Capri Global Capital Ltd (NSE: CGCL) Q2 2025 Earnings Call dated Oct. 30, 2024
Corporate Participants:
Hardik Doshi — Corporate Finance & Investor Relations
Rajesh Sharma — Managing Director
Partha Chakraborti — Chief Financial Officer
Analysts:
Taran Gupta — Analyst
Aman — Analyst
Aryan Oswal — Analyst
Satyaprakash Pandey — Analyst
Jay Mistry — Analyst
Shalin Kapadia — Analyst
Jay — Analyst
Rohit Shinde — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Capri Global Capital Limited Q2 FY ’25 Earnings Conference Call hosted by Go India Advisor. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hardik Doshi from Capri Global Capital Limited. Thank you, and over to you, sir.
Hardik Doshi — Corporate Finance & Investor Relations
Good afternoon, everyone, and welcome to Q2 FY ’25 earnings call for Capri Global Capital. This is Hardik Doshi, Head Corporate Finance and Investor Relations. I shall read out a brief disclaimer for today’s call. The discussion on today’s call regarding Capri Global Capital Limited’s earning performance will be based on judgments derived from the declared results and information regarding business opportunity available to the company at this time. The company’s performance is subject to risks, uncertainties and assumptions that could cause actual results to differ materially in future. Given these uncertainties and other factors, participants on today’s call may observe due caution while interpreting the results. The full disclaimer is available on slide 42 of Q2 FY ’25 earnings presentation. Participants are requested to note the same.
With us today on the call, we have Mr. Rajesh Sharma, Managing Director of the company, Mr. Partha Chakraborti, CFO; Mr. Sanjeev Srivastava, CRORES; Ms. Divya Sutar, Head Business Strategy. With that I now request our Managing Director Mr. Rajesh Sharma to present the opening remarks. Over to you, sir.
Rajesh Sharma — Managing Director
Thank you. Good afternoon, everyone. I hope you all are doing very well. First of all, let me wish you all a very happy Diwali. We declared our unauthorized consolidated result for Q2 FY ’25 yesterday, and I hope you had a chance to go through the earnings presentation which is uploaded on our website.
As you all know, Capri Global Capital Limited continues to serve under penetrated, underbanked customers in high growth segments like substantial untapped market potential while maintaining a strategic focus on building a retail granular franchise with Secure Lending Board. We are a diversified NBFC with robust presence in MSME loans, housing loans, gold loans and construction finance. We continue to further diversify ourselves by identifying newer opportunities and expanding our product offerings.
In the last quarter, under our MSME Loan segment, we have launched micro LAP, a small ticket secured loan product for self-employed customer. And in this quarter, we launched rooftop solar loans as part of green financing in partnership with Credit Fair, a leading renewable energy fintech to ticket size ranging from INR50,000 to INR25 lakh. In addition to interest income, we are also focusing on increasing shares of high-quality recurring fee income through insurance distribution, and also car loan origination. We believe that our digital first approach in superior technology processes that we are implementing will be the key differentiator, enabling us to serve our customers more effectively than our peers. We also implemented several AI driven initiatives in this quarter which I will mention subsequently. We believe this will benefit us meaningfully going forward.
I shall now move to the commentary on business and earning performance. In regard to business, please refer slide 3, 4, 5 and 6. We maintained strong growth momentum in Q2 FY ’25 with our AUM reaching INR19,273 crores, an increase of about 56% year-on-year and 10% quarter-on-quarter. This growth was primarily driven by a strong growth of 225% year-on-year gold loan and 33% year-on-year housing loans. Our disbursement touched INR5,465 crore during the quarter, reflecting 55% year-on-year growth. We remain focused on retail landing with retail AUM considering over 80% of our portfolio.
We are well positioned to drive growth, and are confident of crossing our target of INR30,000 crore AUM by FY ’27. Our co-lending AUM continued to surge during Q2 FY ’25, increasing to 18.3% of AUM compared to 16.3% in Q1 FY ’25 and 11.6% in Q4 FY ’24. We have further strengthened our bank partnerships significantly increasing the acceptance ratio of loans with our partner bank compared to a year ago. We expect to continue this momentum in co-lending as an efficient tool for high ROE accretion and liability management.
We continue to build a granular and well diversified portfolio for MSME in housing loans. With average ticket size of around INR2 million, our MSME AUM reached INR4,824 crore, and in our housing loan segment, AUM reached about INR4,271 crore up by 33% year-on-year. MSME and housing together continues to constitute 50% of our overall AUM. With our strategic initiative and focus on underserved market, we are confident that our MSME in housing loan portfolio will continue to deliver robust and sustainable growth in the coming quarters.
Our gold loan AUM increased by 225% year-on-year to cross INR6,500 crore supported by our extensive gold loan branch network of 758 branches across nine states and UT. Along with co-lending partnership with four banks. These branches have started to scale up and achieving a productivity level of INR8.7 crore AUM per branch. We are confident that our expanding reach and partnerships will continue to fuel sustainable growth and further strengthen our position in the gold loan segment.
Our Construction Finance AUM increased by 63% year on year to cross INR3,346 crore driven by uptick in the real estate sector and a strong pipeline of new projects. Our disbursement in construction finance stood at INR924 crore, up 51% subsequently. In construction finance, our focus will remain on residential project within the affordable housing sector while maintaining a granular book in indirect lending.
As we are earning, let me now provide an update on core earnings. Our yields and spread remained steadily this quarter at 16.2% and 7% respectively. Net interest income for Q2 FY ’25 reached INR305 crore, marking a 22% year on increase driven by robust growth in our loan book. Our non-interest income comprises three components — car loan distribution fee, whole lending income and other known interest income. Our loan interest income was INR103 crore rupees in Q2 FY ’25, up by 29% year-on-year supported by co-lending fee income of INR41 crore and net car loan originating fee of INR18 crore.
We have scaled our car loan origination network within a very short period of time to become a meaningful player in this segment. With pan India presence across 788 locations in 31 states and UT. We worked with 12 partner bank and financial institutions for car loan originations. Our car loan origination in Q2 FY ’25 are INR2,563 crores, up by 8% year on year. On the insurance distribution front, we have tied up with 18 insurance companies and started accruing fee income. We are looking to generate around INR40 crore in net fee income from insurance distribution FY ’25. We anticipate this strong foundation will sustain the impressive growth project or known interest income.
Following our branch expansion, we are now shifting our focus on improving the efficiency and productivity, effect of which has already started to reflect in our cost income ratio which has improved to 64.3% in Q2 FY ’25, down from 17.5% in Q4 FY ’24, an improvement about 6.2%. We expect further benefits to accrue [Phonetic] operating leverage will kick in. As a result, our pre-provisioning operating profit increased significantly to INR146 crore up by 34% year-on-year.
As regards asset quality, our credit cost normalized in the quarter and was at INR17.5 crore, an improvement of 24% year-on-year and 62% quarter-on-quarter is thereby the one-off technical write off in construction finance book in Q1 FY ’25. Gross stage 3 ratio improved to 1.6% in Q2 FY ’25 from 2% as of Q1 FY ’25, net stage 3 ratio improved to 1% from 1.2% in Q1 FY ’25. PCR on stage 3 loans stood at 40.1% in Q2 FY ’25. We would like also to share that we have sold about INR71 crore pass to Asset Reconstruction Company at 90% of its value.
As regards capital adequacy and liquidity position, as part of our resource diversification strategy, we have taken Board resolution to raise up to INR1,000 crore via NCD issuance. We continue to maintain a strong liquidity position, have got new credit line of INR3,750 crores pension for a CGCL entity and INR700 crore per CGHFL entity. Our capital adequacy ratio for CG share stood at 23.7% and for CGHFL stood at 31.9%.
In regards to profitability, we reported a consolidated net profit of INR97 crore rupees which increased by 49% year-on-year and 28% quarter-on-quarter. Our efforts over past two three years to diversify our business and income streams are now beginning to yield results. You have seen our Q2 FY ’25 performance. We reported an annualized ROA of 2.3% and annualized ROE of 9.8% in Q2 FY ’25, up by 0.4% and 2% quarter-on-quarter respectively. We expect this to improve further going forward with the improvement in cost efficiency, employee productivity and operating leverage.
As we are technology, our technology initiative including the in-house LOS, Flex Cube, LMS Pragati Sales App for Customer Onboarding, Collect Express App for Managing Collection, Capri Grahak App for customer engagement which went live in Q1 FY ’25 have now stabilized and are being extensively used by our sales and collection staff for managing their customer loan journey end to end digitally, thus improving their efficiency and productivity.
We also go live with our data science driven VREN [Phonetic] scorecard-based underwriting which will help us improve our login to sanction ratio, better customer risk profiling and offer risk-based pricing to our customers.
Our sophisticated collection dashboard for real time monitoring combined with the use of advanced AI ML models for identifying real delinquency are expected to further improve collection efficiency and asset quality. During the quarter, we also launched several artificial intelligence driven initiatives such as AI driven Data Genie which equips key decision makers with real time actionable insight, enhancing agility and precision. CapriGlobal.AI with its AI-Dost chatbot provides instant multilingual support to our Customer ensuring seamless engagement 24/7. Our Hire Right AI which optimizes RM level hiring by ensuring unbiased efficient recruitment. Our AI driven call center analytics with in-house voice to text conversion system adopted for Indian languages helps in cost optimizing call center operations and increase efficiency of our tele-calling staff.
Lastly, our focus on real time system will drive significant improvement in TAC, enabling us to meet our customers’ expectations faster through hassle free and timely disbursements.
Now I come to ESG. On the ESG front, Capri Global has established a robust ESG framework aligning our policies with international standards and ESG guidelines. We applied for the Dow Jones Sustainability Indices rating which results expected soon. Additionally, we published our Business Impact Report, Echoes of Progress, highlighting our achievement in financial inclusion and sustainable growth. Our second sustainability report for FY ’24 highlighting Capri Global’s integrated approach to ESG centered on financial inclusion, operational efficiency and governance. To support our commitment, we are actively training internal teams in aligning business process and ESG requirements. With that, I conclude my remark. We shall now take questions.
Questions and Answers:
Operator
Thank you very much. [Operator Closing Remarks] The first question is from the line of Taran Gupta from Elara Capital. Please go ahead.
Taran Gupta
Thank you for taking my question. So, my first question is the company has set a target of reaching an AUM of INR30,000 million by FY ’27. So, can you please share insight into the primary growth drivers for this target, and which segments are anticipated to contribute the most of this trajectory.
Rajesh Sharma
So, thank you, Taran. As I said, our current AUM after Q2 result is about INR19,272 crore, and with the growth coming in from our new segment which we added is a micro lab, MSME will start again growing, adding few more branches in the coming financial year. And our gold loan also we are adding more branches. Besides that, we also launched this rooftop solar product. So, we’ll continue to grow through our branch expansion in our existing project — product, as well as the new product will continue to grow. So, from INR19,272 crore to reaching in almost 10 quarters, I think we will be able to achieve. We are already on this path.
Taran Gupta
Okay, very helpful. And second question is so Capri is mostly focused on evolving into a technology led NBFC. So, could you elaborate on any recent digital initiatives or technology upgrade aimed at enhancing customer experience or boosting operational efficiency? Additionally, how is technology being leveraged to facilitate deeper penetration into rural area or undeserved market?
Rajesh Sharma
So, we have devised our entire journey of technology in five segments — onboarding a customer, credit evaluation, then collateral evaluation, collection, and customer engagement. So, this completed journey right from onboarding to customer servicing. Now our while our LOS is in-house developed where for sales mobility, we have built a Pragati mobile app. For underwriting purpose, we have built our in-house scorecard and various processes we have automated which is helping the team to do the work with better precision in a lesser number of hours. So, we are saving the time and our task is much better. And then third element is our evaluation of collateral where the collateral property whatever is being mortgaged in housing finance and MSME, is being evaluated through our in-house technical app where a lot of other features are there, where they can see the transaction data, they can see the delinquency data of the nearby surrounding area where we intend to land. Then it comes to the collection because we believe the collection is a major focus of our company. So, we have divided collection in the three parts, one is the collection through Chatbot calling, number two from the tele-caller unit and three, collection agent on the field.
So, with combination of three, with their precise data analytics, real time tracking and proper incentive schemes, I think they are able to do it better. We are driving the efficiency among them, and fifth is the customer engagement. So, customer engagement we are tele-caller unit. Besides we have given it a customer app, so lot of features can be activated through the service through the customer app. We also have one WhatsApp chatbot where all the query can be sorted out, and besides that as I said our AI initiative of Capri Group Global.AI where the customer can ask anything and their query can be addressed. So, there are a lot of initiatives happening internally to improve the process efficiency and externally on the customer service side, and you will see quarter-on-quarter the difference is coming in not only cost income ratio, but our other features in terms of efficiency in the collection and also our efficiency in the productivity.
Taran Gupta
Thank you so much. It’s very helpful. Thank you. All the best.
Operator
Thank you very much. The next question is from the line of Aman from Dolat Capital. Please go ahead.
Aman
Hello. Yeah, with the target of building a INR1,000 crore loan book in rooftop solar financing, can you elaborate on a partnership with Credit Fair, and how will this facilitate faster loan approvals and disbursal in the solar finance space? And second question, with the anticipated rise in credit costs across the NBFC sector, how are you managing these increased provisions given that we have normalized credit costs during the quarter, particularly in your MSME and affordable housing portfolios.
Rajesh Sharma
So, your first question is on the rooftop solar. So, we have tied up with one fintech, but we are also in the process of tying up various business correspondent and dealers’ network and other. So, since we launched the project recently, now we will be scaling up, this year end we will be doing about INR50 crore rupees, but we will continue to grow our network and through that network next year should be a full year of operation where significant this book should be built. And here the model we intend to follow is we build the book, down sell at much lower yield by generating a profit. Because a lot of banks have this product in demand to build a portfolio. And if you see the central government have a very high focus on this product. So, we feel that the policy push is there, you want to take the advantage of that not only in terms of pricing, of getting the lower cost funding through sell down the portfolio or otherwise. So, we see that by next year, we should have a significant portfolio in this, and in near term we should be able to achieve the INR1,000 crore book. The first target is INR1,000 crore book, but by the March we will be able to give the clear guidance by when it will be achieved. But we are building the network. I can say we are building the technology, we are building the network of BC and building our internal team. We already launched the product; current run rate is about INR4 crores to INR5 crore a month which is getting increased month after month.
Your second question was how do we address our delinquency in the MSME and the home loan. So, I think MSME segment last one year, we have not grown, so that effect was visible in the delinquency. Now we are coming back growing those branches, and plus our restructure pool is now reduced from earlier INR200 crore plus to about INR103 crore. And out of that some pool we have transferred to ARC. So, I think combination with this will be that growth will be back. And housing finance, if you talk about delinquency they are more or less stable, and in the price segment we operate, we believe that that kind of a GNPA and NNPA will continue to be stable.
Operator
Thank you very much. The next question is from the line of Aryan Oswal from Finterest Capital. Please go ahead.
Aryan Oswal
Hello?
Rajesh Sharma
Yes, Aryan, go ahead.
Aryan Oswal
Yes, sir. So sir, my question is on the side of that. Could you please share the net fee income generated from our insurance business this quarter? And also how much of fee income can we expect from insurance over next couple of years?
Rajesh Sharma
So this quarter we generated about — first half we have generated about INR25 crores and the whole year we should be crossing about INR40 crore of fee income alone from the insurance segment. Next year, hopefully, it should further go up. So next year guidance we should be able to give you by the — by the last quarter when we come back with the result. But current year, we should cross about INR40 crore in the insurance income.
Aryan Oswal
Okay. And sir, what are the new partnerships we have secured for insurance distribution and the expected impact on future growth?
Partha Chakraborti
So we have now almost about 11 — 18 partners in insurance. And I think these are good enough to cater to our — it is not the more and more partnership is going to help us, but it is about the kind of product you get to cover all kind of a customer. A gold loan customer might require a policy and he should be able to sustain only INR4,000 to INR5,000 where a car loan customer can still can take a policy life insurance policy, which he might pay a premium of INR50,000 plus. So depending on the customer profile, we give the product. I think we have wide coverage of product by — along with these partners.
Aryan Oswal
Okay. And sir, one last question from my side. Sir, we have spoken about our goal of achieving a mid-teen ROE, primarily through enhanced fee income and improved operational efficiency. So could you provide more clarity on the timeline for when these efforts will translate into visible improvements? And specifically, when do we expect us to consistently reach the 15% ROE mark as it’s been a target for some time now?
Partha Chakraborti
So if you have seen that now this year, our initiative on the technology side and the branch expansion, we already received — we received the breakeven, especially the gold loan vertical, all 750 branches have done profitable. I think quarter-on-quarter, you will clearly see uptick in our ROE. This year we should be in the closed vicinity of about 11%. And I think by March ’27, we should achieve our mid-teen ROE targets.
Aryan Oswal
Okay. Thank you so much, sir. That’s all from my side.
Partha Chakraborti
Thank you.
Operator
Thank you very much. The next question is from the line of Satyaprakash Pandey from Haitong. Please go ahead.
Satyaprakash Pandey
Hi, good afternoon. Hope I’m audible.
Partha Chakraborti
Yes, please go ahead.
Satyaprakash Pandey
Yeah. So I have two questions. First is, how has the acceptance rates from partner bank in co-lending evolved over the past few quarters? And what growth do you expect in this segment next year, given that we continue to see strong growth here? Also, can you elaborate on the risk-sharing mechanism and how you balance — how you balance expanding credit reaching with maintaining asset quality?
Second question is, you’ve started expanding into Microlab [Phonetic] with plants with some new branches. How has this initiative progress in Q2? What has been the early response from rural customer and what challenges are you facing in scaling this segment? Those were my two questions here.
Partha Chakraborti
So all the partner bank, you are asking what is the arrangement we have. So arrangement where 20% — we fund 80% bank fund and the cost of those lines in housing loan are sub-9.5% and gold loan is between anything between 9.5% to 9.75% and MSME in the range of over 9.5%. Regards Microlab, we — I think already gone live with the 70 branches. And those branches, we have a experienced team from a good background of a similar product. We have a strong risk framework in place. So we should be able to achieve the full scale, next year will be full year of the operation. And I think we should be able to do this year about —
Rajesh Sharma
I mean, currently we already received book of about INR30 crores and by March, we should be able to cross about INR60 crores. Next year is something which we are likely to cross about INR300 crore.
Satyaprakash Pandey
Okay, okay. Thank you so much. That’s helpful. Thank you.
Operator
Thank you very much. The next question is from the line of Jay Mistry from Equirus Securities Private Limited. Please go ahead.
Jay Mistry
Hello, sir. Am I audible? Hello. Am I audible?
Rajesh Sharma
Yes, please go ahead.
Jay Mistry
Thank you for the opportunity, sir. Now I had two questions. First question was that since now that our gold loans is profitable and you have been gradually expanding the branches too. So I just wanted to understand like are the new branches meeting the expected performance levels?
Partha Chakraborti
So I would say the new branches, we will not know only in three months, new branches ideally should achieve the AUM about INR4 crore in 15 months. If you are able to achieve 15 months INR4 crore, then I will say they have achieved the breakeven. So all the old branches, I think most of the branches already over 15 months and all the branches have already been profitable is with our new branches, some of the branches, three-month old, some of the branches are four months old. So we believe that by the end of the 15 months from the date of their opening, they should breakeven or profitable.
Jay Mistry
Thank you, sir. And my second question was that since you have implemented the new loan originations and management systems. So how has the transition impacted the loan disbursements and turnaround times in second quarter, like are the teams fully adapted to the new systems?
Partha Chakraborti
Yes. So first quarter, we launched this new LOS in the month of April and it has taken almost three, three and a half months to stabilize. Q2 is completely stabilized and I would say these are the normal numbers. They are not much impacted by the LOS. As far as now is concerned, it is business as usual. So there is no reason that there is no impact of the new LOS. It has gone smooth and functioning fully.
Jay Mistry
Okay. Thank you, sir. That’s it from my side.
Operator
Thank you very much. The next question is from the line of Shalin Kapadia from IIFL Securities. Please go ahead.
Shalin Kapadia
Hello. Am I audible?
Rajesh Sharma
Yes.
Shalin Kapadia
Okay. Thank you for the opportunity, sir. I have two questions. So with recent conditions in the auto sector and a dip in car loan volumes over the past couple of quarters, do you see the car loan business shaping better in second half or do you believe we can surpass last year’s performance despite the current challenges?
Rajesh Sharma
So what is happening that these — some of the competition of CarDekho and others, they are, I think giving more commission than they get. This is what the market we experienced. So there is a pressure of the competition on the commission side in sharing the commission with the DSAs and connectors. So that is where our cost has gone up. But we are going to add the used car finance also with the same thing without adding — without addition of new manpower. And with the help of the additional product, this year will be profitability slightly lower than the last year because of various transition from old — the CGCL to the new company. But next year, I think our profit will be all-time high and our — even volume will be high.
So this year, it will take some stabilization in the new entity along with the launch of the new product where we’ll see some operational cost eating up the profit from this vertical.
Shalin Kapadia
Okay, sir. That’s helpful. And second question is on gold loans. So with Capri’s recent strong momentum in the gold loan segment, given that we have almost tripled our AUM in the last year or so. Are there any plans to accelerate this growth by expanding into new regions or opening more branches? And also how do you see your growth in gold loan business over the next two, three quarters?
Rajesh Sharma
So we’ll see that now the expansion will be moderate. We will be adding about 50, 70 branches this year. And the expansion will continue to be in the next year, but it will be moderation. However, already we have achieved for a branch AUM about INR8 crores and I think that those branches will continue to grow along with these new branches, which will take some time. So we clearly see that we should be crossing INR12 crore of AUM by end of next year per branch except the new branches.
So growth will continue to happen despite competition and we see the data, as everybody is aware, still good monetization is still in the range of 5% and most of the market is still with the pawn brokers and the local jewelers and local money lenders. So there is a huge growth is possible for everybody in this segment.
Shalin Kapadia
Okay. Okay, that’s helpful, sir. Thank you.
Operator
Thank you very much. The next question is from the line of Jay [Phonetic] from Manya Financial. Please go ahead.
Jay
Yeah, hi. Am I audible?
Rajesh Sharma
Yes, Jay, you are.
Jay
Yes. Okay. What is the outlook of maintaining the net interest margins, what are the strategies you are trying to optimize the margins? Hello.
Rajesh Sharma
So yes, strategy for optimizing the margin will be our biggest differentiator will be technology and data science capabilities, which will be significantly investing. Our Gurgaon tech center, we have almost about 125 engineers and 25 data scientists across Gurgaon and Bangalore. I think these are the two aspects where we see that our processes will be better, our TAT will be faster and our efficiencies of decision making will improve the overall cost-to-income ratio.
Further, NIM margin will be improving. Currently, NIM margin, you see the lowering because the leverage is going up. If you look at the spread that is being maintained at 7%. So if we leverage more while their NIM will go lower side, but spread so far we are maintaining improving, I think overall ROE, it will have a positive impact despite NIM going down.
Jay
Okay. With the regulatory — with the current regulatory framework which the — which is going on in the NBFC space, how does Capri Global ensure compliance while continuing to grow? And are there any recent regulatory changes which has impacted the business operations?
Rajesh Sharma
So I think all these regulatory changes which are coming, they are there to make the company very robust when you are scaling up. It might give you some short-term plan, but long-term, it is helping us to meet the compliance and strengthen the risk management. And as regards to our compliance is concerned, that we have strengthened our compliance team, keeping in mind the RBI’s attention on the enhanced compliance focus. We have added few more resources in the compliance team. We are hiring team. We hire senior people. So — and we have engaged outside the big four consulting firms to make the automated compliance tool, which will track which are the compliances done, which have not done on time. And besides the technology compliances also, we have given outside form for telling us to make them better and perfect. So there is a sharp focus.
I will share with you that our Board of Directors and specifically Chairman always want us to follow the compliance first and business leader policy. So with the focus of the Board and our focus on engaging best of the consultant to make it better, we feel that compliance, we will be able to meet the RBI norms. And plus we are driving a culture also insight in every department to comply everything as per the rules of whatever regulator, be it RBI, be it SEBI guideline, be it listing guidelines of BSE or MSE.
Jay
Okay. And none of the regulatory — current regulatory changes or the recent regulatory changes have impacted your business, right?
Partha Chakraborti
No, no. There’s no regulatory changes that impacted our business. In fact, regulatory changes they bring to being more — you be informative, you more formally recording anything and formally conveying to the team how they should do the business. So it is all about following the proper processes. So there is no impact on the business, slightly compliance number of people would increase and slight cost goes up, but in such a large volume, I don’t think it is — it is very insignificant.
Jay
Okay. And about the microfinance business, do you see any pressure on your microfinance business?
Partha Chakraborti
We are not into microfinance business.
Jay
Not at all.
Partha Chakraborti
No. We don’t have any unsecured lending as such.
Jay
No unsecured lending. Perfect, perfect. Thank you so much.
Operator
Thank you very much. [Operator Instructions] The next question is from the line of Rohit Shinde from Market Memories Wealth Advisors Private Limited. Please go ahead.
Rohit Shinde
Yeah. Good afternoon, sir. Can you hear me?
Rajesh Sharma
Yes, please.
Rohit Shinde
Yes, sir. So sir, my first — I have two questions. So my first question is that we have seen strong growth in co-lending, especially in the gold loan business. While our focus was initially on MSME and housing, most co-lending in the past year has been in gold loans. So is this shift driven more by demand or does the fee structure and margins make it more advantageous?
Rajesh Sharma
Okay. What is the second question?
Rohit Shinde
Yeah. Second question is, sir, non-interest income as a percentage of total income continues to decline for past couple of quarters despite — despite our past — despite our push in co-lending insurance and car loans. So how do you view the overall mix of non-interest income and what do you see as the main drivers for growth in this area? Thank you, sir.
Rajesh Sharma
So let me answer your second question first, which talks about non-interest income in going down. If you see this Slide number 15, our non-interest income, which is comprised of the car loan distribution, insurance and the co-lending, it is — it has in Q2 it has come to INR25.3 crores.
Partha Chakraborti
The share of non-interest income as a percentage of net income is 25%.
Rajesh Sharma
Yeah. So it is 25%. So I think it is more or less stable. It has not gone down itself. If we talk about absolute income, so there is a slight dip in the car loan income, but if you take the overall income from INR108 crore, it has come to INR103 crore. So I think the fast into water in the car loan is always slightly lower side. If you see the — is compared to last year to this year, it has gone up significantly.
Rohit Shinde
Okay.
Rajesh Sharma
Q2 FY ’24, our fee income was INR80 crore against the Q2 FY ’25, the fee income is about INR103 crore. Is that clear now?
Rohit Shinde
Yes, sir. On the first question, sir?
Rajesh Sharma
Your first question was why the co-lending has gone up in the gold loan. So I will say that gold loan has scaled up, the number of branches are much higher. And there was a co-lending product where we can cater to those customers also which can be catered, it is slightly lower margin. But since co-lending lines are available, which are highly ROE accretive, you use those lines there. And there is separate co-lending lines for the gold specifically by our lending partners. So we utilize them and that is the reason you will see the co-lending — lending in the gold loan have been higher percentage is compared to MSME and home loan.
And in regard the growth, there is no shift in our strategy. Our — if you see our home loan portfolio is also growing at a pace of about 35%, 40% year-on-year. Gold loan because the base was lower and number of branches have been high. So that is showing you very high growth. But if you see from current quarter onwards, once the base is already in the range of about INR6,000 crores, the growth will get normalized unless we open more number of branches significantly.
Rohit Shinde
Okay. Thank you very much, sir, for answering my questions.
Rajesh Sharma
Thank you.
Operator
Thank you very much. As there are no further questions, I would now like to hand the conference over to the management for the closing comments. Thank you, and over to you.
Rajesh Sharma
Thank you. So thank you so much for sparing time and coming on the call to understand more about us. And we would like to assure you that we’ll continue to grow our secured retail lending portfolio on the back of strong branch network across Microlab, MSME, gold loan and home loans. And with the effective co-lending line in place where about 20% plus portfolio will remain under the co-lending arrangement, which will continue to give us the — our equity — our lower allocation of the equity capital and high ROE. I think our technology initiative will also drive the cost efficiency.
The combined effect of this will — you will see that quarter-on-quarter if you will see that our operating costs coming down income percentage and our ROE continue to improve and we will be on the guiding path. So thank you so much.
Operator
[Operator Closing Remarks]