Bajaj Housing Finance Ltd (NSE: BAJAJHFL) Q3 2025 Earnings Call dated Jan. 27, 2025
Corporate Participants:
Atul Jain — Managing Director
Unidentified Speaker
Analysts:
Sameer Bhise — Analyst
Raghav Garg — Analyst
Piran Engineer — Analyst
Shubhranshu Mishra — Analyst
Viral Shah — Analyst
Ganesh Nagarsekar — Analyst
Analyst
Jigar Jani — Analyst
Rahul Jain — Analyst
Parth — Analyst
Abhishek M — Analyst
Pranish — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Bajaj Housing Finance Ltd. Q3FY25 earnings conference call hosted by JM Financial Institutional securities 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 then zero on your tab. Please note that this conference is being recorded. I now hand the conference over to Mr. Sameer Bise from JM Financial. Thank you. And over to you sir.
Sameer Bhise — Analyst
Thank you, Neerav. Good evening everyone and welcome to the 3Q FY25 Earnings Conference Call of Bajaj Housing Finance. First of all I would like to thank the management of Bajaj Housing Finance for giving us the opportunity to host the call from the management team. Today we have Mr. Atul Jain, Managing Director, Mr. Gaurav Kalani, Chief Financial Officer, Mr. Jasminder Chahal, President Home Loans. Mr. Vipin Arora, Executive Vice President CRE and Loan against Property and Mr. Neera Jadiani, Executive Vice President from Risk. As always we will have opening comments from the management team post which we will open the floor for Q and A. With that now would like to transfer the call to Mr. Atul Jain, Managing Director for his opening remarks over to you.
Atul Jain — Managing Director
Thank you Sameer. A very good evening to all of you and good morning to those who are attending from Western Hemisphere. First I’ll take you through the presentation that we have uploaded on the investor section of our website and also on the stock exchanges. Coming to panel number three. It was overall a good quarter for us in terms of AUM growth and profitability. During the quarter aum was up by 26% and overall AUM have now stood at 1,8314 crore while PBT and PAT both also grew by 25% on yoy basis and were 713 and 548 crore respectively. Asset quality continued to hold well during the quarter with GNPA remaining stable at 0.29% and NNPA at 0.13%. Provisioning coverage of 55%. Operating efficiencies improved further during the quarter and OPEX to NIM came at 19.8% in the quarter gone by against a 23.2% in quarter three FY24 operating expenses remained in control at 7% growth on YOY against a NIM growth of 25%. Capital adequacy of the company remains strong with CAR tad below 28% due to the capital raise which we recently did. PBC ratio also remained above. PBC is a principal business criteria ratio which is applicable to housing finance companies and which is at 60%. The ratio was at 62.15% for BHFs. I’ll move to panel number four. The addition of AUM during the quarter was 5,745 crore. Total AUM growth was 26% within 26% under various segments, home loans grew by 23%, loan against property by 19%, lease rental discounting by 26% and developer finance by 59%. Broadly, overall portfolio mix remains stable with slight movement between the products HL at 57%, LAP at 10, LRD at 19 and DF at 12%. During the quarter, we also saw disbursement growth of 17% compared to same quarter last year. As an update, we had set up a near prime and affordable. Vertical to meet the mortgage rate. Because we have predominantly been a prime company earlier this SBUs started, business has started picking up which is in line with our expectations and as we go forward we expect this vertical to become very significant in our overall scheme of things.
Moving to panel number five, cost of funds was stable at 7.9% from the last quarter indicating that the cost of funds have peaked out. The cost of funds has been there in the balance sheet. Borrowing mix again remained by and large stable at 43 to the banks 46% money market and NHB at 11% interest income. Net interest income grew by 25%. Net total income also grew by 25%. Gross spread remains constant at 1.9%. NIM dropped slightly to 4% against a 4.1% on a sequential basis and also on a yoyo.
Moving to panel number 6, GNP stood at 29 beeps as against 25bps on Q3FY24 and 29bps of preceding quarter NNPA at 13 beeps against 10 beeps of Q3FY24 in terms of credit cost loan loss to average loan assets stood at 0.15% in Q3. However net of overlay release it was 0.20 if the same number net of overlay released during the last year Same quarter was 0.15%. Now past this there is no other management overlay which is there remaining in the balance sheet of the company. In terms of profitability as already called out, pat grew by 25% in Q3 and ROA remained at 2.4% in line with Q3FY24 and ROE at 11.5%. ROE is down. Given the full impact of capital raise what we had done In September in Q2 FY25 the ROE had a partial impact because the capital raise being done in September. These are ROE and ROE of course are annualized figures.
I’ll move to panel number 15. Now this is first time we are putting up a medium term guidance on key financial indicators. In last quarter when we did our first call we were still in the silent period could not have guided for medium term guidance on the financial number we estimate in the medium term 24 to 26% AUM growth Opex to net total income to go down to 14 to 15% from in the current quarter it came to 19.8% GNP at 40 to 60 beeps. Credit costs remaining sideways between 20 to 25 beeps. Provisioning coverage at 40 to 50% ROAS of a 2 to 2.2% with leverage of 7 to 8 times this ROE of 13 to 15% in the medium term. Horizon.
Moving to panel number 17, I’ve already talked about the quartering number on the nine month number. The PAT has grown by 17% because of a one time tax provisioning release during last year what we had nullifying that in PPT the growth had been 23% as far as nine month figures are concerned on yoy basis.
Moving to panel number 19 on a key portfolio trend marginal downward in the portfolio yield from 9.9 to 9.8% and spread remaining same at 1.9. In fact it was 1.94 last quarter to 1.89. That’s why you are even with a 10% portfolio deep looking at 1.9. So it’s a second decimal change. What has happened there? Operating efficiencies have talked about 19.8% in terms of OPEX to net total income and nearer miss at 4%. Asset quality again stable at 0.29 with NNPA at 0.13. Return ratios again talked about from 13% now to 11.5% with full impact of a capital raise coming in.
Moving to panel number 20, the borrowing mix remains quite diversified. Banks borrowings are backed by 20 banks. 43% bank borrowings have reduced by 1.2% sequentially the portion which has been offset by money market borrowing which has gone up by same amount because it was led by larger bond issuance during Q2. Moving to panel number 23 portfolio mix remains stable over a period of time with a minor movement in terms of the composition of the products.
Moving to panel number 28 we have talked about GNP and NPA1 assets have stood at 99.34 again in line with the long term average of what we have seen over last few quarters. Stage 3 we have already talked about 0.29. Stage 2 at 0.37 again more or less in line with last 78 quarter. Moving to panel number 30 in terms of our provisioning coverage, the provisioning coverage we continue to remain conservative on the provisioning coverage across product. In terms of product wise, GNPA in home loans are slightly up by 2 beeps to 33 basis points. Lab has improved by 3 beeps to 76 basis points. LRD continues to have a nil GNPA while DS has improved by 1 beeps to 9 basis points and overall an NPA up by 1 beep sequentially. That is all from my side on the highlights of the quarter. Thank you.
Open to take any questions from the forum.
Questions and Answers:
Operator
Thank you very much. We will now begin with 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 two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask the question. The first question is from the line of Raghav Garg from Ambed Capital. Please go ahead.
Raghav Garg
Sir, hi, good evening and congrats on the result. I have three questions. So one is on the retail segment disbursements. Can you give us the absolute number of retail disbursements that was there? And then what was the growth on yoy basis and Q on Q basis in retail disbursement? And then another part of that question is that within retail what was the growth in the home loan disbursement?
Atul Jain
Gaurav, would you have a segmental disbursement number? So Raghav, first thank you for your compliment but we won’t be able to share segmental disbursement numbers. We have given the segmental AUM growth number and overall EUM growth as a product level where segmental disbursement numbers we generally do not publish.
Raghav Garg
Sure. But last quarter you had indicated about 7% retail disbursements growth. Can you give a comparable number to that for this quarter quarter which is
Atul Jain
What was also total disbursement? There was no retail.
Raghav Garg
Okay, I thought you had indicated retail disbursement growth of 7% in the last quarter.
Atul Jain
To the best of my memory, Raghav. No, to the best of my memory.
Raghav Garg
Sure, sure. Yeah. So the other question is that can you talk about your strategy in affordable home loans around ticket size sourcing model. Are you going to be targeting the existing players in the market? Maybe from a BT perspective or you know, coaching their loans which all geographies will you be focusing on just some color on that and the affordable piece.
Atul Jain
So for affordable strategy will remain anchored on purchase transactions not on taking over the bt. Because BT in any case as a part of our digital channel, what we get leads to the digital channel from Bajaj Finance. I think we have built a presence there. The vertical what we have set up this is which is a special sbu. What we have set up to cater to non prime and affordable is largely organic of course a part of a BT which is in the terms of an industry 15, 16% of the disbursals remains BT. So this vertical also may have 10, 15% of the total disbursals. As a BT states what we’ll be focusing is largely southern states and the western.
So initial period Andhra, Telangana, Maharashtra and Gujarat would be and Rajasthan would be the states where we are focusing, where we have started. Because these are two parts. The SBUs has two parts. One is a near prime and second is affordable. Near prime would come through the top 26 markets more which is outskirts of the top 26 markets. And affordable will come through a bit of a deeper presence in these markets. Ticket sizes in affordable will be between average ticket size would be 1617 odd lakh. 1617 odd lakh and in the near prime close to 35 to 40 odd lakh. That would be the ticket size focused on purchase transaction.
Raghav Garg
Understood. And just one more question. You know, very broadly at a maybe industry level or maybe you would have also heard some kind of softness in sales, you know, for developers, the numbers which the listed real estate developers have reported. So what is your assessment? Can you give us some idea in terms of what the developer uptake is or can potentially be given your view on the real estate industry, the absorption of the existing inventory and all that just in that backdrop?
Atul Jain
Yes Raghav, I think all of us have read through the reports or which have come by various agencies tracking real estate sales and launches that the first nine months of FY25 residential real estate has witnessed slowness in growth versus last year. So I’ll say slowness in growth versus last Year and there is a overall sales drop also as what has been reported by a few agencies. But in terms of a market sizing and in terms of their the launches have been lower.
So the sales are lower because of the number of launches or the amount of launches are lower in our assessment because what we see in the market, the launches across various markets are lower. But where the launches are there we have not seen an issue in the sales, the sales at the counters. Where there is a new launch there is no. So there is no inventory built up. There is no inventory overhang getting built out. The decline in sales is largely led by decline in launches what we are estimating. Of course we’ll have to wait for the formal official numbers. These are all feedback from the ground kind of a number what I’m talking about.
Raghav Garg
No, that’s fine. But I was asking more from a perspective where your developer loan book growth could also come down. Right now it’s growing at a super normal rate of more than 50%. Right. Do you see any risk to that if say for example the launches are not as much or the demand on a higher base comes down from here on.
Atul Jain
Raghav, our book while which has grown at a faster pace but at the absolute level we are still less than 13,000 crore kind of a book which is across 738 active projects. So I’ll say even if the launches are slow, which launches have been slow in first nine months but we have continued to grow at a good absolute pace because the percentages in our case are not that relevant because of a base being lower compared to the industry overall size. So in the short term to medium term I don’t see a problem in terms of a continuing to grow construction finance because that is an essential ingredient for us to grow our retail homeland business.
Raghav Garg
Understood sir. Thanks a lot from answering the questions.
Atul Jain
Thanks.
Operator
Thank you. Next question is from the line of Peran engineer from CLSA India. Please go ahead.
Piran Engineer
Yeah. Hi, team. Congratulations. That’s on the, on the quarter. Before I get to my question, if I can just.
Atul Jain
Sorry, we lost your voice.
Piran Engineer
Am I audible now? I can hear you all. Can you hear me?
Atul Jain
Yeah.
Operator
Your voice is breaking. Little bit.
Piran Engineer
One second. Is this better?
Operator
Yes, little better.
Piran Engineer
Okay, thanks. So before I get to my questions, I just want to ask the previous participants question a different way. In the 17% disbursement growth, would the retail growth be higher or lower than this than the overall average?
Atul Jain
I’ll have to check because we track. Not because last time I had answered specifically saying that we track EVM growth. But I’ll check and by the time we finish the call, we would have checked. It should more or less in my, to the best of my understanding, in the similar range or a bit above retail? Bit above, but I’ll check. Check. I’ll confirm to the number.
Piran Engineer
Okay. Okay. That gives us good color. So my first main question really is on builder loans. This is a product where you’re going growing quite fast. If you can just give us some sense of what percentage of the loan book is under moratorium right now or where you know, the DCCO has not yet come because I see your stage two is nil and stage three just a few crores. So want to get a sense of whether the entire pool right now is even eligible for repayments or most of it is under moratorium.
Atul Jain
We follow the way we do our builder finance business that we take the sweeps from the day one, largely barring one or two project where the agreement can be that the sweep is not from day one because moratorium is not the rightful metric to look at it. So technically the moratorium, the project moratorium is in line with the RERA extension date, RERA at completion date, which is the date at which the DCOC is supposed to happen. And after that the repayment starts from the contracted terms. However, along in the contracted term, what we always contract for is a sweep from the day one in the realization.
So practically there will not be any project where there is a launch has happened and the repayments are not coming in, but the contracted repayment rate where that irrespective of the sales they have to pay down comes when the RERA expiry date comes, which is the DCCO date of the project. Because any project finance is constructed, the moratorium is till the DCCO date, which is the date of RERA expiry and after that the customer is supposed to pay in equated monthly principal installments for the balance period. However, as per our construct we start taking sweep from the day one from the sales proceeds as agreed with the developer partner. And most of the cases you don’t hit the DCCU date because the sales have been so strong in last three years that you don’t even hit the date for the full repayment of a full repayment of a loan before you hit the DCCO date.
On if you are referring to the D.C. extension there, in our history till date we have given two DCCO extensions in our history, not even now and no DCSO extension has been given in last one year. There were two DCSU extensions which had been given over a period of time. One during the COVID period and one a bit later on that. Out of that two loans which DCC was given. One loan is already successfully closed and one loan is an NPA which is part of your stage three asset. As of today, apart from those two loans, there is no other loan where we have ever given DCCU extension.
Piran Engineer
Okay, so Atul, if I understand this right, if you give a builder loan today on the 27th of January 2025 and the RERA completion date is, let’s say September 2026, which is in line with your DCCO date between Jan.25 and Sept. 26, he is not obliged to make payments. But obviously if he has some pre launch sales are good, he will make payments. But he’s not obliged to do it. Correct.
Atul Jain
He’s obliged to pay the interest servicing every month. Interest services every month. Principal servicing is from the sweeps where the collection is happened princely. There is no moratorium on interest servicing from day one in any of the loans. Interest needs to be serviced by developer on each loan from day one through the ECS mandate. The principal repayment there is not no obligation till the BCCU date but the sweeps come in.
Piran Engineer
Understood. Okay, this is. This is pretty clear and just my second question in terms of you’ve given your medium term OPEX to NIM target of 15% today it’s 1920. What exactly would be the driver of that?
Atul Jain
We intend to keep on. See if you look at even the past also every year generally we improve this ratio by one and a half to 2%. Because the kind of investments what are required or the income growth would always outpace the OPEX growth given the nature of the business. And as the balance sheet keeps on becoming bigger, there will be one natural job which will keep on coming in. Because in our case in mortgages, expenses are on acquisition while the income is on aum. So as AUM become bigger, your job in any case keeps on expanding, giving you more operating efficiency. So that’s what we estimate it to play at. So 14, 15% is a number in the medium term which we are very confident in a longer term. In fact we want it to go down to between 9 to 10%. But that’s a longer term. That’s where what we are not guiding for but we’ll be pretty confident that this is the operating efficiency path which we will be able to achieve.
Piran Engineer
Okay. Okay. That’s it from mine. Thank you. And that answers all my questions. Thank you and wish you all the best.
Atul Jain
Thanks.
Operator
Thank you very much. Next question is from the line of Subransho Mishra from Philip Capital. Please go ahead.
Shubhranshu Mishra
Hi, Atul. I got also quickly on housing, home loans. Essentially we have to grow the home loan and land. APP part much higher at least to meet our medium term growth rates because they are growing at around anywhere between 20 to 23% with home loans being a larger part because they would. This is roughly around 70% of the book. So what is causing this slowdown in LAP book and home loan book?
The second question is around the home loan book we actually used to give a split between pure home loans and what is the top up. So today we’ve got roughly around 56% which we quantify as home loans. But I believe there is a substantial part which is also top up. And by prescription we need at least 50% which should be pure home loans. Right. And 60% which should be related to home loans. And 70% as an of the assets should be related to. So wanted that part and of the bank borrowings what is on external benchmark? These are my couple of questions. Thanks.
Atul Jain
Thanks. I’ll try to answer your questions one by one if I’ve noted them right. Home loan and LAB growth you are saying we need to grow much faster. Yes, because if you’re guiding for 24 to 26% probably we are going at that close to that range today maybe 21, 22% in terms of a homeland plus lab together. LAP actually we don’t consider as a standalone because LAP for us is a.
As you rightly called out. There is a regulation regulatory requirement for individual home loan. There is a regulatory requirement for residential assets. It is 60% of total assets. There is no 70% requirement. I’m not sure what is 70% requirement what you are referring to. There’s a 50% individual home loan requirement which is pure home loan excluding any top up or excluding any VAS products sold which is booked as a home loan. And there’s a 60% requirement for a total residential assets on the total assets.
Now for the remaining assets remaining part of the book which can be non home loan. We take a call basis at any point of the time Metrics on between loan against property and lease rental discounting. Our recent assessment of last three years had been that the lease rental discounting adjusted for risk is better return generator in last 23 years.
Given the intensity of competitive activity in loan against property market and the kind of what we say risk adjusted returns which are coming in so LAP and LRD we are agnostic. We have grown LRD much faster in previous two years as return risk metrics are in favor of lrd. But home loan remains the piece where we have to continue to grow in line with where we have to grow the company book.
If you are guiding for 24 to 26% kind of a company book growth, that is where that minimum or higher than that is where we have to grow home loan. Now, this 23% growth has been coming in where our economies of scale or economies from our new near time and affordable vertical has not kicked in. We expect this vertical to start generating meaningful contribution to the growth from next year. We just started in May and June so right now the numbers are for us a good indicator of the beginning but not that relevant from the EUM growth perspective. But coming year 2526 and followed by 2627. I think from an AUM growth perspective from a home loan this vertical will generate significant contribution to give us overall growth.
In terms of the question you asked on the numbers in terms of IHL 50% that number is 51% 50.9% out of 57% 50.9% is the number for individual home loan which is minus any top up or minus any VAS loan or any
Unidentified Speaker
Percentage of total asset.
Atul Jain
As a percentage of total asset this is what you see. 57% is a breakup of AUM but 50.9% regulatory requirement is total asset which includes the cash balances, what you carry. So there’s a bit of a different metric but 50.9% is you can say the conservative metric when you are looking at that metric. 60% I called out with a residential asset which we are 62%, 61.9%, 62.1% on the total assets again which is called out as per the Presentation as of 30-12-24 Bank Borrowings. You have asked a question on how much is linked to out of 43% total mix. 30% of our total liability is linked to external benchmark and 13% to NCLR. 43% bank borrowing out of total borrowing. Out of that 43%. 30% is EBLR, 13% is NCLR. I hope I have answered your questions to branch you.
Shubhranshu Mishra
Just one counter question here Atul. You’re talking about economies of scale kicking in next year. From a very low ticket item, our average ticket size around 45 lakhs to 50 lakhs. We’re talking about a 15 to 20 lakh ticket size giving economies of scale just a year from now. The math seems staggering.
Atul Jain
So what I’m talking about Subranshu is that there is a normal organic growth on the normal business what will keep on coming in which is what we are delivering the growth today of a 20 to 23% let us say in a home loan segment the incremental growth because you have to deliver above 24 to 26% or at least 24 to 26% if you want to deliver the growth there that is the growth which will come in from a new vertical if not from expansion in the market share in the current vertical. Because when you look at the growth number, if you’re talking about let us say 2 or 3% of the incremental growth number to come, then we are talking with so branch of only 3000 crore kind of a number in terms of, in terms of 25, 26, it’s not staggering,
Shubhranshu Mishra
Right? Sure. Thanks.
Operator
Thank you. Next question is from the line of viral Shah from IIFL securities. Please go ahead.
Viral Shah
Yeah. Hi, thank you for the opportunity. Atul, a few questions. One is I’m looking at your stage two over there. Across both home loans and lab, we are seeing that the stage two has kind of increased. So sequentially is this the part of the normal seasoning? What are you seeing? Any color? Incremental color would be helpful.
Atul Jain
Yeah. Thanks, Viran. But if you look at. Of course you’re looking at a Q2 to Q3, but when you look at a over the years, because we have put up in the investor debt for the last seven, eight months, seven, eight quarters. This is broadly in line with SIBO. What happens is there are stage two assets. They consist of two parts which is 31 to 90 DPD accounts. And also in our case we classify certain accounts below 30 dpd. Also as a part of a stage 2 basis of our internal classification where risk team assesses that there is a significant increase in the credit risk, there are two parts to it. So 31 to 90 DBT, which is the regulatory definition of a stage two. But incrementally we also follow a definition where internally this team categorizes certain assets as stage two which are actually in stage one from a definition point of view.
Now there was reduction in stage two last quarter primarily on account of a movement of less than 30 dpd which were risk classified accounts. When you look at a 31 to 90 dbd count the movement, there is no movement so that there was a less than 30 dpd which was risk categorized accounts. There was a movement downward last quarter which got broadly normalized. In this quarter, 31 to 90 DBD had remained largely round about rangebound to 0.08% at a company level from 0.07% in Q2, so we don’t see anything. So 0.07 was a 31 to 90 DPD regulatory definition with Stage 2 accounts in Quarter 2, which is 0.08. Rest of the Stage 2 assets are a reflection of what we internally classify as a increased risk and that’s why we classify them in stage two. Have I answered you, Vira,
Viral Shah
What I think you are mentioning at an overall level, I think broadly that will hold true even for home loans and lab settings.
Atul Jain
0.07 to 0.086 will hold two and lease rental discounting does not have any issue account. So it is. And also does not have. So it is. It will apply on that only.
Viral Shah
Correct. Got it. And Atul basically wanted to get a sense if you can quantify if at all there has been any impact from the property registration disruptions in a few states, Karnataka, Telangana, what has say how much it has been impacted and secondly, has it impacted your say, incremental disbursements for again, not the existing projects, but the new projects. Even on the construction finance or LRD side, if you can just give some color over there, both on retail as well as wholesale.
Atul Jain
There has been some delays in exhibition of registrations due to a change in Karnataka. If you’re calling out the state of Karnataka because of e kata introduction which is for long term good for the industry and long term good for the customers but situation is getting normalized as we speak because there are delay it is not cancelling or impacting the volume in the long run. And we don’t see any long term or a persistent impact of as far as Karnataka is concerned Telangana I am not aware of any disruptions in registration for anyway so Telangana you called out Karnataka. Telangana Karnataka yes has introduced Eata which has resulted into some delays or some deferments in terms of a time taken but not in Telangana. To the best of I’m not aware of any impact in the Telangana.
Viral Shah
And lastly just again I think this point has been broadly touched upon but see if the real estate cycle turns right and again I think we are probably in third fourth year of the cycle and whatever like people have different opinions of how long the cycle lasts. My question is that say the cycle turns hypothetically whenever that is. Do you see the exposures that you have taken? Have you done stress testing that how will your exposures fare in that cycle and what can be the say potential say portfolio at risk. See that on stage two, stage three levels. If that kind of thing pans out
Atul Jain
So viral. In terms of the way we lend our construction finance construct which is given again also as a part of our IP is we try to do so that we are able to stand the time. And in terms of a cycle if there is a cycle limit or a slowness is sales because you have rightly called out there is a cycle which will be there and there can be a cycle when there is a enhancement in terms of what you call inventory overhand. But to if I could say on a macro level the kind of inventory overhand today is there even if there is a slowness in slowness in sales versus the launches. I think we are very far from even the pre Covid days of a kind of inventory overhang which is there. So there is a good three, four years away in my assessment even the inventory overhang what we had during the pre Covid days at that time also industry was working second the baby underwrite.
If you look at this 13,000 for kind of a balance sheet what is outstanding in developer finance it is representative of 738 projects. Every disbursal or average outstanding per project is what we construct ourselves for general book and that is what we I was mentioning in the earlier question when it was there on the terms of a sweep while the repayment starts on the DCCO date, but the sweep starts from day one and our disbursal and are constructed in such a manner that we generally trash phase disbursal that every stage there are each disbursement. What is booked for a construction finance is given in terms of a breakup of various tranches which are linked to three milestones. One is a construction milestone, second is a sales milestone and third is the collection milestone in the project. We believe the construct what we follow even in terms of a downturn in industry, we should be able to hold ourselves. Hold ourselves well.
Viral Shah
Got it. Athi, really helpful. Thank you and all the best.
Atul Jain
Thanks Virat.
Operator
Thank you. Next question is from lion of Ganesh from Bharat metresearch. Please go ahead.
Ganesh Nagarsekar
Yeah, so my question was basically a follow up of the same. So given that we are kind of growing our developer finance book at a relatively high pace, broadly as we go into the if we go into a kind of a negative cycle in that sector, how will that fare? And broadly the way I wanted to think about it is if you could give us some guidance with respect to say past negative cycles in the real estate space. How has said the median player done, how I say the top decile player done in terms of say GNPAs on the developer finance book. That would be kind of helpful to kind of quantify this as such.
Atul Jain
Ramesh, if I carry the same point forward what I was mentioning to viral now in terms of you asked for a benchmark for a better player versus you can say not so good players in terms of a low cycle. I think if you look at a pre Covid or the last cycle, probably I would not have access to the numbers. You will have access to the number. You should probably refer to HGSE Limited and ICICI bank numbers on GNPAs and NPS on the construction finance because they had one of the largest book sales.
To the best of my understanding, they never have these issues of what we are calling out even in the low cycle because it depends upon how do you run the business, how do you run the business and what is your construct in terms of running the business and are you able to identify the emerging risk or emerging step much earlier and manage the risk accordingly? Because there is an execution risk which is embedded in the construction finance which you need to manage. So my assessment and my knowledge is that the better players had always handled the risk very well and have not got impacted by the cycles over the period of time.
The longer term players. We also have been in the industry now for seven years now. Since inception we have funded close to more than 1300 odd projects. We have so far seen only four cases which has slipped into NNPA out of them two we managed to recover later on in fluoride and the two which are still in NPAs, which is visible from the balance sheet and which I called out in earlier. Also, till date we have only given DCC extension also to two accounts and the industry had not been that good apart from what it had been for last two two and a half years. So I only maintain that if you handle the risk well, you play gambler and you are on top of the risk, you have an ability to manage this risk. We believe we have ability to manage this risk better than maybe some other place.
Ganesh Nagarsekar
Understood? Got it, sir. That’s it from my side. Thank you.
Operator
Thank you. A reminder to all the participants, you may press star and one to ask a question. Next question is from individual investor. Please go ahead. Hello. Am I audible? Yes. So my first question is actually first I would want to have a clarification with respect to the NRD NRD vertical. So there we see that there is no NPA gnp but the average ticket size that I can see is approximately 98 crores. Although I would want to not the situation not happen. But in which scenario will this. Why? Why will there be an MP in this case? And what will be the procedure for collecting such a large amount in the. In the MP as a name Also police dental discounting is given against two securities. If I have to say two securities. One, the customers here in broadly 50% of the portfolio would be to very large rated funds or rated companies which have a very large portfolio. So you can say the inherent risk stability of the portfolio is much higher than any other mortgage portfolio. That’s why you see GNP and NPA says no. And if you look at overall industry industry Also for last 20, 25 years, this is not the lid has never gone through a cycle because of inherent double security structures which get built in first is that you have the cash flows escrowed to you because there is no execution risk of the project. You have because this is already built and leased out, you have the cash flows escrowed to you which is more than your current EMI coverage. And as there are rental escalations and as the tenor moves your security in terms of a cash flow keeps on getting better adequate. In any case the property is mortgage to you which is at a lower ltv. So that’s why you don’t this portfolio to us I think this is one of the safest asset classes in mortgages. That is an industry experience in India and that has been our experience as well, which is a reflecting from reflective of a nil npa. Understood. Okay. And now coming to the main question of the affordable affordable housing. So we have seen many players coming into the affordable vertical. There are already some players there in the affordability type. So my question is in the medium term that you have slide that you have given that you want 20 to 25% growth. So the book size for this affordable vertical. What do you see in the medium term for this vertical over the medium term?
Atul Jain
So Siraj, the medium term growth. So our dominant portion of the book is all likely to remain in the medium term of a prime five year period. This will not between non prime near the prime and a portable. 80% of the book is still going to remain prime. So because there is a affordable is a various definition of various people we generally call there is a non prime near prime and affordable. Affordable is not going to be very very large as a overall portfolio composition even in the medium term.
Analyst
So would that still go somewhere in the region of say 5% of overall portfolio or something like that in the medium term? Because what I want to understand is if that grows very fast, will it have a debt or no extra impact on the yield or the roa etc. Like for example, because our ROA is on the lower side, affordable will have a better yield. So will the yield increase faster higher and the ROE as a consequence?
Atul Jain
So no, probably even 5% of the world book also would not be affordable. 5 to 7% of the home loan book can be affordable. 5 to 10% of the affordable home loan book can be affordable, but not a 5% of overall book. That is the first part because I think it will because prime has a much more head start. We are already at 108,000 crore kind of a balance sheet for us to build a 10% on overall 5 to 10% on overall books that fast. Second part on the terms of yields. Yes, affordable is a different nuanced business while the yields are better. But there is also much higher cost to originate which is what you see in most of the affordable companies results.
So and given the mix what we are projecting for a medium term, I don’t think it will have a very significant impact in enhancing the overall roe. But we need to move to affordable to cover our full product suite. Because we are a mortgage company and also given the emphasis of the government and the regulators on the housing for all, we need to be part of contributing to that vision as well as and offering a full suit of the mortgage products for all customers so that we are present in all markets as we learn the trick of the game. Because it has a different skill set. Like we called out, we had been largely present in the prime segment. It has a different skill set. As we learn the skills basis, the metrics, what we see and if you are able to do it at a lower cost and it generates a much higher return net return, net of cost. We can take a call to explorate this more. But as of today, I will say that it will not. It will have some impact on the overall yield profile but not much impact on the overall ROA profile. That’s where the medium term guidance also for roa, what we are seeing is not very different from what we have today.
Analyst
And you actually touched one follow up question was on the distribution and the cost are only so how so it was with respect to how are we going to source this business like because these affordable companies they have very high cost because they have to set up lot of branches and etc so cost is that so how are we going to do that?
Atul Jain
Yes, we will figure out our ways in terms of we are. We have started in a particular way. We will learn period whether that results into an efficient origination. What we are trying because we are very small. I would not want to comment upon our sourcing model today. But we are trying to be slightly different from the industry to have a benefit of a lower cost as well as a bit of a higher yield. But time will tell whether we succeed or not.
Analyst
Thank you. Thank you very much.
Operator
Thank you. Next question is from the line of Jigar Jani from B&K Securities. Please go ahead.
Jigar Jani
Hi. Thanks for taking the question and congratulations sir on a great set of numbers. Just one question. Can you share what yields are you giving loans as of now on the near prime and affordable segment.
Atul Jain
Hi Jigar. See near prime and affordable actually is a very wide segment. The yields vary from let us say for home loan we talked about some 9% to 16% in the market because it is a scale of a profile assessed income, not assessed income, verified income, not verified income, type of collateral, various combination. We largely operate in this segment between 9 to 13. We are not in a much higher segment because There is a 13 to 17 or 18 segment as well in the market. But for a near future, in the foreseeable future will operate in the 9 to 13% kind of a market not 13 to 17, 18 because we have to learn that skill set Also to further source.
Jigar Jani
And just to follow up to this we have separate branches or this product will be sold to the same branches.
Atul Jain
The geographies where we are commonly present with the other segments it will be the same branches. But where geographies there will be geographies which we are going to cover through these segment where we are not existingly operating. We’ll set up the branches for. In those markets for this particular. But they’re not dedicated. That is in that sense in that market if we. We start on affordable and later on the prime vertical or the other verticals want to go. That’s. That’s a BHFL branch. There is no affordable branch. It’s a BHFL branch which all businesses of the company can operate from.
Jigar Jani
Yeah. So no dedicated branches per se. It will be all products. It was all. Yes, yes. Thank you so much.
Atul Jain
Thank you.
Operator
Thank you. Next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.
Rahul Jain
Yeah. Good evening Atul and Gaurav. Just two or three questions. So I actually joined in the call much later. So pardon me if it is repetitive but did you answer any question related to the credit cost? It was about you know calculated basis 15 basis point in this quarter analyzed. So what explains this is this just the rise in stage two and stage three in this quarter that you had to make provisions for or some you know, contingent provisions also started building into the books.
Atul Jain
So Rahul, just to answer you on the trade cost. So what did it cost? Gross of overlay release in this quarter was 0.20 which was 0.20 which is because there’s a 10 crore overlay release. Because 0.15 is net of overlay release. But if we nullify that because then it is 0.20 which was in last quarter 0.15 quarter prior was 0.17. So it’s more or less in range. The stage two also remains more or less in range which I answered in a previous question saying that if you take a 31 to 90 dbd kind of account that remains in range one would be 0.08. While you see the stage two accounts at a 32, 30, 32 to 37 deep kind of a movement. But out of that the 31 to 90 dbd which is a regulatory stage two counts are only 0.08. So there is no uptick in the credit cost.
If that is a question, what you are doing range moment in the last year same quarter the credit cost was 0.15 again net of overlay release which is 0.20. Now the difference of 0.15 and 0.20 is also largely on account of a stage one provisioning movement. Because the credit cards move in line with. Because it is a stage one movement and offer various asset classes. Next so if there is a particular. Because every asset class has a different stage one provisioning which is a general provisioning what we what you call it. So there is a particular mix shift it happens or assignment out versus in a one quarter to another quarter. So largely stage one moment. Which is a harmless movement. Rahul, if I have to just answer you.
Rahul Jain
Very helpful. Thank you so much. The other question is can you or have you disclosed what proportionally developer financing book would be to the under construction projects and would you explain you know what stages of development these projects will be etc. Etc.
Atul Jain
So entire book would be largely to under construction projects because construction finance is given for that purpose is to build. So that entire almost entire book, barring very some portion which may be to in the completed project where there’s a rundown of pause is happening. So that is entirely for the under construction projects, the various stages. There are 738 projects each. There are projects which are in various stages because an ongoing business we keep on lending more and there are projects which get keep on getting completed or the loans getting run off.
Rahul Jain
Got it. Got it. Very helpful. Just one last question. In retail disbursal, has there been any significant moment with regards to balance transfer out in this quarter versus the previous quarters?
Atul Jain
No, it is buying lap stable in home loan. We generally have. We see on annualized basis close to 12% kind of a balance transfer out which is more or less in line with what we had seen in previous previous.
Rahul Jain
Got it. Very helpful. Thank you so much.
Operator
Thank you. Next question is from the line of Parth [Phonetic] from Nomura. Please go ahead.
Parth
Thank you for taking me so yeah, most of my questions are answered but just I wanted to catch up on one point.
Atul Jain
Yeah, we are not able to hear you.
Parth
Yeah. Am I audible now?
Atul Jain
Yes.
Parth
Yeah. Yeah. So yeah, thank you for taking my question. Most of my questions are answered but it’s one doubt. You previously mentioned that the one of the reasons for growing the development finance book is to act as a distribution channel. But now considering the development finance growth in this quarter, are we seeing the development finance book the potential growth driver in the coming quarters or in the near term.
Atul Jain
I think in between. I was again losing your voice but I’ll try to answer what I’ve understood from your question. I think you are. I think. Do we had earlier called out that construction finance is a tools for us to grow our home loan business as a distribution point. But do we now see that can it be a growth engine in itself? Have I understood your. Performance remains critical for us in two parts. First of course as a funnel for home loan and a point of availability at the expansion of a distribution counter. But in itself also from a mortgage company point of view it is a return in answer. But given there is an inherent risk in construction finance which is higher than the normal home loan business, we would like to not exceed around in the short term close to 12 to 15%. We are already at 12% kind of a mix 12 to 15% mix in terms of our portfolio of construction finance to balance the rate. So it is not going to be a standalone growth driver from the balance sheet.
From the current perspective, yes, 12% stage, 12% contribution to AEM can go up to 15% in the in coming time. But it is not going to be dominant portion of the book because then the risk profile of the balance sheet changes. Because irrespective of the method, the way we would want to underwrite and the way we monitor the projects, inherently there is a execution risk of the projects or a macro risk which sets in versus a retail granular transaction. So that’s where it on a standalone basis it won’t be a balance sheet builder for us.
Parth
Okay. Thank you. That was very helpful. Thank you.
Operator
Thank you. Next question is from the line of Abhishek from HSBC. Please go ahead.
Abhishek M
Hi, good evening Atul and Gaurav. So my question is on this medium term guidance, just wanted to understand some of the assumptions behind it. So is it like a two, three year aspiration and have you factored in any repo cut impact, etc. Or this is just BAU without all those external events.
Atul Jain
So Abhishek, this is a three year kind of a medium term and we call it. We call it a three year kind of a visibility. Of course it is assuming what you can see or what you can forecast whether it’s a repo cut. Because we are largely a variable balance sheet on the assets as well as variable. So like I called out earlier as well that changes in the rate there can be at a point of a time sometimes lag impact where if the rates are going up, we can see temporarily for a timing margins going up, which has happened in FY23, that is where or if there are rate cut is there and the competitive intensity is higher, there can be a bit of a lag of six to nine months. In terms of this. Of course this medium term guidance assumes the cycle to the best of what we are able to predict. It is not created in standalone where the impact of a repo cut is not there for next year. We have our own projections of repo cut which are baked in the forecast or the assumption medium term guidance what we are giving.
Abhishek M
But essentially you’re saying that over three years it will get neutralized. So whether repo cut or not replicate, you could still, you know, look at it as a through the cycle kind of aspiration.
Atul Jain
Average returns. But if you look at today we are having a roe of a 2.4% if you’re guiding for 2 to 2.2%, there is a bit of a. If there is a bit of a lag impact also which impacts the margin for some point over time that in any case factors it out. The 2 to 2.2% kind of ROE range factor is that ROE does not move beyond that. Also we had at the highest level we had seen the ROE to go to 2.5, 2.6. So if you had seen on an upward cycle movement of a 20 BAS, if you take the same movement from 2.4%, 2.1, 2.2%, that’s where Abhishek it is factored in.
Abhishek M
Understood because when I work back it sort of implies a 25 bits NIM compression from here. So I was just wondering whether this is a function of you assuming repo card etc. Or whether this is a function of the loan mix. You know, changing yields coming off in the industry. So, you know, just 25 BABS is…
Atul Jain
Yields coming off because yields coming off is one of the factor. And as you go bigger, you know, the. And we are. We have to assume the competitive intensity which is already very high, will continue to be at like that. So there can be a. There are various factors which are baked in whether it’s a yield compression and with yield compression and the cost through the cycles at point of time, which can compress. So I’ll say, we have done a bit of a financial understanding of the pnl. What we understand and basis that we have forecasted.
Abhishek M
Fair enough. And just trying to understand because obviously with scale the mix will change, the yields will change. So I can understand that. Okay, thank you. Thank you for that. Yeah, just wanted to get a sense of what is going to be…
Atul Jain
Also guided by competitive intensity because where that’s an external factor so we have to we generally assume a bit of a extra competitive intensity to be there in the market.
Abhishek M
Right. And Atul, the second question is we are doing all this developer financing right now obviously with a view that this will help us in increasing our retail home loan sales later on. So at what point do we see that inflection, right. That this starts contributing to more retail origination and disbursements.
Atul Jain
So Abhishek, even today also they contribute a very significant part of our retail home loan. So it is while we say the penetration what we have in our projects may be still lower than what we want, our penetration in our projects in terms of would be close to 16 to 18% as of today. We would prefer to be it having a higher. But it is even today all the significant portion of our home loan originations in a it contributes very significant amount. It as it goes forward, it will contribute more as well. As we become more efficient as we are able to penetrate more at the counters where we have extended the construction finance.
Abhishek M
Then you know, irrespective of whether you scale up near prime or not, ideally the growth in prime should sort of accelerate. Because right now the jaws between growth in developer finance and let’s say even if you take it by number, you know, number of developers you’re financing versus how many of this those projects are contributing. There’s a jaw there, right?
Atul Jain
Yes. We have work to do to improve our efficiency in capturing the market where we are funding a project. You have rightfully calling out Abhishek, there is a job here and we capture that what we intend to do or the prime growth can be much, much higher than what is there. But pluses and minuses. There are always pluses and minuses. That’s why the projections for near term or medium term or the medium term projections are in line with what is it. There will be some pluses. There can be some minuses.
Abhishek M
Understood. Got it, Got it. Thank you so much and all the best.
Operator
Thank you. Next question is from the line of Pranju from JPMorgan. Please go ahead.
Pranish
Hello. Yeah, this is Pranish [Phonetic] from JPMorgan. Thanks for taking my question. So if I just follow up on the previous question, another way for this 14 to 15% OPEX to NII and 2 to 2.2% ROA. Is there a particular set of spreads that that you would want to target on a steady state?
Atul Jain
I would reveal in that corridor of 2.2%. Yes. Would be lower than one broadly yes. So over a medium term. Yes, it would be. So between 1.8 to 2.2 in that corridor spreads would depending on the rate cycle and depending on the competitive intensity, 1.7 1.8 to 2.2% through the cycle, the spreads will remain at the book level.
Pranish
Understood that and 7 to 8 times leverage. As I stated in the presentation.
Atul Jain
From ROF 7 2.27 to 8x leverage delivers a 13 to 15% ROE. We had previously been raising capital when we had been closer to seven. But as we have now grown in scale and reached a stage, our earlier threshold used to be six to seven times leverage as a private company. Now we have moved the threshold to 7 to 8x of a leverage from as a as we have grown bigger, not as a private to public, but as we have grown bigger, we believe that we have an ability to switch the capital more.
Pranish
Understood. Thank you. That’s helpful. That’s it from my end.
Operator
Thank you Pranish. Ladies and gentlemen, we’ll consider that as the last question. I’ll now hand the conference to Mr. Mayank Misri for closing comments.
Unidentified Speaker
Thank you all for joining the call today and thank you to the management team of Bajaj Housing Finance for giving us this opportunity to host the call. Thank you all.
Operator
Thank you very much on behalf of JM Financial Institutional securities limited that concludes this conference. Thank you for joining us. And you may now disconnect your lines.