Bajaj Housing Finance Ltd (NSE: BAJAJHFL) Q1 2026 Earnings Call dated Jul. 23, 2025
Corporate Participants:
Unidentified Speaker
Rajeev Jain — Vice Chairman and Managing Director
Sandeep Jain — Chief Operating Officer and Chief Financial Officer
Fakhari Sarjan — Chief Risk Officer
Atul Jain — Managing Director
Analysts:
Unidentified Participant
Ajit Kumar — Analyst
Viral Shah — Analyst
Piran Engineer — Analyst
Kunal Shah — Analyst
Kuntal Shah — Analyst
Abhishek Murarka — Analyst
Chintan Joshi — Analyst
Abhijit Tibrewal — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the Q1FY26 earnings conference call for Bajaj Housing Finance Ltd. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing STAR and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ajit Kumar from JM Financial. Thank you. And over to you, Mr. Ajit Kumar.
Ajit Kumar — Analyst
Thank you, Darvin. Good evening everyone and welcome to the 1QFY 26 Earnings Conference Call of Bajaj Housing Finance. First of all, I would like to thank the management of Bajaj Housing Finance for giving us this opportunity to host the call from the management team. Today we have Mr. Rahul Jain, Managing Director, Mr. Gaurav Kalani, Chief Financial Officer and other senior members of the management team. We will have opening comments from the management team post which we will open the floor for Q and A. With that I would like to transfer the call to Mr. Atul Jain for his opening remarks.
Over to you sir.
Atul Jain — Managing Director
Thank you Ajit and JM team for hosting us. A very good evening to all people joining on the call. I have with me Gaurav who is our CFO and all the senior members of the team to be present here to answer any questions which you have. Once we have gone through the investor deck over the next 10:15 minutes I will quickly highlight the important aspects or important panels on the deck and then we’ll open the forum for question and answers. I’ll move to panel number three first. Overall, Q1 was a balanced quarter with EM good of 24% which was driven by moderation in real estate market coupled with intense competitive pricing resulting into higher attrition.
Cat grew by 21% and ROA of 2.3% was in line with Q1FY25. Asset quality remained healthy with GNPI at 30bps and NNTI at 13bps respectively. OPEX to NTI remained flat at 21.2% against 21% in Q1FY25. In terms of geographical coverage, we operate through a network of 217 branches across 175 locations. Annualized ROE for the quarter came at 11.6% and annualized credit cost was 0.16%. Capital adequacy remains comfortable aided by capital raised during the last year with car at 26.9% and CBC ratio which is a Principal business criteria for being an HSC by as defined by Reserve bank of India was at 61.71% above the regulatory requirement of 60%.
I’ll move to panel number four now. I’ve covered overall EM growth on the previous panel. At product level, home loans grew by 21%, lab by 30%, lease rental discounting by 29% and developer financing by 32%. During the quarter EVM grew by 5736 crore against 5701 crore in Q1FY25. Portfolio mix continues to remain well diversified with ethel mix of 55.8%, LAP of 10.5%, lease rental discounting at 20.4% and DEF at 11.9%. In terms of disbursement, company disbursed 14,651 crore in Q1FY26 against 12,004 crore in Q1FYFY25A growth of 22%. I’ll move to the next panel. Cost of funds on sequential basis saw a reduction of 21bps and stood at 7.7% in Q1FY26 versus 7.9% in Q4FY25.
This was owing to incremental borrowings at lower rate coupled with repo rate transmission benefit on existing borrowing. Borrowing mix remained well diversified between various instruments where money markets stood at 53%, bank borrowings at 37% and NHB refinance at 10%. Gross spread for the quarter was flat at 1.8% on sequential basis with reduction in portfolio yield which got offset with reduction in cost of funds. Net interest margin stood at 4% and that too also was in line with Q4FY25. OPEX to NPI was flat at 21.2% in Q1FY26. Company’s digital initiatives continue to get traction with E agreement penetration now at 93% and improved penetration in digital customer onboarding journey now at 88%.
In June 25th. I’ll move to panel number 6. Healthy asset quality during the quarter with GNPA of 30 dips and NNP of 13 dips as of 30th of June 25th. Annualized credit cost put at 16bps in Q1FY26 against 5 beats in Q1FY25. However, if we exclude overlay release of 25 crore in Q1FY25, normalized credit cost would have been at 17 beats in the Q1FY25, so 16 beats in Q1FY26 versus 17 beats normalized in Q1FY25. Profit after tax grew by 21% to 583 crore in Q1FY26 against 483 crore in Q1FY25. Annualized ROE for the quarter was 2.3% which was in line with Q1FY25.
Annualized RoE was 11.6% in Q1 due to excess capital post capital raises than in FY25. Overall net worth stood at 20,508 crore as of 30th of June 25. Now I’m jumping straight to panel number 15. These are key financial indicators for medium term guidance for companies. They have not changed from the previous quarter type I’ll move to panel number 17. I have covered majority of the metrics in the previous slide. However during the quarter net total income grew by 25%. As an additional metric operating expenses grew by 26%. Overall PAD came at 583 crores against 483 crores.
Moving to panel 19 as evident portfolio yield reduced by 20 beeps on sequential basis and 30 beats on yoyoi basis and stood at 9.5% in Q1FY26 while COP also victims reduction of 20 BS on sequential as well as yoyoi basis to 7.7% in Q1FY26 on a sequential basis the gross spread was flat at 1.8%. However there was a reduction of 10 beats over Q1FY25 because of a 30B reduction on the portfolio while portfolio while the cost of Fund reduced by 20 beats. OPEX to NTI rob called out was flat at only 1.2% due to investment in SVO and non macro markets as we called out during last quarter investor day.
Now I’ve already covered asset quality, ROA and ROE on the previous panel. We move to panel number 20. Well diversified borrowing mix which is borrowing backed by borrowing relationship with 17 banks NCD mix had inched up 5% sequentially. Corresponding reduction in bank borrowing by 4.5% and energy refinance by 0.40% because this resulted from because we borrowed more long tenant identity during the sequential during the quarter gone by to optimize cost of funds. Move to panel number 23. Overall well diversified AUM mix witnessed movement between products while staying within our guided range. LRD mix improved sequentially by 1.3% and reduction in developer finance by 60 days, home run by 40 days and lab by 20 days.
Moving to panel 28 GNP NNP has been covered on earlier panels as stage 1 assets had slight reduction of 3 beeps on a sequential basis to 99.36% at Q1 FY26 with increment of 2 bids in stage 2 assets at 0.34% and 1 bids in GNP as 0.30. Provisioning coverage ratio remained healthy at 56.25%. Moving to panel sector in terms of product wise DNPA marginal increment of 2 weeks in home loans at 0.36% in Q1FY26 while improvement of 4 weeks in LAP at 0.61%. Overall GNP just inched up by 1 base. Overall NNPA inched up by 2 weeks to 13 weeks as of 30 June moving to panel 31 this is a new panel what we have added for the first time as we have started while the medium term guidance continues to remain intact as called out in the earlier panel.
Given the rate reductions which has happened since February 25, we have added this new panel in the current quarter on Management Assessment of key financial indicators for FY26 due to heightened competitive activity, pricing on the acquisition, higher portfolio attrition and benign real estate market. EVM growth guidance for AUM growth assessment for FY26 is now expected to be in the age of 21 to 23% in terms of an operating efficiency as the company has been investing in the newly launched SBU and the non metro market coupled with NIM moderation due to lower rate scenario. OPEX to NTI remains expected to be flat in the corridor of 2021% in FY26 in line with what we delivered last year.
Risk metrics are also expected to hold across portfolio and remain within our medium term guided range. Coming to profitability, NII is expected to remain stable and in line with FY25 while NIM or NTI may moderate by 1520 days. This is because of two factors. One is reduction in investment income which was higher in last year due to excess investment post two rounds of a capital raise and also lower income on derecognized loans because we have planned for lower assignment in the current year versus what we did in last year. Now ROA is expected to remain range on that 2% to 2.2% which is in line with our medium term guidance and with roe moderation of 11 to 12% which is resulting from equity overhang of a capital raise of FY25.
This is all on important updates for quarter from my side me and management team are happy to take questions from the forum. Thank you.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the Touchstone telephone. If you wish to remove yourself from the question queue, you may Press Star and 2. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. The first question is from the line of Dhawal from dsp. Please go ahead.
Unidentified Participant
Yeah, hi, thanks for the opportunity. I just wanted to check a couple of things. First is on the guidance for FY26. So effectively we have cut down our expectation by approximately 300 basis points versus our previous assessment. And in terms of margin there is another 10, five bits of impact mainly because of the additional repo. I mean last time I think you remember, I think 70, it’s already 100 basis points. So another five bits of margin compression and no improvement in OPEX because of the additional investment which is basically offset by the high BIPS benefit compared to your earlier expectation and hence the ROA in the Q 2.2 corridor.
So is the broad guidance understanding correct or is there any.
Atul Jain
Broadly correct 21 to 23% against a medium term of a 24 26% is premium growth trajectory is correct margins we are likely to see a completion of 5 to 10 days which is what is called out improvement in OPEX. While on a ratio you will not see improvement but on operating efficiency point of view I only like to call out that we will continue to improve because improvement is not visible because one investment is one part but the second is also moderation in mins and NTI like we called out because of a lower assignment. Because OPEX 20 year issue has two parts.
One is a growth in income, second is a grow the OPEX. OPEX efficiency we continue to drive despite the investments what we are making but because of a moderation in NIM as well. Like if I have to give an example if the NII to NTI would have been the same in this quarter one FY26 the way it was in FY25 from our opex to NTI would have looked at 19% against the 21.2%. So operating efficiency is continuing to be there despite our continuing to invest. But NIM moderation or NTA moderation will mean that the OPEX to NTA line will look flat as far as the ratios outcome is concerned.
And I hope I’ve been able to answer your question.
Unidentified Participant
Understood yeah, very useful. Just one other thing which I wanted to touch with is on the growth expectations. So typically we see this in every rate cycle that there is a need lag between you know the competitive environment where someone benefits from the cost of fund better than others. But over time it catches up. So do you see this somewhere in the second half of this year and maybe early 27 you see the catch up happen from a company dynamics perspective or what are the ways to basically go back to our medium term growth expectations.
So just wanted to hear your thoughts on that.
Rajeev Jain
Our hope would be that by end of quarter three or so we should be able to go back to. That’s why we have not changed our medium term guidance but we have changed the assessment for Q for the current year. The reason for that is because of very intense competitive activity. What you would have as you see the disbursements grew by 22% on a yoy. But Indian growth was same or a flat in terms of an absolute number because of a heightened competitive activity due to rate cut pressure in the segments what we operate we estimate that will still flow through for one or two quarters or after that we are expected to come back to the normal trajectory.
What we think that’s what we assess as of today.
Unidentified Participant
And what would be our incremental spread like where we would be today and your expectation for the full year.
Atul Jain
NII is expected to remain flat in compared to what last year was there. So GROSS Spread at 1.8% plus minus 45 leaps here and there is what we continue to maintain because that controls with a change in the product mix or change in the segment because that’s where we want to be in the corridor. NTI will go down because of like we called out lower income in the current year versus last year because of overhang or excess capital. Last year was much higher and we can keep on consuming every month as we go forward. Second is a lower assignment income.
Unidentified Participant
Thanks. All the best.
Atul Jain
Thanks.
operator
Thank you. The next question is from the line of Raghav from Ambit Capital. Please go ahead.
Unidentified Participant
Hi, good evening. I just have a few questions. One is on the lab growth that’s been pretty strong for last many quarters. I just wanted to understand what are you doing to deliver this kind of growth in the LAAS portfolio? Is it the expansion into newer states or new customer profiles? I just want to get some just want to get better color on this. That’s my first question.
Atul Jain
Raghav, the way we look at lap and lap and lease into discounting we look at an interchangeable segment basis of risk return profile. We had called out, I think 2/4 back stating that as the return ratios become favorable, risk return ratios become favorable for LAP portfolio. We can increase our weight on the LAP which is what we had done versus because there’s a home loan portfolio because of a residential PBC requirement. Then there’s a non home loan portfolio where LAP and lid both things. So it is this is opportunity we see an opportunity which is risk being more positive in LAP versus NRD will increase that ratio or be data dependent and the market competitive activity dependent.
Because LAP the pricing had rectified to a certain extent in the market in last two quarters. What we saw. That’s why we could grow more. But if there is a price, it will depend upon risk return ratios. Rather we remain, we remain committed to grow whichever part of the business makes better business sense for the company.
Unidentified Participant
What would be your disbursement yield on the lakh portfolio and you know, versus say whatever you’re charging in the home loan portfolio, how much higher would it be?
Atul Jain
Approximately on a thumb rule basis, I think it will be higher by 100, 220 weeks. I’ll just give a minute. I’ll ask to check the data. My approximate will be 100, 200 pip, which I said under 2020.
Unidentified Participant
Okay. My other question is on the employee OPEX rate. So you know, when I just look at your employee opex and then divide that by the average number of employees, that number, you know, which is sort of an indicator of salary that’s been growing at a rate of 40% for last many quarters. What is driving such growth in the salary costs and where do you foresee this trend or growth rate settling or when do you see this growth rate coming down? Because 30% for last many quarters, that’s a pretty steep growth rate. I just wanted to understand why this is the case.
Atul Jain
Employee cost has year on year grown 20% from 113 crores to 135 crores. Are you looking at the same number is a different number? Because 30% is not the number what we have, 20% is the number what we have. In fact that last year it was a flattish versus last year. So if you have to last year was a flattish number versus the previous year number. So last two years put together we would have seen close to 20% kind of a growth in the salary cost. But to answer that question, where it is, the growth is coming in the recent quarter we have seen in the salary is coming largely from the investments.
What we have done in sbu what has we called out? And also the non metro market also it would continue to be done for the next six months. I will say next, at least next two to three quarters. It will continue to be there because as we continue to expand non metros, I’ll say maybe another quarter to one quarter to two quarters where we continue to invest to reach at a reasonable price. SBU probably will continue to invest not only in the current, even in the next year as well as we continue to expand our geographic presence and the customer segmentation at the overall level, it will not impact materially in the company OPEX trend that we are mindful of.
That’s where I called out OPEX to entry ratios. The efficiencies, operating efficiencies will continue to build. Despite our building or making this investment which is as a NIM moderation tapers off, you will again start seeing the operating efficiencies coming in.
Unidentified Participant
Understood. No, I was just referring to this, you know, employee count which seems to be about 10% lower y o Y. But I think your explanation held a lot. So can I move to the next question?
Atul Jain
Yes, please.
Unidentified Participant
Hello?
Atul Jain
Yeah.
Unidentified Participant
Okay. So I just wanted to clarify whether.
Atul Jain
You said that Min may moderate by.
Unidentified Participant
5 to 10 basis points. Is that what I heard? Is that the correct understanding?
Atul Jain
It will moderate to 10 days, roughly five to 10.
Unidentified Participant
Okay. And one explanation was that you will do lower assignments. The other one was lower investment income. What is the reason for this lower.
Atul Jain
Investment in last year? It is Y comparative. What we are doing last year since we had an excess capital because we did two rounds of a capital raise once was in the cap rights issue what we raised in April. And then there is a Public issue of 3560 crore what we did there. So consequently we were carrying much higher levels of investments. As the capital got consumed, the issue proceeds got deployed. The current year investments are going to be lower and coupled with the yield from the investment to the current year is going to be lower because of a lower interest rate design.
So both the factors put together, there will be a lower investment income which is visible in the Q1 to 1 Q1 FY25 to Q1 FY26 as well. If you look at the differential between after nii to nti, the differential is ni is above, but nti is lower versus q1 to q1.
Unidentified Participant
Okay, but I will say for example, if I look at cash and investment side, if I look at it for this quarter and Compare it to one QFY25 cash and investment side pay, percentage of borrowing, the rural asset, it seems to be same yoy. There’s not material difference.
Atul Jain
You’re looking at a 30 June figure. When we look at the investment is the average investment and average cash carry during the quarter. At the quarter end the figure can be the same but average investment for the quarter can be very different even when the same number is the same.
Unidentified Participant
Fair enough. Thanks a lot for those explanations. Thanks.
operator
Thank you. Our next question comes on the line of Mischin Chavate from Kota. Please go ahead. Hi, thanks for taking my question.
Unidentified Participant
If I look at the growth rate. In home loans and that’s kind of. Consistently sort of slowing down from 30% in the first quarter of last year now going all the way to like around 2020 and a half percent. So. So I’m curious, is this because of. Just heightened competition or is it to do with the fact that demand has not yet picked up? What is it that is happening over here? And I know you don’t give breakup of disbursements but some color in terms of whether there is any growth in disbursements or not.
Atul Jain
Growth rate in SL has come down due to three factors. One is a real estate market has been showing some moderation over the last two three quarters as evident from various reports what you would have seen as well as what published in newspapers. Even when you look at the bureau data for home loan disbursals in fit in last 2/4, last 2 3/4 versus earlier there is virtually no disbursal growth. Then there is an EM growth but no disbursal growth at an industry level. So when I industry growth is not there in disbursements for you to continue to grow disbursements at the pace what you are doing becomes difficult because you have to take the part from someone else to answer the question in that sense that the disbursement growth is still happening in the retail side for Q1 versus last Q1 we would have as a 12% disbursement growth as far as home runs are concerned.
But it is higher attrition because of a competitive pricing which is one part. Second part is the market being slower than what it used to be specifically bio Y that is what is resulting into the growth being low and any. Sense in terms of I know you explained the competitive dynamics changing aspect but any sense in terms of any arrival in demand that you would probably expect. There are two parts demand for a size of a demand perspective I think we are a small player as of now we have a good highway to cater and as we continue to expand in our segmentation of near time and affordable, we will continue to grow the disbursals as well as the EVM even if the demand remains, let us say remains sideways. What we see in the Q3, which I said as an answer to the first question, we see by Q3 the pricing disruption and accordingly the portfolio attrition to stabilize which will mean that we expect or we should be back on the mood by Q3 or so as per our estimate in case there is no further large pricing disruptions in the market which we don’t estimate to be.
But I’m just debating that if there is no large further pricing disruption in the market, growth even remaining sideways, I think we can revert to our original growth number even if the growth overall industry level remains aggregate. Got it. Now in terms of rate transmissions, you would have done two cuts right? If I recollect rightly and if you could just sort of, you know, spell. That out once again for us was done on 1st of July. So there are two parts to the rate transmission. One part is that there is a significant amount of a book which is linked to external benchmark even in the asset side. So there the rate transmission happens as per the benchmark which is agreed and passed on. One is a link to your internal benchmark. Internal benchmark we have the prime salad book. We have passed on three cuts till now from the rate cut cycle which is totally in the total amount of 45 days on the existing portfolios on internal PLR on the external referral link benchmark portfolio which is also significant in our case.
There’s a full 100Gbps of transmission which has happened and 45 is fully passed.
Unidentified Participant
On or 45 will be reflected from or how much will be reflected from the next quarter.
Atul Jain
4520 is passed on on 1st of July. So what we are factoring in for the for the roas for the coming quarter for the full year is factoring in what we have passed down on 1st of July because there is a incremental cost benefit also which is going to accrue in the Q2. So we expect our cost of funds to go down further by close to 20 to 25bps in the Q2 itself. So it will hold, the NII will hold. There is a reduction in the portfolio yield as you will see the next quarter or after that result, but there will be a corresponding reduction in the cost of fund also what you will be able to see.
Unidentified Participant
Got it? Got it. This is very helpful. Thank you very much. All the best.
operator
Thank you. Our next question comes from the line of Prithviraj Patil from Investec. Please go ahead.
Unidentified Participant
Yeah. So my question is on the yields. And the disbursement growth. Spell out the incremental Yield on the HL&LAP portfolio and the disbursement growth as well. For the HL&LAP portfolio for this quarter.
Atul Jain
At the retail portfolio, as I called out in Mission, also the disbursal growth was 12% versus Q1 FY25. Incrementally there is a SL level. I’ll just. Give me a minute. I’ll check some. In HL aggregate average yield is 8.76 for the quarter one by incoming. Incoming. Incoming portfolio. Incoming. But it’s an aggregator because we operate from 7.5% onward on the prime. Most of the customer, we operate at 7.5% which is after the June rate cut. But. And April. May. June is an aggregate of April. The pricing was different. My was different. As of today, it will be lower than what was a Q1.
Yeah. And for the last part, the corresponding reduction in cost of funds as well. Correct? Yeah.
Unidentified Participant
Yeah.
Atul Jain
So for the LAPA as well, the. Loan against LAP part, the disbursement growth and the incremental. Growth will be. Yeah, I’ll have to. At a product level. That’s why we gave at a retail level, I think. But it will be in the similar range because there is not. It’s largely. Which is more dominant in terms of a yield. It will remain between 9.6 higher than what it is in HL because it is a portfolio yield as well as a incoming portfolio yield. If 8.7 was the incoming portfolio for HL, 8.76 average in the last quarter, it will be roughly in range of 9.7 to 9.9. Okay, thank you.
Unidentified Participant
That’s it from my side.
operator
Thank you. The next question comes from the line of Abhijit Tibriwal from Motilal Oswal. Please go ahead.
Unidentified Participant
Yeah. Hi. Am I audible?
Atul Jain
Yeah, you’re audible. Yeah.
Unidentified Participant
Yeah. Hi. Hi, sir. Good evening. So the first thing is just a clarification. You’ve repeated that twice already. But this disbursement growth of 12% that you spoke about, is it HL disbursement growth or is it your. Your retail disbursement growth which includes your.
Atul Jain
Hl and between sl lab, it will be similar. Okay. Okay. But this is what HL and LAB put together. Yes.
Unidentified Participant
Retail. Retail.
Atul Jain
Retail. Got it. And so then you spoke about that the lowest rate which is being offered by DHFL in Excel is currently 7.75. Just trying to understand 7.49 7.49% that’s the lowest rate which is being offered by us. So sir, I mean from what I could understand, right this moderation in growth guidance is also factoring in competitive pricing on on acquisition of new loans. So what is the rate that is being offered by competition? Perhaps because of which looking at the risk return metrics we are having to let go of some of that business. There are various companies and various banks which are offering at a different price. So that data is there in the public domain carried by most of the newspapers. The rates are varying from 7 point starting from as low as 7.3 7.35% from largely public sector banks to 7.9 7.8% from few private sector banks. When we also say when we start at 7.49 It’s a spectrum which starts with. But there is a depending on the customer bureau customer various attributes aspects income range the rate varies 7.49 is for the best of best customer and there is a staircase on the type of a customer and also the income profile bureau profile which applies.
So the lowest range in the market today would be starting at 7.3 7.35 which is largely all public sector banks going up to for the real time customers up to 7.75 7.8 between 7.35 to 7.7 for the top most customers. And there is a range which keep on going down. So yes, the rate pressure or the competitive intensity is very significant in the market.
Unidentified Participant
Got it, sir. And so the second question I had was on the stage three PCR I saw its decline I mean understandably still remains healthy but has declined about 4% QoQ so just trying to understand went up in the fourth quarter has declined again. So I mean what is happening there on the stage 3 PCI.
Atul Jain
It is a function of. At the stage where the case where there’s an ECL model on various GPTs various case which moves there is a differential LVD and rates provision rates which it applies. So there is no change between the provision policy of the company between March to June It’s a function of an outcome of. It’s a function of outcome because there are cases which is as per our policy we go and provide extra than our ECL model if the risk assesses to be there. So their provision coverage can look like elevated if there is a risk assessment on an additional risk from a customer A few customers which is outside or in addition to the ECL versus in a quarter if they assess the customers to be having higher risk than the ECL model assessment.
So ECL model remains stable. Abhijit There is a assessment based additional provisioning in some quarter which can risk and take on few of the accounts which can result into PCR moving to a certain extent like we have guided also in the medium range as we continue to grow as we break bigger and unfortunately while not wanting us NPA pool also will grow bigger. These swings in PCR ranges will not be there because today NPA pool is total 300 odd crores so the provisioning coverage can swing on basis few cases assessment of risk being higher. Please mind it.
We are not saying that below ECL we can provide it is above ECL risk assessment which can avail.
Unidentified Participant
Got it sir. Thanks for that. And sir, last question again circling back on margin.
Atul Jain
For US as a ECL model is 40% so anything above 40% is then is an additional risk assessed from the account which is there. So in the long range at some point of time it can even be a 40% but not like if the risk has not assessed any particular individually case to be more riskier than the ECL model. Just to close that’s where the range can be swinging between basis risk assessment on an individual account.
Unidentified Participant
Got it. So just to clarify on that what you suggested is. I mean 40% PCR is good enough based on the LGBS that we have but I mean based on your additional risk assessment, right There are higher PCI that you are carrying on certain.
Atul Jain
As for the ECI model we are required to have 40% provision coverage. However we take a conservative view and the risk and collection team, debt management teams take a calibrated calls on where do they see if the long term risk additionally is coming. They recommend for additional provision which then results into a higher pcr.
Unidentified Participant
Got it. So this is useful. And so this last question circling back again on margin and the PLR discussions that you’ve already had on the call. So a total three PLR rate cuts totaling to 45 basis points including the last 20 basis points PLR cut which you did on July 1st. So just trying to understand sir A. I mean how often is the alcohol meeting done and at what frequency can PLR rate cuts be done in the future? I think I mean there will be a component of competitive intensity and the portfolio attrition that you are seeing which will dictate that that was first part.
The second part was in the Last earnings call you guided for margin compression of 10 to 15 bps and also kind of added there that some bit of it can be mitigated through a change in product mix or a product mix improvement this time around. We have guided for a 15 to 20 basis points margin compression this year. So now that mitigation through improvement in product mix will no longer hold this year, is it?
Atul Jain
No. So two answers. First on the ALCO frequency. ALCO happens every month. However there’s an ALCO subcommittee which is a management committee. It is headed by me which happens twice a month. So the ALCO in that sense twice subcommittee and subcommittee is empowered to take calls. This is the emerging data and on based basis the movement in the cost and the market competitive there. So we are pretty agile there. So it’s technically in three times in a month. Also we can. There is a movement which is feasible on the basis decisioning which is empowered as per ELCO process.
Second, on the margin compression when we are saying 15 to 20 beats like I called out in the earlier question it is largely due to what we are saying elevated from a 1015 beats to 15 trolley leases because of a reduction in other income income due to lower investment income MSAs in the current year with rate reduction, lower investment income and also lower cash being carried because of a lower debt. And we have toned down our assessment of assignment. What we are going to assign out in the portfolio. See if the growth overall is lower to be lower then we don’t want to assign that much portion because we want to build more capital efficiency.
Those are the two factors which is resulting into. While the mitigation in terms of product mix is still playing out. That’s why NII we are projecting to hold in line with the last year. In fact I’ll say that we are being more optimistic on holding the line. That’s where we are saying whether cost of fund reduction coupled with next shift will hold the NII line. NTI line is impacted because of those two factors. What we have called out.
Unidentified Participant
I hope I got it. Sir, this is. This is clear? Yes sir, this is absolutely clear. Thank you very much. And so I wish you and your team the very best.
Atul Jain
Thank you. Thank you.
operator
Thank you. Our next question is from the line of viral Shah from IIFL Capital. Please go ahead.
Viral Shah
Yeah, hi. Thank you for the opportunity. So I have a couple of questions. One is on the margin. I think it’s more of clarity. I would say question you mentioned 5 to 10 bips kind of a margin compression or min compression that is the incremental right, from versus 10 to 15 you had mentioned earlier.
Atul Jain
Yes, yes. Okay.
Viral Shah
Secondly you mentioned and the reasons that were mentioned is because of the lower DA income which we have and secondly of course the cash levels which are there. So over there just want to understand how does this impact the NII which is there because that will be forming part of your nti. Right, the non interest income.
Atul Jain
Yeah, There are like cultures. Specifically NII we are expecting to hold in nti. That’s what is even called out specifically in panel number 31 that NI for FY26 is largely expected to be stable and in line with FY25. However, NIM, which is NTI or a NIM as you call it because NI is expected to be stable. This is a name or NTI which is going to be moderated by FA26, which is that exactly after NI, these two incomes comes after NI. That’s what it’s a bit.
Viral Shah
So basically the name that you are defining is basically the NTI as a percentage of the assets, not the core interest income and the expense.
Atul Jain
That’s what we called up specifically as NI and I is expected to be stable. That’s what we call it.
Viral Shah
Got it. And secondly over here if I look at it, given the rate reduction, there will be also a higher relatively treasury income also.
Atul Jain
Right.
Viral Shah
So if we strip that out on a core basis, the NIM as you define or the say nti, that will be slightly lower.
Atul Jain
Right.
Rajeev Jain
We don’t have a Treasury income line in that sense. The treasury income line is only the cash carry what we carry as a extra money to invest in and that is whether as a LCR requirement of either T bill or a G SEC or money market mutual fund. So we don’t run a Treasury portfolio viral in any manner because we are an operating company. There is no treasury portfolio of investments. What we run. What I meant is basically whatever the cash and the investment book that we have, that will be some gains because of the rate cuts, the VSEC rate reductions.
Viral Shah
Right.
Atul Jain
The mark to market that will happen. Because of a total investments carried in the end of the quarter is 3004, which is a mix of a money market. Mutual funds are there at the jump up in terms of because and that is not a book which we carry for a long term we keep on liquid because that’s the book we run for LCR requirement. We don’t run a Treasury investment book so as to say for gain or a loss. We carry the investments only for the purpose of maintaining LCR ratios. And they keep on getting liquidated or booked basis the the cash requirement of the company.
There’s no permanent investment book in the company.
Viral Shah
Got it. And I think the second question is I would say more on the growth front. You mentioned of course the reasons for say the near term sluggishness which are there. But how confident are you say when we get into FY27 you will still have. I would say there is always a lead lag effect. Given that for I would say close to one and a half year we would have had lower disbursement growth. How confident are you that FY27 will go back to say a 24 kind of at least a growth. Let’s say not even talking of 2526.
Atul Jain
We are confident as of today sir that we will be going back to the growth path by Q3 of the current year itself. Because that’s what we look at. Because as disbursement growth are not that big a problem today because of hyper competitive. That’s what we said even Q1 at a retail level also we grew disbursements versus last year by 12%. But the growth has been absolute flat because of higher attrition which is a factor of a more intense competitive pricing and also create cut cycle which has happened very at a elevated level or you can say to June.
The impact of it is we expect to stabilize over next 2, 3 months, 4 months or a max at a 5 months 6 months kind of a level thereon. As the attrition gets normalized, we expect or we assess to be back on our normalized growth path. So it’s not even FY27 what we’re talking about. We are talking about in four, five, six months as the addition pressure gets normalized we should be back on our. Normal growth on a disbursement basis for book growth for this year will be 21 to 25. Divestments have still grown even in the current quarter. We expected to grow significantly over last year. However the EUM is not growing because EVM has remained flattish. Growth has remained flattish versus last year because of a much higher attrition. As attrition stop growing or attrition gets normalized, the EVM growth we are likely to see back coming to the normal.
Viral Shah
Got it Very clear. And this last question from my end. Given that we will be say assigning lesser quantum of portfolio in this year will be also or rather build that also impact at the margin our credit costs. Because generally there is a provision relief that happens when we assign does that kind of say accelerate our movement towards. The medium term credit cost? Yes, yes that is. But that we believe that’s a good problem to have because it’s a stage one asset provisioning as long as it’s not say when the credit cost is reflector of a stage one plus stage two stage three, the rightly called out. If you sign out you see a lower credit cost which is actually not a lower credit cost but it’s a good asset provisioning not being there non assignment will mean there will be a higher stage one provisioning which will consequently make like higher credit cost through the pnf.
Viral Shah
Got it? Very clear. Thank you. And all the very best.
Atul Jain
Thank you.
operator
Thank you. The next question is from the line of Shubranshu Mishra from Philip Capital. Please go ahead.
Unidentified Participant
Hi Atul. Hi. Two or three questions. The first one is what would be on 65 70% of the SL portfolio. As a yield or. 60 what what would be that number? I understand that we are not giving. The lowest rate to everyone. Second is that you’ve been speaking about some degree of slowness in the real estate.
Atul Jain
I. I could not get get the question right. Can you clarify what do you mean when you said six a bulk of.
Unidentified Participant
Our portfolio whatever that number is 50%, 60% what would be that blended yield not on the entire portfolio. What is basically our comfort yield or mid 80 80% range for our portfolio.
Atul Jain
So hi Subranshu Baur. It could be home loan overall would be around 9% at a portfolio level. It is difficult to cut the portfolio at a 50% level and say that looking at the mix of the overall portfolio overall portfolio. So SL yield is like a portfolio yield is around 9%. Around 9% as of 30th of June which is the number which is given right.
Unidentified Participant
And in that 55% that we give out what is pure HL and what is drop up.
Atul Jain
See pure HL has to be about 50% as per the diluted requirements. The exact number would be IHL number is on 30th of June 50.79 or 50.8 is 50.9%. 50.9% is a pure ISL portion out of the 55.8% balance would be not only top up, it will also be part of a P or a insurance mix of both. But this 9% yield is of both.
Unidentified Participant
So 50.9 what is the pure pure home loan yield?
Atul Jain
It will be difficult to segregate so branch but it won’t be materially different because generally that because if you’re talking about out of a 5% other than IHL portion which is a pure home loan. There is a portion would be the cross sell line or the fee land. So top up line would be in in close to three three and a half percent of the portfolio whatever yield. Normally top up loans comes at 100 beats higher yield or equivalent to LAP yield approximately that at overall home loan. It is not going to push up the yield too much.
3% of the book is not going to drive a 50% book to a significant level. But at A broad level 100 leaps is the differential between stock of price to the pure homeland price. And there’s a lot of investor chatter around regulation around top ups. Are we facing any regulatory detects or pressure from regulators to reduce the top. Up or let go of the top up entirely? The regulators have been guiding over the last one and a half year which through the normal newspaper or through the there to be mindful of the top up and that is where they had increased the risk rate around one year back. Apart from that there has not been any specific communication, at least not to us because like we called out the top up is not a very significant part of our business. So we at least have never received any specific conversation or have been part of a chat on a specific basis on a top up applicability.
But overall at a systemic level Reserve bank of India earlier guided companies, all companies, all NBC’s HSCs to be banks to be cautious about top up and that’s where they’ve increased the risk weight on the top up loans from 100% to 125%. Apart from that we have not heard any other chatter recently or definitely not had any specific conversation with any regulator or supervisor which is NHP in our case. And given the fact that there is a softness in the real estate market and which has been rightly called out, do we foresee any pricing wars from other HFCs, PSU banks, private banks? Is there a possibility of this leading to mispricing of home loans going forward in the next five to six quarters? I missed Subranshu the first line of your question. Second line I understood clearly you are saying mispricing but in what context? So that I am able to a.
Unidentified Participant
Softness in the real estate market will this lead to mispricing by almost every year? PSG Bank Private bank so softness of.
Atul Jain
A market always results into more competitive intensity. What we are looking at because if you look at a credit growth in the economy overall it is much softer than what it should Be there is already a reflection in the pricing competitiveness or price offering in the home loan there is a reflection of already a softer overall credit growth there which is a normal scenario which is an industry cycle. If there is any more softness in the demand, can there be more pricing pressure? But it’s an industry phenomena which is a normal cyclical phenomenon.
Unidentified Participant
So there can be mispricing if there is more softness.
Atul Jain
I’m stopping short of saying that we believe that the current pricing is also not fully appropriate. That is a function of current softness of a demand for credit overall. Because if you look at the overall credit growth in the system that is lower which is resulting into a bit of a in our assessment much lower pricing for the home loan portfolio in the market. I will not call it a mispricing but I’ll say the pricing in the home loans are much more softer in our assessment because of a overall softness in the demand for credit in the bank in the system.
Unidentified Participant
Right. And just one last question on the upline and affordable what about the demand there? And instead of building it out organically can we think of doing co lending with smaller HSEs?
Atul Jain
Shubhranshu we generally prefer to build organically and that’s what we will build organically. Co lending is not fully evolved because whatever we generally see co lending which is a CLM do by the banks and the HSE we as HSE we can’t do CLM2 we had to do CLM1 only which is quite which has not moved significantly for at least for us as mortgage space which is a heavier underwritten part in the industry overall. So we can operate that but we don’t think there is a much scope to very high scope there to grow. So we will build organically only that’s what we are looking to build organically.
And the demand near prime and demand remains robust. There is enough market space and since in any case we have started only so there is we don’t feel constrained of the market demand we are moving cautiously because this is a new area which we ventured into 14, 15 months back. But we are in our assessment progressing well. Right.
Unidentified Participant
This is very helpful. Thank you so much. Best of luck.
Atul Jain
Thanks.
operator
Thank you. We have Ranish from ICICI securities with the next question. Please go ahead.
Unidentified Participant
Yeah, hi sir. And I congratulate on a good set of numbers. Just two things from my side. One on this lab piece, you know, so while this portfolio has been growing at a decent pace but when we look at the average ticket size, you know, the same has gone up by almost 20% over last two to three quarters. You know from 6 odd million in Q2 FY25 to 7.2 million by Q1 which essentially means that the bulk of the growth is actually driven by it has increased and maybe indicating subgrid volume growth. So just wanted to understand you know what are the probable reason for low volume.
I mean it is linked to the cash flow problem or something else.
Atul Jain
So relish the average ticket size you could have because we remain a player in the prime mortgage whether that is in a lap or a home loan. And barring the new vertical in near prime what we have started so the ticket size can swing between us but we remain largely in the ticket sizes of 4050 lakh to around 2 2.54 to 3 crores is the average ticket size where we operate. That is so the average ticket size movement is for that. One reason for lap ATS movement is also used to earlier do in a way what we call affordable lap also to some extent as a part of our rural vertical which we have stopped doing in last six seven months.
Now that volume in terms of a quantum was not very high but number of cases would have been bringing down the average at a company level. Now that we stopped doing around 610 months back as we started pressing pattern on affordable homeland because we want to build such there in largely home loan portfolio then maybe start restart that smaller ticket lab or I’m not calling it a micro lab because micro lab has different connotations in terms of yields. We were never in that 24, 25 kind of a segment but we were doing laps in the upcountry market earlier which we are not doing for now six to nine months that can be one factor but that value is that business was never material as a balance sheet.
Unidentified Participant
Got it. And if I may ask what’s the strategic decision behind moving to a higher ticket size?
Atul Jain
We have not moved to high ticket size. We remain in that segment. There is a market movement as well. Overall if you look at whether any product, whether it is a home loan or a in the market there is a demand for largely a more higher ticket which is a we are a function of a market and since we operate in the prime space that’s the ticket size moment, the discontinuing or not doing in up country smaller ticket lab which we were doing. Like I said that that was because we are now focus as we re pivoted our and we we moved the business of a 40,000 near prime into the new SB as we set up Last year we assessed that initially first we have to focus much more on the building a home loan channel.
We being an HSC also we required to focus on hl and then we said that later on we’ll build the smaller ticket lab business also in that SBU as we grow further. There is no strategy behind it. So just a assessment at that point of time as we are reorienting or re calibrating the entire affordable or near point business as an sbo, what we should prioritize.
Unidentified Participant
Got it, Got it. This is very helpful. My second question is on the attrition rate. I mean you know the BP outrage obviously this quarter it has gone up. But when we look at and you also did mention about increasing competition. Now let’s say if in next four to five months, if this BP out rate further increases, do you feel any downside risk to your already revised group guidance in FY26.
Atul Jain
In our assessment we have factored in the downward risk what we are seeing as of today and we have assessed it in our way on a conservative manner. Conservative manner means that we have assessed the situation to remain elevated for next 4, 5 months which is a factor in the group parish. So we don’t see a further risk here until there is another shake up in the market in terms of we don’t see that additional 50 bits rate cuts coming in. But we are not the one who decides that. I am not. That I can’t predict that is not factored in.
But this is whatever we have seen, we believe that on a conservative basis we are factored in the max negative, negative side what we can have.
Unidentified Participant
Got it. Let’s say, I mean just a follow up on that. So we are not factoring any further rate cut, you know in next four or five months when we might have done our stress test on BTout.
Atul Jain
Yes, we are factoring in one more rate cut for our stress scenario over 25 days additionally coming a year.
Unidentified Participant
Got it? Got it. This is very helpful sir. Thank you. Best of luck. Thank you.
operator
Thank you. Ladies and gentlemen, in order that the management is able to address questions from all participants in the queue, we request you to please restrict yourselves to two questions only. You may rejoin the queue if you have further questions. Our next question comes from the line of Piran engineer from clsa. Please go ahead.
Piran Engineer
Yeah. Hi. Hi team. Congrats on the quarter and thanks for taking my question. Just a follow up or maybe it’s been partly discussed. So firstly the gap between our medium term growth of 25% and say near term of 2021. How much of that is attributed to just a weaker real estate sector. So in the difference is 2426 to 2123 which is a differential, let us say a 300 weeks kind of a not 4 and 5. It is largely to do with a higher competitive lower pricing, higher attrition, less to do with the lower demand. I called out in earlier question also that demand is because given our relative size being slower demand will not lead to our lower demand or a stagnation of demand should not lead to over would not have led to over revising the grid projection.
It is the competitive pricing the activity and resulting to higher efficiency. This is resulting into our guidance for 300 weeks assessment downward in the current financial. But then that atul that leads me to the question what will change in six months? Because when we say by third quarter, you know what happens is there is always a much higher IT or a much higher movement or a disruption in the market when the rate cut happens and there is a pressure which gets built up but over a period it dissipates and then it gets normalized. That’s a normal scenario.
That’s what we are saying that if there is no further shock in the system of a very high rate cut or more than expected rate movements, what is there we should expect it to normalize in next four times. What we are basically saying is banks get aggressive when rates are cut. There’s a sort of, you know, pent up aggression. If I can make that word movement of portfolio is much higher for an extremely great sensitive customer. The movement is much faster or much bigger later on. Because in any case we are also passing on the portfolio then the customers are more stable as we go and the portfolio also keeps on substituting.
There is an older if there was a customer at a higher rate that keeps on going out. There is a newer customer which is coming in which is at a lower rate. So here rate tends to get normalized in four point. It’s not nothing to do with the competitive banks being more active at initial level than not being active. It’s a phenomena in terms of a more rate sensitive or a more rate seeker customer moving out faster and the substitution of a customer being a which is coming in at a new pricing. The ratio of a new price customer going up versus the customers going out.
It’s a mathematical formula, nothing. So basically what you’re saying is whoever has to leave will leave immediately and those who stayed back, stay back with there is always a exit which keeps on happening. There’s a normal scenario. The elevated elevations will get normalized in scenario and. Okay, okay, gets normalized in port. That’s what I. Okay, that. That makes sense. Okay, fair enough.
Atul Jain
And the secondly on for Gaurav, just over the last one year rates were fairly high but we actually reduced our share of bank borrowings and borrowed more from NCDs. It’s a bit counterintuitive because I would have expected when rates are high, keep more floating rate borrowing so that we benefit once rates start getting cut. But it’s actually been the other way around. So any what am I missing here? So basically we look at incremental borrowing rates between NCD and bank lines at the time we are borrowing. So since the price differential has been better on the NCD side when they’ve been borrowing after factoring in the reductions which may come because banks get repriced basis MCLR movements which we have not seen much happening etc.
So we factor all that in and looking at those movements versus what acquisition level they are getting pricing on NCD versus bank lines is what we take as a call at that point in time. As of now we’ve been seeing that the differential has been beneficial more towards the NCD side. That’s why we’ve been focusing more on NCD borrowings. And what was the differential beats fit. Today a fresh bank line from a. PSG bank. Differential would have been around 30 basis. 20 basis points. Okay. Okay, that’s it from my end.
Piran Engineer
Thank you and wish you all the best.
operator
Thank you. Our next question is from the line of Abhishek Murarka from hsbc. Please go ahead. Abhishek Murarka, your line has been unmuted. You may proceed with your question.
Unidentified Participant
As. We’Re not receiving a response from the current participants. Am I audible, Abhishek? Yes, you are audible. Yeah, thanks, thanks. Sorry about that. So thanks for taking my question. Just in your home loan book, what is the percentage or absolute amount of. Affordable and near prime? If you can share that.
Atul Jain
So Abhishek, in our home run book the ratio would be around 15% which is a non prime book and 84% would be the prime and near prime book. So we segregate between prime and near prime on one side and a non prime and a portable on one side. 8416 would be the approximate mix in the book between prime year prime and. Because prime year prime is a bit of a overlap, that’s why there is a, there is a categorization. We do a non prime affordable near prime, prime prime year time would be around 86%. 14% would be 84 and 16.
84 and 16.
Unidentified Participant
Thank you. So the current participant seems to have dropped from the queue. We will take that as our last question for today. Ladies and gentlemen, I would now like to hand the conference over to Mr. Ajit Kumar for closing comments. Over to you, sir.
operator
Thank you all for joining the call today. And thank you to the management team of Bajaj to hold this call. Any closing remark, Atul?
Atul Jain
No. Thank you very much. For all the participants are patient, listening. And thank you, Ajit, once again for giving us opportunity and by hosting. Thank you all.
operator
Thank you on behalf of Bajaj Housing Finance Ltd. That concludes this conference. Thank you all for joining us. You may now disconnect your lines.