Capital Small Finance Bank Ltd (NSE: CAPITALSFB) Q2 2025 Earnings Call dated Oct. 25, 2024
Corporate Participants:
Sarvjit Singh Samra — Managing Director & CEO
Munish Jain — Executive Director
Raghav Aggarwal — Chief Risk Officer
Analysts:
Narendra — Analyst
Pritesh — Analyst
Chinmay Nema — Analyst
Monshree Soni — Analyst
Anant Mundra — Analyst
Sukriti — Analyst
Shreepal Doshi — Analyst
Lakshminarayanan KG — Analyst
Ashlesh Sonjee — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Capital Small Finance Bank Limited Q2 FY ’25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sarvjit Singh Samra, Managing Director and CEO. Thank you and over to you, sir.
Sarvjit Singh Samra — Managing Director & CEO
Thank you, Siddhant. Good morning, everyone, and thank you for joining Capital Small Finance Bank Limited’s Earnings Call. We have already uploaded the results and the investor deck on the Exchanges. I hope everybody had an opportunity to go through the same. Joining me in this call are my colleagues: Munish Jain, Executive Director; Aseem Mahajan, CFO; Raghav Aggarwal, Chief Risk Officer; Sahil Vijay, who is Head of Treasury and Investor Relations; Bharti Babutta, who is part of Investor Relations Team of the Bank; and SGA, our Investor Relations Advisors. Let me begin with an overview on economy along with industry, post which Munish will provide a detailed overview of our business performance.
India’s economic growth remains on a strong footing amidst ongoing geopolitical risks globally. The GDP grew by 6.7% in between April to June ’24, marking as the fastest growing major economy in the world. The Indian banking sector continues to remain resilient supported by strong internal mechanism and status of domestic systematically important banks. Agriculture is expected to perform well supported by above normal rainfall and robust reservoir levels while manufacturing and services activities to remain steady. Private consumption will be supported by healthy kharif sowing coupled with sustained momentum in consumer spending in the festival season. The credit offtake of the banks moderated to 13% as of September ’24 as compared to 16% in end March ’24.
A large part of credit growth moderation has been due to slowdown in retail segment, including unsecured loans and mortgages. Large corporate credit growth has picked up a bit while SME loans continue to deliver strong growth. Deposit growth also continues to remain range bound between 11% to 13%. Recently RBI in its monetary policy kept repo rate unchanged at 6.5%. However, the Monetary Policy Committee decided to change the monetary policy stance from withdrawal of accommodation to neutral and remain unambiguously focused on durable alignment of inflation with the target while supporting growth. We have successfully closed the September 2024 quarter with a remarkable INR33.3 crores profit after tax reflecting a strong 37% growth on year-to-year basis with return on assets of 1.4%.
Our gross advances have grown to INR6,718 crores registering a growth of 15% year-on-year and 5% on quarter-on-quarter basis. Our asset quality further improved with gross NPA reduced to 2.6% and NPA of 1.3% against 2.7% and 1.4% respectively during the corresponding quarter. We continue to maintain a healthy CASA ratio of 37% plus aligned with our strategic focus. With continuous focus on innovation, customer-centric strategies, and operational excellence; we remain committed to deliver value for all stakeholders as we progress towards our vision of inclusive growth.
Thank you and now I will hand it over to Munish who will provide you a detailed overview of the business performance during the quarter. Thank you.
Munish Jain — Executive Director
Thank you Mr. Samra. Good morning and warm welcome to all of you. We are turning intent into actions as we tread on our growth journey. I am pleased to share the financial highlights for the quarter/half year ended September 30, 2024. Advances: during this quarter is broadly — the growth of the advances during this quarter is broadly in line with the bank’s estimates. Our growth journey re-energised with growth capital infusion is showing an upright progress with gross advances stood at INR6,718 crores as on September 30, 2024 represented by a growth of 15% year-on-year, 5% quarter-on-quarter, and 9% for H1 that is year-to-date figure. We are a secured lender with 99.8% being secured book and 82.3% of the book is collateralized by immovable property or bank FDRs. Further, we are having zero direct microfinance exposure.
Fresh disbursement during H1 FY ’25 is INR1,345 crores, which is grown by 33% on year-on-year basis. This disbursement constitutes 21% to MSME segment, 23% to mortgage, 20% to agri, 22% to the corporate and the NBFC segment, and remaining to the consumption loans. The disbursement during the quarter was INR592 crores. Our advances constitute of agriculture being 35%, it was 35% in Q1 FY ’25 and 39% in Q2 FY ’24; mortgage presently 27% against 27% a quarter back and 26% a year back; MSME 20% against 21% a quarter back and 20% a year back; corporate/NBFC lending at 11%, which was 10% a quarter back and 8% a year-back; with consumption lending at 7% in all the three periods. Our experience being in the lending business for more than two decades helped us in putting in place the streamlined credit assessment processes and risk management practices that has allowed us to consistently maintain a superior asset quality.
Our GNPA 2.61% for Q2 FY ’25 against 2.73% in Q2 FY ’24 and 2.69% a quarter back and net NPA of 1.29% against 1.36% in Q2 FY ’24 and 1.35% a quarter back. Our MSAs continued to be on collection and resolution even for the sticky loans with very near to zero write-off that is INR0.1 crores only and nil NPAs allowed during the quarter. Our slippage ratio for the Q2 FY ’25 stood at 1.27% with upgrade and recovery ratio very near to that of 1.2%, which is calculated on annualized basis. Our credit costs remain range bound and same is 0.19% during Q2 FY ’25 and the same remain range bound historically, including the COVID period. During the quarter, we have created some additional provision to boost our PCR from 50.6% a quarter back to 51.3% during the end of this quarter. Our SMA 1 and 2 calculated as a percentage to the advances improved to 5% as on September 30 against 6.4% a quarter back.
Now moving to the liability side. The liability side continued to be positively skewed towards the deposits, which constituting presently 81.4% of the balance sheet and out of this, 93.7% being the retail deposit. And out of the liabilities, another 4.1% being the borrowings, which is providing us a liability expansion levers. Our deposit book grew by 11% to INR7,780 crores as on September 30 with a CAGR of 15% from FY ’19 to FY ’24 while maintaining a healthy CASA ratio of 37% plus. Our CASA ratio, which was 37.8% a year back, is 37.1% as the end of the 30th September. We have consciously calibrated our deposit growth owing to our low CD ratio and high leverage ratio before the growth capital infusion. The cost of the funds for Q2 FY ’25 stood at 6%, the same was also 6% a quarter back and our cost of deposit for the quarter being 5.9%. The average credit to deposit ratio for the bank has inched up from 79.1% in Q1 FY ’25 to 82.4% in Q2 FY ’25.
We aim to take this ratio to mid-to-high 80%s going ahead. Now I am talking about the profitability. Our pre-provisional operating profit has increased to INR48 crores against INR35 crores in corresponding quarter registering a growth of 40% and profit after tax stood at INR33 crores against INR24 crores in the corresponding quarter registering a growth of 37%. Our PAT growth is driven by increase in net interest income by 20%, increase in net total income by 26%, and reduction or optimization in the cost-to-income ratio. Our non-interest income has increased to INR26 crores against INR17 crores in the corresponding quarter. Further, our cost-to-income ratio during Q2 FY ’25 has declined to 61.4% against 64.8% in the corresponding quarter and 63.2% in Q1 FY ’25.
Our NIM has increased to 4.2% in Q2 FY ’25 against 4% in the corresponding quarter and our operating margins improved to 2.1% against Q2 — against 1.7% in the corresponding quarter and 1.8% during the last quarter. The operating margin is being calculated on average asset basis. Our ROA has improved to 1.4% in Q2 FY ’25 and return on average advances increased to 2.1% against 1.1% and 1.7%, respectively, in the corresponding quarter. Our return on equity during Q2 FY ’25 is 10.8% against 9.9% in Q1 FY ’25. The capital adequacy ratio is at 26.3% at the end of Q2 with LCR ratio of 238% giving us enough legroom to further improve our CD ratio. Our branch network at the end of the quarter is at 180 branches spread over five states and two union territories. During the quarter-ended review, bank has expanded its network by expanding to one more state/union territory that is the Union Territory of Jammu and Kashmir.
Going ahead, we remain committed towards achieving our loan book growth as guided earlier of 22% plus during FY ’25 by capitalizing on growing MSME, mortgage segment coupled with expanding over middle income group segment. Our focus on operational efficiencies and expansion in NII and increasing fee income will be our key drivers for our annualized ROE target of 1.4% plus for FY ’25 and continued expansion going ahead of the ROE.
With this, I’m requesting my moderator to start with the question and answers.
Questions and Answers:
Munish Jain
Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Narendra from Robo Capital. Please go ahead.
Narendra
Hi sir. Am I audible?
Sarvjit Singh Samra
Yeah, you are audible.
Narendra
Thanks for the opportunity and congratulations on a good set of numbers. So first, would it be possible for us to give a further breakup of our loan book into agricultural loans, housing loans, LAP?
Munish Jain
Surely. Our agricultural loans presently constituting 35% of the portfolio and it was 35% at the end of the last quarter. Mortgage is 27% and the same was also 27% in Q1. Our MSME segment is 20%, which was 21% in Q1. Our corporate including NBFC lending is at 11%, which was 10% a quarter back. And our consumption lending is 7%, which was 7% a quarter back.
Narendra
No, sir. I get that from the PPT. But would it be possible to give a product level kind of a split as in housing loan, what would be the percentage of housing loans or what would be the percentage of LAP? Would that be possible?
Munish Jain
So if we talk about the housing loan and the LAP, they are the sub-component of the mortgage, mortgage is 27%. Presently housing loan and LAP are almost equally between this or I can say between 13% to 14% being the housing loan, 13% to 14% being the LAP.
Narendra
Okay. And your agri term loans, would that be most of the component of your agricultural loans?
Munish Jain
Our agri term loan will be around 7% to 8% of the portfolio and around 27% will be the agriculture KCC loans. Over 35% in the agriculture portfolio.
Narendra
Okay. Understood. Sir, what I wanted to understand is even the largest of the banks aren’t able to do the credit cost that you are doing, right? So, what gives us the confidence that the credit cost will be maintained from between 0.1% to 2%? Because historically also we have been around 0.3%, 0.4%. So, what gives us the confidence that we will stay at the current levels going ahead?
Munish Jain
If you look into our credit history, we being as a model, we are a lender to the middle income group. And we have purposefully selected this particular segment and we have demonstrated steady stable credit cost, which typically remain in the range of 0.1% to 0.3% except in one of the year when it crossed 0.3% that is FY ’22. This particular thing is attributed being over specifically identified MIG, that is the middle income group plus we are a secured lender with 99.8% being the secured book and 82% plus book, we have a collateral of more than the value of the loan in the shape of immovable property or the bank FDRs. So, we are a true term collateral lender and we are a granular lender and our perspective is to be the primary banker of the customer. Rather than acting as a standalone term lender, we are there to ensure that the client, we have become his primary banker or the main lender of his book.
So along with this, a lot of such practices we do like sourcing from the branch channel that is we follow the branch led business acquisition model so that we need to know our customer well before we underwrite. So all these practices and lots of other practices which we are following, which are giving us the confidence — and historically we being a lender now for more than 24 years and we have a 24-year track available, which has shown the various events including lots of black swans; be it COVID, be it demon, be it GST implementation. And we have seen all those events, a lot of social micro environment changes, a lot of political changes. So, during all these changes, we are able to demonstrate our credit cost, remain in the range of 0.1% to 0.3%. So, which is giving us a further confidence that given we are continuing with our model, which we know well and given we know the customer segment, which we understand well. So, we are keeping ourselves confident to retain our credit cost within this particular range as we move forward.
Narendra
Okay. Great. Also what would be your LTV on the book? And given that you have a target of achieving a 20% kind of loan book so currently we are at 15%, if I’m not wrong. So, is the second half going to be much better than the current half and do we still stand by the target of 20% loan growth?
Munish Jain
If we talk about the growth rate, we are currently targeting a growth rate of 22% plus for the fiscal FY ’25. Out of this, if we look into the H1, H1 we have already grown by 9%. So if we talk about a year-end basis, just before the growth capital comes in, there has been some muted growth in FY ’24 pre the capital raise period. But if we talk about the current fiscal, current fiscal H1 growth is already 9% and for the current fiscal, we are targeting a growth of 22% plus. So given the banking industry outlook and our historical trend line so we are confident that we will be able to achieve the stated growth target as we begin — set in the begin of this year.
Narendra
Okay. And sir, LTV?
Munish Jain
So LTV perspective, LTV will be different LTVs depending upon the product. Like agriculture, we typically look for a LTV of 50%. In the LAP, we are typically looking for a LTV of 50% to 65%. In housing loan, it will be 67% to 78%. In the MSME segment, it will be 75% to 82%.
Narendra
Okay. Understood, sir. Thank you and all the best.
Operator
Thank you. Our next question is from the line of Pritesh from DAM Capital. Please go ahead.
Pritesh
Hi, sir. Good morning. Just a couple of questions. One is the other income, anything one-off in that in the sense treasury or is it all fees benefit?
Munish Jain
Pritesh, if we slice the other income, this particular other income, this time we will find if we compare it with the corresponding year of the last year September over other income, which is 1.08% to the average advances, which was — in fact I look into the last year, the same number was 0.8%. So, we have been improving it from 0.8% to 1.1% for this particular period. So, this primarily consists of the core income and there is the treasury profit will be very negligible. That will be hardly 0.05%. But one important point I like to mention here that this quarter as against last September, 0.12% is the penal charges which was earlier sitting in the interest income so which has moved from the NIM to the non-interest income.
So 0.12%, which otherwise had been comparing you to the Q2 would have been sitting in the interest income, which now because of the regulatory guidance, now moved to the non-interest income, which is 0.12%. So we are — that is the one change movement on a comparative basis will be there given the regulatory environment change. So apart from this non-interest income, which is 1.1% including 0.12% being the penal charges are typically primarily our core income, which is consisting — which if we talk about, this element includes INR24.2 crores are the net interest income out of this and the remaining INR1.5 crores is from the other [Indecipherable] business.
Pritesh
So this breakup you gave was of the INR25 crores of other income, which came this quarter, right?
Munish Jain
Yes, the other income came this during this quarter.
Pritesh
Got it. Second question was on your PCR, you mentioned in your opening remarks saying that you have enhanced the PCR this quarter, which is visible. What is your thoughts from here on? Basically how — have you made up some policy or made up your thoughts in terms of how you want to take the PCR going ahead?
Munish Jain
Typically, Pritesh, if we talk about our internal guidance, we are always looking to maintain a minimum PCR of 50% plus, plus for the asset, which are beyond the NPA aging of more than four years. We like to create a PCR of 100% plus any unsecured piece, which is NPA book. We like to create a PCR of — if the NPA remains more than one year old, we typically like to create a PCR of 100%. So, these are the three basic underlying guidance on which we typically follow the PCR guidance. So I am restating that is the NPA book more than 4-year-old 100%, unsecured more than 12-month-old 100%, and overall not less than 50%. These are the three guidance which we have internally and basis this, we keep on reworking on the PCR. PCR is typically to report that is what is the expected loss out of it. I just like to reiterate if we look on to our historical trends, we have never sold any NPA asset and our write-off during this quarter is also very negligible and including the whole of the year, it is very, negligible. So we understand the slippage is also there, but the PCR we believe is maintaining at a sufficient number. So which is — so that the right confidence is given to the investor side.
Pritesh
Got it, sir. I got your philosophy or got the policy of doing a PCR, but anything over and above that? Is there any thought process to that or we will be following this policy only for some time now?
Munish Jain
We intend to follow this policy as we move forward. If there are some macro environment changes, we will review this policy as per that.
Pritesh
Got it. Second — sorry. Last question from my side is on the branches front. We’ve seen branches — three branches I think opened this quarter, 180 from 177. So, what is the progress on that? How much can we expect in Q3 and Q4? Anything on that? Because we had a target of about 200 plus this year. So, what is the progress on that?
Munish Jain
So typically as we discussed in the last earning call also, we started the branch working. We are targeting — intending to keep it 200 types, 200 plus branches by end of this fiscal. So, branches typically lots of activities being involved starting from the real estate development. So in the Q3, — we have opened three branches in Q2 and we are anticipating opening of around 7 to 10 branches in Q3 and the remaining in Q4 to take our tally to 200 plus. So, we are confident — we are still very confident towards achieving this towards 200 levels by end of this fiscal.
Pritesh
Got it, sir. Thank you and all the best.
Operator
Thank you. Our next question is from the line of Chinmay Nema from Prescient Capital. Please go ahead.
Chinmay Nema
Hi, sir. Good morning. A couple of questions from my side. The collections were marginally down on a Q-on-Q basis and the gross slippages were also up about 30 bps. Could you give some color on which segments are driving this?
Munish Jain
So typically if you look into our collection efficiency or the upgrade ratio over current year — current quarter, our slippage ratio is typically 1.27% or in a numeric basis, it was INR21.8 crores, which was INR16.3 crores a quarter back. But similarly, we have been able to upgrade, improve our collection ratio also. Our upgrade and recovery ratio, which is presently 1.2% or in a value basis INR18.3 crores, the same number was INR14.6 crores a quarter back. So even if there has been some increase in the additions or there is a slippage ratio, there is a corresponding — similar increase is also there in upgrade ratio. So, we are able to maintain or rather improve our gross NPAs. So, both the things are moving in the similar direction and that is since both the numbers are not very far away and that is just percentage basis look like different; but on the value basis, I shared the number, very very nearer to each other. Even if you look into the collection, the collection efficiency for the current quarter which is 97.1% and the collection efficiency which was in the Q2 which was 98.5%. But if I slice it further, if you look into the SMA numbers, our SMA 1 and 2, which was 6.42% at the end of June, has improved to 5% by end of September. So, we are able to improve our matrix or our risk assets down from which we call SMA number from special monitoring number from 6.42% to 5% and also maintaining and reducing the GNPA number. So, these are the — this is the statistics that we like to see, numbers [Indecipherable].
Chinmay Nema
But qualitatively, are you seeing stress in any of your books, agri, MSME, corporate? And just an extension on that, our share of corporate book has increased from 8% to 11% on a YoY basis. And if I compare the incremental loan book out of the INR852 crores that have grown on a YOY basis, INR242 crores are from the corporate book. So, if you could give some color on how much of this is microfinance exposure and in general how does microfinance affect your business? Do you have any FLDP arrangements with these corporates? Some sense around how the stress building up in general in the sector is affecting your book?
Munish Jain
Surely. If I talk quantitatively about the asset quality side, presently we are not seeing any stress building up in any of the portfolio. We believe all the portfolio we are having on the segment is in control and we are not finding any stress as in point of time — as we talk presently. And if we talk about our NBFC segment, NBFC and corporate lending, which is 11% at the end of the current quarter, was 10% a quarter back. So, there is a very, very marginal increase in the quarter. Just if we compare it with the last September, the number was 8%. And if I talk about our MSME lending to the MFI versus lending to this particular pie, let me — just give me a minute. I just give you the aspect of it. We have a very, very limited MFI exposure. The MFI exposure presently cumulatively is INR59 crores out of the total NBFC book. So out of the total NBFC book, our MFI exposure was INR59 crores which was INR73 crores in the June quarter. So, our NBFC MFI exposure has reduced from INR73.8 crores to INR59.6 crores by end of this quarter. And all the MFI we are having are typically — we are having majority of the case FLDG arrangement to protect us.
Chinmay Nema
And sir what is the thought process behind this book? Do you plan on increasing it going ahead?
Munish Jain
As I shared about the data side MFI NBFC, we have shown a decline during this quarter from INR73 crores which already was a very very minuscule number. We have reduced from INR73 crores to INR59.6. We are watchful of the macro factors and the situation around it and depending upon the macro factor, we will take the call.
Chinmay Nema
Got it, sir. And last question from my side. Could you talk about growth in your newer states? What kind of traction are you seeing? I think in the previous call, you talked about the larger strategy of expanding to the newer states. So in terms of disbursement, loan book, growth, branch expansion; what are you seeing in your newer states? Some subjective color around that?
Munish Jain
So if I talk about the newer states, newer states has been showing a good traction if I talk about on year-on-year growth. On year-on-year growth, we grew by 15% on advances. If I talk about out of base, out of Punjab book typically has grown by 21%. And if we talk about the component of the Punjab versus out of Punjab, the Punjab share which is 81.42% at the end of the last quarter and 83.97% at the end of the last half year is now 80.93% or I can say our out of Punjab book has improved from 16.03% to 19.07% by end of this quarter. So out of Punjab book is growing faster presently and they are start contributing to a big way in our growth number.
Chinmay Nema
Got it, sir. I’ll fall back in the queue. Thank you.
Operator
Thank you. Our next question is from the line of Monshree Soni from MK Ventures. Please go ahead.
Monshree Soni
Yes hi. I wanted to know your guidance on the cost to income ratio given that we’re opening — planning to open new branches — more new branches in the second half of the year. And also relating to that, do we maintain our 1.4% return on total assets guidance for this fiscal? Thanks
Munish Jain
I just take the second component of the question first. For the Q2, we are able to deliver 1.4% ROA and our annual guidance for the fiscal which was 1.4% on the annualized basis plus. So we are quite confident of maintaining the same 1.4% plus and although we are confident in the coming years to come,. we will continue to expand our ROAs as we move forward. So, there are a lot of drivers including the NIM driver.
As I said, optically it looked like the NIM is 4.2%, but given our penal charge which has moved from interest to the non-interest. So, in that particular way we are able to expand our margin in that side. If I come to the second point, which we talk about the cost to income ratio. During the quarter under review, our cost to income ratio was 61.4% against 64.8%. And now if you look into the — our opex average asset, which is typically for the H1 typically remains in the range of 3% to 3.15% or 3.2%.
And we are giving the same guidance in the beginning of the year also and now we are retaining the same guidance that we believe our opex will continue to remain the range bound in the current fiscal. And the coming year onward, we will be start showing after the one year from now, we will start looking into the opex expense reduction. But for the — given we will be one side opening the new branches which will bring a pressure on the opex and the second side our existing branches, the matured branches has given — contributing higher and bringing down the opex significantly and our scale is bringing down the opex significantly. So, both the things are presently neutralizing each other. So, we are seeing the opex to be remain around the same level as we move forward for the remaining part of the year.
Monshree Soni
All right. Thank you.
Operator
Thank you. Our next question is from the line of Anant Mundra from Mytemple Capital. Please go ahead.
Anant Mundra
Hello. Good morning, sir. Thank you for the opportunity. Sir, what was our opex ratio for this quarter?
Munish Jain
61.4% cost to income ratio against 63.2% a quarter back and 64.8% in the corresponding year quarter.
Anant Mundra
Sir, in terms of opex and AUM…?
Munish Jain
So if I just have this number, it will be operating expense around 3.2% for the current quarter against 3.1% in the last quarter.
Anant Mundra
And sir, in the previous call you had alluded that as CD ratio goes up, there is a…
Operator
Sorry to interrupt, Mr. Anant. Your voice is a bit feeble. Can you please repeat your question?
Anant Mundra
Am I audible now?
Operator
Yes, sir. Please go ahead.
Anant Mundra
Sir, in the last call, you had alluded that as and when the CD ratio goes up, there is an improvement of NIM that can happen. So like if the CD ratio goes up by 100 bps, there is an improvement of about 5 bps in the NIMs. But sequentially even though the CD ratio has gone up, we have not seen any improvement in NIMs happening. What is the reason for this?
Munish Jain
The reason is that typically historically our interest components include the penal charges. Earlier the penal interest was the component of the NIM. Now that has moved to the non-interest, which is presently for the current quarter contributing 0.12%. 0.12% has moved out of the interest income to the non-interest income, which otherwise as per our historical accounting, was typically sitting in the interest income. So yes, with the increase in the CD ratio, the margin has increased. But instead — because of the changed accounting principle, the penal charges — penal interest has started taken a shape of the penal charges and start looking to the non-interest income. So, you look our non-interest income as looking at 1.1% which includes 0.12% of the penal interest component. So, that is the accounting change. So because of that, the current quarter we increased our CD ratio by basically 3 basis points. So, there has to be an increase of 12 basis points to 15 basis points which has increased, but sits in the non-interest income because of this accounting change.
Anant Mundra
Got it. And, sir, can we expect the non-interest income to steady?
Munish Jain
Anant, I am just missing your voice. Your voice is very feeble. Can you please repeat, please?
Anant Mundra
Is this better, sir?
Sarvjit Singh Samra
Slightly better, Anant ji.
Anant Mundra
Sorry for the trouble. Sir, I just wanted to check. Our non-interest income should remain sticky at this level around 1.1%. Is that a fair assumption?
Munish Jain
Yes, we are intending to maintain in the range of 1% to 1.1% as we move forward, which includes our penal charges now which is 0.12%.
Anant Mundra
Got it. My final question was on the AUM growth. So you alluded that last year because of the IPO in the second half, our advances growth was slightly lower and that is why probably this year we will be able to go on 22% to 25% advances growth. But I just wanted to understand beyond this year, for FY ’26, what would you expect our advance growth to be?
Munish Jain
Anant, if we look into the current quarter, current year we grow 9% in H1 and current year we have given a guidance of 22% to 24% or I can say 22% plus growth. So, we believe we are quite confident of retaining that. And current year the growth is coming from the existing branches, that is the branches we set up before the IPO. The new branches we are building up will be getting positional operational in Q3, Q4 and slides few in Q2. So, those new branches will start contributing in the next year — that is next fiscal. So, the current year growth is from the existing sweating and the next year we will be getting the new capacity and the existing branches. So, we are confident of maintaining or increasing our advance growth as we move forward and yes, it is a macroeconomic environment. So given bankers are the typically multiplier of the Indian GDP. So I believe if the present GDP growth continues to grow, so we have enough opportunity to continue to grow our advance book as we move forward. So current time I am not giving any number graphic for this, but we are quite confident of accelerating our advance growth as we move forward.
Anant Mundra
Got it. So thank you. If I have any more questions, I will fall back in the queue. Thank you.
Operator
Thank you. Our next question is from the line of Sukriti from Laburnum Capital. Please go ahead.
Sukriti
Hi, sir. Good morning. First thing on the — we have maintained the advances growth, but this quarter the disbursements came down quite a bit. I think 22% down from last quarter. What is the reason for that?
Munish Jain
So, there is no specific cause. So typically as a matter of strategy — typically if you look into the H1 disbursement. H1 disbursement for the fiscal is typically 33% more than the last year H1. So typically as a matter of strategy, we build more in Q1 from the corporate lending. So, that is where the first question comes that we increased from 8% to 10% by Q1. So, that is the way we have upfronted some of the large corporate disbursement in the Q1 instead of taking it to the Q2. So that may be a slight change in that particular structure, but otherwise disbursement perspective, H1 versus H1 there is a 33% growth and there is — on the ground level, things are shaping up and the growth is coming. Even if I look into my MSME book or my mortgage book, both the books against my 15% growth in the book, they have grown by 17% plus. So, we are quite confident of continue to growth as we move forward.
Sukriti
Is there an element of cyclicality between Q1 and Q2 growth because of the agri book disbursement?
Munish Jain
The cyclicality in the agri book is typically will be more in the Q3 types. So H1 or H2, yes, there is always — H2 historically not just because of agriculture, but in the industry perspective and for us also, H2 is always higher in growth than H1 in the advance numbers. That is the historical trend line available that H2 you’re able to grow better than H1. So, that is what we believe will be the norms as we move forward.
Sukriti
But 2Q you are saying is just because there were some corporate loans that were disbursed in Q1 instead and is just the drop is possibly a one-time anomaly?
Munish Jain
That is I can say not a one-time anomaly. Basically typically Q1 is typically, we are trying to neutralize — offset the agriculture based as you can say the impact which is bringing down the assets by Q1 and Q3. So, we are making a lot of work in that direction so that there we will continue to show an upward trend in all the quarters. So maybe in Q1 and Q3, maybe not that high growth, but yes. So, keeping in view that, some structural or some sort of internal thoughts change are doing. So as part of that particular thing, some sort of the advances which we are doing in the Q2 historically, we move it to the Q1. So that is just a change and otherwise on an H1 on H1 basis, 33% growth hasn’t come in the disbursement number.
Sukriti
And sir, for the second question on the ticket sizes of your corporate loans, I think they have grown 30% over the last year. And even if I look over two years back, it is 60%, 65% up. Is there any space within your corporate book that you are getting excited about, which is driving this increase in ticket size?
Munish Jain
So typically if we look about the ATS — rather ATS growth you will witness in the two segments primarily. One in the MSME segment which was around INR1.85 million a year back which we improved to INR2.01 million. So, we are seeing a good traction in MSME and we believe the way the growth is coming and given the COVID is behind us and presently the momentum is building up. So, we are finding a good opportunity in the MSME space. So, we are looking forward for INR50 lakhs to INR200 lakhs tickets also significantly in this piece. So, which is bringing a slightly up our ATS, which was INR1.85 million to INR2.01 million in MSME.
Secondly, the growth you will find in the ATS in the corporate and the NBFC segment which was typically INR15.8 crores which we improved to INR20.5 crores. The number was INR18.7 crores a quarter back. So, typically with the growth capital comes in, earlier we were giving a very, very small tranche to the — even to the very efficient NBFCs given we have a lower capital base. Now we have started moving which we — earlier which were doing up to INR15 crores of the tickets, we have started doing to the INR25 crores to INR30 crores of the ticket. So to the larger A minus, A plus type of NBFCs, so which we are doing at a very very lower ticket given we have a lower capital. That said, we want to retain our exposure to that extent. So, that is the factor so which helping us to improve this particular ATS which was INR18.7 crores to INR20.5 crores over this particular quarter.
Sukriti
This corporate book INR725 crores in our corporate book, how to — what is NBFCs as a percent of that?
Munish Jain
This is only NBFCs. There are around 40 to 42 NBFCs in this and this is completely NBFC based book.
Sukriti
Thanks a lot.
Operator
Thank you. Our next question comes from the line of Shreepal Doshi from Equirus Securities. Please go ahead.
Shreepal Doshi
Hi, sir. Good morning and thank you for giving me the opportunity. Sir, my question was on other income. So if you look at that, during the quarter it’s come in healthy. So what explains the same? If you could just throw some light on that.
Munish Jain
So our other income, which was — our other income consisting of INR24.17 crores in commission exchange and brokerages and INR1.51 crores given our FF — which includes our AD2 business and the treasury earnings, which was INR17.35 crores a year back of the commission exchange and brokerages and almost — so in the other income. Core income has grown from INR17.35 crores a year back to INR24.17 crores in the present quarter. Out of this, as I shared, there’s a growth which is coming in all the lines and the line both from the distribution-based income, which is as we are enhancing our distribution franchise. So, there is an increase in our incomes from our Banca distribution [Indecipherable] distribution, there is a good increase, which was INR7.12 crores in the last year September quarter, which has increased to INR11.55 crores.
So, there is around INR3 crores to INR4 crores growth coming from the Banka distribution and there is a distribution — other income growth is also coming here. And one more factor I would like to mention here. Last year our penal charges, what being sitting in the interest earning, now they are sitting in the commission exchange and brokerage, which is constituting around INR1.5 crores to INR2 crores odd. so which is also coming here. So that’s necessitated increase our non-interest income, which is presently 1.08% or 1.1%, which was 0.8% a year back. But it’s a stable state income and there is no income, which is a very, very minute, which is typically one-time of nature. So even if it look into this income our treasury earning is not even INR1 crores. So, it is a purely stable state income.
Shreepal Doshi
So, what are the other we’ve been focusing on this for quite some time on inching up our other income through other avenues as well. So, what are the other aspects, that we are working on or we plan to sort of roll out to boost up our other income?
Munish Jain
So as I shared current quarter, if you look our distribution income has increased. Our distribution income has increased significantly and which we are doing by increasing our partners for our banca distribution to ensure a right move and more products made available. So, we are mindful and more and more deepening is done with the clients so that we can continue to increase the share of earning for us as we do — as we move forward. As I shared, the current year growth is also — is there because of a larger higher distribution and the income from our banker partners may it be life/general or we call it MI or to the three in one accounts, that particular share has increased in a good way.
Shreepal Doshi
Got it. And sir, just one more thing. Like to the previous participant’s question, so what percentage of our NBFC exposure, would be towards MFIs and so forth like if you could just give some color there.
Munish Jain
So, we have a total INR725 crores, of the exposure to the NBFCs. Out of this, the exposure to the MFI, is INR59 crores. So NBFCs constituting of the total portfolio around 8% of the NBFC share and of the — so if we talk about the total book, the MFI exposure to the total book will be less than 1%.
Shreepal Doshi
Got it, sir. Thank you so much for answering my queries.
Operator
Thank you. Our next question is from the line of Lakshminarayanan KG from Tunga Investments. Please go ahead.
Lakshminarayanan KG
Thank A couple of questions. If I just look at your agri portfolio comparing with the March 2023 ending number or September 2023 ending number, the growth has been — if I just look at year-on-year growth, it’s around 3% in terms of the gross advances while growth in the corporate loan book has actually been almost 50%. Now is the agriculture loan book growth, is it a conscious choice to actually grow at a low number? Because while we are looking, if I just move the corporate loan book, your growth is around 11%. So while your largest segment is actually growing at below 5%. Is it a conscious decision? I just want to understand that.
Munish Jain
Lakshmi, if you look into the particular growth number segment wise, our mortgage book typically and MSME book typically grown around 17% on year-on-year basis, agri grown by 3% to 4%, and other loans and NBFC. NBFC growth looks apparently high because we were having a very, very lower number. Given we raised the capital, which increased our particular capabilities. Agriculture growth, which is around 3% because of the two factors. I can say it’s a conscious choice for this year because now we are expanding out of the Punjab. Out of the Punjab, we are not concentrating on agriculture. Agriculture being concentrated in Punjab. Out of the Punjab, that’s why growth in the mortgage and MSME is increasing. But just seeing all this, we believe agriculture still has a lot of potential to grow.
And now we believe the growth in agriculture will be better since we were keeping an eye on the agriculture segment from the last — for a while given a lot of ground level activities. Now we are getting some confidence and we are still looking into the same. And depending upon the macro inputs and inputs we receive, we will continue to start expanding more in the agri book. So just this year growth, look on a quarter-on-quarter basis, so there is a growth from INR2,223 crores to INR2,340 crores. But on a year-on-year basis, this number has grown from INR2,267 crores to INR2,340 crores, which is around 3%, 3.5%. So that’s a deliberate option we have taken. But if we look into all our three sets, we have three product based companies; MSME, mortgage, and agri. Our MSME and mortgage is growing 17% plus both. And we are very confident our retail piece will continue to grow as we move forward.
Lakshminarayanan KG
So for the entire year, if I just look at your largest segment, which is agri, what kind of growth do you actually expect? Given the fact that if I just look at your overall 22%, 20% guidance, how much you think would — what band do you like this agriculture loan book to grow?
Munish Jain
Instead of giving a product-life percentage at this point of time, I believe we are confident to retain over 22% growth target since we have three product companies; MSME, mortgage, and agri. So these three products jointly, which is always constituting around 75% to 78% odd, they will continue to maintain typically 80% to 82%. We will continue to maintain this number, 80% to 82% of these three products together.
Lakshminarayanan KG
Got it, sir. And second, if I look at your NNPA, on an annual basis, for agriculture sector?
Munish Jain
I missed Lakshmi, what you asked, the voice was a bit crippled.
Lakshminarayanan KG
Yes. So if I look at your agriculture book and if I look at your NNPA, which has declined; it’s up almost 30% on absolute terms. One is your agri book has actually grown by 3%. So, do you see some kind of increased NNPA in the agri book?
Munish Jain
There is no answer even if you look into presently or if you look into the overall basis, if we have a GNPA of 2.61% bank as a whole, our agriculture book is typically just — agriculture book is having a GNPA of 3.38% so which was 3.26% a quarter back. So, we’re typically in a similar range. So typically in agriculture, I’m not that worried about the NNPA or GNPA in this particular book. And we are confident since the growth number has not been that high so optically it may look absolute basis a bit higher. But typically on the ground, the recovery on this particular book is quite decent and there is no challenge I’m presently witnessing of a significant nature.
Lakshminarayanan KG
If you look at the next half year on GSM. We hear from the regulator as well as from some of the other banks that have reported on NBFC there is a risk in the system. Now while we are — we have been doing exceptionally well several years and how do you see at this point in time for the near term, what are the pockets of risk you see and how are you planning to address? Do you see an increased risk scenario in the segments you’re operating?
Munish Jain
If you look into just a few of the risks which we are seeing is in the unsecured piece, we are seeing a risk in the ticket size of up to INR3 lakhs on the agriculture side. We are seeing some risk on the consumption lending side. So, there is a risk is building up on these two, three pieces. So we are quite mindful and in view of that, our product mix is accordingly realigning. If you look at how we are addressing these issues. So in agriculture, we are not in that piece. Our start ticket is INR5 lakhs. We are not starting below INR5 lakhs. Our start price is INR5 lakhs. To keep us ring-fenced from that particular piece, we are completely exited. We are not at all in the unsecured lending piece. So, the risk which we are seeing is emerging is more in the three pieces that is up to INR3 lakhs in the MFI or you can say the rural lending or we can say into the lending, which is unsecured and similarly personal loan and the consumption lending.
We as a banker in the consumption lending we are very mindful of it. So, our consumption lending is a second hook to the customer not a start point. So, our consumption lending which is 7% is typically to the existing customers not to the first hook. So, we are accordingly ring-fencing ourselves from this type of risk. And given our secured franchise with the collateralized — all the books are collateralized except the corporate book which is 11%. So, 82% plus book being collateralized. So, with that thing in sight, so we are confident of retaining our credit cost as we did in the history.
Lakshminarayanan KG
So this credit cost of 0.2% which you have reported, is it something which we can assume for the full year? Is that the band you like to be in?
Munish Jain
Yes, I intend to keep our credit cost in the delta of 0.15% to 0.25% for the fiscal.
Lakshminarayanan KG
Got it. If I look at your corporate lending book, if you can just give some granularity in terms of what is the ratings and what is the mix of ratings in your presentation if it is there or if you can just tell us in your corporate book how much is in AAA, how much is there, it would be helpful to know?
Munish Jain
Typically if you look into our culture about the corporate book lending, in NBFC we typically don’t lend below BBB-, we don’t lend. And even if a client is up to BBB+ or I can say below A-, we look for the FLDG for sure. So, the growth coming in the corporate book is typically from the A- to A+ category. So, that is where the growth is coming and we are quite mindful of it. And this particular book is typically not a very, very large count. We will be having around 40 to 45 clients, which we are doing at this point of time.
Lakshminarayanan KG
Sir, it will be helpful maybe in your presentation going forward you can add some details on what is the rating profile of your corporate loan book.
Munish Jain
Can be done. We will take note of it, Lakshmi.
Lakshminarayanan KG
Thank you so much, sir. I’ll come back in queue.
Operator
Thank you. Our next question is from the line of Ashlesh Sonjee from Kotak Securities. Please go ahead.
Ashlesh Sonjee
Hi team, good morning and congratulations on the results. Just two questions from my side. Firstly, when you read the credit bureau reports of your borrowers whether it is in the agri loans portfolio or in the mortgages portfolio, which are the other typical types of loans taken by the borrower from other lenders?
Munish Jain
I request Raghav to pick up this question, please.
Raghav Aggarwal
Hi. Particularly when we come to this bureau report scrub or on an individual basis also, so this has — when we talk of our borrowers, there are mostly the credit cards or maybe some unsecured loans which are coming on to the records of the borrowers from other lenders. So if we talk of the product mix which we are dealing in so I can say that we are the primary lender in all these product segments.
Ashlesh Sonjee
Do you also see instances of microfinance loans?
Raghav Aggarwal
No, we don’t see such instances because our customer segment — the target customer segment so that is particularly the MIG segment, middle income group and MFI segment, that is the low income group. That is not our target play area.
Ashlesh Sonjee
Understood. And one follow-up on this one. When these customers are still repaying to you, but might be delinquent on other unsecured loans, what is the thought process when you talk to them about it? How do they think about repaying these loans versus your loans? If at all, if there is anything anecdotal, you can share.
Munish Jain
I’ll just take up this question. As far as this particular point is concerned Ashlesh, so typically if we look into this, this is a very, very rare phenomenon to come. And when we talk about the customer, we typically look for the primary banking relationship. Maybe before he — if we are making a BT or we are the first to that particular customer in the middle income group customer, he may have few of the credit card dues which is very, not significant value or he may have a PL with one of the NBFCs or one of the other entities or an institution. There may be some sort of delinquencies, but this type of delinquencies is very very rarer of the phenomena.
Will not be in a majority in 90% plus or 95% plus of the phenomena, this will not be the phenomena. So since when we go there, we intend to take care of his complete credit needs. So, but if this type of phenomena come on case-to-case basis depending upon the circumstances of the case and depending upon our case to case circumstances, this action is being taken. Since it is not a gross or the macro level phenomena, I will not be able to give you some guidance as a statistic point of view. But this is a very, very rare phenomena which we are observing in our portfolio over the last three to four years.
Ashlesh Sonjee
Fair, sir. Thank you. And secondly, if I look at the other loan segment for you, that seems to have degrown on a YTD basis from about INR495 crores in March to INR485 crores now. Any specific reason for this? Is it indicative of any dip in delinquency that you are seeing?
Munish Jain
No, that is not the case. This particular portfolio, as I said earlier, is our second or third hook with the customer. So this is depending upon the need of the customer and it is not of our start product. This product is typically more to take care of a primary customer that is agriculture, mortgage, and MSME customer, any additional need of them. So this is typically as per the need of that particular borrower, there is no stress building up or something like this to interact out of it or rather during the quarter, it has grown from INR462 crores to INR485 odd crores.
Ashlesh Sonjee
Okay. Thanks, sir.
Operator
Thank you. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to Mr. Sarvjit Singh Samra, Managing Director and CEO for closing comments.
Sarvjit Singh Samra
Thank you, everyone, for joining this earning call. And I thank you, moderator and everyone, who are connected on this call. Have a nice day ahead. Thank you. Thank you very much.
Operator
[Operator Closing Remarks]