Bajaj Finance Ltd (NSE: BAJFINANCE) Q3 2026 Earnings Call dated Feb. 03, 2026
Corporate Participants:
Unidentified Speaker
Rajeev Jain — Managing Director
Sandeep Jain — Chief 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 Q3FY26 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@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. All participants lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation.
Conclud 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 Mount Stanley. Thank you very much for joining us for the Bajaj Finance Q3FY26 earnings call. To discuss the earnings I’m pleased to welcome Mr. Rajiv 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. Rajiv Jain for his opening remarks post which we will open the floor for Q and A. With that over to you Rajiv.
Rajeev Jain — Managing Director
Thank you Subu. 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 and 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 four that the performance of the company eliminating one time charges of new labor code and the accelerated ECL provision that you’ve taken in Q3 remain pretty strong. So let me cover that. There’ll be a follow through panel that I’ll cover after that. So the core performance remains pretty strong across all key metrics namely AUM growth.
Aum grew by 23,622 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 provision and one time charge of new labor codes 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 and 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 continued to apply the defined LGD flows as you determined for in the future as well. So one it’s one time and two it will have some level of impact as we small annualized impact as well as we get into the company has principally taken.
Let me just cover the 14,6 crore provision that was made on an accelerated basis. The stage one PCR as a result of this moved from 74 basis points to 98 basis points. So that’s. I mean you know virtually 1% of assets are now in stage one as you acquire 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 two PCR is increased from has been increased from 30.1% to close to 37% and stage three has moved from 52% to 61%.
As I said, 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 one time exceptional charge of 265 crores that we have taken towards increasing in gradual 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 will cover that based on the Q and A. The annualized impact is expected to be between 100 to 125 crores annually.
These items principally had an impact on of course on both AUM and profit numbers. I am 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 final five clearly I can give so and what we are more focused on principally is the core operating performance. These two are one time charges that we have taken given as I explained, one is gratuity related, another being voluntary in nature. Kashmir 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 standalone P and L statement of bfl. On a consolidated basis it’s a below the line item. As part of NPS compliance, 2% of BHFL stake was sold by block sale and as a result the BHFL shareholding by BFL in the HFL now stands at 86.7%. The resultant gain was 1416 crore and 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 six.
As a result of the 1416 crore you will see two lines. There’s the change you will see on top the reported number which is 22% the core growth number which is 23%. The 1416 crores also gets knocked off. 14 and 6 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 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 to between 4.2 to 4.5 million new customers every quarter. We now expect 17 to 18 million customers to be added to the franchise. In FY26 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 buffers to the 15,100 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’re likely to be between 7.55 to 7Point6% in terms of cost of funds as we exit the year.
The deposit book as we outlined that as part of the strategy in the current year to optimize that deposits 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 from an outlook standpoint given that 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 you have taken the MSME business that’s something that you will see which has grown in quarter Q 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 30 to 20%. Operating efficiencies continue to deliver benefits 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 and for the first time we have now started to cover metrics on AI which I’ll cover in a few panels down the line. You now started to matricize. 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 if time has come POST 2nd 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 time, fixed term contract folks stood at 78,000. 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 3625 the core metric came in at 2043 crores, a growth of 9%. So as I said, we are tracking core because 1416 is principally voluntary decision that we’ve taken and permanent voluntary decision that we’ve taken year on year basis. Low 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 down 93 crores. The formation had been slowly going down, but there was a decrease after a while. In the current quarter came in at 93 crores. Stage two decreased by 287 crores and stage three increase by 194 net net leading to a decrease of 93 crores. The vintage credit performance which is what we’ve been tracking since February this year, has has across three months, six months and nine.
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 timer, it actually degrew by 6%. ROA came in at 4.6% at a core level, ROE 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 nine. This is the first attempt that we’re making to start to democratize AI implementation that we’re doing to the investors.
The way you should read it 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 lifecycle of a customer. As I’ve been saying to everybody that we are not testing AI, we are deploying AI across the board, across life cycle. So if you. I’m going back to panel nine to give. So that’s the structure. These are 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, 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 coins next year and we’ll be able to convert voice to text as you move forward in beginning for sales, then for service and then for.
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 engage with the customer. So rather than sending dumb SMSes 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 weather service or sales which will not have a conversation bot embedded in it at branch and point of sale.
Existing customer face masks 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. Companies now map which an image extracts with a 95, 96% accuracy data and populates it in our in our platforms delivering significant productivity for our employees. Just on panel seven, auto quality check of documents is now 41%. We intend over that. 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 call center came in at 1600 odd crores data converting data from those calls led to another 325 crores of volumes. So you know 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 texture on where we are principally headed over the next six months. We are investing very deep in Agentix. 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 are excited about is consumer AI which is on the app and web on the app, not on the web app. 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 27th 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 deep 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 yesterday they had a very good quarter.
AUM grew 23% and despite very high competitive intensity and higher portfolio attrition and the Pad growth was 21% and ROE was 2.3%. Asset quality for them remained quite healthy at 27 basis points and NNBF 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 a customer.
We foresee that we will be a 200 million customer company in the next three to four years time. This 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 points that I was making. And we want to clearly be the lowest risk business in India in a way demonstrates the balance sheet resilience action that we have taken is coming from.
These three are all connected, they are showing up in Q3 financials in that manner. And you will continue to see acceleration of these three areas as we progress well into FY27. 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.
Unidentified Speaker
Rajiv, I just want to clarify. It’s on web as well.
Unidentified Speaker
Oh, it’s on web as well. AI injection will be on app and web. Perfect, perfect. Thanks, thanks.
Rajeev Jain — Managing Director
I don’t want to cover. Just before Subha, I open up questions. Last point which I usually do, which is on panel 58, 59 and 60 other than business and professional loans 60 and 61, we are principally all green. In general we are quite optimistic about the credit cost outlook as we step into FY27 is how I would conclude and happy to take questions.
Questions and Answers:
operator
Thank you. We will now begin the question and answer session. If you would like to ask a question please press start followed by one on your telephone keypad. Now if you change your mind please press start followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Before asking the question, please introduce yourself. Providing your name and your organisation name, please limit yourself to maximum of two questions so we can accommodate as many as possible. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question today comes from Viral Shah with IIFL Capital Services Ltd.
Please go ahead.
Viral Shah
Yeah, hi, thank you for the opportunity for letting me ask the question. So Rajiv, first with regards to the ECL provisioning, I’m sure I think that 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 this increase in stage one and two 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 FY27? And secondly, if you can just comment with regards to your growth outlook more for FY27.
Unidentified Speaker
There’s two questions online.
Rajeev Jain
I’ll give the easier one first. The first one requires a little longer explanation. We’ll provide F1 27 guidance along with Q4 results, which is normally what we do every year. I mean, you know, 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 is same. So don’t worry.
Sandeep Jain
Yeah. So I think as Rajiv called out, these are the actions that we have taken on 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 metrics by defining a floor across businesses and ensure that there is uniformly applied across all these stages. I’ll give example. So for example, for a business we defined LTV floor at 80% which means the moment customer goes into NPA we would have at least 80% provisioning coverage done.
The ECL for stage one, stage two gets calculated as a combination of probability. Default, exposure, default and LGD will ensure the LGD even for stage one and stage two 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 LGV flow. 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 nature. All goes well in the next year. Based on the estimates that we have done, the number could range between 300 to 400 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 will ensure that the resilience point that Rajiv referred to is continuing to maintain as we go along from here.
Viral Shah
Got it. That’s very clear.
Rajeev Jain
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, 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, you know, at the end of the day that’s really how the. And logically should not have events which is. Both are, both are not true. So after considerable thought process and 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 a, that’s another point.
Viral Shah
Got it. And this 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 timeline wherein they will periodically want to revalidate, whether this is the new normal, could be say a year or two, three years down the line or this is basically
Rajeev Jain
diseases 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 a view. Question is very clear.
Viral Shah
Got it. Very clear.
Rajeev Jain
Perfect.
operator
Thank you.
Rajeev Jain
Along with Q4. Yeah, sorry.
operator
Thank you. The next question comes from Abhijit Tibrawal with Motilal Oswal. Please go ahead.
Abhijit Tibrewal
Yeah, good evening and thank you for taking my question. Just, just two things. One is Ravisha, you just explained this was a management decision successfully 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. So to that extent things might actually start looking better from here. If you think about it, last two to three years, India on the retail side of lending 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?
Rajeev Jain
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, so forth. We want to ensure. We want to use this opportunity to ensure that the balance sheet and the P and L are shock proof. And one of the way of doing that is to create a permanent model and ensure that we are more than adequately covered from 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 not? They can never be an answer. For a while 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 are living in, it was important for us to protect ourselves with additional.
Abhijit Tibrewal
Got it.
Rajeev Jain
I’ll just make added point from a so that the question is in addition to why now to the direction of travel and freight cost. Okay. We foresee that the number next year as we as we enter could be anywhere between 160,575 basis points. That’s the number including the permanent provision that you’re talking about. That’s the direction that we are principally headed in. You will see that now it could be 1517175 but I’m just giving you direction that that is there And I made the point in the past many times that I am chasing as a firm 1920 that is really where we used to be.
Next year will be 4x at size but if 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 16535 basis points at this juncture is how we think about it.
Sandeep Jain
I think on a lighter note Rajiv this there could not be a better occasion to communicate and give the message to deputy CEO than CRO then making them accountable on an earnings call.
Rajeev Jain
Sorry, sorry. Sorry.
Abhijit Tibrewal
Thanks for that. Just to follow up on that I mean this quarter maybe it was just a coincidence that I mean we should stake in BHFL and like we explained in the consolidated that comes below the line that given that over the course of time you will have to keep reducing your stake in BHFL to meet the mps, can we expect that rather than that kind of accreting to your network will predominantly be utilized for further improving?
Sandeep 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 bhfn the same question was asked why not 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 1416 crores and we did make a provision through a floor introduction for LGD of 14006 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 balance sheet perspective to again ensure that we are shock proof and resilient as a business model.
Abhijit Tibrewal
Thank you so much and just wanted to squeeze in one last question on business. Yes sir, just one last question on business on the MSME side. I mean you explained for the last couple of quarters that whatever we’ve been seeing in unsecured initially is predominantly because of customer over every. Was there some problem or some customer cohorts which are also impacted by tariffs and which could get better now now that this, this U.S. tariff reduction got announced yesterday. In other words what I’m trying to understand is us
Rajeev Jain
not material. 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, we’ll be done with as you’re looking at the 3moV 6moV 9moV 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.
Sandeep Jain
If I may just add on the MFA point, I think we’ve called out this last quarter as well that looking at the portfolio, looking at the information at industry level leverage, location view and so on so forth. We have taken set of policy actions on underwriting and credit policies 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 incident stress but we have to see full revival of the portfolio. Early readings, early looking good. 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 will more than happy to grow the business again.
operator
Thank you. Before we take our next question, as a reminder we ask that you please limit yourself to one question per person. Our next question comes from Peran, engineer with clsa. Please go ahead.
Piran Engineer
Yeah, yeah, thanks. Congrats and thanks for the extra slides 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 network. It goes, it directly goes into the network. Is it Sandeep?
Sandeep Jain
Yeah, you’re right. It goes and directly fits in the. In the reserves doesn’t come in the. PN letter
Piran Engineer
and the full 1400 is there a tax impact?
Sandeep Jain
The entire, entire amount net of tax goes and sits in the, in the reserve line and, and it’s obvious right in the consolidated financial statement. Bajaj Finance, Bajaj Housing Finance and Bajaj Financial Security is one entity. I cannot make profit by selling myself. So that goes and sits in the reserve rightfully by accounting standards.
Piran Engineer
Yeah, I mean it’s like a revaluation but anyway, I don’t want to argue on that. Secondly, now that you’ve put a floor on your LGDs in various segments, does this also mean you will accelerate this from this flow 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 NHS reasonably prudent. We ensure that all kinds of secured unsecured loans get written off at six installments overdue. Buying mortgages which has a very long tail and some of these are businesses which are which have high amount of or high reliable value on the collateral front. So buying those businesses we do write off at six months overdue. this point we have defined the floor that is an appropriate. I’ll give examples 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 LGBT 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, a fee income growth of 30% is like pretty strong compared to what we’ve seen in a very long time. And that too when you know, 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
This should gravitate closer to from the next fiscal. Gravitate closer to between 18 and 20% from next next fiscal onwards. It’s just normalizing is what we would say.
Piran Engineer
Okay.
Sandeep Jain
There were one timer in the last year we had some 80 crore rupees of gain sitting in the other operating income on account of sale of return of portfolios. We don’t have any such gains in the current quarter. In fact, if at all there was one timer, 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 1960 crore Vala line item.
Sandeep Jain
There’s no one timer. This is core growth. Yeah, core growth. And as Ajeev alluded to, as we get into FY27 and onward, this number should be raised about 17 20% growth on a viva basis.
Piran Engineer
Got it. Okay. Yeah, that’s it from mine. Thank you, thank you,
Unidentified Speaker
thank you.
operator
Our next question comes from Abhishek Muraka with hsbc. Please go ahead.
Abhishek Murarka
Yeah, good evening and thanks for the opportunity. So two questions. One, just you know, 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, it’s passed through. Second thing.
Rajeev Jain
Sorry, sorry, sorry, sorry.
Abhishek Murarka
Yeah, sure. So it goes, there’s not much.
Rajeev Jain
Yes, you had a second question?
Abhishek Murarka
Yeah, yes, yes. So the second one was on vehicle finance specifically. Now your disbursement market share etc is quite low across, you know, 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, you know, 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 console 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? You know, from this so just wanted to get some sense of your plans in that
Rajeev Jain
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 23 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 and MFI will 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 loans, every business has nuances. We are very clear that just grow them organically between in the twenties. If you have strong tailwind on the P and L of that line of business, it can grow faster. If it has headwinds on the P and 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 won’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 they can get capital allocation for their 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% 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 change. If we change we have seen it leads to.
It is not necessarily beneficial to the firm or to the business as well.
Abhishek Murarka
I hope that if you’re targeting a profitability. Yeah, yeah, sure. If you’re targeting a profitability metric, it’s it’s more ROE than roe.
Rajeev Jain
It is ROE and ROA both. I mean we, 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 might give why not. But the same amount of capital to each other 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
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 the 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 1200 I think in this quarter. What is our plan for the next year? And yeah, 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 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 of these lines of business remain small. So whether you take urban B2C or rural B2C 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 is correct that I have a 1% market share. Now I can go to 4% because my franchise is doing 36% okay. My BFL franchise annually of the cars or loans done in the country gets 36% of the loan. My 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 you 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 digital transformation, 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, 7%. It was in 1920, mind you, 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 question. Is there 91? So. So there’s nothing, nothing in Urban B2C we are pretty comfortable with the mid 20s and late 20s growth stands depending on how we’re seeing credit move. It’s not a franchise problem at all.
Shreya Shivani
Yeah, just to follow up. So you’re saying that the pre Covid till from 2019 till now, the market share probably in this segment has been in this range only under 10%, right?
Rajeev Jain
Yes, yes, yes, yes, that’s correct. Between 7 and 10% is what is gravitated around.
Shreya Shivani
Sure.
Rajeev Jain
Which mind you Shivani, if I may make a point. We know the competitive intensity in 1920 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 you know, the competitive intensity is magnified significantly not just across personal loans, across each 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 we sustain the return on assets and return on equity. I think that’s the most important part. 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’re Talking about the 3x increase in competitive intensity out there?
Rajeev Jain
Partially true. 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, 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 wait for March numbers to come by June or so, but it seems at this point of time on a year, on year basis for first eight months, consumer leverage is flat.
So that’s a good sign. But that’s a red flag that I continue to have. That’s all. It’s indirect. I want to make sure that the point is not mingled
Sandeep Jain
just for the LGB 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 cover ratio. So to the point that you are asking on lgbt so you’re taking an. Even if there’s a worse thing that we see in the market, ppl keeps going up, we may not see impact in our portfolio because of the action that we have taken. Done. We are done. We are done. I would say at 80% PCR issuance.
Shreya Shivani
Got it, sir. So 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, you know, have no need to walk in. As I said in the past, that 3% of the franchise used to walk in. Given what you 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 ROE 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, you know, it’s a little volatile right now. The. I mean from 5,500 to 4,500 in one week 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.
operator
Our final question today comes from Chintan Yoshi with autonomous. Please go ahead.
Chintan Joshi
Hi. Hi. Thank you for taking my question. Can I come back on the acl? You know, perhaps an academic point but why was LGD different in stage one and stage two? I would have thought it would be the PD that would be different and not the lgd. And presumably that means that, you know, like a future credit cycle might look different, you know, if you had the last three years. In the next three years it might, the trajectory might look different on the credit, credit costs. And I know you said it jokingly, the 165, 170, 75 basis point credit loss guidance, but the analysts have occupational hazards 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
I mean I have used the word quite optimistic if you see in my investor tech as well. So we are quite optimistic and as I said we are looking for the last 12 months on 3 mob, 6 mob and 9 mob matrix. That’s one part. The second part which is important for you may say what also gives you the confidence on 165 and 175 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 1700 crores. The balance sheet for September, if there’s no balance sheet there’s no great 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. Of the credit cost and 14% of the GNPA in absolute numbers. This is, this is, this will be. This balance sheet will be done and over with. By September it will be left with 1700 crores. I mean even as we exit March it will be left with 4200 odd crore. So that is the natural, you know, wash that’s happening. In addition, the core businesses we are tracking 369Mob gives us quite high degree of confidence in being able to.
Environment. I don’t know about environment. Quite honestly. I am not a. I’m not that much of a macro person. I am a micro person. I think we control event. Event is different. Okay. Covid was an event, demon 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 like to run the form and to your.
Sandeep Jain
Point on LGD understanding is absolutely right. The LDD that we apply applies across all stages uniformly. So when I give an example of 80% as a number, that 80% not only applies for stage three, it applies to stage two and stage one as well. What moves the provisioning number in stage one and two is the probability of default and exposure at the time of default. These are all calculated using imperial data based on a complicated model that this team runs for doing development of ECL models. However, the Ltd rates, whether it is Stage 1, Stage 2 or entry into Stage 3 remains exactly same across businesses.
Chintan Joshi
Thank you.
Sandeep Jain
By business lines.
Chintan Joshi
Yeah, 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, you know what were the main delta is for you both positive and negatives as you did your LRS in comparison the last year on the lrs what were the main delta positives or negatives?
Rajeev Jain
Sorry, what is the main
Chintan Joshi
differences like? Well, you know. Yeah. As you compare the two lrss you went through the exercise, what did you think was more positive and what did you think was less, you know, less positive or negative?
Rajeev Jain
No, I think so. You know all LRs is in general or any management strategies on a continent, okay. It’s on a continuum. The, the design level, acceleration of AI is on a continuum. If you’re four, you know, take it to seven. 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 5 lakh to whatever 1112 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 focused on hunting on the continent and farming, we increased the weight of farming virtually from I would say we were, we were 60, 40 hunting farming. We will 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 FY30 we foresee we’ll be doing 100 million loans a year and we would have had, you know, we would have had 200 to 200 million franchise. That’s 20% of active households in India we would have ever lent to at a point in time by FY30 and they have a large wallet share.
That means you 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, that’s the big fundamental shift is what I would like to make to you. It will all be transient. It’ll 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 a continent. We just slowly gravitating to more to what the needs of the business are and shift the mix. Not a. That’s what you should take away from lrm.
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. Thank you.
operator
Thank you. Those are all the questions we have time for today. And so I’ll hand the call back to Mr. Subramanian EA for conclusion remarks.
Subramanian Iyer
Thank you, Rajiv. Thank you, Sandeep, any closing remarks?
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. Thank you. 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.