Cholamandalam Investment and Finance Company Ltd (NSE: CHOLAFIN) Q2 2025 Earnings Call dated Oct. 28, 2024
Corporate Participants:
Vellayan Subbiah — Chairman & Non-Executive Director
Ravindra Kumar Kundu — Managing Director
Arul Selvan — President and Chief Financial Officer
Analysts:
Nischint Chawathe — Analyst
Dhaval Gada — Analyst
Raghav Garg — Analyst
Avinash Singh — Analyst
Abhijit Tibrewal — Analyst
Ishan Shrimali — Analyst
Piran Engineer — Analyst
Kunal Shah — Analyst
Shubhranshu Mishra — Analyst
Viral Shah — Analyst
Pranuj Shah — Analyst
Hardik Shah — Analyst
Nidhesh Jain — Analyst
Ajit Kumar — Analyst
Bhaskar Basu — Analyst
Ankush Agrawal — Analyst
Renish Bhuva — Analyst
Kaitav Shah — Analyst
Sonal Gandhi — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Cholamandalam Investment and Finance Company Limited Q2 FY ’25 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Nischint from Kotak Securities. Thank you. And over to you, sir.
Nischint Chawathe — Analyst
Good morning, everyone. Welcome to the Earnings Conference Call of Cholamandalam Investment and Finance Company Limited. To discuss the 2Q FY ’25 performance of Chola and share industry and business updates, we have with us, the management of the company, represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director; Mr. Ravindra Kundu, Managing Director; and Mr. Arul Selvan, President and CFO.
I would now like to hand over the call to Vellayan for his opening comments, after which, we’ll take the Q&As.
Vellayan Subbiah — Chairman & Non-Executive Director
Thank you, Nischint, and good morning, everybody.
We’ll go through financial results and performance for the quarter and the first half of the year. Disbursements were at INR24,314 crores for the quarter, which is up by 13% and INR48,646 crores for the half, that’s up by 17%. The total AUM stands at INR1,77,426 crores, which is up by 33% year-on-year. The net income for the quarter is at INR3,238 crores, which is up 37% year-on-year and INR6,271 crores for the half, which is up by 40% year-on-year. PAT is at INR963 crores for the quarter, which is up 26% year-on-year and INR1,905 crores for the half, which is up 28% year-on-year.
The Board met and approved the unaudited results for the quarter and half year ended 30 September, 2024. Vehicle finance disbursements were at INR12,336 crores in the quarter as against INR11,731 crores, which is a growth of 5%. And disbursements in H1 FY ’25 were at INR25,102 crores as against INR23,032 crores, which is a growth of 9%. LAP disbursed — the loan against property business disbursed INR4,295 crores in Q2 as against INR3,192 crores, which is a growth of 35% and for the half, they were at INR8,170 crores as against INR5,872 crores, which is a growth of 39%.
Home loans disbursed INR1,823 crores in the quarter as against INR1,575 crores, which is a growth of 16% and for the half, disbursements were INR3,601 crores as against INR3,029 crores in the previous years, which is a growth of 19% year-on0year. The SME business disbursed INR1,959 crores in the quarter as against INR1,945 crores, which is a growth of 1%, and disbursements for the half were at INR4,119 crores, which is a growth of 3%. The CSEL, consumer and small enterprise loans disbursed INR3,588 crores for the quarter as against INR2,853 crores, which a growth of 26% and for the half, they were at INR7,075 crores, which is a growth of 36%.
Secured business and personal loans disbursed INR312 crores in the quarter as against INR246 crores in the same quarter last year, which is a growth of 27%. And the disbursements for the half were at INR580 crores, which is a growth of 36% over the first half last year. AUM stood at INR1,77,426 crores as compared to INR1,33,775 crores, which is a growth of 33%. PBT growth in Q2 was at 27% and for the half, it was at 29%. And PBT-ROA for Q2 was at 3% and for the half year, it was at 3.1%. ROE for the quarter was at 18.24%, and for the half was 18.55%.
The company continues to hold a strong liquidity position with INR13,864 crores as the cash balance at the end of September, including INR2,563 crores invested in G-secs and INR2,106 crores invested in T-bills and INR624 crores invested in STRIPS shown under investments, with a total liquidity position of INR14,004 crores including undrawn sanction lines. The ALM is comfortable with no negative cumulative mismatches across all time buckets as per regulatory norm.
Consolidated PBT for the quarter was at INR1,304 crores as against INR1,065 crores in Q2 FY ’24, which is a growth of 22% and for the half, it was at INR2,579 crores as against INR2,021 crores, which is a growth of 28%. In terms of asset quality, Stage 3 levels increased to 2.83% as of September ’24 from 2.62% as of the end of June ’24. GNPA as per RBI norms increased to 3.78% as of September ’24 as against 3.62% as of June ’24. NNPA as per RBI norms also increased to 2.48% as of September ’24 as against 2.37% on June ’24. NNPA is below the threshold of 6% prescribed by RBI as a threshold for PCA. The capital adequacy of the company as of September 30, 2024, was a 19.5% as against the regulatory requirement of 15%. Tier 1 capital was at 15%. Common equity at Tier 1 at 14.2% as against a regulatory minimum of 9% and Tier 2 was at 4.46%.
So with that, I’ll stop with the commentary and we’ll be happy to turn it over to you for the Q&A. Thank you.
Questions and Answers:
Operator
Thank you. We will now begin the question and answer session. [Operator Instructions] The first question is from the line of Dhaval from DSP. Please go ahead.
Dhaval Gada
Yeah. Thanks for the opportunity. Just a couple of questions. First is on the asset quality for VF and CSEL. Could you talk a little bit around both these segments, where the Stage 3 and in CSEL, especially the NCL is also relatively higher in the first half compared to last year? Just how things are progressing in line or better than what you think?
The second question relates to the growth. Just with the RBI sort of cautioning companies on growth, how is the company looking at just where we are and our growth trajectory? And if you could give some perspective around regulatory interactions around this aspect, that would be useful? Yeah. Thanks.
Vellayan Subbiah
Yeah. So Dhaval, thanks. So, I’ll answer the growth bit and then kind of Ravi will talk a bit about asset quality. As you can see, we’ve moderated disbursements a fair bit, right? And kind of — so you’ve seen disbursement growth is up by only 13% for the quarter. And so you can see that growth moderation that basically we’ve been talking. We obviously kind of — this is a matter that we discussed at the Board as well. And so you can basically see that disbursement growth has moderated to 13%. Why you see a slightly higher number for AUM is because of kind of the base rate from last year. But that will moderate kind of as we go into the rest of the year as well. So — But I mean, I think [Technical Issues].
Operator
Sorry to interrupt, ladies and gentlemen. The management line has been disconnected. Please stay connected. The management line has been reconnected. Over to you, sir.
Vellayan Subbiah
Yeah. So, I don’t know where we dropped off but…
Dhaval Gada
So, Vellayan, you were just highlighting that you had discussed at the Board and the disbursement growth is around 13%, and that’s when we lost. Yeah.
Vellayan Subbiah
Yeah. Yeah. So basically, that was just to give you an indication that we have moderated, right, kind of we have moderated. And as kind of some of the base rate wears off, I think we’ll kind of drop to numbers that are slightly lower than the numbers that you’re seeing in terms of AUM growth right now, right?
Ravi, do you want to join us on asset quality?
Ravindra Kumar Kundu
So, Dhaval, asset quality in vehicle finance, we’ve seen that due to the heat wave in the first quarter and the second quarter, it was actually the extended rains and all, slightly it has gone up by 30 basis point in Stage 2 and then 30 basis point in Stage 3. I think this quarter, it will be at the same level and then next quarter, it will come down as usual. The fourth quarter is always better for this — vehicle finance as well as the company/
As far as the CSEL is concerned, they are also in the range bound, hovering between 4.25% to 5%. And we have also started Samsung partnership mobile funding. So, there are three businesses. One is traditional. The second is the partnership for the digital lending and digital lending in-house and then the Samsung. So, CSEL is continuously expanding their product line. So, you will see that this will be hovering between 4.25% to 5%.
Dhaval Gada
Got it. And just — sorry, one follow up on the growth bit. So the book is sort of shifting towards a longer duration product, so which is why there is a gap between AUM and disbursement. So, what we should monitor is disbursement growth? Or at the Board level, the focus is on disbursement or AUM growth because just trying to link the medium-term guidance of 25% plus AUM growth, that’s the reason I’m asking?
Vellayan Subbiah
Yeah. So, our sense is that we — yeah, so basically, I mean, what you saw was a 33% number, right? That number will come a bit off, right? So, that’s why I’m saying that the guidance of 25% is useful guidance to use on the AUM side.
Dhaval Gada
Got it. Very clear. Thanks. Thanks, and all the best.
Vellayan Subbiah
Thanks, Dhaval.
Operator
Thank you. The next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Raghav Garg
Hey. Hi. Thanks for the opportunity. My first question is on the asset quality again. Your slippages this quarter were around INR930 crores. How much of these would have come from the vehicle finance and the CSEL product specifically? If you can give these two numbers separately? And how much would these numbers be up on a Y-o-Y basis?
Vellayan Subbiah
Yeah. Go ahead.
Ravindra Kumar Kundu
Yeah. It’s given in Page 29 of the Investor Presentation. Individual product wise details are given on the Stage 3 numbers. So, there’s a slippage of around INR600 crores — less than INR600 crores, of which around INR300 odd crores come from vehicle finance and the rest has marginally increased.
Raghav Garg
Sir, I think your write-offs have also been elevated, right? So, I’m assuming here that some of the flows that you would have seen in either last quarter or even in this quarter would have been written off. In that backdrop, the absolute amount on gross slippages, which seems to be about INR900 crores would — a breakup of that would be useful.
Ravindra Kumar Kundu
So it is at the same level as last quarter.
Raghav Garg
Write-offs are the same level as well?
Ravindra Kumar Kundu
Same level.
Vellayan Subbiah
Write-offs, there is no difference in the comparable quarters.
Raghav Garg
Understood. Fair enough. Second thing is that in the last call, you had mentioned about 1.2%, 1.3% credit cost for vehicle finance this year, right? We are already averaging about 1.8%, 1.9% in the first half. I think that in the — in first quarter call, you had mentioned it would come down. Just wanted to understand what has changed between then and now that the credit cost has not come down, it’s still elevated? And what gives you the confidence that it will come down in the second half?
Arul Selvan
For company level, we said that 1.2% to 1.3%. So, 1.2% to 1.3%. And if you take little conservative approach, it will be at 1.4%, for the company level. Vehicle finance is actually at 1 point level.
Ravindra Kumar Kundu
Both at company level and even at vehicle finance level, if you see compared to Q1, it is coming down and this is the same similar trend you will see even in last year that what used to be like a larger number ends in the year with a smaller number because the second half will always be better, especially more so in vehicle finance because they are more skewed towards collection in the festival period than post-harvest.
Raghav Garg
No, sir, I completely understand Q4 is generally very good in terms of recoveries and collections. But it’s just that whatever guidance you had, the ask on second half just goes way too high. So, wanted to get some confidence on that. But yeah, you partly answered it.
Ravindra Kumar Kundu
It will be at 1.3% NCL is what we are seeing now.
Raghav Garg
Understood. And sir, in vehicle finance, can you — apart from the numbers that are already there in the presentation, whatever is there in the quarterly numbers, what is actually happening on the ground in vehicle finance in terms of truck utilization, in terms of the freight rates? If you think you can give some granular sense, are operators getting enough load to carry, all that sort of stuff just to help us gauge how the trends could be going forward?
Ravindra Kumar Kundu
Yeah. So, Ravi here. See, trucks, we are actually having a lower mix in terms of our commercial vehicle business. But small commercial vehicle business, we do more. So, we saw that the rural economy is slightly not doing that better. And demand side also you have seen that small commercial vehicle has come down. So, delinquency related to the last-mile transportation is there. So, among all products within vehicle finance, if you segregate, CVC and passenger vehicle, tractor, two-wheeler, three-wheeler, I see that small commercial vehicle especially sub-1 tonne last-mile transportation got impacted both from the demand side as well as the delinquency side. And therefore, the overall delinquency is at a higher side. But it is also related to seasonality. Quarter one and quarter two have been always higher. And this time, it was election in the first year and the first quarter and then heat wave.
Second quarter, we have extended rain as well as you know the post-election transition also not completed fully on ground. And therefore, there is a some utilization-related problem is there and the election — then the festival also moved to October, both the festivals. So, pre-festival activity also has not been good in the quarter too. So, all put together, last-mile transportation capacity utilization during the quarter two for the commercial vehicle has been down. So among all products, we have seen that CV delinquency were higher. It is likely to go down in the quarter three and then quarter four, it will again improve further.
Raghav Garg
Right. Thank you. Do I have room for another question?
Ravindra Kumar Kundu
Go ahead.
Raghav Garg
Sure. Okay. Sir, just on the employee side, right, so there’s been a pretty substantial jump quarter-on-quarter. We’ve almost added about 7,000 employees this time. Which all products have we added and in which functions have we added these employees? That’s my last question. Thanks.
Ravindra Kumar Kundu
So, all the division is actually — if you see that the LAP is working on micro lab, SMB businesses working on equipment finance, medical equipment finance, industry equipment finance and micro term loan. HL is expanding into non-south market. Vehicle finance is also adding small branches as well as manpower for collections. CSEL is also expanding. So, manpower increase is there across the businesses.
Operator
Mr. Garg, does that answer your question?
Raghav Garg
Yeah. My other questions have been answered. Thanks.
Operator
Thank you. [Operator Instructions] The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Avinash Singh
Hi. Good morning. So questions — I mean, related to this employee addition, I mean, that has also led to sort of a expansion in the OpEx ratios now. So if you can help, I mean, here that how has been this breakup of employee addition towards the sales and collections? And also if, I mean, this were to sort of lead to kind of a jump in opex, now how do you see the ROA trajectory improving? Because I mean in terms of credit costs, yes, I mean, we are expecting some bit of improvement in the second half. But in — I mean, for the full year, it is somewhere toward the upper range of guidance. Now, opex going towards slightly higher end. And also, I mean, your borrowing just because a function of your growth will be higher. So how do you see that ROA playing out? Thanks.
Ravindra Kumar Kundu
So the operating expenses are actually flat. If you see the quarter one and quarter two, it is at 3% level. And it is going to be in that same level for this financial year because we are adding manpower for expansion of the product line as well as the geography. The productivity is down because the market was down. So quarter three onwards, the individual productivity by sales executive doing more number of loans will go up from October. We have seen that in this month, the disbursements are higher than last month. So the productivity increase is going to be seen. But the opex will remain as it is.
Avinash Singh
Yeah. And if you can just help that, okay, how much of this kind of 7,000 employee addition you have done towards collection, right?
Ravindra Kumar Kundu
More or less balanced actually. You’re adding manpower equally on sales and collection. Not only sales and collection, we are also adding for supporting businesses.
Arul Selvan
In vehicle finance, it’s little bit more on collection. But in the LAP and other businesses, it is more on the sales. I think breakups will be more — getting into more data, which is not available in public domain. We’ll leave it at a very broad level like this. But business being…
Vellayan Subbiah
General bias is that like Arul said.
Avinash Singh
Okay. Thank you.
Operator
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Abhijit Tibrewal
Yeah. Good morning, everyone, and thank you for taking my question. Sir, I had two questions. First thing is, I mean, if you could comment a little bit on our view on the auto cycle. Sir, if you look at the last four quarters, vehicle finance disbursements have been in a tight range INR12,500 crores to INR13,000 crores. And given that we are already talking about some slowdown that is being seen in PVs, how should we look at the auto cycle going ahead is something I want Ravi sir to comment on? And the other thing is — maybe a related question here is, I mean, while you said October disbursements are looking better than September, if you could also comment a little bit on the festive season demand because from what we are able to gather, I mean, festive season is not very good this time around?
And sir, the second question that I had is Ravi sir said that in the last quarter, we saw that CV delinquencies were higher, small CVs. Last-mile transportation has got impacted, both on the demand side as well as the delinquency side. So just wanted to understand, I mean, if you can throw some nuance around new and used CVS? Is there a significant difference in behavior that you are seeing between new CVs? Those are the two questions I have. Thank you.
Ravindra Kumar Kundu
Yeah. So, maybe the demand is determined by the wholesale number of the manufacturers. I’m not sure how much wholesale number will come in the quarter three. As of now in the quarter two, CV numbers are down by 11% and PV is down by 2%. But retail is going to go up because whatever supply they have made it to the dealership, dealership is going to sell and to the extent, the disbursement will go up. As you mentioned that we have been doing INR12,000 crores of disbursement in a quarter, so obviously, from there — from Q3 onwards, it will go up. And that’s how we have also budgeted internally. What Mr. Vellayan was talking about that even after doing the disbursement say 10% to 12% or 14%, even the vehicle finance, the asset growth which is at, say, 22% will come down to 18% to 20%. And at the overall level, it’s similar story. We are at 17% growth in terms of H1, and if little bit disbursement goes up also, the asset growth will come down to 25% to 28%. Now coming to delinquency which you want segregation between used and new, in the case of small commercial vehicle, we are not doing any [Technical Issues].
Operator
Sorry to interrupt, sir. The management line has been disconnected. Ladies and gentlemen, the management line has been connected. Over to you, sir.
Ravindra Kumar Kundu
Yeah, Ravi here. So, what I was saying is that within the CV use, we don’t do small commercial vehicle use. We do lights and heavy. So as far as the small commercial vehicle which is related to last-mile transportation, it is pertaining to new small commercial vehicles, especially sub-1 ton. But if you club all CV new versus all CV use, the delinquency levels are in same level. So increase in the delinquency are the same irrespective of new and used.
Abhijit Tibrewal
Got it. Got it, sir. And sir, just one more question that I wanted to squeeze in here. In addition to, I mean, this festive season demand, how is the festive period panning out? Sir, I think — I mean, somewhere you said that manpower increase is there across businesses and will continue in the foreseeable future. I just wanted to understand for how long do you expect this to continue and at what point, we will start focusing on improvements in productivity?
Ravindra Kumar Kundu
Yeah. So, CV has not picked up in this festival. For the month of October, we are seeing, other than CV, all the other products are doing well in terms of relatively and this will get continued. Maybe post-harvesting when the crop will come to the market and farmer will start getting money and then construction activity will pick up, then CV will start picking up. Till such time I don’t think CV is going to pick up the way we want it. As far as the productivity is concerned, in vehicle finance, we mentioned that we have recruited more collection than sales. So obviously, we are focusing on the productivity on sale site with the existing manpower and increasing the collection intensity to manage the collection.
Other product lines, they are adding manpower. Obviously, they are working on the productivity. Now, you take the example of home loan. Home loan is like — their 50% focus is in south and non-south is like 50%. Obviously, they have a lot of room to basically expanding rest of the market. So obviously, they will continue to hire manpower, continue to open branches and similarly LAP, CSEL, SBPL, those are operating from one-third or say maybe half of the vehicle finance branches. So obviously, if they open up more branches, they have to recruit more manpower for sales and collection. Initially, every business will open up, recruit more manpower in sales and then they will recruit collection.
Abhijit Tibrewal
Got it, sir. This is useful now. Thank you so much, and wish you and your team the very best. Thank you so much.
Ravindra Kumar Kundu
Thanks.
Vellayan Subbiah
Thank you.
Operator
[Operator Instructions] The next question is from the line of Ishan Shrimali [Phonetic] from Tara Capital. Please go ahead.
Ishan Shrimali
Hello, sir. Thank you for taking my question. I just wanted a little clarification on the credit cost. Was it 1.3% on the NCL or what was it? Is it 1.4% or 1.3%?
Ravindra Kumar Kundu
1.3%, 1.4%.
Vellayan Subbiah
1.4% for the quarter. 1.4% for the quarter and 1.5% for the half, right, for losses.
Ravindra Kumar Kundu
NCL.
Vellayan Subbiah
NCL.
Ishan Shrimali
Yeah, NCL. I was talking about the NCL. It was 1.3%, or it’s 1.4% for this quarter and for the next of the year, it was…?
Ravindra Kumar Kundu
1.4% for this quarter, it has come. And what we said that it will be 1.3% for the full year.
Ishan Shrimali
Okay. 1.3% for the full year. Okay. Thank you, sir. Thank you. That’s it.
Operator
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Piran Engineer
Yeah. Hi. Thanks for taking my question, and congrats on a good quarter. My question is really on the home loan business. Firstly, can you just talk a bit about competition there? And secondly, when repo hits our cut, what happens to our yields? What percentage of our book is — home loan book is linked to the repo rate?
Ravindra Kumar Kundu
So if I’m correct, so as far as the yields are concerned, right now, we are expanding GEOs and our major focus is in self-construction business. So as of now, we are maintaining the yields. I will not allow the yields to drop because we are going towards the new geographies where the delinquencies will turn off over a period of time. So as far as the yields are concerned, we are trying to maintain that. Of course, going forward, if the rate of interest goes down, there will be a stiff competition. And as we all are aware, for the affordable segment, there are many new entrants. But over a period of time it will be those guys who can maintain the delinquency levels at the expected and who can have the team for assessment credit.
Arul Selvan
[Foreign Speech].
Ravindra Kumar Kundu
Hello?
Vellayan Subbiah
Are you there?
Piran Engineer
Yeah. I’m there.
Ravindra Kumar Kundu
Okay. Fine.
Piran Engineer
So — no, but my question is really, like, are our internal benchmarks indirectly pegged to the repo rate or not? Like, if the repo rate is cut 50 bps, will our yield on the back book also decline by 50 bps? How should we think about that? That was my question.
Ravindra Kumar Kundu
Yeah. Going forward, definitely, the pass-on will be to the customers, but it will be — there are three aspects to that. Of course, the cost of fund is one of the variant. There is also the cost of operations and the profitability part. So, we’ll see over a period of time how it pans down in terms of the rate reversals to the customers.
Piran Engineer
Understood. Understood. And just one clarification on what Kundu sir mentioned. The lower capacity utilization, is that only for LCV or across LCV, I mean, LCV both?
Ravindra Kumar Kundu
Yeah. Across all product line, we see that first quarter and second quarter because of the election, heat wave, extended rain and also transition has not been completed, the capacity utilization of the commercial vehicle is down as well as last-mile transportation also got impacted because of the poor demand and economy as well as consumption in the rural market is down.
Piran Engineer
Understood. Understood. Okay. That’s it from my end. Thank you, and wish you all the best.
Operator
Thank you. The next question from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah. Thanks for taking the question. So, first is on the borrowing side. So when we look at it, still the skew is more towards the bank borrowing compared to that of the debt market. But the rate cuts would be following relatively later compared to the benefit, which we are seeing on the debt market side. Would we be tweaking the proportion looking at the opportunities, which are available or we obviously expect the overall mix to continue? And within bank borrowings, how much is linked to MCLR and how much is linked to EBLR within that in terms of just to gauge the repricing benefit?
Ravindra Kumar Kundu
Yeah. See, we will continue with the skew more towards bank borrowings primarily because of two reasons. You are right. Like more than 50%, 60% of borrowings are collected to EBLR and we are already seeing some amount of benefits coming into that. And the other point is because of the bank borrowings — in bank borrowings, we take advantage of the PSL assets and get their rates lower than the market rate. So it continues to be better to be skewed towards bank borrowing.
Kunal Shah
Okay. And within bank borrowing, you said 50% is linked to EBLR?
Ravindra Kumar Kundu
Yes. Yes.
Kunal Shah
Okay. Got it. And second…
Ravindra Kumar Kundu
50% is EBLR. Around 10% is fixed rate, and the rest are MCLR.
Kunal Shah
10% fixed rate and balance MCLR. Okay. Got it. And when we look at it in terms of the commentary, normally Q3 sequential uptick in the disbursements, particularly on the vehicle is quite good. So — but does it suggest that maybe at least in terms of the momentum this quarter, Q3 could be relatively low maybe at least in terms of the increase from where Q2 was. Would it be relatively lower compared to what we have been seeing in past two years, three years because you are highlighting maybe things are still not on track and it might take some time?
Ravindra Kumar Kundu
Q2 to Q3, disbursement is going to go up, that is for sure. There’s no problem.
Kunal Shah
No, the only thing is in terms of like the quantum which generally happens, that’s quite huge. But the commentary still suggests that it’s going to take some time. So, would it be fair to assume…
Vellayan Subbiah
Are you talking about disbursements or you’re talking about select customer [Phonetic]?
Kunal Shah
Yeah. Disbursements, disbursements, disbursements.
Ravindra Kumar Kundu
Disbursements are going at same range only. [Speech Overlap]. Last quarter was a very good jump from Q2 to Q3.
Vellayan Subbiah
Disbursements, we don’t see. I think the questions — as Ravi’s commentary was more on the collections and the portfolio normalize.
Kunal Shah
Yeah. And collections also, Q3, you said like at least in terms of the GS2, GS3 it would be at a similar level to Q2 and improvement would be from Q4 onwards. So that’s the rider.
Ravindra Kumar Kundu
That’s right.
Kunal Shah
Okay. Got it. Yeah. Thank you. Thanks. Yeah.
Vellayan Subbiah
Thank you.
Operator
Thank you. The next question is from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Shubhranshu Mishra
Hi. Good morning. Three questions. The first one is around the fee income. A chunky piece is now coming from our insurance premiums. How do we model for the insurance premiums going forward in the fee income?
The second question is around the assignment that we used to do in vehicle finance. It’s come off drastically versus, say, six, seven quarters ago. How do we look at that in terms of assignment going forward in vehicle finance business? And third, if you can split the collections team, collection employees into various businesses? Thanks.
Ravindra Kumar Kundu
Insurance, we were earlier getting through the subsidiaries and which we are taking through dividend. It is now coming. We are already at a fairly decent pace on the insurance. I don’t see too much of an upswing from here. It will go in line with the disbursement trends. On the assignment, actually, we’re not doing assignments. We’re doing more of only securitization so far.
Vellayan Subbiah
I think his question was we were doing a lot of it…
Ravindra Kumar Kundu
Long term, yeah.
Vellayan Subbiah
That was a long time ago.
Ravindra Kumar Kundu
Very long time. More than five years back actually. Most of the assigned — VF book has already run down. We have a few INR1,200 crores or so on the LAP and HL book, which we have done long time back, which is still as a residual on a spree [Phonetic].
Vellayan Subbiah
Manpower, obviously, we’ve not indicated guidance.
Ravindra Kumar Kundu
We have not given separately guidance on collection, etc.
Vellayan Subbiah
[Foreign Speech] majority. But more or less in line with kind of the size of each of the businesses.
Shubhranshu Mishra
But how many people do we deploy in collections?
Vellayan Subbiah
Question is overall collections.
Ravindra Kumar Kundu
It differs again product-to-product. Vehicle finance is the largest. Almost like 20,000 people will be into it.
Vellayan Subbiah
So, I think a quarter of our total workforce in collection.
Shubhranshu Mishra
Say that number again.
Vellayan Subbiah
So it will be between 25% and 30% of our total workforce is collection.
Shubhranshu Mishra
And what portion would be in vehicle finance and LAP?
Vellayan Subbiah
That’s what we just told you. No, we won’t give — we’re not giving specific guidance. You can just kind of — you can just assume that it’s in ratio of the size of the businesses.
Shubhranshu Mishra
Got it. Got it. Sure. Thank you. Happy Diwali.
Vellayan Subbiah
Happy Diwali.
Ravindra Kumar Kundu
Thank you.
Operator
Thank you. The next question is from the line of Viral Shah from IIFL Securities. Please go ahead.
Viral Shah
Hi. Thank you for the opportunity to let me ask the question. So, I wanted to check on the new businesses. Since last three quarters now, we are seeing broadly flattish kind of disbursements. So, what is the outlook over there? Or is it more of a conscious call? And also you can — if you can share the percentage of the CSEL book now being sourced through fintech partnerships?
Arul Selvan
CSEL book is like 1% is the partnership.
Ravindra Kumar Kundu
Overall CSEL book is INR14,000 crores and the partnership is only INR2,000 crores. The ratio has actually come down.
Vellayan Subbiah
So it’s about 12% through fintech partnership of the book. And your question kind of — I think what we’ve always indicated is that, that the totally unsecured book will cap out at a percentage of our overall portfolio. So the CSEL business is about 8% — 8% to 9% of the overall portfolio right now. So, we don’t see it kind of growing into double digits. So, I think we’ll cap out at 10% maximum. So to your question on whether that’s conscious, obviously, it’s moderated, yes, by the size of the overall business. So the answer is yes.
Viral Shah
Okay. And when you say you’ll cap it at, say, at max 10%, is it like, say, more six months, 12 month kind of thing or more from, say, a medium-term perspective, say three years out also it is like these?
Vellayan Subbiah
Yeah, yeah, medium-term also. Three years are also little bit like that.
Viral Shah
Got it. And secondly, wanted to check if there would be say any impact of the RBI’s directive on doing away with the foreclosure charges on the floating rate MSME book, which would be a LAP book in our case. Do you foresee any impact not just from, say, the fees perspective, or I would say more from a competitive perspective as well as the exit barrier kind of goes away?
Operator
Sorry to interrupt, sir, the management line has been disconnected. The management line has been reconnected. Over to you, sir.
Ravindra Kumar Kundu
Yeah. See, the directive is more for foreclosures out of own funds and for personal purposes taken. What we do is all business loans and where it is from own funds, we don’t charge. But where it is a balance transfer, etc., we will charge.
Viral Shah
Okay. So, you are saying only the BT — sorry, the non-BT portion will be impacted on the LAP book.
Ravindra Kumar Kundu
No, there are two type of foreclosures. No, if someone is actually paying from his own pocket, then it is basically — we are not even charging now also and someone is basically taking loan from the market, then it is being charged.
Viral Shah
Okay. And that does not change around with this kind of a directive to your understanding?
Ravindra Kumar Kundu
Difference is coming, I think.
Vellayan Subbiah
It will come. So, we have Excel sheet and see — we have to — at the portfolio level, we will see. And there could be some impact if that full circular has been implemented.
Viral Shah
Okay. Got it. Thank you. And do I have a chance for one more question?
Ravindra Kumar Kundu
Go ahead. Go ahead.
Viral Shah
Thank you. With respect to the NIMs, if you can, say, let us know how it will trend in the second half? And more importantly, also in this quarter, was there any effect of averaging or timing impact because we saw 10 bps increase in cost of fund? Did it have anything to do with the ECBs that we raised?
Ravindra Kumar Kundu
So, we did some Tier 2, INR3,000 crores. There’s a marginal impact, but it is more a case of some of the old loans, old borrowings, which were at lower rates also running off. The same river story of what we talked about in vehicle finance, but we were able to manage it there and we hope to keep it.
Viral Shah
Got it. Thank you. Thank you so much, and all the best.
Vellayan Subbiah
Thank you.
Operator
Thank you. The next question is from the line of Pranuj Shah from JPMorgan. Please go ahead.
Pranuj Shah
Yeah. Thank you, sir, for the opportunity. Two questions. One is on your fee income, it is sustaining at a pretty decent level of INR400 crores plus. Your insurance income has not increased that much quarter-on-quarter. So, what actually led to the strength over here? And second is your opex. Should it sustain at that 3%, 3.1% level even if you see that disbursement — incremental disbursement growth coming off from this year, next year?
Ravindra Kumar Kundu
Fee income.
Vellayan Subbiah
Yeah. So, I think the opex — yeah, the opex will be at the 3% level. We don’t see kind of that opex going up even if disbursement goes. Yeah. Because like we said, I mean, opex is basically measured off of the AUM base and we see the AUM base like we’ve guided, right, kind of be lower than the 33%. But for opex, we don’t see an issue.
Ravindra Kumar Kundu
Fee income will remain at similar levels. It has improved a bit, but it will remain at similar levels.
Vellayan Subbiah
As a percentage of…
Ravindra Kumar Kundu
As a percentage of average business because it is amortized on the book under Ind AS.
Pranuj Shah
Understood. Just to clarify, opex, you said 3% to 3.1% should sustain going forward also, right?
Ravindra Kumar Kundu
Right. Yeah, 3%.
Pranuj Shah
Understood. Got it. Thank you.
Operator
Thank you. The next question is from the line of Hardik Shah from Goldman Sachs. Please go ahead.
Hardik Shah
Yeah. Thank you for the opportunity. Am I audible, sir?
Ravindra Kumar Kundu
Yeah.
Vellayan Subbiah
Yeah.
Hardik Shah
Yeah. I had two questions. One is specifically on yields. What will be your incremental yields versus outstanding and if you’ve taken any interest rate hikes across portfolios?
Vellayan Subbiah
In which — you are talking about overall?
Hardik Shah
Overall. Overall.
Vellayan Subbiah
Overall.
Ravindra Kumar Kundu
In this scenario, we will not be taking interest rate hikes on the floating rate book, which has already been hiked, which is the LAP and HL. In the rest of the books, where is the fixed rate, we have progressively been increasing marginal yield. Two components to it. One is the increase as well as the mix. Both businesses giving an impact on the yield. So, you will see that more in vehicle finance and CESL business. And CSEL, you won’t see much because it’s already a high rate book. So, you may not see that much impact. But in vehicle finance, you will see progress over the next two quarters.
Hardik Shah
So, what would be the broad delta on incremental yields versus….?
Ravindra Kumar Kundu
We can’t discuss on delta Because it is a combination of two factors as I say. One is the increase we are doing, as well as a mix of the portfolio. So, mix of the portfolio will be determined by market demands, etc. So, we cannot really give you a number and it’s going to nitty gritty into that.
Hardik Shah
Okay. Got it. And sir, second question is broadly on the customer overlap with MFI too. If you could share some color, especially for our two-wheeler and affordable housing business, if you’re seeing any impact on those portfolios from the stress that we are seeing in MFI.
Ravindra Kumar Kundu
No, there is no overlap actually.
Arul Selvan
Zero.
Hardik Shah
Okay. Okay. Thank you, sir.
Vellayan Subbiah
Thank you.
Operator
Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Nidhesh Jain
Thanks for the opportunity. Two questions. Firstly, are there any growth and asset quality divergence between new CV and used CV? And secondly, in the SME book, there is almost 30 basis point sequential increase in GNPA GS3 and the book is also growing at a healthy pace. So, that looks a bit high increase on the GS3. So, any comment or color on that?
Ravindra Kumar Kundu
So as we mentioned always, we are more focused on the CV used and in the case of CV new, whenever heavy commercial vehicle is growing faster, our growth looks lower than the market. But now CV news is also growing lower pace. So, our growth rates are in the CV and CV used are both the same.
Nidhesh Jain
And sir, on the asset quality trends, the GS3 increase that we have seen, is it uniform across used and new? Or there are divergences?
Ravindra Kumar Kundu
Yeah, yeah. It will be same only. I mentioned that in the previous question also.
Nidhesh Jain
Okay. Sure.
Vellayan Subbiah
As far as SME book is concerned, quarter-on-quarter, the book has almost stabilized on the same number. And as far as GNPA is concerned, basically, book is maturing and we are seeing that some cases will come. But with the legal course and all, things will come down with SARFAESI. It’s all covered in the SARFAESI. So it is now maturing and we will take actions to bring it out. And H1 was anyways a little bit tougher. Market was like that. But in H2, we are confident that it will come down to the — at the same part.
Nidhesh Jain
Okay, sir. Thank you, sir. Thank you.
Operator
Thank you. The next question is from the line of Ajit Kumar from Nomura. Please go ahead.
Ajit Kumar
Thanks for the opportunity, sir. Just one question. In your credit cost guidance for FY ’25, are you factoring in further reduction in ECL provision of Stage 1, 2, 3 assets in second half? This quarter as well, we have seen reduction in ECL provision. That is why I wanted to check on trajectory of rate [Phonetic] controls and way forward. Yeah.
Ravindra Kumar Kundu
So the reduction would be driven by the reduction in Stage 2 and Stage 2 as well. It’s not a reduction, if you are indicating that. It is not a reduction by changing the methodology. That’s what I mean.
Ajit Kumar
Okay. Okay. Sure. Sure. That’s it from my side.
Ravindra Kumar Kundu
Thank you.
Operator
Thank you. The next question is from the line of Bhaskar Basu from Jefferies. Please go ahead.
Bhaskar Basu
Thanks for taking my question. I just had one question on the credit cost side. So, you seem to be indicating that GS3, the asset quality would broadly be stable sequentially. While the ask on the credit cost for the second half to meet your full-year guidance is still fairly high. So, do you expect credit cost to go down next quarter onwards, like we have seen in the past or it’s going to be largely back ended?
Ravindra Kumar Kundu
Next quarter will be flat. The fourth quarter will be lower, and that’s how we will achieve. As of now, we are at 1.5% if you see that and that will come down to, say, 1.3%.
Bhaskar Basu
Right. So the entire improvement is likely to be in the fourth quarter is what you are indicating?
Ravindra Kumar Kundu
Yeah. But it happens actually normally. Last year quarter three also was good. But since it is the October month, last days to Diwali. So, October 1 will be slightly not that great and then November and December, we need to cover it up. And also the entire harvesting also got extended.
Bhaskar Basu
Okay, okay. And when you’re talking about reduction in GS3, it’s going to be across the board or specifically on the vehicle finance side where you see a correction from where you are?
Ravindra Kumar Kundu
Some of the portfolio like LAP and HL are already at the rock bottom level. Even in vehicle finance, if you see that, they are much lower than the pre-COVID level. And that is also one reason that it is going up when you have reduced it. So bottom — it has to go up a little bit in a month. But we are expecting that vehicle finance, CSEL, SME, they will be reducing their Stage 3.
Bhaskar Basu
Okay. Thanks. That’s all from my side.
Operator
Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Ankush Agrawal
Yeah. Hi. Thanks for taking my question. Firstly, sir, our capital adequacy has increased sequentially. So, can you explain why did that happen?
Ravindra Kumar Kundu
CAR has gone up.
Arul Selvan
I told — we did the Tier 2 and Tier 2. Perpetual debt goes into Tier 1. So that has improved.
Ankush Agrawal
Sorry, can you repeat? What goes into Tier-1?
Arul Selvan
Perpetual debt. We did INR1,000 crores of perpetual debt, which goes into Tier 1 and that debt of INR2,000 crores, which went into Tier 2. Both of them into the CAR.
Ankush Agrawal
Got it. Got it. The second question was about growth. I mean, since quarter first con call, we made this comment that the Q1 growth and disbursements were much higher than what we had expected because of election. And that in Q2 onwards, we expect it to increase further. But obviously, we have not seen that happen. So, what change between these two periods that the overall growth outlook is now much lower than what was there in Q1?
Arul Selvan
Q1 growth was 20% — 21%. Now it is at 17%. We said that in Q2 because of the range bound impact and then from Q3 onwards, it will pick up.
Vellayan Subbiah
[Speech Overlap]. And broadly, the guidance we’ve always given, like Arul said, has been 25% AUM growth, right? We were — and I mean, there was also the question based on kind of RBI input and all of that. So broadly, what we’re saying is that we were at — I mean, we’ve shown 33% in the first half and we will likely kind of drop to a lower number. But still we maintain that 25% guidance, right? So, we’re not changing anything on that guidance. We did said, yeah, 25% full-year guidance.
Ankush Agrawal
Okay. That was helpful. Thanks.
Operator
Thank you. [Operator Instructions] The next question is from the line of Renish from ICICI Securities. Please go ahead.
Renish Bhuva
Yeah. Hi, sir. Just one question on the credit cost front once again. So if you can just throw some light maybe qualitatively that since we expect a sizable recovery in Q4 from all our product lines, which product you expect will drive this improvement, including — since our exposure to some of the unsecured product is relatively higher, maybe CL, unsecured business loan, etc. So, which segment you expect to drive this recovery in Q4 and do you foresee any risk to that recovery as of now?
Ravindra Kumar Kundu
So first of all, you have to accept that it is actually from quarter one, which has come down from 1.5% to 1.4%, okay? And this 1.4%, we are saying that it will go down to 1.3% at a company level. Now if you see that, our LAP, which was actually doing the reversal till last year, they were reversing 15 basis point. This year, they have given 15 basis point of NCL. So, that is a 30 basis point swing. So now, they do not have that much reversal capacity. They will be — normally, they will do 15 basis point. In steady state, they can go up to even 30 basis point. But they’re doing better than their expectation. Vehicle finance, actually from 1.9%, it has come down to 1.8% and it is going to go down further. So the major difference is only 10 basis point, 1.4% to 1.3%. So 1.4% to 1.3%, everybody will have to contribute. But those who are already lower like HL and LAP, they are already lower, they cannot contribute anymore.
Arul Selvan
Yeah. So, HL and LAP have had a strong performance that will continue and obviously, some of the other segments will now start contributing a bit more.
Renish Bhuva
Okay. And do — I mean, you don’t foresee any risk of unsecured business loan or maybe unsecured portfolio sort of resulting in higher credit costs in second half given the current environment is? [Technical Issues] Sorry to interrupt, sir. The management line has been disconnected. The management line has been reconnected. Over to you, sir. Yeah, sir?
Vellayan Subbiah
So, I think the question is kind of are — I mean, are we concerned on further — I mean, this being on unsecured, there’s no concern. There’s not a concern. Yeah. Sorry.
Renish Bhuva
Okay. Okay. That’s it from my side. Thank you.
Operator
Thank you. The next question is from the line of Kaitav Shah from Anand Rathi. Please go ahead.
Kaitav Shah
Yeah. Thank you for taking my question. Sir, just one question was on the improvement in the ROTA. So with the growth perhaps slightly slowing down, does that change the ROA trajectory for you — or I mean, ROTA trajectory in a medium-term perspective? I mean, does it postpone the ROA improvement or it’s still on track you think over a medium term?
Vellayan Subbiah
No, no, I think that that is still on track. We don’t see any challenges.
Ravindra Kumar Kundu
We’re still working on the 3.5 number.
Vellayan Subbiah
We’ve always guided that, right? Kind of we’ve talked about the range and kind of performance of that range. I mean — so I don’t think there’s any change in medium-term guidance.
Kaitav Shah
Okay. Sure. Thank you so much. That was my question. Thanks.
Operator
Thank you. The next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Raghav Garg
Sir, thanks. My questions have been answered. Thank you.
Vellayan Subbiah
Thank you.
Operator
Thank you. The next question is from the line of Sonal from Asian Market Securities. Please go ahead.
Sonal Gandhi
Yeah. Thanks for the opportunity. Just that there was a previous question on PBT-ROA. So in 1H, we are closer to about 3.1%. So, how do we reach to 3.5% at the end of the year? Because what I understand, there would be 10% spike from credit cost.
Vellayan Subbiah
No, I don’t think we are saying — so I think the specific guidance that we’ve given is that 3.5% is the average over the full cycle, right? And we’ve said that when we are — at weaker points in the cycle, we will drop closer to 3%. So the range we’ve given is 3% to 4%. And we said we’ll average 3.5% over the cycle. So in years like this, we will definitely be lower than 3.5%. So, we’ll be closer to the 3% end of it. So, what we’re saying is it’ll move up from 3%, but it’ll definitely not move up to 3.5%. So, we’re not saying we’ll hit 3.5% this year to be clear.
Ravindra Kumar Kundu
We are at 3.1% level at H1. So it will improve maybe 3.2% next for the full year.
Vellayan Subbiah
It could be 3.3% also.
Arul Selvan
Between 3.2% and 3.3%, yeah.
Ravindra Kumar Kundu
For the year.
Sonal Gandhi
Sure. And there’s another question on CSEL. So, our provision coverage ratio is at 50.5%. Now given that the book is unsecured, any thoughts of increasing this provision coverage ratio?
Vellayan Subbiah
No. So are you — is your question — will we change the CSEL provision coverage ratio, is that your question?
Arul Selvan
No, we are not going to change.
Ravindra Kumar Kundu
No, CSEL, right now we are adopting a more aggressive policy considering that we don’ the history to do an ECL model on it. Hopefully by end of next year, we will be having the enough data to do the ECL model. But our indications show that the ECL model will throw a lower number than what we are already providing.
Vellayan Subbiah
So broadly, we feel comfortable with the current provision topic.
Sonal Gandhi
Okay. So, on pre-COVID levels when our book was secured book, we were maintaining about 1.75% of PCR. With unsecured book being closer to about 8%, are we comfortable with 1.83% PCR on the total book?
Ravindra Kumar Kundu
You have to look at it from an overall perspective. CSEL is only 8% of the overall book. So considering, that, that is not going to swing that much. You are talking the 1.25% is the overall company.
Vellayan Subbiah
1.83% as a percentage of total.
Ravindra Kumar Kundu
Earlier, it was 1.10%.
Sonal Gandhi
Okay. So, we don’t see anything to change here over next four, five, quarters.
Vellayan Subbiah
Yeah, no.
Sonal Gandhi
Okay. Sure. Thank you, sir.
Operator
Thank you. The next question is from the line of Dhaval from DSP. Please go ahead.
Dhaval Gada
Yeah. Sorry. Thanks for the follow up. Just one sort of question relating to the business model. So like, we added these new businesses to reduce cyclicality and that’s what is playing out with VF being lower — relatively lower growth, but the overall business is sustaining. Any part of the business model that you think as you’ve added these three or four segments? Anything that can become much more bigger in the next, let’s say, five years, six years from where we are today any of the businesses? Just any thoughts around that? Thanks.
Ravindra Kumar Kundu
So, one is that at a company level, we have diversified and within the businesses also, every business is trying to diversify. For example, LAP is actually getting into the micro lap in order to maintain their yield and ROA can be stable. Similarly, HL is like expanding and they’re also having new product other than the self-construction. CSEL has already got four products in their line. SME also started moving to the equipment finance, medical equipment finance, industrial equipment finance. They generated funding and also — they are also getting the micro term loan. So, I think we are doing both at a company level as well as the division level.
Vellayan Subbiah
Question — I mean, the thesis still kind of remains intact, right? And so like Ravi said, HL and LAP are showing good indications of kind of the things. So, I think HL is obviously a much larger base, but both of those businesses are showing kind of good indications of taking a larger percentage of the overall pool.
Dhaval Gada
And so, Vellayan, medium term, should one be thinking that this 50% VF today and maybe eventually 40% to 50%, directionally, it can be far more diversified maybe many years down the line, but it can be far more diversified business than what it is today. So, that should be a broad hypothesis. Or you think at some point VF will still flatten at a particular elevated percent?
Vellayan Subbiah
Correct. You are seeing that. I mean, like, at 56%, it will come down, but if it takes a long term, right, I mean, definitely some of the other businesses also have good growth, like your point is valid.
Dhaval Gada
Got it. Thanks. Thanks and all the best.
Operator
Thank you. The next question is from the line of Nischint from Kotak Securities Limited. Please go ahead.
Nischint Chawathe
Hi. Thanks for taking my question. This is just a clarification. When you mentioned credit cost of 1.3% versus 1.4% in the second quarter, is 1.3% for the second half or is 1.3% for the entire year?
Vellayan Subbiah
For the full year.
Nischint Chawathe
For the full year. So probably second half should be like whatever, 1.1%, 1.2%, or maybe fourth quarter should be like whatever 1.1% or so?
Vellayan Subbiah
Yeah, yeah. That is correct.
Nischint Chawathe
Got it. Thank you very much. This was the last question for the call. So thank you, everyone, for joining this call. Happy Diwali to all of you. And thank you very much to the management for giving us an opportunity to host the call.
Vellayan Subbiah
Thanks, Nischint.
Ravindra Kumar Kundu
Thank you.
Arul Selvan
Thank you.
Operator
[Operator Closing Remarks]