Bajaj Finance Ltd (NSE: BAJFINANCE) Q3 2026 Earnings Call dated Feb. 03, 2026
Corporate Participants:
Rajeev Jain — Vice Chairman and Managing Director
Sandeep Jain — Chief Executive and Financial Officer
Analysts:
Subramanian Iyer — Analyst
Viral Shah — Analyst
Abhijit Tibrewal — Analyst
Piran Engineer — Analyst
Abhishek Murarka — Analyst
Shreya Shivani — Analyst
Chintan Joshi — Analyst
Presentation:
Operator
Ladies and gentlemen, good evening and welcome to Bajaj Finance Limited Q3 FY ’26 Earnings Call, hosted by Morgan Stanley. This event is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures. Please note that this call and your questions will be recorded and may in certain circumstances be distributed to clients and/or made publicly available. By participating in this event, you consent to such recording, distribution and publication. [Operator Instructions]
I will now hand the conference over to Mr. Subramanian Iyer with Morgan Stanley. Thank you, and over to you, sir.
Subramanian Iyer — Analyst
Thank you, Emily. Good evening, everyone. This is Subramanian Iyer from Morgan Stanley. Thank you very much for joining us for the Bajaj Finance Q3 FY ’26 Earnings Call. To discuss the earnings, I’m pleased to welcome Mr. Rajeev Jain, Vice Chairman and Managing Director; Mr. Sandeep Jain, CEO and CFO; and other senior members of the management team.
On behalf of Morgan Stanley, I would like to thank Bajaj Finance management for giving us the opportunity to host them. I now invite Mr. Rajeev Jain for his opening remarks, post which we’ll open the floor for Q&A.
With that, over to you, Rajeev.
Rajeev Jain — Vice Chairman and Managing Director
Thank you, Subbu. Thank you, Morgan Stanley, for hosting this call. I have with me in the room, Sandeep Jain, the three Deputy CEOs and the other two Chief Operating Officers. Good evening. Welcome, everybody, to the earnings call. The investor — I’ll be referring to the investor deck, which has been uploaded on our website. I hope you had a chance to go through the same. I’ll focus on key updates for the quarter before we move to Q&A. So I hope to take 15-odd minutes. I’ll cover 8-10 panels very quickly. Overall, from a commentary standpoint, I would just say I’m on Panel 4 that the core performance of the company, eliminating onetime charges of new labor code and the accelerated ECL provision that we’ve taken in Q3 remained pretty strong. So let me cover that.
There’ll be a follow-through panel that I’ll cover after that. So the core performance remained pretty strong across all key metrics, namely AUM growth. AUM grew by INR23,622 crores. OpEx to NTI came in at 32.8%, core profit growth came in at 23% growth and PAT, which — as I said, which grew by 23% as well. ROE at a core operating level before the one-time accelerated ECL provision and onetime charge-off new labor code came in at 19.6%. Net NPA came in at 47 basis points. The one-timers in the P&L are principally two that we’ve actually taken.
Firstly, to enhance balance sheet resilience amidst a volatile global economic environment, the company has further strengthened its provisioning framework by implementing a minimum loss given default floor across all lines of our businesses. And we’ll cover that in detail as I cover through the presentation or part of Q&A. I must make an important point that it’s purely done as a proactive and voluntary measure by the company. And it’s a permanent change to further bulletproof our balance sheet and the resilience of the firm. And going forward as well, the company has continued to apply the defined LGD floors as you’ve determined for in the future as well.
So one, it’s onetime. And two, it will have some level of impact as we — small annualized impact as well as we get into next fiscal. The company has principally taken — let me just cover the INR1,406 crores provision that was made on an accelerated basis. The Stage 1 PCR as a result of this moved from 74 basis points to 98 basis points. So that’s — I mean, virtually 1% of the assets are now in Stage 1 as you acquired, which is the point I was referring to earlier that would have an annualized impact as well as we get into future years as well. Stage 2 PCR has increased from — has been increased from 31.1% to close to 37% and Stage 3 has moved from 52% to 61%.
As I said, these are — these changes are principally permanent in nature and strengthen the balance sheet, creates further resiliency to the business model and to the firm amidst the volatile global environment that we think we are principally in. The second impact is the onetime exceptional charge of INR265 crores that we have taken towards increasing gratuity liability on account of the new labor code released by Government of India on 21st November. This will also have an annualized impact as we get into next fiscal. We’ll cover that based on the Q&A. The annualized impact is expected to be between INR100 crores to INR125 crores annually.
These items principally had an impact on, of course, on both AUM and profit numbers. I’m in Panel 5, which talks on the left-hand side about the before accelerated charges and on the right-hand side, about the after accelerated charges. I’ve covered the Panel 5 clearly. I can give — so — and what — we are more focused on principally is the core operating performance. These two are onetime charges that we have taken, given, as I explained, one is gratuity related and another being voluntary in nature. This takes me to the third important event in the quarter, which is gain on sale of BHFL shares. This is another exceptional item that is figuring in the financials of Q3. It’s recognized in the stand-alone P&L statement of BFL. On a consolidated basis, it has a — it’s below the line item.
As part of MPS compliance, 2% of BHFL stake was sold by Block sale. And as a result, the BHFL shareholding in — by BFL in BHFL now stands at 86.7%. The resulting gain was INR1,416 crores has been recognized in stand-alone financials as an exceptional item. Let me now jump to the more routine metrics that we principally talk about, which is Panel 6. As a result of the INR1,416 crores, you will see two lines. There’s a change. You will see on top the reported number, which is 22%, the core growth number, which is 23%. The INR1,416 crores also gets knocked off. INR1,406 crores also gets knocked off from the AUM, and that’s why you see two numbers there. We are focused on core operating performance.
Core operating AUM was up 22%. New loans booked were up 15%. We booked a record 14 million loans in Q3 versus 12 million loans that we did in last year Q3. Customer franchise, just — we added 4.76 million customers. We are virtually adding 4.5 million to — between 4.2 million to 4.5 million new customers every quarter. We now expect 17 million to 18 million customers to be added to the franchise in FY ’26. It will be on back of 17 million customers we added in the previous fiscal as well. The overall franchise stood at 115 million. We are well on course to cross 120 million franchise in the current year. The cross-sell franchise continued to expand and stood at 74 million.
Geographic presence, as I’ve made a point in the past that we have mostly peaked out. It’s deepening rather than broadening that’s happening, more products in geography rather than new geographies, which should, as you can continue to see, also resulting in operating leverage as a firm. Active distribution, 241,000 is where we are present in. Liquidity buffer stood at INR15,100 crores. Cost of funds came in at 7.45%. It is an improvement of 7 basis points sequentially.
And COF is expected to be — we had outlined at the beginning of the year from a guidance standpoint, the number to be between 7.55% to 7.65%. We are likely to be between 7.55% to 7.6% in terms of cost of funds as we exit the year. The deposit book, as we had outlined that as part of the strategy in the current year to optimize that deposits is — growth will be slower, deposits contributed to 17% of consolidated borrowing as of December ’25. In terms of outlook, I would just — in terms of operating efficiencies, just on that from an outlook standpoint, given that we are in — the year is virtually coming to an end.
Overall, we have taken a view that the top line growth or AUM growth will gravitate between 22% and 23%, but more likely to be 22% on a full year basis. Given the actions that we have taken in the MSME business, that’s something that you’ll see, which has grown in quarter three only by 11%. We think it will still take us two to three more quarters before we are back to 20s growth in that business. So based on the conscious decision that the company has taken to slow it down, we will have some level of impact. And the second order impact is on account of the captive two-wheeler financing book, which is winding down.
Based on both these, we think the overall full year growth will be between 22% and 23%. Operating efficiencies continue to deliver benefit, came in at — net interest income grew by 21%. NIMs were steady. That’s an important point. NTI grew by 19%. OpEx to NTI grew — continued to improve, came in at 32.8%. The AI implementation, for the first time, we have now started to cover metrics on AI, which I’ll cover in a few panels down the line. We’ve now started to metricize — AI is moving to what I would call year two in the company where from innovation, we are now tracking implementation and the benefits that it’s delivering to the business. And we thought time has come post second LRS or the Investor Day that we did that we’ll start to publish AI benefit metrics to the Street.
Full-time employees stood at 69,000, virtually 70,000, including all the three companies. Fixed-term contract folks stood at 78,000. Risk then — let me just go to credit cost, which has been an important metric of profit growth or the direction of the business came in at INR3,625 crores. The core metric came in at INR2,043 crores, a growth of 9%. So as I said, we are tracking core because INR1,416 crores is principally a voluntary decision that we’ve taken and a permanent voluntary decision that we’ve taken, year-on-year basis, loan losses and provisions grew by 9%.
Annualized number came in at 1.91%. After a while, we’ve seen a sub-2% number. And we think from here on, the number will continue to slide down as we get into next fiscal as well. In Q3, the point number 17 is important. The Stage 2 and 3 was on a net basis was down INR93 crores. The formation had been slowly going down, but there was a decrease after a while in the current quarter came in at INR93 crores. Stage 2 decreased by INR287 crores and Stage 3 increased by INR194 crores, net-net leading to a decrease of INR93 crores.
The vintage credit performance, which is what we’ve been tracking since February this year, has across three months, six months and nine months and that’s what gives us significant confidence as we get into next fiscal from a credit cost optimism standpoint that we are in a good corner as a firm from a credit cost standpoint. GNP, NNPA, principally an outcome metric stood at 121 basis points and 47 basis points. Pre-provision profit grew by 19%. That’s a core metric in that sense. And PBT grew by — as I’ve already covered that by 23% adjusted for one-timers, it actually degrew by 6%. ROA came in at 4.6% at a core level, ROA came in at 19.6% and capital adequacy came in at 21.45%.
Let me just quickly shift now to the FinAI transformation. I’m on Panel 9. This is the first attempt that we’re making to start to democratize AI implementation to — that we are doing to the investors. The way you should read it is there is — at a starting level, there’s data for AI, then there is product and service discovery, then there’s customer engagement, then there is what are we doing at point of sale and branches, what are we doing for customer onboarding. So it’s a full life cycle of a customer, as I’ve been saying to everybody that it’s — we are not testing AI. We are deploying AI across the board, across life cycle.
So if you — I’m going back to Panel 9 to give — so that’s the structure. These are a few metrics we thought which are relevant and important, which demonstrates that how AI is beginning to change the business. So voice-to-text conversion of all customer interactions that we do, we — AI listened to 20 million calls and converted voice to text and gave us data. Text to data conversion happened for 5.2 lakh customers.
And as a result of that, we generated 100,000 new offers on which we did not have information earlier. So that’s the way and how you’re seeing it move that the first capability did not exist in Q1 and Q2. It just got deployed. So we’ll be able to listen to 100 million calls next year, and we’ll be able to convert voice to text as we move forward in beginning for sales, then for service and then for DMS.
Similarly, in terms of — 100% of videos are now generated by us using AI, 100% of banners are generated using AI, 2.7 lakh videos were generated, 1.2 lakh banners were generated. At customer engagement level, we have 11 AI text bots that are live that are engaged with the customer. So rather than sending them SMSs for 11 products now, we have an AI bot, which allows you to engage and interact and respond to your queries. The company has 26 products. All 26 will be live by between April and May of ’26. So there will be no communication that we’ll be doing, which will not have a — whether service or sales, which will not have a conversational bot embedded in it.
At branch and point of sale, existing customer face match that we’re doing, we did 46 million face matches to ensure this is the same customer if it’s an ETB customer who had actually principally come in, giving us much better control over identity. Customer onboarding in terms of document, ensuring that auto fill of document happens, whether it’s PAN card or it’s Aadhaar, there are 43 such documents that the company has now mapped, which an image extracts with a 95%, 96% accuracy data and populates it in our platforms, delivering significant productivity for our employees.
Just on Panel 7, auto quality check of documents is now 41%. We intend — we believe that as we sharpen the model, it will take us to between 85% and 90% over a period of next 15-odd months. The loan disbursements through AI voice — AI call center came in at INR1,600-odd crores. Data converting — data from those calls led to another INR325 crores of volumes. So this is just our first attempt. On technology development, we are clearly seeing between 25% and 45% efficiencies emerging in terms of the development process depending on if it’s a legacy platform, then the benefit is much lower or rather, I would say, none. But if it’s a digital infrastructure, then the efficiencies can be as high as 45%, 47%. So significant work being done.
On Panel 11, it will just give you a texture on where we are principally headed over the next six months. We are investing very deep in agentics. We believe that the company would have 800-plus autonomous agents across sales, operations, HR, IT, risk and DMS in the next fiscal. That’s one of the things we are most excited about. The second thing we’re excited about is consumer AI, which is on the app, you will — and web on the app, not on the web. You will see AI injection. AI summaries start to emerge between May and June. We are building an altogether new consumer AI platform in addition to the current 82 million app installs that we have.
We expect that by May, June ’27, we’ll have an altogether new consumer AI platform for us as a firm, which may allow the same 100 million customers I expect then to go into the classic mode or into an AI mode. So it will not be another platform. It will allow the customer to choose an option between an AI platform or a classic platform. Data intelligence, we are continuing — we’ll significantly be investing very deeply in data annotation across voice, data, text, images and structured data to improve our intelligence on the consumer significantly so that the velocity of the business can improve. So that’s really on FinAI.
We’ll continue to provide update on a quarterly basis from here on to you as to how we’re transforming the business. BHFL has already done its results yesterday. They’ve had a very good quarter. AUM grew 23% and despite very high competitive intensity and higher portfolio attrition and the PAT growth was 21% and ROE was 12.3%. Asset quality for them remained quite healthy at 27 basis points and NNPA of 11 basis points. BFSL had a very good quarter. AUM grew 63%, profits grew 74%, and they added 104,000 customers in the quarter and delivered an ROE of 13%.
Lastly, I’ll just make a point on some of you were there for the Annual Investor Day. I would just request you all to go through our annual investor deck, which covers in detail as to what on a rolling basis is our ambition as a firm, which is to be a customer-centric company serving all needs of the customer. We foresee that we will be a 200 million customer company in the next three to four years’ time. The market share of this franchise or current franchise or the future franchise is very, very large. We want to have a larger and larger share of that customer’s wallet. We want to be clearly a technology leader in financial services in India. And you can see that conversation leading to the earlier FinAI point that I was making. And we want to clearly be the lowest risk business in India.
In a way, it demonstrates the balance sheet resilience action that we have taken is coming in from these three are all connected. They are showing up in Q3 financials in that manner. And you will see — continue to see acceleration of these three areas as we progress well into FY ’27. I think that’s really — I’m 21 minutes into it.
I think that’s really all from me, and we are happy to take questions.
Subramanian Iyer — Analyst
Yes. Rajeev, I just want to clarify it’s on web [Speech Overlap]–
Rajeev Jain — Vice Chairman and Managing Director
It’s on web — okay. I was just confirming. AI injection will be on app and web. Perfect. Perfect. Thanks. I don’t want to cover — just before Subbu opens it to questions, last point, which I usually do, which is on Panel 58, 59 and 60 other than business and professional loans, and 61. We are principally all green. In general, we are quite optimistic about the credit cost outlook as we step into FY ’27 is how I would conclude and happy to take questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question today comes from Viral Shah with IIFL Capital Services Limited. Please go ahead.
Viral Shah
Yeah, hi. Thank you for the opportunity for letting me ask the question. So Rajeev, first, with regards to the ECL provisioning, I’m sure I think there will be — this will be the one thing that people are going to ask. But I was wanting to check and get a sense of the structural change that you mentioned in your commentary. What we are seeing is that there is an increase in Stage 1 and 2 PCR. So does this mean that your steady-state credit cost could look higher than what otherwise it would have been — and if yes, then basically, what would be your, say, guidance for FY ’27? And secondly, if you can just comment with regards to your growth outlook more for FY ’27? That’s two questions on my end.
Rajeev Jain
I’ll give the easier one first. The first one requires a little longer explanation. We’ll provide FY ’27 guidance along with Q4 results, which is normally what we do every year. I mean — so we’ll provide that guidance in — along with Q4 results. Coming to, I’d rather let Sandeep give an answer. I’ve already spoken for 25 minutes. So answer the same, so don’t worry.
Sandeep Jain
Yes. So I think as Rajeev called out, these are the actions that we have taken on a voluntary basis. We looked at all the products in the company, their current coverage ratios. We looked at where we want the coverage ratio to be as we go along from here. Rather than making a provisioning in one of the stages, we ensure that we follow the process. We redefine the loss given default metric by defining a floor across businesses and ensure that, that is uniformly applied across all the stages. I’ll give you example. So for example, for a business, we defined LGD floor at 80%, which means the moment customer goes into NPA, we would have at least 80% provisioning coverage done.
The ECL for Stage 1, Stage 2 gets calculated as a combination of probably the default, exposure to default and LGD. We’ll ensure that the LGD even for Stage 1 and Stage 2 is revised to 80% to ensure that it also reflects the rightful provisioning at that level as well. So it has been done on a holistic basis across all businesses by redefining the LGD floor. That’s point number one.
Point number two, yes, this will have a cascading impact because as the balance sheet grows, we will have additional impact coming on account of higher coverage ratios that we want to incrementally maintain; however, I would say that those numbers will not be significant, significant in nature. All goes well in the next year based on the estimates that we have done, the number could range between INR300 crores to INR400 crores of additional provisioning, which will ensure that not only are we taking action in the current year, we are also continuing to take the similar action as we go along from here. The incremental impact will not be significant. It will be spread across the year, which is over the quarter and we will ensure that the resilience point that Rajeev referred to is continue to be maintained as we go along from here.
Viral Shah
Got it. That’s very clear Sandeep–
Rajeev Jain
We could have — we could have taken a view to do an overlay given the environment, global environment, not local environment, we took a view to do a permanent provisioning change. I think it’s extremely important point that I must make, over and above, and creating a floor that at a design level that this is what — because, look, ECL models need 10-year data to be built. I mean at the end of the day, that’s really how — and logically should not have events which is both are not true. So after considerable thought process, we have taken this decision and it’s permanent in nature.
Sandeep Jain
And as the Board and committee approved the change, I think they were also very clear in communication that we should make permanent change and continue to follow it on a go-forward basis. They would not like to have a judgment coming into play, which could have been the case had we created this in the form of overlay. I think that’s the point.
Viral Shah
Got it. And just an additional thing over here. So I understand that this is a decision by the Board to do this. But is there any, I would say, time line wherein they will periodically want to reevaluate whether this is the new normal could be say a year or two, three years down the line or this is basically cast in stone?
Rajeev Jain
Correct decisions by management, point number one; two, fully supported and ratified by the Board. Three, we’ve taken a view that this is how we’ll run for two to three years and then take it. Your question is correct.
Viral Shah
Got it. Very clear, Rajeev.
Rajeev Jain
Perfect. We will give you along with Q4. Yeah, sorry.
Operator
The next question comes from Abhijit Tibrewal with Motilal Oswal. Please go ahead.
Abhijit Tibrewal
Yeah, good evening and thank you for taking my question. Just two things. One is, Rajeev, sir, you just explained this was a management decision, which was fully supported and ratified by the Board. But just trying to understand, I mean, why this decision now and you spoke about this decision being taken in the context of global uncertainty.
I mean, if you look at it, right, I mean, yesterday, we concluded the U.S. tariff deal, right? I mean so to that extent, things might actually start looking better from here. Thus, if we think about it last two to three years, India on the retail side of lending, right, has seen a credit cycle in almost every other retail product, but for home loans, LAP and maybe gold loans. So what is it that really prompted this? While I appreciate the fact that it just gives more resilience to your balance sheet. But the fact that we are now looking at higher LGDs on each of the products, what was the rationale behind doing it and doing it now?
Sandeep Jain
Abhijit, as you would recollect, the recent times have been extremely volatile, not only in terms of just the external environment, also in terms of how the credit quality in general has behaved for various players. We have seen issues coming in and going from unsecured business to MFI to MSME and so on and so forth. We want to ensure — we want to use this opportunity to ensure that the balance sheet in the P&L are shockproof. And one of the way of doing that is to create a permanent ECL model and ensure that we are more than adequately covered from a provisioning perspective. And that’s the call that we have taken in the current quarter. This could have been done in quarter four, could have been done in previous quarter, could have been done one year down the line.
Whenever we would have done, the same question would have been asked why now. They can never be answered for why now. I think as we found the last few quarters to be highly volatile and given that we were not aware about what’s happening, what’s going to happen last evening, we were quite clear that given the volatile macroeconomic and global environment that we were living in, it was important for us to protect ourselves with additional provisioning.
Abhijit Tibrewal
Got it, sir. Sir then–
Rajeev Jain
Let me make a point. I’ll just make added point from — so that the question is in addition to why now to the direction of travel on credit cost, okay? We foresee that the number next year as we enter could be anywhere between 165 and 175 basis — that’s the number, including the permanent provision that we’re talking about. That’s the direction that we are principally headed in. You will see that now it could be 165, 170, 175, but I’m just giving you a direction, but that is where — and I made the point in the past many times that I’m chasing as a firm ’19,’20. That is really where we used to be.
Next year, it will be 4x exercise. But — so that’s something that — and as a result, the several cuts in the business and so on and so forth that the firm has taken over the last 12 months to ensure that credit is our business, and we get that right and must reflect in the annualized number that we are talking about. So just break this two, what we’ve done now, including the permanent change the number would look between 165 and 175 basis points at this juncture is how we think about it.
Sandeep Jain
I think on a lighter note, Rajeev, there could not be a better occasion to communicate and give the message to deputy CEO and CRO than making them accountable on our earnings call.
Rajeev Jain
We will deliver that. Yes.
Abhijit Tibrewal
And then just a follow-up on — just a follow-up on that. I mean, this quarter, maybe it was just a coincidence that, I mean, we sold a stake in BHFL and like we’ve seen in the consolidated that comes below the line, given that over the course of time, you will have to kind of keep reducing your stake in BHFL to meet the NPS, — can we expect that rather than that kind of accreting to your net worth will predominantly be utilized for further improving the–
Rajeev Jain
I think — and we are expecting that this question will be raised regarding the timing of the provisioning. I think as I recollect same time last year, I think this was quarter two earnings call when we had done IPO of BHFL, the same question was asked, why not we utilize the gain — exceptional gain in terms of making incremental provision. I had noted on the point. I’m not saying that the points are correlated, but this was a point asked last time as well.
We did have a gain of INR1,416 crores, and we did make a provision through a floor introduction for LGD of INR1,406 crores in the current quarter. And I think I’ll stop here. I think the most important thing is as we get more opportunities in future in whatever ways and means, we would like to further enhance our provisioning resiliency from a balance sheet perspective to again ensure that we are shockproof and resilient as a business model.
Abhijit Tibrewal
And just wanted to squeeze in one last question on business. Yes, that does, sir. Just one last question on business. On the MSME side, I mean, you’ve explained for the last couple of quarters that whatever we’ve been seeing in unsecured MSME is predominantly because of customer overhead. Was there some problem or some customer cohorts which were also impacted by tariffs which could get better now that this U.S. tariff reduction got announced yesterday? In words, what I’m trying to understand is US–
Sandeep Jain
Not material. So it is yet to play through. And we are mostly — as I was making a point that over the next two quarters, we think we’ll be done. We’re actually looking at the 3 MOB, 6 MOB, 9 MOB of the MSME business. We think by June quarter or so, that business should also be back in — between July and September quarter, that business should also be back in the 20s growth.
Rajeev Jain
Yes, if I may just add on the MSME point, I think we had called out this last quarter as well that looking at the portfolio, looking at the information at industry level, leverage, location, bureau and so on and so forth, we have taken a set of policy actions on underwriting and credit policy, which led to about 25%, 30% reduction in volume. We are clear that until the time that we see full revival of the portfolio, we call it incipient stress, but we have to see full revival of the portfolio. Early readings are looking good. We should — we would like to continue to hold the credit policy as tight as possible. Maybe sometime in Q1, Q2 next year as we see full revival, we are more than happy to grow the business again.
Operator
Thank you. [Operator Instructions] Our next question comes from Piran Engineer with CLSA. Please go ahead.
Piran Engineer
Congrats and thanks for the extra strides on FinAI. Before my question, just to confirm, when you say the stake sale gain in the consol financials is below the line, so it’s part of the net worth. It goes — it just directly goes into the net worth, is it? Sandeep?
Sandeep Jain
Yes, Piran, you’re right. It goes and directly fits in the reserves. It doesn’t come in the P&L at all.
Piran Engineer
And the full INR1,400 crores or is there a tax impact?
Sandeep Jain
The entire amount net of tax goes and sits in the reserve line. And it’s obvious, right? In the consolidated financial statement, Bajaj Finance, Bajaj Housing Finance and Bajaj Financial Securities is one entity. I cannot make profit by selling myself. So that goes and sits in the reserve rightfully by accounting standards as well.
Piran Engineer
Yes. I mean it’s like a revaluation. But anyway, I don’t want to argue on that. Just secondly, now that you’ve put a floor on your LGDs in various segments, does this also mean you will accelerate the transition from this floor to 100% provision? Or in other words, would you accelerate your write-off policy also because of this?
Sandeep Jain
I think as regards write-off policy is concerned, Piran, we are anyway reasonably prudent. We ensure that all kinds of secured, unsecured loans get written off at six installments overdue, barring mortgages, which has a very long tail and some of the other businesses, which are — which have a high amount of — or high realizable value on the collateral front. So barring those businesses, we do write-off at six months overdue.
At this point in time, we have defined the floor that we felt appropriate. I’ll give example for some of the business, we would have defined the floor at 75%, 80%. For some other businesses which are secured in nature, have very strong collateral on the floor, maybe 40%, 50%. We’ll keep revisiting it on an annual basis. And wherever we feel appropriate to intervene and enhance the LGD coverage, we would probably take those actions. And whenever we take those actions, we’ll call out as well.
Piran Engineer
Got it. And just secondly, your fee income growth of 30% Y-o-Y is like pretty strong compared to what we’ve seen in a very long time. And that too when the festive season was partly in 2Q, partly in 3Q. So how do we — is there some one-off? Or is this the rate of growth that one should expect?
Rajeev Jain
No, Piran, this should gravitate closer to — from the next fiscal gravitate closer to between 18% and 20% from next fiscal onwards. It’s just normalizing is what we would say.
Sandeep Jain
There were one-timers in the last year, we had some INR80 crores of gain sitting in the other operating income on account of sale of written-off portfolios. We don’t have any such gains in the current quarter. In fact, if at all there was one-timers, the one-timers were sitting in the last year same time rather than the current quarter.
Piran Engineer
No, Sandeep, I’m referring only to the fee and commission line item, the INR1,960 crore line item.
Sandeep Jain
There’s no one-timer, there is core growth. Yes, core growth. And as Rajeev alluded to, as we get into FY ’27 onwards, this number should be ranged by say 17%, 20% growth on a Y-o-Y basis.
Piran Engineer
Got it. Okay. Yeah, that’s it from my end. Thank you.
Operator
Our next question comes from Abhishek Murarka with HSBC. Please go ahead.
Abhishek Murarka
Yeah, good evening and thanks for the opportunity. So two questions. One, just on cost of funds, can you talk about how much scope is there for it to come down further? There would be some back book repricing left or largely it’s gone through or passthrough? Second thing is on vehicle finance [Speech Overlap]–
Rajeev Jain
Sorry, Abhishek, sorry.
Abhishek Murarka
Yes, sure, sure. So it goes — there is not much–
Sandeep Jain
Yes. You had a second question.
Abhishek Murarka
Yes, yes. So the second one was on vehicle finance specifically. Now your disbursement market share, et cetera, is quite low across used car, new car, tractors, all of that. Just from maybe two-year perspective, do you have like an AUM target in mind or size or scale in mind or disbursement market share in mind, something from the point of view of how it can accelerate or grow from here?
And the second thing is broadly, if we look at vehicle finance across the industry, the ROAs are lower than what you make on a consol basis. So if you’re going to grow faster in vehicle finance, how do you propose to offset the ROA impact in the whole book from this? So just wanted to get some sense of your plans in that.
Rajeev Jain
No, no, the plan is very clear. If you actually go to the first nine months of growth in AUM, okay? I mean, MFI is small. But otherwise, the — our gold loan is, of course, growing at industry level. We foresee businesses growing between 20% to — between — B2B business because given its size, would probably grow in mid-teens, but rest should all grow between 20s, okay? It could be a lower end of 20% to a higher end of 20%. It could be — barring aside leave gold loans and MFI would also normalize next year. I think gold loans will continue to grow as long as the price holds. We are increasing distribution on a sustainable basis in gold loans.
So we foresee that continue to grow. But leaving aside gold loan, every business has nuances. We are very clear that just grow them organically between — in the 20s. If you have strong tailwind on the P&L of that line of business, it can grow faster. If it has headwinds on the P&L, it will grow slower. So like new car finance margin is very, very fine. So the business needs to grow what it can sustain. If you see, it grew at 26%. Overall, car loans grew 26%. Used car actually is not here, probably degrew because credit was not holding. The new car grew 38%, 39%. So we have a long-term plan for each one of these lines of businesses.
As I say, if in five years’ time, they’re not minimum $2 billion in size each, we wouldn’t get into the business. But in addition, at a philosophy level, each business must deliver a sustainable ROE that has been benchmarked within the firm to ensure that we can get capital allocation for that business. So that discipline, we want to ensure. So now let me summarize the point. So then what does that mean? That means that new car financing next year would probably still grow between — in the early 30s. Used car may grow still slowly in the first half of the year, second half of the year should be better. We are in now control of credit in used car.
CV and tractor, they are small, but should grow 30%, 35%, 40%. They — as they generate profitability for each line, they get the capital allocation, they grow. That’s our philosophical view from a capital allocation standpoint. Don’t want to chase. If we chase, we have seen it leads to — it is not necessarily beneficial to the firm or to the business as well.
Abhishek Murarka
If you’re targeting a profitability metric, it’s more ROE than ROA?
Rajeev Jain
It is ROE and ROA both. I mean we give same amount of leverage to each business other than the mortgage business in the company. So just as a prudence of capital standpoint. So I mean, we can take this offline conversation, somebody may argue why and why not. But we give same amount of capital to each business at a leverage standpoint and also established rightful benchmarks for ROA and ROE to ensure that they can go out and deliver it. That’s all.
Abhishek Murarka
Understood. All right. Thank you for that. Thank you.
Rajeev Jain
Thank you.
Operator
Our next question comes from Shreya Shivani with Nomura. Please go ahead.
Shreya Shivani
Yeah, thank you for the opportunity. I have two questions. My first question is on the urban B2C or rural B2C, these two books, the growth — urban B2C rather, the growth here has come down to about 20% or so. Is there any competitive — competition increase in this segment that we could highlight? Or any other color that we can give on this book?
My second question is on the gold book, which has been growing quite well. So the branch count has crossed 1,200, I think, in this quarter. What is our plan for the next year? And yes, any details around the gold book going ahead?
Rajeev Jain
No, just I think just related to businesses, and I want to refer back to even Abhishek’s point, I wanted to just make, and I want you guys when you get time to refer to — is showing right now — if you go to Panel 91 of our — of the deck that we have actually — of the Q3 deck, you’ll principally see what our market share is. And as I outlined, see, our overall market shares across each one of these lines of businesses remain small. So whether you take urban B2C or rural B2C to give you an answer, the personal loan market share is at 8%, whereas our franchise is at 30%.
Similarly, for Abhishek’s question, his question is absolutely right and my answer was correct that I have a 1% market share. Now I can go to 4% because my franchise is doing 36%, okay? My BFS franchise annually of the cars or loans done in the country gets 36% of the loans. Our share is only 1%. So opportunity is tremendous. It must make rightful economic sense for that line of business to do so. And we actually think the customer-centric strategy that we have outlined would deliver that. Principally, look, the biggest issue in financial services anywhere in the world remains cost of acquisition. We have $120 million franchise.
As we integrate AI transformation, as we integrate — take digital transformation deeper, as we deliver discovery much better on the web, we have the franchise to be able to mine, farm, deliver lower credit cost. That’s really the overall customer-centric strategies. It leads to whatever market share we get to. We don’t have a problem of growth, 8% number a year ago was 7%. It was — in ’19, ’20, it was at 9%, okay?
It was at 9%, went down to 7%, it’s back at 8%. It must meet the hurdle rate of risk and the profitability for us as a firm to grow these — to grow volumes. That’s the point, and I should have mentioned that even as part of Abhishek’s question. It’s there in any time. So there’s nothing — nothing in urban B2C. We are pretty comfortable with the mid-20s and the late 20s growth stance depending on how we’re seeing credit move. It’s not a franchise problem at all. I hope that answers Shivani’s question.
Shreya Shivani
Yes, just a follow-up. So you’re saying that pre-COVID from 2019 till now, our market share probably in this segment has been in this range only, under 10%, right?
Rajeev Jain
Yes. Yes. That’s correct. Between 7% and 10% is what is gravitated around. Which mind you, Shivani, if I may make a point, we know the competitive intensity in ’19, ’20, and we know the competitive intensity now. I would say it’s 3x of the entire public sector banking ecosystem didn’t participate in urban B2C, rural B2C at all, I may say so, or was much smaller participant. It is the largest personal loan lender in India in terms of market share, SBI today and so on and so forth. So the competitive intensity has magnified significantly, not just across personal loans, across each one of these lines of businesses.
We’ve continued to grow. That’s one part, continue to maintain market share, the second part and continue to ensure that is sustained the return on assets and return on equity. I think that’s the most important part because growing balance sheet in our business is not a problem. Growing profitability on a sustainable basis while we grow is really where the proof of the pudding is.
Shreya Shivani
So then that probably explains the revision in the LGD floors. Would that be correct? What you were talking about the 3x increase in competitive intensity out there?
Rajeev Jain
Partially it’s true that I mean if there’s only one red flag that I would have is that the overall consumer leverage remains an area of concern. It’s not directly attributable. Shivani, I would just make a point. But if there is only one red flag that I continue to have is that consumer leverage continues to remain an area of concern. Thankfully, on a year-on-year basis, as far as the bureau data shows, it’s not grown. It’s flat. I think after a while, it’s flat on an aggregate basis. We’ll wait for March numbers to come by June or so. But it seems at this point in time on a year-on-year basis for first eights months, consumer leverage is flat. So that’s a good sign. But that’s a red flag that I continue to have. It’s indirect. I want to make sure that the point is not mingled.
Sandeep Jain
Just for the LGD piece, I think as you see Slide number 54, where we have provided provisioning coverage ratio by business. We’ve already taken the urban B2C to 80% provisioning coverage ratio. So to the point that you were asking on LGD, we’ve already taken — even if there is a worsening that we see in the market, 3PL keeps going up. We may not see impact in our portfolio because of the actions that we have taken. We are done, I would say, at 80% PCR ratio.
Shreya Shivani
Got it, sir. Sir, just my question on the gold loan. What will be the strategy for next year, if you’re going to share now? Or will you share it in fourth quarter?
Rajeev Jain
No, sustained distribution expansion, that’s one part. We will continue to expand. We foresee business continue to grow strongly. But gold prices have — so we will do what is in our control, which is distribution expansion. As AI transformation happens, our existing branches will continue to — and customers have no need to walk in. As I’ve said in the past that 3% of the franchise used to walk in, given what we’ve delivered on app and the digital transformation and now on the bot, less than 0.6% is walking in. Branches — our existing branches will continue to morph into gold loan branches. That’s one part.
Two, we will continue to expand on a sustainable basis, our gold loan branches. That’s the second part. So — and if this business is directly related to distribution, and we now know how to do this business well, I would say, the benchmark ROE and ROA metrics are in line with what the best in the industry are delivering, then we just want to make sure we grow distribution in a sustainable manner, which we are committed to. So could it grow at the same rate of the current year? Could be. Could it grow a little slower, could be — I mean, it’s a little volatile right now, that — I mean, from INR5,500 to INR4,500 in one week, it makes it even hard for me to do a budget planning session.
Shreya Shivani
Got it, sir. This is useful. Thank you and all the best.
Rajeev Jain
Thank you.
Operator
Our final question today comes from Chintan Joshi with Autonomous. Please go ahead.
Chintan Joshi
Hi, thank you for taking my question. Can I come back on the ECL? Perhaps an academic point, but why was LGD different in Stage 1 and Stage 2? I would have thought it would be the PD that would be different and not the LGD. And presumably, that means that like a future credit cycle might look different. If you have the last three years in the next three years, it might — the trajectory might look different on the credit costs. And I know you said it jokingly, the 165, 175 basis point credit loss guidance, but the analysts have occupational hazard of picking that up. Is that kind of more like a business outlook because things are looking better? Or is there something more tangible that you are seeing in the business?
Rajeev Jain
Yes. I mean I’ve used the word quite optimistic if you see in my investor deck as well. So we are quite optimistic. And as I said, we look at — we are looking for the last 12 months on 3 MOB, 6 MOB and 9 MOB metrics. That’s one part. The second part, which is important for — you may say what also gives you the confidence on INR165 crores and INR175 crores is also our AF portfolio, which is 1% of the balance sheet, but still 8%, 9% of the credit cost, right, in the third quarter would be down to INR1,700 crores of balance sheet by September. If there’s no balance sheet, there’s no credit cost.
So it’s 1.14% of the — let me just get my numbers right. 1.14% of the balance sheet and 9% of the credit cost and 14% of the GNPA in absolute numbers. This is — this will be — this balance sheet will be done and over with by September. It will be left with INR1,700 crores. I mean even as we exit March, it will be left with INR4,200-odd crores. So that is the natural watch that’s happening. In addition, the core businesses, we are tracking 3, 6, 9 MOB gives us quite a high degree of confidence in being able to do.
So environment, I don’t know about environment. Quite honestly, I am not that much of a macro person. I am a micro person. I think we control — unless it’s an event. Event is different, okay? COVID was an event. Demonetization was an event. Non-event, I would like to believe we control what we choose to do, and that’s how we would like to continue to like to run the firm.
Sandeep Jain
And to your point on LGD your understanding is absolutely right. The LGD that we apply — applies across all stages uniformly. So when I give an example of 80% is a number, that 80% not only applies for Stage 3, it applies to Stage 2 and Stage 1 as well. What moves the provisioning number in Stage 1 and 2 is the probability of default and exposure at the time of default. These are all calculated using empirical data based on a complicated model that risk team runs for doing development of ECL models; however, the LGD rates, whether it is Stage 1, Stage 2 or entry into Stage 3 remains exactly same across businesses by business line.
Chintan Joshi
I might have misunderstood you then before. And perhaps one last one on LRS since we didn’t get a chance to question on that. What were the main deltas for you, both positive and negatives as you did your LRS in compared to the last year? On the LRS, what were the main delta, positives or negatives?
Sandeep Jain
Sorry, what was the–
Chintan Joshi
Differences like Yes. Like as you compare the two LRSs and you went through the exercise, what did you think was more positive? And what did you think was less positive or negative?
Rajeev Jain
No, I think — so all LRSs in general or any management strategy is on a continuum, okay? It’s on a continuum. The — at a design level, acceleration of AI is on a continuum. If you are four, you’re going to take it to seven, okay? That’s one part. The big thing which will define the company over the next three, five years is the customer-centric strategy that we have principally outlined because that gives us INR5 lakh to whatever, INR11 lakh crores, INR10 lakh crore balance sheet outlook. Point number one, gives us existing customers easy to do business with, whether sell or cross-sell, gives us OpEx benefits and gives us credit cost benefit.
So as much as we’ve been focused on hunting on the continuum and farming, we increased the weight of farming virtually from — I would say, we were 60-40 hunting farming. We’ll probably go to 40, 60 hunting farming in the next three to four years. That’s — because as we get to 200 million customers, as our data said, India is only 302 million households. And by FY ’30, we foresee we’ll be doing 100 million loans a year. And we would have had 200 million franchise. That’s 20% of active households in India, we would have ever lend to at a point in time by FY ’30. And they have a large wallet share. That means you’ve just got to do more with them. That would have been a good 22, 23 years of a strategy running, which is 60-40 acquire, cross-sell. It goes to cross-sell and acquire for the next probably 10. That’s the big fundamental shift is what I would like to make to you.
It will all be transient. It will happen over a period of three to four years because I don’t want — as one of the analysts said earlier, saying we have a habit of picking it up. We are not going from hunting to farming. We were hunting and farming. We are hunting and farming on the continuum. We’re just slowly gravitating to more — to what the needs of the business are and shift the mix, nothing else. So that’s what you should take away from LRS.
Chintan Joshi
There is plenty to unpick there, but we don’t have the time. Thank you so much.
Rajeev Jain
Yes. Thank you. Thank you so much.
Operator
Those are all the questions we have time for today. And so I hand the call back to Mr. Subramanian Iyer for conclusion remarks.
Subramanian Iyer
Thank you, Rajeev. Thank you, Sandeep. Any closing remarks from your side?
Rajeev Jain
No. Thank you. I would just say focus on core operating performance remains strong, and we are quite excited about the medium term is what I would say, just as a closing remark.
Thank you. Thank you, Subbu. Thank you, Morgan Stanley.
Operator
Thank you. On behalf of Morgan Stanley, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.