Fedbank Financial Services Ltd (NSE: FEDFINA) Q4 2025 Earnings Call dated Apr. 29, 2025
Corporate Participants:
Shreepal Doshi
Parvez Mullah — Chief Executive Officer
C.V Ganesh — Chief Financial Officer
Analysts:
Unidentified Participant
Ranesh — Analyst
Vivek Ramakrishnan — Analyst
Ajith — Analyst
Sneha — Analyst
Abhishek Agarwal — Analyst
Presentation:
operator
IT till.
operator
Ladies and gentlemen, you have been connected for Fed Bank Financial Services conference call. Please stay connected, we will begin shortly. Ladies and gentlemen, you have been connected for Fed Bank Financial Services Limited conference call. Please stay connected, we will begin shortly. IT Ladies and gentlemen, good day and welcome to Fed Bank Financial Services Ltd. Q4FY25 earnings conference call hosted by EQS Securities. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star then zero on your Touchstone phone.
Please note that this conference is being recorded. This conference call may contain forward looking statements about the company which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involves risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Sripal Doshi from Interior Securities. Thank you. And over to you sir.
Shreepal Doshi
Thank you Manav. Good evening everyone. We welcome you all to the earnings conference call of Fed Bank Financial to discuss the Q4 performance of the company and the business update we have with us Mr. Parvez Mullah, MD, CEO of the company along with other senior management. I would now like to hand over the call to Mr. Parvez for his opening remarks post which we can open the forum for question and answer. Over to you sir.
Parvez Mullah — Chief Executive Officer
Thank you Sripal. Good evening everyone. I would like to extend a warm welcome to all of you for joining the quarter four FY25 and the full year FY25 post results earning call. I am joined by our CFO Mr. CV Ganesh, our Chief Business Officer for Small ticket mortgage business, Mr. Shardul Kadam, our CBO for gold business and CMO Mr. Jagdish Rao, our CBO for medium ticket, LAP and business loans Mr. Suresh Kumar. When we connected during our last quarter earnings discussion, I had briefed about our performance and highlighted certain challenges that required our immediate attention.
Elevated delinquencies in the small mortgage portfolio Collection infrastructure Lagging behind business growth. Furthermore, in the interactions we had listed down our priorities that we will allocate capital to high ROE ROE businesses and slow down the BL business and move to a more secured construct. We will double down on our twin engine strategy of Gold and LAPP businesses within lap we will focus on mix of high yield and low risk businesses to address the delinquencies we would be investing in strengthening our collection infrastructure. We had then appointed new Leadership to rebuild our STLAB business We will scale our MT Lab business with a focus on on book and direct assignment.
Try and keep the credit costs up 1% in Q4 FY25 and we will get more core income and lesser DA income. With respect to these priorities, we have the following updates in Q4 FY25 senior leadership has been put in place in collections. We have verticalized the collection structure to bring focus at product level, the middle layer and field level Hiring is in progress and we expect to complete it by Q1. We have added resources in call center to optimize the early bucket collections and pre delinquency management and added resources in Litigation Team on the Small Ticket Lab business side as announced we have a CBO in place.
We are in the process of strengthening the middle management as well as the frontline team. We expect to complete substantial part of the exercise by Q1. As mentioned in Q3 the business has fully migrated to Salesforce and the new origination is happening through evolved bre. Requisite changes have been carried out in the policies and operating guidelines with the new processes and VRE. Our small Ticket Lab disbursals for Q4 touched 270 crores, a growth of about 58% quarter on quarter. We still have to reach our full potential here. We are in the rebuild phase in both STLAB and collections and you will find us updating you over the next few quarters.
In these two verticals. You will see stability in the numbers post the rebuild phase. In the Gold business we had a fantastic year and quarter with our AUM growing 48% yoy aided by tonnage growth 18% yoy. Our LTVs on AUM stand at 66%. Our doorstep gold loan initiative has paid off really well. We have more than doubled our doorstep gold AUM in FY25 and touched 15% of the total gold AUM. The MT lab Business the medium ticket Lab business scaled up handsomely while maintaining stable yields. Our credit cost for Q4 is at 1%. While we have taken focused corrective actions.
We do expect some flows to come in in the near term but normalized by the year end. With the continual strengthening of collection and focus execution, we believe we are well positioned to manage these risks effectively. We expect normalization to set in by the year end paving the way for more stable and predictable credit performance going forward. While we are focusing on rebuilding our STLAB business and collection, our Gold business and lab business have scaled up on the back of productivity improvements and give us confidence as we enter the year. Some of the key business numbers for the quarter are as follows.
Our AUM touched rupees 15,812 crores and accretion of rupees 889 crores in Q4 translating to a growth of 6% quarter on quarter and 29.7% year on year. Gold reached an AUM of rupees 5,880 crores, a growth of 13% quarter on quarter 48.1% YoY. Tonnage growth for the year came in at 18% YoY reaching 11.3 tonnes. We have added 35,000 new customers in gold loans during the quarter. Mortgage AUM reached rupees 8062 crores and AUM growth of 6.5% quarter on quarter 29.7% YoY. Dispersals of rupees 5578 crores in Q4FY25 up 26.9% Q on Q and 28.6% YoY.
On the profitability and asset quality side, our net interest income grew 34.6% yoy to rupees 283.4 crores. Our operating profit grew by 20.9% yoy to rupees 131.2 crores. Our gross stage three stands at 2% versus 1.8 quarter on quarter. Our credit cost for the quarter stood at 1% versus 0.7% last year. Our net profit stood at rupees 71.7 crores in Q4FY25 up 5.9% YoY. I will now hand over to Mr. C.V. ganesh to take you through the detailed numbers.
C.V Ganesh — Chief Financial Officer
Thank you Parvez. Thanks everyone for your participation on the call. While Parvez covered the quarterly metrics, let me share some highlights on the year gone by. Overall AUM was rupees 15,812 crore as of 3-31-25. This is up from 12,191 crore as of April 1. So AUM has grown 30% in this fiscal and this is in spite of the discontinuation of new originations in our unsecured business loans. Out of this growth in AUM, gold loans have grown 48% year on year from 3,969 crore as of March 24 to 5,881 crore. With this, gold now constitutes 37% of our AUM.
Our medium ticket lakh grew 44% year on year from 3,045 crores as of March 24 to 4,394 crore as of March 25. Medium ticket LAP now constitutes 28% of our AUM. Our small mortgage businesses had challenges during the year. However it grew 16% year on year in spite of those challenges up from 3,173 crore in March 24 to 3,668 crore in March 25. This business now constitutes 23% of our AUM. Our unsecured business loan AUM D grew 9% year on year from 1826 crore as of March 24 to 1,656 crores as of March 25 and now constitutes under 10% of our AUM.
On the gold side, the gold AUM per branch increased from 9.1 crore per branch at the beginning of the year to Rs. 12.1 crore per branch at the end of March 25. This is a growth of 34% year on year. Also, overall tonnage grew 18% year on year from 9.5 tonnes as of March 24 to 11.3 tonnes as of March 25. We continue to realign our policy and processes around our stlab products. New originations gathered space in Q4 and have grown to rupees 270 crore, about 100 crore more than what we originated in Q3. We had mentioned in Q3 that as we pivot to an even more secured construct of the balance sheet, we are going slow on the unsecured business loans and have decelerated origination.
Consequently, in Q4 we have not originated any material new business in unsecured loans. This compares to 220 crore in Q3 on the NIMS and spreads. On a daily average basis our yields have increased by 43bps over the fiscal while on an average our cost of borrowings have gone up by 30bps. Consequently, we have seen a pure spread expansion during the year of 13bps. Our net interest income for for the full year FY25 was 1071 crores and grew 32% year on year. Our net total income at 1226 crore is up 30% year on year. Opex grew 28% year on year.
Consequently, our pre provisioning operating profit for the year grew 32% year on year to 520 crore. Credit costs for the full year came to 216 crores at 1.8% of average total assets compared to 0.7% in the previous year. Consequently, our ROA has come in lower for the full year at 1.8% compared to 2.4% in the previous year. On the treasury side we continue to have ample access to on a quarter. On quarter basis our weighted average cost of borrowings has marginally gone up by 3 basis points from 8.69% to 8.72% and this is primarily due to MCLR linked interest resets on existing borrowings.
Our incremental borrowing cost continues to be less than this. About 89% of our total borrowings are on floating rate. Of these, about 47% are linked to MCLR and the rest are external benchmarks linked. During the quarter we added one foreign lender to the relationship. This takes our total relationship to 42. Our debt equity ratio has marginally increased from 3.98 in December to 4.03 as of March 25. On the capital conservation strategy, the company continues to move forward in its policy of deleveraging the balance sheet through co lending and direct assignment of installment loans and we have multiple partners for the same.
During the quarter our AUM grew by 900 crores. We moved 787 crores of loans off book which constituted a DA of 531 crore across the mortgage book and a CLM of 256 crores on the gold loan book. Through this, in spite of growing AUM at a rapid pace, we were able to improve capital adequacy levels by 30bps from 21.6% to 21.9%. Our off balance sheet book as of 3-31-25 stands at 3,973 crores up 75% year on year from 2,276 crores in the previous year. Of this, gold loans held in partner books accounted for 1,131 crore.
Unsecured business loans securitized stood at 440 crores and mortgage loans accounted for 2,408 crores. Our shareholders equity as of 3-31-25 was 2,547 crores up from 2464 crores on December 24. Our book value per share rose to 68.31 rupees as of 3-31-25 up from 66.1 rupees in 12-31-24. With that I hand it over to the operator for questions.
operator
Thank you very much sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on their Touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to use handset only while asking a question. I repeat if you wish to ask a question, you may press star and 1. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Ranesh from icici. Please go ahead.
Questions and Answers:
Ranesh
Yeah, hi sir. Found this on a good set of numbers. Sir, just two things. One on this strategy plan, so we have always been sort of highlighting that small ticket lab cooldown will be a growth driver and sort of rest of the products will be used as a cross sell or enabler for customer acquisition. But when we look at 4Q M has actually outpaced small ticket class growth. Just wanted to understand is there any sort of change in strategy or this may be to offset the kind of we are going to rebuilding facing slab and hence we are just grabbing the opportunity wherever it is possible.
How one should look at this.
Shreepal Doshi
Yeah, hi Renesh, thank you so much for that question Renish. The strategy remains same. The strategy is to focus on the stlab business and the gold business together. We’ve always articulated our twin strategy and last time also I reiterated that it will be we will be focusing on our stlab business and gold business. And our gold business growth has come in on tonnage growth as well as price growth and it is healthily growing. There is an opportunistic growth there. But our st lab business, if you see we had mentioned that we are going through, we are going through an injury there.
And in Q3 I had mentioned about the challenges which we went through in disbursals and from there the dispersals have picked up. We are augmenting in terms of our resources also there. So you would have seen over the last quarter the disbursals have picked up. Our objective is to keep on picking up the disbursals on stlab side. So the focus is completely there. In fact I had also mentioned to you about synergizing between the stlab business and gold business. We worked out a plan there too where in the next year you will see us using both these branches or co locating these branches and sourcing these businesses together from the same branch.
So the strategy remains same. You will see us seeing the growth in the stlab business will be substantial there. Right now while we are going through the rebuild phase you are seeing those mixes going slightly differently. But overall at the year end and next year you will see all these numbers falling in place.
Ranesh
Got it, Got it. It is very clear sir. And secondly again on the asset quality front expectation given these rules largely came from the small ticket labs. Now when we look at a 1% credit cost in FY24 FY25. How do you see this credit cost settling in FY26? I mean given again the rebuilding phase in small ticket lab, do you expect or sort of it will remain where it is currently and then maybe even in second of 26 that will come down. I mean how one should look at this 1% credit cost moving in FY26.
Shreepal Doshi
Yep. Yes Renish, again last time I had given you a broad idea about how I looked at that business and that time I had seen it through a shorter duration. I have had a longer duration to look at that business and the way we see that business we are very, very bullish on it. There is that elevated level of delinquency in OnePlus which you’ve seen last time. The stage two also you will see elevated this time. So there are likely to be flows in the quarters coming and we see those flows coming in the next two quarters and thereafter I am seeing a plateau and then by year end we will normalize.
But as far as the credit cost is concerned, I am expecting it to stay around 1% plus or minus 10 days. So I am seeing the credit cost hovering around that range.
Ranesh
Got it. This very helpful sir. Thank you and best of success.
Shreepal Doshi
Thank you so much Ranish.
operator
Thank you. A reminder to all participants, you may press Star and one to ask a question. A reminder to all participants if you wish to ask a question you may press star and 1. We have our next question from the line of Vivek Ramakrishnan from DSE Mutual Fund. Please go ahead.
Vivek Ramakrishnan
Thank you and congratulations on a very strong comeback, sir. My questions are as follows. Like this Arsenal sequence. First on the you know, you said that you know you’re going to look at lower risk but higher yielding assets. It almost seems too good to be true. So there is a big change that is happening in terms of those kind of products and in business loans. Would you face any challenges in collections given the fact that they slowed down the business? That’s question number one. Question number two is there’s been a positive, you know, opening up of operating income being greater than operating expenses growth and that’s a very positive trend.
So do you expect that to continue given the fact that you have to make investments in the next year also? Lastly, Ganesh, sorry to I know you have the same question but is there any clarification on the RBI guidelines for bank owned investments? Those are my three questions. Thank you.
Shreepal Doshi
Thank you so much. Vivek. Vivek, I’ll just rephrase or in my opening statement I said that within LAP we will focus on a mix of high yield and low risk businesses. Our small ticket LAP business is a high yield business and our medium ticket lab business which we do at a lower yield is the low risk business. Both these businesses for us are important as a bouquet for lap. Loan Against Property we are one of the few companies which does loan against property as a first proposition. There are many other players who do home loans as a first proposition and also do loan against property.
So that’s why we double down on inside lap. We do both these businesses and our small ticket LAP business we are picking up and the growth there is going to be substantially higher. Coming from where we were in Q3 we are picking that up. But in the next year and year after that you will see growth there. Our medium ticket lab business has seen many cycles and it has gone through multiple weathers and we believe that it has weathered those storms for the yield and the kind of underwriting practices that we do there. As far as the BL business is concerned, it is.
We mentioned that we are slowing it down and we factored in the apprehension that you said and considering all that, we are still saying that we are expecting the credit cost to stay around 1% plus or minus 10bps is a expected rundown of the book that we have and there are certain focused collection efforts that we are doing on the BL side. The reason why we did the BL decision was to move to 100% secured construct. If you remember, we said that our BL business was not giving us the ROE that we were expecting. It was a DSA run business, it was not fitting with our strategy and we felt it was a strategic decision for us and the board supported us and we believe that’s the right way to do it and we will manage the credit costs within that range while doing this BL slowdown.
Your third question was on the RBI guidelines we had, we had apprised regarding our stance on this. There is no change between Q3 and Q4. Our representation which we had sent in Q3 still remains the same and we are hoping that the regulator looks at it with a different eye. Because we are a listed entity. There has been a representation both from our parent and from our side. There are a few other companies which are in a similar boat like ours because we are an enlisted entity and we are expecting the regulator to look at our representation and then come out with the draft guidelines further or change, I mean finalize those guidelines so we Stand at status quo third piece.
Siviji, you want to pick that up? Operating income. I lost the question. Yeah.
Parvez Mullah
So Vivek, again thank you for the question. See on the OPEX side, right, we are confident that we’ll be able to keep the core OPEX stable to reducing. But you know, and again this intertwines with another question of yours on the gold loan side where we see opportunities and fantastic tailwinds to grow a 19 plus percent yield business with negligible credit cost. I think all hands are on the table there. So we are seizing every opportunity we can get. And it may mean lesser distractions in terms of something else we were doing but it makes sense there.
So to add to that question in terms of OpEx, if we see opportunities there to expand our coverage, we will not hesitate. The idea is to be agile and not choose any particular metric.
Vivek Ramakrishnan
Thank you very much and wish you all the best.
Parvez Mullah
Thank you.
operator
Thank you. We have our next question from the line of Ajit Kavi from BNP Paribas. Please go ahead.
Ajith
Hi. Thank you for taking my question. I just want to ask you a few questions. Of provisioning expenses which are reported in PNL the number is around 32.5 crore. Out of which standard state stage 3 ECL provision write back has happened around 11 crore. So the right in this, you know that perform a calculation. I can find that there was around 40 crore of write off was made. Can you explain about it how what the 40 crore write up is have done also?
Parvez Mullah
Ajit, I’m sorry I cannot relate to the numbers you are mentioning. Can you please.
C.V Ganesh
I am telling you, I’m telling you. See the total credit cost was around 32 crore. Okay. Where in stage one and phase two ECL provision there was something provisional provision built up of around 4 crore. And in ECL3 I can find, you know there was provision right back has happened of around 11.4 crore. Because earlier the ECL stage 3 provision was around 106.9 crore which came to 95.5 crore. Did you get it in. In Q4. So there was. You know. You know there was around 11.4 crore of write off. Sorry, 11 and.4 crore write back has happened in ECL stage 3.
Parvez Mullah
Ajit, I’m sorry, you know I. I’m still unable to relate to the numbers. Why don’t we.
Unidentified Participant
Can you tell me about the write off numbers of this quarter.
Shreepal Doshi
We have not done any write off.
Ajith
Okay.
Parvez Mullah
In Q4.
Shreepal Doshi
Okay.
C.V Ganesh
So we have not done any write off. And if at all you have any questions on this particular point, please connect offline.
Parvez Mullah
Yeah, yeah.
Shreepal Doshi
So how.
Ajith
My second question is how you are seeing in the net interest margin going forward? Hello.
Parvez Mullah
Yeah, so we expect the net interest margin to be stable as I said, you know we. So in the last call we had highlighted that, you know, we will reduce the amount of da income proportion in our earnings and focus more on core earnings growth. We will continue on that path as I articulated, you know, we have a large proportion of our borrowings which are on voting rate which gives us confidence to maintain stability in margins on a continuous basis.
C.V Ganesh
Thank you. Thank you. These were the questions.
operator
Thank you. We have our next question from the line of Sneha Gantra from Star Union. Please go ahead.
Sneha
Hello, just wanted to know what is your plan for the branch expansions and the employee total count on the employees has declined on quarter, on quarter basis. And if you’d like to share any ballpark number on the growth you are planning to achieve for the next two to three. Any just rough cut numbers also on the growth side and what should be the expectations on the cost of fund considering we are under the declining interest rate scenarios. These are four questions for my slide.
Shreepal Doshi
So Sneha, just to rephrase, you asked on cost of funds, employee count and the first was on branch expansion, branch.
Shreepal Doshi
Expansion and the loan growth. If any numbers you would like to share with us the small part number.
Sneha
Yeah, sustain. Thank you. On the branch expansion side we will look at the opportunities going into in quarter one and we should be able to update by quarter one. And as far as the AUM growth is concerned, see we already have business loans in our base. So if you take that in the base then you will see around 12 to 15% growth. If you remove that from the base you will see about 25 to 30% AUM growth is what we are targeting. On the employee count side, yes, there has been reduction and we are working over the next year.
On the OPEX side there are some things which I had articulated last time in my last call. There will be work which we will be doing on the manpower side, on the technology side and on the premises side trying to optimize and see what is the trajectory we can take there and specific initiatives which we want to do. But as Siviji said, we will be investing for growth, investing in for collections and we will be opportunistically looking at branches. But if we do look at branches, you will see us trying to synergize between the MSC branches and our gold branches.
So there Will be an effort to synergize these two. Not only in terms of cross sell but trying to co locate them. So by quarter one I should be able to give you some specific updates in terms of what we are doing there and how we want to scale that up. Your question on cvg, on the cost of funds.
Parvez Mullah
Yeah. So Sneha, you know, on the cost of funds as I said, you know we intend to reduce the proportion of DA income contribution to the net interest income gradually. I think I can. The reduction in cost of funds should help us cushion that journey and which is why we guided on a constant spread. So that’s where I leave it.
Sneha
One more question regarding the mention about the doorstep initiative which has been forming around 15% of the world. Any internal target or would you like to achieve on that or just maybe focusing more on this new initiative of that doorstep initiative. Can we just highlight further on that part?
Shreepal Doshi
Sneha, there is a disturbance so I’ll just rephrase the question. You are asking about our doorstep Gold loan initiative. Right?
C.V Ganesh
Right, Right.
Shreepal Doshi
Yeah. So this doorstep Gold loan initiative for us is a very, very important initiative. We’ve scaled it up this year and over last year. It’s a very very targeted scale. Up today it has touched about 15% which we want to. Our branch led gold business has grown handsomely. And the doorstep gold business has grown more handsomely than the branch business. That is why you’ve seen the percentage increase in next one year to two years. We want to take it up by 3% or 4% points. That means you will see that 15% number going to about 18% to 22% in the next one year to two years.
So you will see that business growing much faster than our branch business. And our branch business will equally grow faster. But as I’m saying the percentage composition of doorstep will increase. So it’s a focused effort from our side.
C.V Ganesh
The doorstep gold loan business in absolute grew by 500 basis points in terms of share about 9.6% to about a little under 15 now. Now what we are also cognizant of is the increasing amount of RBI circulars and draft circulars coming around. Gold loans in particular. Which is why we will watch how this evolves and then we will be able to give a better guidance.
Sneha
Okay, Got it. Thank you and all the best.
Shreepal Doshi
Thank you.
operator
Thank you. A reminder to all participants. You may press Star and one to ask a question. If you wish to ask a question, you press star and 1. We have a next question from the line of Mayank Smith from JM Financials. Please go ahead.
Unidentified Participant
Yeah, hi sir. So my question is on the golden book. So you just highlighted that the golden growth is now currently driven by the rising, rising prices of gold. So but even then our LTV is so high at 72% like we are running on the edge at 75% regulatory requirement. So I mean, how are you evaluating the LTV against that, such a high LTV against the gold loans? That is my question, sir.
Shreepal Doshi
Yeah. So Mayank, slight correction. Our gold loan growth has seen tonnage growth as well as price growth. We tonnage growth is almost 15 to 18% growth. Y O, yes. And so if you see the 48% growth out of that, almost 18% has come from tonnage and then the rest has come from price. So that is a very, very healthy growth on tonnage. We’ve also added 35,000 new customers. So that growth is coming from new customers. On the LTV side, CR average LTV on the book is about 66%. In fact, when the new draft guidelines had come in, we had corrected all our processes and our sourcing LTV had dropped.
And most of the growth in Q4 has come with the reduced instructions on LTV and complying with the guidelines. So we’ve seen growth in Q4 complying with the guidelines. And I will ask my Chief Business officer Jagdish to add further on what I said. Jagdish, you want to add?
Shreepal Doshi
Yeah.
Parvez Mullah
Hi.
Shreepal Doshi
So just to add with this on the LTV front, as Parvet articulated, we are our overall LTV at the top level is at 66 percentage. It is not 72. 72 is our origination LTV. So just to add, we also have periodic stress test done. We have a robust tested here. Plus we have put in place proper margin call mechanism at the LTV level which is regulated by RBA at 75%. So there is no risk that we see because of this process.
Shreepal Doshi
Yes sir. But can you just, I mean differentiate what is the difference between, you know, the average LTV that you are seeing at 60 versus the origination. So is this a daily average? How is this calculated exactly?
Shreepal Doshi
Average LTV means as On 31st March 2025, the overall outstanding gold loan book, the tonnage of the outstanding book loan book and its market value against the total outstanding of gold loan which includes principal plus interest.
Unidentified Participant
So that this is for origination?
Shreepal Doshi
No, no, this is on the outstanding on.
Unidentified Participant
On book. Okay.
Shreepal Doshi
Origination means for the quarter Q4 we have originated X amount of gold loan and a 72% is the average origination LTV.
Parvez Mullah
So if you go to slide 22 of the investor deck, you will be able to see the trajectory. We have brought it out in slide 22.
Unidentified Participant
Okay? Okay sir.
operator
Thank you. A reminder to all participants, you may press star and one to ask a question. We have a next question from line of Abhishek Agarwal from Nilit Agarwal and company. Please go ahead.
Abhishek Agarwal
Hi, am I audible?
Shreepal Doshi
Yes, Abhishek.
Unidentified Participant
Yeah, Hi. So my first question is on the gold loan origination yield. So I was going through the quarter three investor presentation as well and there the origination Yield is at 15% and this quarter the yield is at a 19.7%. So that’s wanted to understand are these two numbers comparable and why the big jump? And the second part to the question would be, you know, we’ve seen in gold loans a lot of competition coming in. So how confident are we that these origination yields are going to be maintained in the future?
Abhishek Agarwal
So the first part is the correlation between the onboarding yield which we have shown last in the last quarter.
Shreepal Doshi
Right.
Shreepal Doshi
That’s basically an origination yield of the quarter. So we onboard a customer at a particular rate and this is the weighted average rate of that REIT. When we say 19.7, that is the average, that is the weighted average rate of the portfolio. So these are the two differences.
Shreepal Doshi
So just to add to what these said, yes, you are right, those two numbers are not comparable. Abhishek, we were having a similar confusion like you had where people were mistaking our often quoted origination yield on gold loans with the portfolio yield. So we wanted to clarify that, which is why only for gold loans in that slide we have put a mark there, asterisks there and we have clarified that that is a disbursement yield, a portfolio yield.
Abhishek Agarwal
Understood. And the second part was on how confident are we of maintaining these yields given the competition in the gold loan business.
Shreepal Doshi
So we concentrate on the retail book and we don’t see much of a competition coming there from the customer’s requirement or need. So we are confident to maintain these yields.
Abhishek Agarwal
Understood. And just one more question on the cost to income ratio. So this quarter we’ve had only one branch added and we’ve seen a headcount decline as well. But the operating expenses have risen. Now you’ve talked about how we are going to be investing in manpower and technology, so that’s understandable. But I just wanted to get a sense of the cost to income ratio which is now above 59 after a few quarters. So directionally, what do you think in the next one, two years? Do you think this is the highest level of cost to income that we’ve seen and slowly going to taper from here or are they going to think this is going to continue for the next 2, 3/4 until our branches ramp up?
Shreepal Doshi
See Abhishek when we are looking at this business strategically, as I said, the priority is to allocate capital to high roe ROE businesses and look at businesses which are not doing well on the ROE metric to slow down. So that is priority number one. Revise the STLAB business is priority number two. Then scale up our lab business and gold business opportunistically is priority number three and collections revival is priority number four. And giving you a guidance on the credit cost is priority number five or six. And so if you look at the number of priorities that we’re looking at and to get a decent guidance on the roa, these are the priorities that we’ve listed and this is how we believe that step by step we will be able to give impetus to the businesses that we want to focus on in that metrics.
These are the metrics which will change. On the cost to income side, I will request you to look at us a year down the line. Although there will be initiatives which we will be putting and cost to income typically for our organization has remained sticky over the past four, five years, there is a structural component which we are trying to change. And I don’t want to give you a guidance over the quarter because it will not be correct. But I definitely am telling you that directionally there are a lot of things which, which we are doing and also investing in the growth side for the branches as well as investing in collections.
But if you look at the cost to average total assets there could be a dip there. But on the cost to income side because we are investing, it could be a number which you can ask us in quarter one or quarter two, but we will try and figure out how many reduction items we can do for the investment.
Parvez Mullah
I will just add to what Sarves said on that aspect. There is always going to be some amount of spend in the OPEX line which is building muscle and we will not shy away from that. What we are trying to tell on this call is that the part of the OPEX which is bau, which is maybe fat or just a going on kind of cost, that consciously we are trying to put it on a downward trajectory. That being said, when we cite an opportunity, we will Continue to have tactical investments in growth. This could be in terms of beefing up capacity either in terms of people or branches.
We are in it for the long run. So we will not be driven by short term tactical goals. We will be driven by longer term sustainable return enhancing objectives.
Abhishek Agarwal
Understood. That’s really helpful. Thank you and wish you all the best.
operator
Thank you. We have our follow up question from the line of Ranish from icici. Please go ahead.
Ranesh
Yeah, hi sir.
Shreepal Doshi
Thanks for the opportunity. Again, just to clarification, you have said that our AUM growth will remain at 12 to 15% including BL, which means our LAP and gold loans will grow at 25%.
Ranesh
Yeah, that’s. That’s what I said. Without the BL base, they will grow at 25 to 30% on the AUM side.
Ranesh
Okay.
Shreepal Doshi
Okay. The 25 to 30 to 25. Okay. And again on this, golden yields. Right. So when you say it’s a portfolio yield means including interest and charges, right? I mean versus origination yield of 15. I mean that’s the difference.
Unidentified Participant
No, the structure of the loan is like you originate at a particular rate and the customer has the option to pay interest at different intervals. Like monthly, quarterly, half yearly. So it’s up to the customer to serve the interest monthly and get a onboarding rate continued for the entire tenor. Or pay a higher rate if he servicing quarterly or half yearly or monthly. So that’s how the structure of the loan is. And, and that’s the major difference between the onboarding yield and the portfolio.
C.V Ganesh
Just to specifically address the question, the penal charges does not come in the yield line. It comes in the fee line. Okay.
Shreepal Doshi
Kind of penal interest.
C.V Ganesh
No, there is no penal interest. RBS discontinued.
Shreepal Doshi
So basically this is tenure premium.
Parvez Mullah
It’s a kind of penal charges which comes.
Shreepal Doshi
So basically this is a tenure premium.
Shreepal Doshi
Yes.
C.V Ganesh
See there are, there are two elements here. One is the tenor premium. Also, you know, whenever we do a CLM there is a yield enhancement on the existing book which happens. Right. So that also you need to factor. So see, we are allocating capital very dynamically, right? So you know, it’s basically helping in the yield enhancement on Gold loans on what is on the balance sheet.
Ranesh
Got it, Got it, got it. No, this is very helpful, sir. Thank you very much, sir.
Shreepal Doshi
Thank you.
operator
Thank you. We have our next question from the line of Aditya from Securities Investment Management. Please go ahead.
Unidentified Participant
Hi sir. Thanks for the opportunity. So my question is on credit cost. So our flows into stage two and stage three have increased. But we expect the credit cost to be in the range of 1%. So should one expect the PCI to go down going forward?
Shreepal Doshi
Hi Aditya. Yes, the answer is yes because if you remember last time when we had done a discussion our PCR had jumped and the jump had happened because of a one time provision that we had done and we had directionally we had given a direction saying that our PCR won’t go as low as what it was earlier but remain as high as it was then. So it will stabilize somewhere in between depend because see the incremental flows will happen at a incremental different PCR like whatever the model suggests. So this was a one time PCR which we had done and going forward we will be looking at how our business is and what what cycle we are we’ve reached to stabilize at a particular pcr.
Unidentified Participant
Understood. So next question was on small ticket lag. So you mentioned that disbursement should keep on increasing from here. But if you look at your GNP that has increased majorly because of small ticket lab. So just wanted to understand what is and you also mentioned that you have you have to invest further in the collection infrastructure. So just wanted to understand how giving us this confidence to increase the business rent in spotlight.
Shreepal Doshi
Again if I would refer it to our previous quarter call we had said that our assessment of our challenges were more in terms of investing manpower in collections. And this kind of a business, our affordable small ticket lab business requires collection efforts at a grassroots level and these are deep. We have deeply invested there and that investment is what is required. And if you see our customer, he’s an average income of about 5 lakh rupees. So you could sense he’s about a 40,000, 50,000 per month customer and you have a 20,000 rupees EMI. So if there is a one EMI default from the second EMI to third EMI falling down to the NPA is slightly faster.
That is why we require a collection infrastructure which needs to meet the customer at a pre delinquency stage or at a bound stage or an ex bucket stage. And these are important timelines where the customer needs to be met by the collection infrastructure which is the resources that we are putting in either through the call center or through our manpower. That’s why we were our analysis told us that we have a localized problem and that localized problem needs to be addressed with localized resources. We are seeing some encouraging signs there and wherever we are seeing flows we are guiding you accordingly that there could be flows there.
But we know that if we put the resources there and you Also understand putting resources in Q4 people don’t move organizations or in Q4 it’s typically joining happens in Q1. That’s why once we have the joinings happening at a grassroots level, we’ve already put the leadership in place. The middle is 50% done and the grassroots level people also should join in. That’s where we are saying it’s a collection challenge which we need to address. And that’s why we are growing our book. Because we believe we understand that business, we are going through its life cycle.
We put leadership who understands that business in terms of competition as well as the market and that’s where the growth is and we see an opportunity there and we know how to run this business through the underwriting side and the growth side.
Unidentified Participant
Understood. Sir, just to clarify, the current issue is majorly due to lack of infant collection infrastructure and not in the underwriting process.
Shreepal Doshi
Majorly that. See obviously it’s not a very precise science to say that this is how it is. There will be some underwriting issues, there will be some sales issues, but the predominant issue is is the collection side manpower.
C.V Ganesh
Next question was a medium ticket lab. So sir, if I’m not mistaken the customer profile segment is organized and would have valid documents like an item or EST return. So I wanted to understand what is the age or side of friends in this business because you know there are smaller private and small banks also operating in this segment of such ticket size who might have lower cost of funds than us. So what is the edge for this business?
Shreepal Doshi
See one is, as I said, we are looking at the small ticket lab business and the gold business along and we are saying that we want to be a company which is focused on lab. It’s a proposition for us that a customer at a various life cycle from a 5 lakh ticket size to a 30 lakh reaches out to us on the SP lab side from a 30 lakh to 3 crores reaches us to a medium ticket lap size. So that is one in terms of proposition two in terms of the kind of yields that we are operating in and the kind of markets that we are operating in along with the underwriting guidelines and the kind of delinquencies that we are seeing, we believe we are managing the book better than many other players in this and that is why we have a healthy roe here.
Along with that we have a good appetite when we start looking at DA income and when we look at the other organizations like NBFCs or banks who are interested in this kind of profile and we have a Healthy roe coming from here. So these are our primary reasons we believe we have a proposition this particular book will remain in the range of 20 to 25% of our AUM. It’s a healthy book, it’s a stable book for us and that’s why we believe it’s a good asset in our composition. We have Suresh here, who is our CBO in this business.
Suresh, you want to add anything? Yeah.
Parvez Mullah
The arbitrage that we have is these.
Shreepal Doshi
Customers, they understate their income, they inflate the expenses and all that. So what we do is we combine.
C.V Ganesh
The declared and derived income and then.
Shreepal Doshi
Make a fair assessment of the customer’s requirement.
Shreepal Doshi
So that’s where we have a play.
Shreepal Doshi
That is NISH for us.
Shreepal Doshi
Two questions here. So what would be the share of dses or medium ticket lab?
Shreepal Doshi
Share of what?
C.V Ganesh
I’m sorry?
Shreepal Doshi
See, this will be run through DSAs or partners. This business across the industry runs in a similar fashion. There is, there has been experimentation on a direct sales team model but I don’t think any organization has successful succeeded in building that model. We will also keep experimenting with it but we today don’t have any story there. It is. It is run through a partner channel.
C.V Ganesh
And in terms of ROEs, would this be making company level ROEs of around 1.7, 1.8%?
Shreepal Doshi
We are doing better than that.
Parvez Mullah
So we don’t give out product specific roas, but it is making, I think reasonably more than the numbers you mentioned. See, we do this product on a collaboration basis through a collaboration with other financial institutions, including banks.
Shreepal Doshi
Right.
Parvez Mullah
Which is why it is very light on the balance sheet.
Unidentified Participant
Understood, sir. So those are my questions. Thank you for answering that.
operator
Thank you. We have our next question from the line of Patanji from Chintagorean Capital. Please go ahead.
Unidentified Participant
Hi, can you hear me?
operator
Yes. Please go ahead with the questions.
Unidentified Participant
Yeah, so two questions from my side. One is on guidance for ROA for FY26. Any, any light on that? And the second question is on impact of these draft guidelines on gold loans. Right. Any impact for fedphina in your view on growth or cost?
Shreepal Doshi
So as far as the guidelines are concerned, in fact, in Q3 also we had a similar environment where I had answered the question on whatever draft guidelines had come and how would it impact us? And you’ve seen the growth in Q4 that has happened. These particular guidelines I think are very, very healthy. In terms of the clarifying on the LTV side earlier there was a lot of confusion on the interpretation of LTV now these draft guidelines are clarifying it and making it a level playing field for everyone. And that’s very healthy. The other guidelines too, I think if at all, all the guidelines come through, there will be a transition period which each organization will go through.
But I think it will be a level playing field for everyone, especially for the gold side. It’s just a transition period which each organization will go through and I think it will be back to a new normal. And I don’t see a major effect over the years. It will be just a short term for the transition period. I’m sorry I missed your first question. I think I’ve given credit cost guidance and I have given you the cost to income guidance and I have given you that the NIMS will hold. I think it’s just a calculation.
Unidentified Participant
I think that one aspect which is remaining is the cost to income.
Shreepal Doshi
Yeah, we guided on it in the sense of the rebuild phase and the investment in growth. So that’s where and I said on the average assets basis you can look at a 5 to 10 basis point.
Unidentified Participant
Understood.
operator
Manav, thank you. Yes, sir. Since there are no questions, I would now like to hand the conference over to Mr. Sheepa Doshi for closing comments. Over to you, sir.
C.V Ganesh
Thank you, Manav. And special thanks to the management of.
Parvez Mullah
The company for giving us the opportunity.
operator
To hold the call call and thanks to all participants for being there on the call.
Shreepal Doshi
Thank you and have a good day.
Parvez Mullah
Thank you.
Shreepal Doshi
Shaki.
operator
Thank you on behalf of EQR Securities. That concludes this conference. Thank you for joining us. And you may now disconnect your lines.