They are not giving us a net loss in that basis on a yearly done. So I think we — again, we have to learn about it. It’s a big balance sheet. Every big bank has to do their SMF obligation. We have a growth aspiration. We will need to learn it, master it and then of course, build it for the future. So the long-term strategy won’t be so dramatically different. We always have said you that it will be a cap on our unsecured exposure. When we acquired it, we said that it will be a cap of 10%. As of now is 7%. Overall, the cap of unsecured lending is 15% is around 11%. We want to stick to that. Of course, for some time, it may go below that the bott — the whole guide number, but I believe next year onwards, you will be looking this book in a way differently. That’s my say.
Madhuchanda Dey
And on your — sorry, on your guidance of the ROA, when do you see that?
Sanjay Agarwal
Of course. So ROA, of course, again, we have the aspiration because that’s the gold class, in my opinion, in the banking system, but we are new in the banking system. We want to be in that bracket as soon as possible. But you know about that we are again living in a very relative world. You know, if India is around 6.4% this year. And with this kind of tight liquidity, this kind of inflation, there is no room we are expecting of rate cut, you know. So one of things which need to come down to make us 2% ROE bank has to be the cost of money. It has to be lesser than maybe 50 bps from here what we are actually doing it, you know, we know that asset we can grow, we can manage our asset quality. I think 10% book should not give us so much of headache going-forward. So I think if you ask me, the moment we start seeing the interest-rate cut and our cost of money getting to a right level, you will see us reaching 2% ROA.
Madhuchanda Dey
I have another question, if you may allow. This is not your bank specific. This is my — this is — I mean, I am picking your expertise on this. Like every other player in the industry whoever was lending to MFI, they are fast withdrawing from that market, right? So how do you see this crisis ending? And we are getting kind of confusing guidance. Someone is saying, wait for one more quarter, someone is saying, wait for two more quarters, someone is saying three more quarters. What is the basis of saying that wait for two more quarters? What is — that is likely to change in the ground for you to say that this is like the peak of the crisis from here on.
Sanjay Agarwal
I understand. You want my comment or you want Rajeev’s comment.
Madhuchanda Dey
Yes, I want your house comment basically.
Sanjay Agarwal
Okay. So let me try and then Rajeev you supplement if I misses something. So for me, this business has been only are one year-old, you know and I like this space to be very precise because it’s allow a bank to do their the PSL obligation and this is the last mile customer on-the-ground and we need to do that customer also to really fulfill the entire banking Dherma, right? And what I’ve seen this year is this that it is more often a executive driven challenge than a customer-driven or a market-driven challenge. If you land irrationally without understanding customers, then this will happen, right? This will happen even in secured assets, right. But secured assets, you always back on the assets so that you can cover-up your — any kind of mislending — mislending in whatever, right? But this market does not allow you that. But I think lot much has gone in last two quarters. You know, lot much discussion has happened. Irrational lending has been completely stopped. Customer know about it that if they don’t repay it, they won’t get it the money, you know and this time industry has come very seriously. That is why the 10% reduction is there in the overall asset-base in this market. Government also do not want to disturb this market so much because this is there where the entire space for inclusive banking is there, right? So we need to be there because we are not heavily — heavily, heavily on the macro finance book for our asset building. If any institution which is heavily dependent on the macrofinance building as their asset, then they might be looking to withdraw or reduce their exposure. We are already at 7%, right? So I think if you as one of the small component in overall scheme of things the banks or institution can manage. This is again one of the temporary challenge, which will be need to be addressed once the over-leveraged customer goes away. Like for example, in our case, 55% customer have the zero exposure, right? It was a — we were the only — we were the only lender in that segment with that customer at the time of disbursement, right, right, in a new one, right? And then 27% customer, we are the second lenders, right? It is good to be in that bracket, right? So I think industry will become mature, the customer will become mature, you know, and this book gives you 4% to 5% ROA once the things are good, right? And in a bad term, it gives you a 0% or a minus ROA, right? So you have to be really balance your view that this book might give you sustainable basis 3% ROA, provide every year about 3% ROA and build the cushion so that in case of the eventualities, you can use that buffer for your maintenance, right? So if you do all these things, you know a well-diversified book in terms of your overall build buffers in the good times, be rational in terms of lending, build around the guard of MFIN, you know, build the discipline around lending and the entire culture of the MFI business has to be there. I believe you can handle with maybe 5% to 8% kind of book in any balance sheet.
Madhuchanda Dey
Yeah, thanks a lot and all the best.
Sanjay Agarwal
And, you want to add sir, because Rajeev has handled it for last 12 years, it’s good to hearing from him.
Madhuchanda Dey
Yeah, please.
Rajeev Yadav
Yeah. So just to give for the benefit of everyone. And you asked a very specific question on this two-quarter versus 3/4 and why should we expect more optimism going-forward. Fundamentally, and this is coming from experience of having seen demand as a cycle, COVID, two waves of cycle, fundamentally, the product is a two-year product. And once some problem comes into the product, be it an external event or be it an over-leverage event like this, there is a certain segment of customers which are over-leveraged and that’s where the flow is coming from over the last six months or nine months now. And that’s what is — that’s why we are seeing the credit cost that we are seeing in the P&L at this point of time. So the — so there are two or three things which happen naturally in the industry. One, in a matter of two or 3/4, the difficulty was — of the problem starts disappearing. Two, the industry comes together and builds some things. And this has happened earlier also and is happening right now. And fundamentally, all the players in the industry stick to those guidelines and then try and correct the problem, whichever was causing the problem. So in a larger context, we have seen it by vast experience, the typical problem, the harder part of the problem last was six months on an operating basis, although the provisions will come in with a four to Six-Month lag and for AU, we provide 50% at the time of the NPA creation and we pretty much provide — and we provide 100% in the next three months, which is at 180 DPD. So the typical credit cost is comes a lag of four to six months. And therefore, what we are experiencing at this point of time with the industry is also experiencing is a better outcome on operating efficiency starting from December. Early green shoots, I would say, were in October, but we are more confident that we derive from the December data. And by very logical nature of the project, the way we are building a new book, the way the industry is working together on this, I am reasonably confident January, February, March will be operating wise better, but the benefit of the credit cost will obviously be lagged with about four to six months of what we do.
Madhuchanda Dey
So is it realistic to assume that by the second-quarter of FY ’26, we would again be somewhat in a much better frame as far as MFI is concerned?
Rajeev Yadav
Yes. I would say at an industry level and I’m very confident of ourselves that it will be a better frame. But for going back to the precision of pre this cycle, we’ll have to see whether it takes a quarter more, but I think by Q2, we should largely be behind over leverage credit cost problem.
Madhuchanda Dey
Thank you. Thank you. That’s really helpful.
Sanjay Agarwal
Thank you.
Operator
Thank you. The next question comes from the line of Prakhar Agarwal from Elara Capital. Please go-ahead.
Prakhar Agarwal
Yeah, hi. Thanks for the opportunity. Just two, three questions based on the outlook that you have given. First, in terms of growth outlook that you have essentially brought down to around 20% from 25% within a quarter. And this time around, we have mentioned that you would be around 23% to 25% and essentially looking at the mix, unsecured is only 10%. So have we lowered our growth in secured segments as well or how is the math working around from 25% to 20% growth guidance cut in one quarter that we have done.
Sanjay Agarwal
So Prakhar, again, because you know that by last quarter, we were all expecting that India to grow by 7.4%. Now we are expecting India to grow by 6.34%, right? At the size we are operating, we don’t want to take unnecessary risk. And our two books, which is credit card and MFI, everybody knows that we don’t want to grow it again with the mindset of growth. We want to really want to grow that book with a mindset of rationality. So that two books are out-of-the action for this quarter. Other than that, secured retail asset is growing in the range of 20% to 24%, commercial banking is growing in the range of 30%. So that remain intact. And all put together, it’s around 20% because it’s still 20% is 2 times of the industry average. So I’m very happy that, of course, it’s below the — what we have guided, but not much has changed in last nine months in entire ecosystem. So we have to respect that. So — and of course, if we even grow by 24% our deposit because why we want to grow more than what the asset requires and we want to keep our CD ratio around 85 or maybe in the range of 80, right? So that is why we also want to really manage the cost of money by not growing that kind of deposits. So again, it’s a balance, but very happy to lower our guidance so that in this tough time we don’t get much hiccups later on.
Prakhar Agarwal
Okay. Just two more things on this, just a follow-up on this as well. So the other guidance that we have said is on funding cost, which wherein we have said that it will now be around 7.10 to 7.15. What has changed in the quarter in our favor to have seen this sort of benefits because system seems to be struggling in managing that funding cost and we are essentially going out and saying that we have lowered our guidance for funding costs. What exactly has played out in our favor?
Sanjay Agarwal
No, no. So if you see our cost of money for last quarter is around INR7.05 we were actually expecting that cost around 7.2, 7.25 in the beginning of the year, but we really played our franchise there. And as I told you that entire stitching up the product range, the distribution range, the focus on deposit franchise has been there so strong that in-spite of this growing ourselves in 15% on a YTD basis, we have not gone above the mark. We have seen no tighter positioning in-quarter four. That is why we have increased our bucket in a saving a ground and we also have inched up our FD rate by-10 bps. So we are expecting that our cost of money should be in the range of 7.7 bps, 7.8%, not really 7.11 and 12%. But I think the focus has remained so strong, Prakhar, over the year-on the deposit franchise that — and we really want to build it more — more sharp and more effectively so that in the longer run, you know the entire game-changer would be our cost of money. That’s my belief. And so we are really focused on our cost of money. Every pesa is being watched out, every person is being washed out. Every project has been being washed out so that we remain effective there. So that is why I think I would say that this year has given us a lot of confidence that we can grow our deposits and that turn-on our cost level.
Prakhar Agarwal
Got it. And just one last question. We earlier gave a slide wherein we mentioned in last quarter guidance for March ’27. We seem to have not given this time. Has those guidelines still remains or we have chosen to withdraw that as we speak? And lastly on this deposit, we seems to have also not given deposit growth guidance for this time for FY ’25, which probably we gave last-time. So just last two bits on these two.
Sanjay Agarwal
No, no. FY ’25, we are saying, 23% 24% deposit growth, 20% asset growth. We are very clear that where we are heading for March ’25. We have already given you the guidance about growth, the expected opex, the expected credit costs. So I think March ’25, largely we have given you, but it’s difficult to predict next year because again, not much variable and we have also have taken the cognience that we are not absolute, we are relative, you know. So on this size where we are balance sheet would be 1.5, 1.6, you know, whatever happens to country would have — will happen to us, right? So let’s see how the entire interest-rate cycle move from here, how the credit cycle of unsecured business behaves for the next two quarters at least. So then only we can provide the longer guidance, but I can only assure you that the way we are building our bank in terms of the entire verticalization, be it branch banking, be it secured assets, be it commercial banking, our digital framework, AD1 license, even the credit cards, even the MFI, we are top of the everything, right? And we are watching every book, every step so closely that in next two years, what we are saying that it takes 10 years to really build a bank, you will see us a very formidable institution in place.
Prince Tiwari
Prakhar, if I can just add to your point on the slide. So see, March ’27 strategy is something which is out there, which we had presented in March 18th of March last year and we continue to be guided by that. I think what we have given in September is the progress around that and we’ll keep updating you every half year of how we are progressing. But I think the biggest thing that Sanjay articulated and which we probably would like to articulate on this call as well is when we had put that guidance out, the overall outlook on the economy was very different compared to where we are. And given that there has been a complete slowdown or a very clear slowdown in the economy, you obviously have to adjust and focus on prioritizing asset quality over growth. So I think that’s what is playing out. But we’ll again come back to you in March because that will be the next six months and we’ll update you where we are.
Prakhar Agarwal
That is it from my side. Thank you so much.
Sanjay Agarwal
Thanks, Prakhar.
Operator
Thank you. The next question comes from the line of Pranuj Shah from JPMorgan. Please go ahead.
Pranuj Shah
Hi, sir. Thank you for the opportunity. So two questions. One is, we have clearly seen MFI growth overall slowdown and for good reason. And general feedback from the industry players is that even in FY ’26, at least even asset quality recovers, growth at an industry level is likely to remain slow. So if we overlay that on your — in general, assuming a 25% overall growth in FY ’26, MFI continues to taper off. So does that impact your PSL objectives for ’25 and ’26 also? And a subsequent question to that, will that impact your overall cost ratios also because some of the efficiencies like you said you had with the Fincare merchant in FY ’25, those are unlikely to be present in FY ’26 and plus you will also have branch expansion over there. So just something from the opex perspective trying to tie-up the 1% odd cost-to-income reduction that you’re expecting for FY ’26?
Sanjay Agarwal
Yeah. So again, I think very detailed kind of expectation on this call from us. But let me figure out like I would say the whole integration is in-place and the Fincare was running their own head office-based out of Bangalore, they had their own IT system, they had their own control functions, all has been integrated largely in this year. Maybe by next half year, we’ll be doing entirely done. So there would be a lot more saving on the scale basis, because the business has come to us. We have fully-integrated their branches — branch banking branches to us, fully-integrated now their the entire Finchier unit of lending except macrofinance. So I think synergy has been now there, the size has been there, the markets are there. So we are — no, if we would have done on a standalone basis, this would — this expansion would have required a lot of capex, lot of time to do it, but we have ready with us now. So once we integrate with the entire umbrella, one umbrella, then the things start coming day-one, right? So that’s the way we want to see that picture. And in terms of SMF, we have a macro finance book. We do have the agri-banking book. We do have the SMF lending, then we do have the FPO lending all put together by the support of the government guarantees also. We don’t expect that we should have the SMF SMS deficiate and we have to — we should not do that, right? But in case it is there, there can be a cost there. But it’s difficult to predict as of now because it’s a long way to go. You’re talking about next five quarters, right? We have to do that kind of decision in next March, you know. So I think it’s a long ball for us to play. And in terms of what other question? So that’s why I’m saying you that there is nothing — so we don’t want to do much kind of opex based on our expectation that we need to build this book, how we need to build this branch, all those things. Everything is now BAU. We want to really build more digitally efficiency, really working on a digital labor, right? We want to introduce the digital labor internally so that we don’t depend on a human effort other than depend more digital effort, right? So I think small, small thing, but the hope is this that we might be — it should be lesser than a cost-to-income what will do this year so that we remain on the path to become a 55% cost-to-income in next two to three years.
Pranuj Shah
Understood. Thank you, Sanjay sir. That was very helpful. And second question, Rajeev, sir, just on the MFI book, you have mentioned non-overdue collection efficiency of 98.5 as of the 3rd-quarter. Would it be possible to disclose how much this was as of December end? And so this is a non-overdue part. And even on the go-forward rates in the MFI book from SMA to NBA, are you seeing an improvement there also in December?
Rajeev Yadav
Yeah. So the December number eased up to 98.7% and that was the second-best number in the calendar — calendar year H2. So it was — and we can see that it’s a stable outcome and we should work forward on that number. On the SMA books also, because of our strong staffing now in the recovery vertical, which we have done over the last six months, we have increased our headcount from 600 that we had on the recovery vertical as of June. We have reached a number of about 1,500 and we are not and hire trained and stabilized team. So because of that, our efficiencies coming from the SMA book coming from the NPA books has also started seeing improvements. So fundamentally, improvements on both sides and the December number was about 98.7%.
Pranuj Shah
Got it. Thank you. That was very helpful. That’s it from my end.
Operator
Thank you. The next question comes from the line of Ritika Dua from Bandhan. Please go ahead.
Ritika Dua
Hi, sir, sir, just one question. In your opening remarks, there was a comment about gold loan business, wherein you were saying that the change in by RBI would help…
Sanjay Agarwal
Ritika, you are not — your audio is not very clear. Can you just…
Ritika Dua
I’m so sorry, I’m just saying that on the — on your opening remarks, you made a reference on gold loan business and how you go faster there because of a regulatory change. Could you just elaborate on that? That’s the only question I had. Thank you.
Unidentified Speaker
So I think that there was two, three items in the gold loan circular came through RBI in the month of somewhere in October. One was your BC model have to be revamped as per the new RBI guidelines. Like they said, okay, the business has to be done only through branches. BC have to come your branch and customer have to come your branch and storing and everything valuation everything have you done in-branch. So that model has been shifted from that BC model to own branch model. The customer is now coming to your branches. And the second part that came in the circular was that, the renewal which was happening in the industry will now move to the customer have to repay the whole loan and then only the new loan will be given to the customer. Renewal has been completely stopped in the industry. So that came in the RBI circular three months back, which we have…
Sanjay Agarwal
So for the — Ritika, so of course, Deepak has given you a little bit, but my understanding is this that first the LTV of a gold has been now standardized, whether be it a bank or be it NBFC, you can’t give about 75% throughout the loan tenure and there is a — if there is no renewal, then loan generally has only one year or maybe 18-month period. You know. Now, of course, NBFCs were operating on a different, banks were different, but we do not have any risk rate as a bank because we are doing funding against gold. And the practice of those guidelines has been now stringent, right, by the action of the RBI. So I think nobody will take the chance. We have the two advantages as a bank, one, we have the cost of money. Second, we have a storage facility and customers generally have more belief in banks, where we — where the bank lack is the delivery time of a loan, right, because where the NBFC has made their expert because they have very separate gold shop and all those things. So we are also thinking about it that how we can master ourselves now when we — there is a label playing field available now, right? And we have the advantage of cost, we have advantage of risk-weight and we have the advantage of brand and so I think now is a playing field and I think many banks would be doing this now in my opinion. But being with Fincare, Fincare is doing this business in the last four to five years. So they are actually expertise in terms of delivery in maybe time, half in our kind of things. So we want to really replicate that to many of our centers, right? So we have a distribution, we have expertise, the level-playing field, we have certain advantage like I already commented about no-risk — no-risk weight and of course, the cost of money. So that should allow us to build a decent franchise there. But we are working — we are working on it. We are working on it. Lot thing has to be done to really come out with the final print.
Ritika Dua
Great. So sir, just one clarification on the same. So when you say that for the industry, and I’m assuming whatever the circular is it’s applicable now for banks and NBFCs combined?
Sanjay Agarwal
Yes, yes.
Ritika Dua
Okay. Great. And sir, secondly, when the rollover has to stop, I don’t have a exact percentage, what was the percentage which was getting rollover, but I’m assuming it will be majority. So now does the customer…
Sanjay Agarwal
50%, 50% loan of gold loan was — was getting rollover by the existing lender.
Ritika Dua
So sir, now customers say today I have a repayment due today, so I’ll come and pay my bullet today. So then is it like now the — there should be a cooling…
Sanjay Agarwal
Somebody has to — the customer has to pay or somebody has to take-over?
Ritika Dua
Yeah. Okay. But for the same lender to repay to again give the loan to the borrower, I repay you today and then is there a cooling period and then I’m eligible to get the…
Sanjay Agarwal
No, no. I think that’s too technical, that’s too technical, you know. But largely, once you are dealing on a scale, it doesn’t happen like this that somebody would have bridged the repayment and again the company can come back because you know that nowadays how regulatories. So in a sprit also, you also have to comply.
Ritika Dua
Great, sir. Thank you so much. That’s it. Thank you.
Sanjay Agarwal
Yes.
Unidentified Speaker
Thank you, Ritika.
Operator
Thank you. The next question comes from the line of Shailesh Kanani from Centrum Broking. Please go ahead.
Shailesh Kanani
Thanks for the opportunity, sir. Sir, just wanted to understand our strategy for CGFA, you cover, we are increasing the percentage over there the cover. So where we — what is the strategy, how high we are going to go because it will entail some cost as well, right? And have we factored that?
Sanjay Agarwal
Yogesh will answer this.
Yogesh Jain
So hi, Shailesh. So we know that our microfinance loan are eligible for this guarantee cover. We were doing for some of our micro-business loan, unsecured micro-business loan and we were getting that guarantee. And these guarantees are very seamless. We are getting money. So basis that experience now from this financial year, we have covered our microfinance loan. So first-quarter it was lesser and now maybe going-forward, maybe around 90% portfolio of microfinance will be covered in this guarantee program. Yes, cost is there, but if we see the overall benefit of coverage versus the cost, right? It is much, much beneficial and then of course, there is no provisioning requirement if we cover a under guarantee program. So — and then we see the working of these guarantee organization, right? So there is lot of awareness and they also want to help, right, to reach the real financing to these people, so…
Sanjay Agarwal
To add on — Shailesh right? Shailesh to add on to Yogesh. So what are my personal understanding is this that government really want to help a lot much borrowers in this space, be it macrofinance, FPO, SMF held — SMF lending, Mudra loans, all those things. And we as a bank are there for a distribution, right? So I think lot much efficiency has been built-in entire guarantee scheme from the COVID time. And I think there is a realization in the government that the — by giving a guarantee does not mean that there will be too many default because as a private sector, we do not much due-diligence before we lend the money, right? So it’s a combination of the private and the public partnership in terms of creating that atmosphere where we lend it carefully. In case customer goes back, the government comes and help us. So — and I think there is not much efficiency has been built-in that whole credit guarantee system where we don’t have to fight with the government because there is ample fund available and there is an allocation through budget, right? And they also have a target so that the real lending can happen, right? And recently, we saw the budget giving you that a subsidy on the affordable housing space, right? And there are lot many state schemes nowadays, right? So we as a banker are beneficial in my opinion, where we need to understand those schemes, really try to implement through distribution system and see how customers get benefit. And in case of any default, we can actually rely on this guarantee so that we will remain secured. So we as a bank has taken this as a very serious — serious press because this is the way the India is, right? Something will be taken away from us and something will be given to us, right? So we need to understand both things equally and then build-on, right? So we are serious, but it is — it won’t be very large book, right? As of now also is around not more than 4% book is covered under this, right? So we want to remain, you know there, but not that much also that entire things has been based on the government guarantees.
Shailesh Kanani
Sir, just a follow-up, means, as you have highlighted in the past and today as well, that Fincare acquisition will kind of strengthen the SMF portfolio. And currently, I think we are going towards — or at least we highlighted that we might even take 90% CGF cover for the MFI business. So — but as I understand the CGFEB cover is specifically for non-agri businesses. So can you clarify how these two aspects would align and contribute means…
Sanjay Agarwal
It’s covered. Shailesh, It’s covered. SMS is also covered. It’s covered. We have taken the clarification. And just to elaborate more, like if you take a guarantee, guarantee commission can be paid by customer to the agency, we can lower our rate because it’s a coverage on our default and we can take our service charge and there is no-risk weight. So if you see the industry was suffering from the higher-rate kind of narrative, then we were suffering from what type of risk rate would be there on the MFI book and then how much charges we charge from that book that all been addressed by one of the guarantee offered by government, right? So we can lower our rates, we can charge judicially and there won’t be any risk rate because the government guarantee.
Shailesh Kanani
So basically nutshell, even the agri-business is covered. That is what I wanted to understand.
Sanjay Agarwal
Yes.
Shailesh Kanani
Okay. Fair enough. Sir, just last question from my side. Sir, on the wheels front, there has been some…
Operator
Shailesh sir, may we request you return to the question queue for follow-up question.
Sanjay Agarwal
This call has because more general knowledge call right.
Shailesh Kanani
No problem, sir. Thanks a lot. Thank you. Best of luck.
Operator
Thank you. The next question comes Piran from CLSA. Please go-ahead.
Piran
Yeah, hi, congrats on the quarter. Just one question I had. Regarding this MFI industry rule from four lenders per borrower to three, which is coming from 1st April, has the industry proactively started with three or are there — first…
Sanjay Agarwal
We have started — whether we have started, we have started — we can’t comment on the industry, we have started.
Piran
Okay. Fair enough. And when you — when you say that December was better than October and November, this you’re talking only about collection efficiency on standard loans.
Sanjay Agarwal
Sorry?
Gaurav Jain
Yes. That’s correct. Yeah.
Sanjay Agarwal
Yeah.
Piran
When you said that December was better than November, you were referring to the collection efficiency or non-overdue loans.
Rajeev Yadav
Yeah. So this is Rajeev. So it was better on the SMA buckets collection efficiency also for MFI and also it is better on the disbursement. So pretty much when you look at all the key variables, it was a better month and directionally, it was indicating that we should have a better outcome in-quarter four.
Piran
Got it. And this 98.7, what would it be in a normal scenario, let’s say, one year back or two years back.
Gaurav Jain
So FY ’24, we were about 98.4% on that metric, 99.4% on that metric.
Piran
Okay. So you still have like 0.5 bps per month turning over due more than usual.
Gaurav Jain
Versus last year? Yes, that is the correct number.
Piran
Understood. Okay. Okay, fair enough. That’s it from my end, and I wish you all the best.
Gaurav Jain
Thank you, Piran. Thank you.
Piran
Thank you.
Operator
Thank you. We’ll take the last question from the line of Nitin Aggarwal from Motilal Oswal. Please go-ahead. Mr. Aggarwal, your line is unmuted. Please proceed with your question.
Nitin Aggarwal
Audible now?
Sanjay Agarwal
Yeah, Nitin.
Nitin Aggarwal
Yeah, hi. Good evening, everyone. Firstly, congrats to the entire team on a resilient performance and current environment. I have two questions. I have two questions. First is on the cost-income outlook. If I look at very commendable cost-control, that has certainly helped like in delivering rightfully on the profitability front. So while you have given a full-year outlook and — but how should one look at the forward years? Because earlier we were looking to do 60% cost-income this year and now that has changed to INR57. So will this cost-income improvement sustain and will we like improve further in the coming years or will we like stagnate here or go up from here? So how should one look at it? That’s the first question.
Sanjay Agarwal
Then if that’s our belief and that’s the way we want to work upon that our cost-to-income should reach 55% as soon as possible, but I can’t define as soon as possible right now because there are too many variables, right? But you know, we are not doing anything in our expectations. So we have become more in terms of reality that let’s manage today because there is always a charm in bank to do new things, but we already have built so many product lines, so many verticals and we need to get the scale in that level, right? We want to build more secured asset class. We want to build more commercial banking. We have AD1, we have the wealth business, we have the insurance business, we have the credit card, we have the MFI. So there’s not much is there on the table for us and we just want to be more focused there. Our IT has done a lot of investments. Our people, we have already have done well with them in last seven years. So the — now the idea is to be more effective, right, through the monitoring, supervising, asking questions and even introducing the digital efficiency through digital labor or AI and all those things. So that has already has begun, right? So our idea is to really be a lower than this current year, but this current year we can be around 58% or maybe 50%, you know, 1% here and there. But next year, our focus should be that we should be lower than this, but still we need to be crossing this quarter-four hurdle and then regroup ourselves and see our growth aspiration and of course, in that relation, build your opex, right? But there is a focus on that particular piece, you know, and you have seen our effort in last now nine months and that will continue.
Nitin Aggarwal
Right. Thanks for that. And second question is like we have been moving pretty close to our full-year ROI guidance. However, if you look at our on-book PCR ratio has moderated over the year to now 61%. So what are your thoughts on managing this trade-off between the ROA and the PCR and any particular level that you will wish to maintain for the bank?
Sanjay Agarwal
Yeah. So Nitin, our PCR is coming down because there is a new fresh of loans, which is becoming an NPA, we are not carrying the legacy. If you write-back the technical write-off in our PCR calculation, we are north of 80%, right? But we have very prudent write-off policy also that — so that we don’t hang on the bad assets on the balance sheet. So if you ask me and if you carefully see the internal calculation, which is not available to you, our secured asset is around 60%. Our unsecured asset is around 80%, you know our — even our MFI business is around, 67% 68%. So it’s — in my opinion, it’s well-covered. And as we move more deeper and deeper, we will guide the market, but Andurance is to keep around 70% to be honest. But let’s see how we want to reach to that level because there are challenging times as of now, there are not many write-offs and we just want to clean-up our balance sheet every time. So it’s not a worrisome for us. It’s a tactical number which can be addressed as we move forward.
Nitin Aggarwal
Right. Got it. Thanks so much, Sanjay ji, and wish you all the best.
Sanjay Agarwal
Thanks, Nitin. Appreciate.
Operator
Thank you. Ladies and gentlemen, I would now like to hand the conference over to the management for closing comments.
Prince Tiwari
Thank you, Sagar, and thank you everyone for joining this call on today, Friday evening, and thanks for all your questions and your support. In case you have any further questions, you can reach-out to the IR team at any point. Thank you and look-forward to seeing you again next quarter.
Sanjay Agarwal
Thank you so much and we didn’t wish you, but very Happy New Year. Thank you. Thank you so much.
Prince Tiwari
Thanks, Sagar, you can close the call.
Operator
[Operator Closing Remarks]