Five-Star Business Finance Ltd (NSE: FIVESTAR) Q3 2026 Earnings Call dated Jan. 29, 2026
Corporate Participants:
Lakshmipathy Deenadayalan — Chairman and Managing Director
Srikanth Gopalakrishnan — Joint Managing Director and Chief Financial Officer
Analysts:
Unidentified Participant
Raghav Garg — Analyst
Viral Shah — Analyst
Kunal Shah — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to Five Star Business Finance Q3FY26 earnings conference call hosted by Ambit Capital Private Limited. As a reminder all participants line will be in. Listen only more and there will be an opportunity for you to ask question after the presentation. Should you need assistance during this conference call, please signal an operator by pressing Star then zero on your touchstone phone. Please note that this conference is being recorded.
I now hand over the conference to Mr. Raghav Garg. Thank you. And over to you sir.
Raghav Garg — Analyst
Thank you and good morning everyone. On behalf of Ambit Capital, I would like to welcome you all to the third quarter FY26 earnings call for Five Star Business Finance Limited. Joining us from the management today we have Mr. Lakshmi Pathi Dinde Alan, Chairman and Managing Director and Mr. Shikanth Gopal Krishnan, Joint Managing Director and CFO. I would like to thank the management for the opportunity to host this earnings call.
We can now begin with the opening remarks from Mr. Lakshmorthi Dean Dayalan and post that we can open the floor for questions. Thank you and over to you sir.
Lakshmipathy Deenadayalan — Chairman and Managing Director
Yeah. Hi Raghav and thank you for that. Good morning everyone. Welcome to the five stars earning call. To begin with, we all know small ticket loans are facing its tough times. During tough times we take a three step approach. Understand the tough times well or the crisis well. Second is fix the problems. Third is move ahead. So Five Star also follows the same three stage approach during the tough times. We have understood this tough times or crisis very well and we are in the last leg of fixing the problems. Keeping long term perspective in our mind, not short term.
Third is moving ahead. That is none other than accelerating the growth. I am happy to inform that the actions taken over the last couple of quarters across underwriting and collections have ensured continued stability in softer bucket collections in Q3 which is an encouraging trend as it would over the time have a positive impact on our portfolio quality. We have seen the first reflection of this in Q3 where the current proposition of our portfolio has gone up from 81.67% in September to 81.77% in December. Though it is a marginal rise, it is a clear positive signal for us.
Our focus on collection is also reflected in our collection metrics with both unique customer collection efficiency and overall collection efficiency remained stable at 95.1% and 96.6% respectively compared with last quarter. We compute the overall and unique customer collection efficiency in the most conservative manner by including the entire stock of Stage 3 or NPA loans into consideration. If the NPA loans are excluded, the unique customer collection efficiency goes up from 96.5% in Q2 to 97.26% in Q3. Additionally, the unique customer collections on the current book, which is the most important bucket for any lender, has gone up from 98.5% in Q2 to 99.01% in Q3.
It is also important to note that these metrics have been achieved without any major addition to the denominator and hence these metrics clearly reflect the improvement in the performance of the book in the software buckets showing a clear signal of revival. On the other hand, the slipperages in Stage three or NPA continues to remain slightly elevated which reflects persistence of some level of stress among our portfolio of borrowers. While this has caused some spike in our Stage three NPA assets, I don’t see any fundamental issue given the secured nature of our loans and I’m confident that we will be able to roll back these customers or settle their loans without any principal loss through concreted collection efforts and the improvements are expected to be visible in Q4 and thereafter.
During Q3 our recoveries from NPA or technical write offs amounted to about 23 crores in a quarter and given this trajectory we are confident of maintaining a healthy recovery trend in quarters to come. Despite the slight elevated slippages, the credit cost has only gone up marginally from 1.34% in Q2 to 1.44% in Q3, reflecting adequate provision coverage on our loans. We do not subscribe to the philosophy of taking huge technical write offs to bring down our Stage two or NPA asserts. We believe that this leads to a negative borrower behavior and consequently causes a breakdown in the credit culture.
On the contrary, we believe in taking a prudent level of technical write offs irrespective of some spike in stake Stage three or NPA asserts. But at the same level we would store our recovery efforts to bring down the levels of stage 3 and NPA which will ensure that the borrowers remain serious about paying up on their loans. Given our clear focus on collections and controlling the slipperages, we have gone slow on disbursement leading to growth moderating even during the current quarter. Our focus clearly is on getting our collection strategy and actions completely in place before moving over to the business acceleration.
I’m very confident that over next couple of quarters we should be back on track both on growth and asset quality. Now moving to the other aspects, we continue to invest in people and in physical infrastructure reflected in the additions of 35 branches and 678 business and collection offices during Q3. In line with our collections focus, the number of collection Officers increased to 2452 as of December as against 1329 last year December 2024. We are also in parallelly building a full fledged collection vertical right up to the senior people at Hobby and this once fully set up will have a very positive impact on our collections and asset quality going forward.
Our disbursements during the quarter stood at 976 crores which is about 18% lower compared to the previous quarter. This is in line with our strategy of getting our collections fully in place before accelerating our disbursements, the additional underwriting controls that have been implemented or also helping us onboard the right customers who would help maintain strong asset quality in the quarters to come on the borrowings during the quarter we availed incremental debt of 460 crores and the cost of incremental debt came at 8.19% which is slightly lower than the cost of incremental debt borrowed by during the previous quarter.
Over the past one year the cost of funds on the book has dropped by over 50bps from 9.63% to 9.12% from Q3 last year to Q3 this year. And given our cost of incremental debt, we should see progressive improvement in the cost of funds in the quarters to come. This helps compensate for the lower yields and largely protects the spread. We continue to have a robust liquidity on the balance sheet of rupees 2002, 76 crores. For the quarter ended we achieved a PAT of 277 crores, 3% lower as compared to the pat for the previous quarter.
The drop is on the account of one off in the last quarter coupled with a marginal impact due to the implementation of new labor coal. Comparing with last Q3 we have moved up from 274 crores PAT to 277 crores PAT this quarter. Our ROA and ROE continue to remain healthy at 7% and 15.8% respectively. With our concrete actions both on collections and growth fronts, I’m very confident the company would get back stronger performance over the next one two quarters.
Thank you and over to Srikanth for more detailed into it.
Srikanth Gopalakrishnan — Joint Managing Director and Chief Financial Officer
Good morning to all of you. As Mr. Pathi had clearly highlighted the various actions that the company has taken and also in line with what we had indicated to you in the previous quarter, our efforts during the current quarter were fully attuned to continuing the stability that we had achieved in collections and we are happy to inform you that we have managed to keep our collections in the softer bucket stable even during the current quarter.
As was said earlier, our current proportion has gone up by 10 basis points during the current quarter, which clearly shows stabilizing or improvement in the collections in the current book, despite slight elevation in the slippages, which obviously we will be taking necessary actions to contain them, Our focus has clearly been on keeping the customers in the softer buckets, that is the less than the 60 day bucket to pay on time because this is what will make them less vulnerable from a slippage perspective.
In fact, one of the data points that we would like to give you is that during the current quarter our stage two assets stood at 1,249 crores, almost the same as what was there in Q2. So barring the slippages that went into. Q3, there were no fresh slippages that. Came in from the stage one to stage two in a very meaningful manner which clearly shows that the slippages in the softer buckets are remaining controlled on the yields. The yields are moving in the same trajectory that we had guided in the past. About 20 basis points of drop every quarter primarily on account of lower yields on incremental disbursements. But we have managed to counter this well with similar drop in our cost of funds. So the spread remains almost stable at about 13.9%.
There has been a marginal increase in OPEX due to lower disbursements and lower growth. And coupled with credit cost we have seen our NIMS compress by about 50 basis points on a year on year basis and our ROE has come down by about 1% from 8% to 7%. For the quarter we clocked a PAT of 277 crores, 1% higher on a year on year basis. For the nine months ended December 2025 our PAT stood at 830 crores, at again 793 crores for the same period a year ago, which is an increase of 5%. We managed to get good amount of. Debt from marquee names even during the current quarter.
So we had availed about 460quarters of incremental debt, though the sanctions received were almost at 1225 crores. And as Mr. Pathi pointed out, it came in at a very attractive all inclusive cost of 8.19%. And I am also happy to inform all the investors and the analysts that during this quarter we have signed a loan agreement with Asian Development bank one of the largest and most eminent global DFIs for a sanction limit of $100 million which will be availed over the next couple of quarters. We stand very good from a liquidity buffer and unavail sanction lines perspective.
Liquidity buffer was at 2,276 crores and unavailed sanction lines were little less than 1500 crores. Our net worth as of December stood at 7,083 crores. Crossing 7,000 crores for the first time even in difficult times we clocked an ROE of close to 16% and we would like to assure all of you that that we are taking concerted efforts to set our collections in place and we believe that we will start seeing the results of these efforts sooner which will give us the confidence to push up growth and lead to an optimal level of growth in the quarters to come.
With that we will take a pause and we will be happy to take any questions that any of you may have.
Questions and Answers:
operator
Thank you very much. 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 remove yourself from the question queue you may press star and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
The next question is from the line of Viral Shah from IIFL Capital. Please go ahead.
Viral Shah
Yeah hi, good morning and thank you for the opportunity to let me ask the question. So I had a couple of questions. So Mr. Pathi if you can give the numbers on the unique collection efficiency on the current customers and also without the NPA customers for the last three quarters.
Srikanth Gopalakrishnan
Veral we do have the numbers for the last couple of quarters but just bear with us while we get the number for Q1. Mr. Patty said I think the current collection efficiency has gone up from 98.5 to 99% in this quarter quarter and the overall the unique customer collection efficiency excluding the NPA book went up from 96.5 to 97.3 during this quarter. I’ll just come back to you with the Q1 numbers.
Viral Shah
Got it Srikanth, thank you. Secondly wanted to check with regards to the growth. I understand you mentioned that now after say achieving somewhat degree of stabilization on the asset quality front we will start focusing on growth. Now when we talk about that next year if I look at the disbursement growth if I bake in here 20% given how sharp the rundown has been on the disbursement front since last one and a half year. Right. It’s fair to expect mathematically that at least next year the um growth will be more like 20% and thereon maybe of course our medium term target remains but it will be more of a back ended thing so just wanted to get a sense on that front before I get to the last question.
Srikanth Gopalakrishnan
See viral. At this point of time we will probably come out with Our numbers post Q4 results because like we said we are also setting up our collections in place and depending on how the collection is set up it will give us the confidence to accelerate on the disbursements side. See as all of us know, disbursement is the easier part in the lending business while collections is the most difficult part. So once we are able to get our collections strategy and actions in place, we will probably come back to you with guidance on the growth for FY27 and years thereafter. But at this point of time bear with us, you will have to give us another quarter for us to come out with exact numbers.
Lakshmipathy Deenadayalan
So viral Pati here. Let me add what she can’t taste. In today’s earnings call there is no numbers should be discussed, no guidance can be discussed from a growth perspective. As I said we are in the last leg of stage two where we are fixing our problems keeping long term in our view. So that is our focus. Once that is done, I think the rest remaining is just only the business, right? We have infrastructure, we have people, we are recruiting people. Once we put our collections in order and see this for two 3/4 stabilization and improving across all fronts then the left out is only business. We can talk business little later.
Viral Shah
Got it. No, that makes sense. I just wanted to understand from an infrastructure standpoint, right over the last I would say one year despite we kind of pulling back in terms of growth, we have been investing on infrastructure, right. Even X of collection speeds. So which is where I think once we see an improvement, what is the extent of improvement that we can anticipate is what I was trying to get a sense of. But fair enough, I’m not looking for numbers but just more qualitatively we are very much on I would say top of it once we have asset quality under complete control. Right?
Lakshmipathy Deenadayalan
Yes, exactly. I think you made a very valid point. We had at 35 branches in last quarter also and we had 678 employees in last quarter also. So that clearly shows the business is here to stay for a long period of time. When you want to accelerate is the prudent way any lender has to look into it. As I said we wanted to understand fully, fix it fully then accelerate the growth. That is what the prudent lenders that we have been with.
Viral Shah
Fair enough. I understand and I agree. My last question Srikanth is to you just on the cost of fund piece Srikant, what what is the incremental room for you to say reduce the cost of funds over the last I would say 3/4 we have already seen close to around 50bps reduction in cost of funds on an overall book basis. So what is the further room that we have on a overall basis?
Srikanth Gopalakrishnan
Viral I think the last repo rate cut which happened of 25 basis points for now I am not talking about the MCLR drops that may happen because that is, that’s definitely not within anybody’s control but we have at least 25, 30% of our book which are linked to repo rate T bills and external benchmarks. So that transmission should start happening which we have not seen it much because this repo rate cut itself happened only in November. So I think if I have to put a number maybe another 10 to 15 basis points benefit should certainly be there purely on account of actions taken by rbi.
But the good part is also that we are borrowing at rates which are much lower than what is the cost of funds on the book which should also give us a kicker in terms of benefit and cost of funds. So again obviously we will be working out a detailed business plan in the next couple of months. But for now I would say at least we have another 1015 basis points benefit that will come over the next three to six months.
Viral Shah
Got it. And just on the EDB piece, Srikanth, if you can just share what’s the fully loaded cost that we have signed the agreement with.
Srikanth Gopalakrishnan
So this will be slightly on the higher side. Viral. Obviously the fully loaded cost will also be determined by the hedge rate when we avail the facility. But I think the number should be anywhere about 25 to 30 basis points costlier than what we are borrowing. So maybe somewhere around 875 to 880.
Viral Shah
Got it. Makes sense. Thank you so much and all the very best.
Lakshmipathy Deenadayalan
Thank you.
operator
Thank you. The next question is from the line of Abhijit from Motilal Oswal. Please go ahead.
Unidentified Participant
Yeah, good morning sir. Thank you for taking my question. Just one question here. We went through the opening remarks you shared very detailed. But I think you started with saying that we all know small ticket loans are facing tough times. Then you explained the three step approach and the Fact that we are in maybe the fag end of the second step which is fixing the problems. So I mean in the past we have shared that this crisis that we are seeing right now is predominantly in the in the small ticket size, less than 3 lakh segment.
So for the benefit of all of us, given that we are at the fag end of the second stage, if you could just help us understand what actually led to this crisis. Was it just customer over leveraging and spillover of MFI stress which is the crux of this problem? And then when we say fixing the problems beyond setting up a dedicated collection verticals, what other steps are we taking to fix the problem?
Lakshmipathy Deenadayalan
Abhijit, let me go very short on this. We can connect offline for a very detailed discussion about this big subject. See, we all know this crisis started on a over leverage. But today the crisis has moved from over leverage to behavioral crisis. That is what I said in my opening comments. There are two ways to address this tough times. The one way is clean your book fully and start afresh. I don’t think that is a prudent one. The prudent approach what five Star is taking right now is fighting back in the stuck conditions with the customers and explaining about the good credit culture.
So that is why it is taking little time for five Star to show a good revival in collections as well as moving towards accelerated growth. So my short answer to this, Today we are seeing a behavioral crisis. If one lender writes down a loan that affects the other lender psychologically. So it takes some time for the lender to prove himself before the customer that what kind of security that we have, what kind of collections infrastructure we have. So that seriousness has been slowly, steadily has been built in the customer’s mindset which I said in last earnings call also.
And we are doing it for the benefit of the small ticket lenders because this credit culture should not break down, it should not continue going forward. So that’s, that’s why it’s taking little longer time for five Star.
Unidentified Participant
Then what steps are we taking on the fixing front? Except for this full fledged collection vertical that we are now setting up, what are the steps are we taking for fixing the problem?
Lakshmipathy Deenadayalan
See two things are underwriting steps have been taken. Second thing, collection vertical step has been taken. Apijit, we can connect offline with Srikanth to go more detail into that.
Unidentified Participant
Sure. And then the last question which I. Had is I think, I mean what you alluded to in your opening remarks about current or the one plus DPD. Right. Which improved about 10 basis points, which actually suggests that the early bucket delinquencies are stabilizing. So two subparts to this question. First is, I mean now that we are almost closing January now, have the collection trends been stable on a slightly improving trend versus what you saw in December and then within that, I mean, are there particular states where the problems are more pronounced versus others and where maybe things will recover slightly, I mean, maybe one or two quarters later versus a broad based improvement that you might start seeing from this quarter on?
Lakshmipathy Deenadayalan
Yes, January gives us a very opening month of this March quarter have done well. We have to compare that with October, not with December, because within the quarter also the first month and the last month has a slight difference. So when you compare with October, we. Are really doing well in January also. In spite of lot of holidays that we had. New Year, Republic Day, maharashankaranti, Pongal holidays. This is a holiday month. When we compare in south, I don’t know about north, but in spite of that, we are holding up our collections. Very well in January.
Unidentified Participant
And since of some states specific color, if you could share where the problems are much more pronounced versus the national average.
Srikanth Gopalakrishnan
So Abhijit, I think the good part that we are seeing in January is that the slippages are a lot more muted compared to let us say October, which was the first month of the previous quarter. So I think that augurs well from a stage three perspective. On stage one, the numbers are fairly in line. But then if the first month, especially. A month riddled with holidays can give this kind of a result, I think February, March should be more exciting months and we should, you know, we should see a better trajectory. So I would say across all the stages, things are, things are looking up.
Unidentified Participant
Got it. Sir, thank you for patiently answering all my questions and I wish you and your team the very best.
Lakshmipathy Deenadayalan
Thank you.
operator
Thank you. The next question is from the line of Chintan Shah from ICSS Securities. Please go ahead.
Unidentified Participant
Yeah, hi sir, this is ravish from ICICI. Just two things to one to Mr. Patty, you know, so let us say whatever initiatives we have taken in last 612 months in terms of tightening the credit filters, beefing up the collection vertical. So any, I mean, let’s say initial indicators that whatever loan we have disbursed in past 612 months, the credit behavior of those customers are far better than the book customers. I mean, any qualitative understanding around that?
Srikanth Gopalakrishnan
Ranesh, for sure the behavior is better. But I think the way I do understand that some of these things stem from loans which are for much shorter tenor. See for us we generally don’t see much delinquencies in the less than 12 month bucket. We also track this very closely, what we call as an earlier year report. So you will generally not see that much. But I can say that relatively the last six, eight months, the loans that we have given post additional filters being put in are looking a lot better. People are paying on or before the due dates.
People are paying a lot more through Nash, which are also qualitative points that will help us ease the collection pressures when let’s say delinquency hits and all that. So the short answer is yes, we are seeing good improvements in the, in the recent book that we are onboarding.
Unidentified Participant
And just a follow up on that. So it is right to assume that, I mean earlier we used to have 25, 30% overlap with MFI customers. And I’m assuming under new regime that overlap will be minimal or maybe nil as well.
Srikanth Gopalakrishnan
It’s reducing Ganesh, but not in very meaningful numbers. See, the way you also need to look at it is we are the next level of reach for the MFI customers. While MFI cannot go beyond, let’s say 1 lakh, 1.5 lakh. When the MFI customers want a higher loan, they come to institutions like five Star. So you will always see that overlap being a lot more pronounced compared to many of the other lenders.
Lakshmipathy Deenadayalan
So Ramesh, let me be very clear with you and everyone who’s listening this. See in earlier days we call MFI lenders lending to productive poor. That is where MFI culture started in our country. But today I think MFI lending equal or even one leg above where five Star lends. So except you and you and me, everyone gets a loan from a MFI customer. I think there is no more productive poor or middle class or lower middle class people only get mfi. That’s the trend that I am seeing, right? Even a customer has a 1 lakh earning as a MFI loan.
What does this mean? Nowhere. MFI’s philosophy, what we have been talking for decades have gone. See, I think they have, we have not moved up the ticket size but they have moved up that customer segment and they are equally lending to the small business and small tickets loans. So you will not see MFI overlap with small ticket lenders. Maybe you will see more MFIs lending to small ticket business customers like Five Star.
Unidentified Participant
Okay, so basically you are saying that MFI will now become competition for, you know, our product,
Lakshmipathy Deenadayalan
no mfi. I have told in detail Maybe we can connect offline for detailed they have three hurdles to cross before lending to a loans like small ticket loans like 5 star. The first hurdle is the ticket size. Second hurdle is the underwriting. Third hurdle is the I think people who want working capital loans, their first preference may be the gold loans and MFI loans, but people who wanted to set up a shop, set up an infrastructure and wanted that loan to be a longer tenure there is where five Star and other small ticket secured loans come into picture. So it is the end use that differs between MFI gold loan and five stars.
Srikanth Gopalakrishnan
I think the point that Mr. Vati was trying to make was not from a competition perspective, it is from an overlap perspective where we believe that the overlap will continue to be pronounced because MFIs are also reaching out to those customers who probably in the past they would not have reached out to. But they can never give the quantum of loan or the type of loan that five Star gives. So competition is not the problem. But overlap will always be there.
Unidentified Participant
Got it, got it. I know this very, very helpful and very clear. Just the last thing Shikant, I know you know you are not giving guidance at this point in time, but maybe just need a qualitative comment around it. So let us say, you know, when we look at the the incremental cost of borrowing versus a book cost, right? I mean there is a huge, you know, eighty hundred basis point debt there, which fairly means that maybe over next 3 4/4 the NIM expansion will continue. And as you said, you know, December has been fairly good month.
And when we look at the numbers as well, Stage one has come down, Stage two is flat and obviously stage three is higher because there might be higher profiles from stage two. So in that sense if your early buckets are taken care of, maybe by Q4 things will be much better. So in nutshell it is fair to assume that the ROA and ROE has bottom out in this quarter and maybe next quarter onwards though there might be a further increase in credit cost, but your name expansion will sort of offset that impact and hence the profitability will remain intact and it should ideally improve from FY27.
Is that the fair assumption?
Srikanth Gopalakrishnan
That’s a fair assumption, but the one point which we are also contemplating at this point of time is also on the opex, which is something that we have kept extremely tight over the last many years. But with many companies coming into this segment and there is a competition that is coming in with attrition going up, I think it will also be imperative for us to to spend a little more on opex, to retain the right kind of employees for the kind of growth that we want. So the only point that we need to keep in mind is how this OPEX is going to sort of eat into some of the benefits that we will get, either on account of the cost of funds and all that.
So which is why we will also have to delve a little more deeper into that subject before we can give you an answer. Maybe over the next two, three months, I think we’ll probably be in a better position to give you, you know, give you a sense on this at this point of time. There are quite a bit of moving parts and we are trying to set those which are most important right first and then we’ll come back to the others. Possibly we could connect after, you know, a couple of months and then see how Q4 or FY27 sort of shape up.
Unidentified Participant
Got it. And just the last, last clarification. So you did mention about, you know, current bucket collection efficiency in the month of December. So incremental stress asset formation, at least in the month of December is lowest in last six months.
Srikanth Gopalakrishnan
Sorry, Nish, I didn’t get it. So. Yeah, sure, sure.
Unidentified Participant
So Patricia did mention about the, you know, collection efficiency being improving to 99.05. You know, I think it was 98.5 in last month or last quarter. I’m not too clear about it. So which means, you know, the incremental stress asset formation is coming down and if, let us say this, 99%. So ideally it should be lowest in last six months.
Srikanth Gopalakrishnan
Yes, it is the lowest in the last. I would say it is even the lowest in the last three, four quarters. Because if you look at the addition to the stage two assets in absolute terms, I’m not talking in percentage terms, this quarter has probably seen the lowest addition to these two assets in the last maybe four to five quarters. What used to be about 130, 140 crores this quarter I think is almost like 70, 80 crores. So it’s seen the lowest addition and that’s where our focus is also to keep the customers in the softer buckets.
Unidentified Participant
Yeah, so I was actually trying to highlight that only. So that entire quarter, obviously it has become half at 80 crore. But I’m sure December, it would be the lowest at least in this three months as well.
Lakshmipathy Deenadayalan
That’s right. You’re right.
Unidentified Participant
Okay. Okay. This good enough. Thank you. And best of luck.
Lakshmipathy Deenadayalan
Thanks.
operator
Thank you. The next question is from the line of Kunal Shah from Citigroup. Please Go ahead.
Kunal Shah
Yes. Hi. A couple of questions. So firstly as you mentioned, like now it’s becoming more of a behavioral problem. Earlier it was more of a over leveraging. So when I look at it both in terms of the repeat customers, are we getting more prudent in terms of underwriting to this repeat customers given the behavioral issue? And how about the rejection rates, how they have gone up over past 3/4? Is it stabilized? Has it gone up in Q3 compared to where we were in Q1?
Srikanth Gopalakrishnan
Our repeat customers proportion or our repeat. Customers process tend to be the same. So we are not, we have never been and we are not in a hurry to give repeat loans. So the customers should have spent two years of, you know, they should have had two years of track record with us this before they can even come for a repeat loan. And there is a completely fresh underwriting that we do before giving a loan to the customer. So we have always been extremely prudent in terms of repeat customers. And typically you don’t see too much of a behavioral issue in repeat customers because we have seen their behavior with five Star for two years.
So they know what the company expects from them and we know how their behavior is going to be. So I don’t think we are seeing much issue from a repeat customer’s perspective. On your question on rejection rates, yes, the rejection rates have gone up in the last couple of quarters, but it is not consistently going up. It is probably staying somewhere around 38 to 40%. This number used to be closer to 30% or so prior to maybe Q2 or thereabouts. But in Q2 and Q3 we are seeing fairly stable rejection rates at about 38 to 40%.
Our belief is maybe we will see few basis points drop over the next few quarters once our people start understanding the kind of files that the company is comfortable lending to and then they will start onboarding the right files today. It is still at a little early stage from an onboarding files perspective, but that should get settled. So we are not really worried about that.
Kunal Shah
Sure. And second question was with respect to the overall ECL provisioning. When we look at it across the buckets there is a sequential decline out there, be it in terms of stage three, stage one as well, from 0.26 to 0.21 and maybe as maybe the last two years pull would fall maybe into this and the earlier, maybe better behaving pool would move out. How should we look at the overall coverage? Will there be a requirement for the higher coverage? Maybe from the current levels of 1.83 of the AUM as we go forward in the next three to four odd quarters.
Srikanth Gopalakrishnan
No Kunal, I think while you’re talking about stages separately, the way you also need to look at it is what is the overall coverage like you touched at the end? See whenever we are having a write offs these are loans which are fully provided. And if you would recall at one point of time we were carrying almost a 50% provision coverage on the stage three assets which was largely through overlays. And where we have been conservative today the provisions are getting used for the write offs. So it is not like we are bringing down the provisions.
That is why despite stage 3 coming down from 45 to 40, stage 2 coming down from 4.9 to 3.9 and stage 1 coming from 0.26 to 0.21, our overall coverage has just dropped by 6 basis points. So. So our belief is that at an overall level we should probably be. And if you just go back one year this number was at 1.66%. So we are already carrying almost 1718 basis points higher on an overall book level. And this is something we have also told you in the past. Our belief is that maybe around 1.5 to 1.6% is probably the appropriate level of provision for a secured book.
Most of our peers who are operating in secured assets don’t even carry this kind of provisions. But we keep taking a look at this and ensure that we carry an appropriate level of provision for the foreseeable future. You will see this number hovering may be around 1.7 to 1.8%.
Kunal Shah
Yeah sure. So that’s where the question was. Like this quarter also it appears more than 60 crores has been written off because any which way is on the CL side it’s been down and overall provisioning number is 57 odd crores. So maybe wouldn’t we, wouldn’t it be prudent to maybe utilize this write offs and at least try to maintain the coverage in that band rather than getting the overall coverage down on every write off. Yeah.
Srikanth Gopalakrishnan
But Kunal, then that’s, that’s a double edged sword, right? You are also writing off and then see because today we have probably written off all loans which are more than four and then you start creating more provision on a less than 450 day asset. You are also setting a precedent which at some point of time the auditors are going to hold against us saying that during this quarter you maintain so much, you continue to maintain. So I think the question is as and when you have the deeper delinquent loans go away from your book, the provision coverage will naturally come down.
But at an overall level we are still at a very healthy provision and that is something that we will continue to carry between stages. It will be a question of how the move happens from a book perspective. What kind of write offs are we doing? So you will see some movement. So I think I wouldn’t give too much of importance to difference within the stages rather than being at an overall book level.
Kunal Shah
Sure, got it. Yeah, thanks. That’s also.
operator
Thank you. The next question is from the line of Parag from White Oak Capital. Please go ahead.
Unidentified Participant
Yeah, thank you. So I have two questions. One with respect to you mentioning the call that basically you are trying to, you know, even improvise the behavioral the customers because now the micro finance problem has become a behavioral problem as well. So I just want to know that. What methods currently are we applying? I mean is it, you know, educating the customer and all is the primary focus or we are also going for reposition or you know, some kind of other harsher way like giving the legal notice and all. And if we have done any repositioning during last six, nine months, just want to know what is the success rate of selling down or recovering. So that’s the first question. Secondly, in terms of, you know, in last few calls you highlighted that, you know, we want to slowly build the affordable housing book as well.
So what is the status there? Or you want to, you know, kind of wait for this asset quality problem to settle down before, you know, growing that book. So these are my two questions. Thank you.
Lakshmipathy Deenadayalan
I’ll go from second. Yes, affordable housing has been put in place from last quarter onwards. But as I said, even in the lab book we are not in a hurry of accelerating things and for sure for the new product we are not at all in hurry in accelerating things. I think we have disbursed close to or we gave sanction close to 100 files of housing which has given us encouraging feedback. So when we accelerate the lab book, we will be also accelerating the housing book. Maybe we may think of even putting up a separate teams to make it more serious from a growth perspective on the new product.
That’s from the second question. On the first question there are a lot of things that you can explain but we can take offline for what all efforts that we have put in place. See the behavioral aspect. What I said, I never meant on a stage three or NPA customer. I meant on a standard customers see in a village or in a town for example, example, a lender has written down a loan and lender is not turning up on collections. That has an effect on the next house, right. Where some other lender would have lent. Right? So that is the behavioral aspect that is causing the other, most importantly, the secured lenders in that locality.
So it is taking more time for us. Obviously I told you in last quarter itself. And the encouraging signs are people are, behaviorally, people are behaving very well now. And the simple method is keep connecting with the customers very often, maybe meet them four times in a month continuously meet them and explain them about the other lenders versus five star, the secure nature and how important the credit score is for you as you move up in the ladder for your business growth or a housing need. So all these things take much longer time for customers to understand that differentiating between one lender and another lender.
So now you see the efforts, what we have been putting in for last six months have come, have shown the result for us. So I think mostly we are good to go with the behavioral crisis. It should be behind us after this quarter. That’s why I said once we fit in, we are in the last leg of fitting in the problems. Once we fit in the problems, the next stage is just growing, accelerating our growth.
Srikanth Gopalakrishnan
We’ll move ahead.
operator
Thank you. The next question is from the line of Nishjan from Kotak securities. Please go ahead, Mr. Nishtind. Please go ahead.
Unidentified Participant
Yeah, sorry, sorry. I hope I’m audible now.
operator
Yes,
Unidentified Participant
thanks. So maybe you answered this. But you know, how long do you really wait, you know, before writing off a loan if the customer is not delinquent? I know you, I think, I think you just mentioned 450 days. But given the way where we are probably in the cycle and probably where the customer is behaving, would you really want to wait for that long or. Maybe make some
Srikanth Gopalakrishnan
on a secured loan? It’s quite soon, Nishin. In fact, in the past we used to write off, you know, beyond 24 months of NPA, you know, beyond 18 months of NPA and all that. We have actually brought it down to 15 months right now, which is quite soon. So I think it will be. I don’t think at this point of time we will look at, you know, accelerating this, but again, it will be determined by what we want to do on a quarter on quarter basis. But from a principal perspective, I think we are comfortable with 450 days where we are writing off.
And incidentally, in the state of Karnataka, we have been a little more aggressive Also it’s even less than 450 days where we have written off some of the loans. So it’s a case to case state specific call also that we could take.
Unidentified Participant
Got it. And would you prefer to sort of just make some, you know, higher buffers of provisions and clean up the books? Maybe not a write off but you know, just keep a buffer and sort of move on with, you know, business as usual?
Srikanth Gopalakrishnan
Yeah. Our belief is that our provisions are still quite high given the write offs that we’ve been doing. Because these write offs also have an impact on the loss given default that you have. So that’s why I was telling. We believe a prudent provision cover for a secured book will be more around a 1.5, 1.6 level. We’re already at 1.8. I think the buffer is already inbuilt into this. Depends on, you know, how things pan out. Whether we would want to release more provisions or keep it at this level is a call that we will take. In the quarters to come
Unidentified Participant
because the. Incremental trends are looking fine. So it’s probably just a decay which kind of increases. Right. So beyond the point you just maybe provide for it and ensure that the PNL is insulated.
Srikanth Gopalakrishnan
Nishan, is the call that board and management will take. Like I said, we will ensure that we continue to create an appropriate level of provision.
Unidentified Participant
Got it. We’ll leave it at that. Thank you very much.
operator
Thank you. The next question is from the line of Chirag from Ms. Capital. Please go ahead.
Unidentified Participant
Hi, good morning. Thank you for the opportunity. Srikanth and Mr. Pateri, just two questions. One, just bookkeeping wise, what was the write off that was taken this quarter? Would you just help us with that number?
Srikanth Gopalakrishnan
About 63 crores.
Unidentified Participant
Understood, 63 crores. Thank you so much Shikant. And the second maybe slightly, you know, unfair ish sort of a question. But of the GNPA pool today, the 400 odd crores, 10 12,000 customers. Just could you give us a qualitative sense on what proportion of these you think, you know, will become a D1, C1 kind of regular paying from here on might still stay in GNPA but still have to, you know, you can still collect versus what proportion do you think you’ll have to take legal recourse or you’ll have to sort of go into repossession. Is there any sense of the stress pool? How much is it where you can sort of start collecting versus where you’ll have to go for a rehabilito. Since my question was clear.
Lakshmipathy Deenadayalan
See, once the customer has moved to stage three, which we call NPA, we don’t get into a concept of D1C1 at all. Because we go and ensure that whether we do a partial settlement or a full settlement thereafter. So there is no concept of collecting one due to from NPA customers because then again the behavior aspect changes there. So once a customer becomes npa, we strongly believe that there’s no concept of collecting a due from them. We have to be very clear on settling the loan or partly paying the maybe five, six installments together. So then only the behavioral from.
From a NPA perspective is being maintained. Once the account becomes the npa, it’s been taken over from the legal recovery team. As I said, they do, they do two aspects. One is they continuously start the legal recovery process, fixing arbitrator, taking an arbitrator degree, then going into a EP and bring the property to auction simultaneously. Hello, can you all hear me?
Unidentified Participant
Yes,
operator
yes.
Lakshmipathy Deenadayalan
Simultaneously the legal recovery team continues to have a dialogue with the NPA customers to either make partial payment or full settlement before any kind of court order comes in. Because that puts them in real shame at the local village or a local town. So there is no, in short, there is no concept of B1C1 in stage three assets either we prefer to settle the loan or accept the and legal records and doesn’t stop. It starts from the day when it becomes the become an npa.
Unidentified Participant
Understood? No, sorry. And just to be clear, so you’re saying the partial payments that happen right at that point in time, obviously the loan will move away from being a GNPA to being a standard loan. That’s kind of what you’re trying. That’s what you mean by partial settlement, that it should be large enough.
Lakshmipathy Deenadayalan
Yeah, you’re right. There are many cases or many instances where the customer pays all the arrears at one go. So he comes to the current budget. But once taken over by a legal recovery team, it doesn’t. That account doesn’t form a part of the collection or the business team. Once gone to the legal recovery, even customers are in current buckets. They stay in the legal recovery team itself. But as I said, the motto of our legal recovery team is not to collect EMIs from even current accounts. They push them for the settlements.
Unidentified Participant
Understood. So the 400 crores, what is your sense in terms of how much of it is like a behavioral problem where probably, you know, three, four year legal recourse is not what will end up happening, but what will end up happening will be A earlier settlement or do you think this is all extremely stressed, will take three to four years to get sort of cleaned up. I’m just talking about the GNP approval right now.
Lakshmipathy Deenadayalan
So it started as a stress 3/4 before maybe last March quarter and this June quarter. It started as a stress in the customer’s family because the cash flows are intact but the over leverage and the EMI capability of that family has shoot up five, 10 times more than what they are meant to do. So it started a crisis, debt crisis in the family. But when other lenders doesn’t get into a collection mode rather than they go into a cleanup mode, then it slowly moves into a behavioral aspect. So that is where we came across two quarters down the line that behavioral aspect is more pronounced than the over leverage issues.
So that we are setting things right. We are in control of our customers, at least for our customers and we are bringing back a good behavior and good credit culture. That is where you see across buckets, except that slippery edges, except that all buckets are behaving better. I think going forward this behavioral aspect to our customers, we are maybe in a strong belief that they are have been rectified and they have recovered from the behavioral aspect.
Unidentified Participant
Understood. Thank you so much for the opportunity. Wishing you all the very best. Thank you.
operator
Thank you. The next question is from the line of Aditya Pal from msa. Please go ahead.
Unidentified Participant
Hi. Am I audible?
operator
Yes, are you audible?
Unidentified Participant
Thank you so much for the opportunity. Just want to double click on the. I think the last participant was also asking about that if I were to look at all the buckets, what would be the curing rate? What would be the. Because the reason I’m asking, asking this is that if I look at over the last four quarters the proportion of your 3030 DPD has actually tilted more towards the later end of the buckets which is. Which, which is causing concerns to me that because you’re. This is what I think that the credit cost will. Has not bought enough and will go up maybe in the next couple of quarters.
Shrikant, you can, you can. If I’m wrong with that, you can please correct me.
Srikanth Gopalakrishnan
These are certain housekeeping questions that we can probably take it offline. You know, we’ll connect at some point of time maybe after the call and then I’ll clarify to you.
Unidentified Participant
All right. And yeah, that’s about it. Thank you so much and wishing you all the very best.
Srikanth Gopalakrishnan
We’ll move it to the last question for the day.
operator
Thank you. The next question is from the line of Sanjay from Bastion Research, please go ahead.
Unidentified Participant
Yeah, hi sir, thank you for the opportunity. So just wanted to check as you have highlighted in the call as well, but over the last six, seven quarters, our stage two and greater than that NPA has been increasing trend and this is not settling up because as we are a secured lender and what we are hearing from the industry players is that the stress is going down in the MFI sector overall. But in our case that things is prolonging over a couple of quarters more. How should we read that? And could you give the how wise the diversion between, you know, the unsecured part of the book, which is cleaning up right now, but the secured part is still going up or something sort of that if my understanding is right. And please clarify on that as well.
Srikanth Gopalakrishnan
Sanjay, I think you also have to go to the genesis of this problem. The unsecured lenders started facing this problem beginning of last financial year, that is June, you know, June of the June quarter of 2024, which is when they started seeing this problem Five Star as an institution, we never saw this problem even during the entire financial year of FY25. The problem for us, you know, was more tail ended and it started, you know, creeping up only in the June quarter. And while while maybe the other lenders like Mr. Pathi said, had resorted to certain cleanup of their books, Five Star does not believe in doing that because that impacts the credit culture, impacts the borrower behavior.
So from that perspective, we are still taking a lot of efforts to collect from these customers and as we speak, their efforts are actually bearing fruit. So the question is, we saw this problem for us much later than when the unsecured lenders started seeing this problem. For them and even for us, the timeline or the horizon of this problem will be much protracted as compared to the other lenders. So like we said, we have seen problems for two to three quarters and we believe that we are probably in the three stages that Mr. Pati outlined in his opening remarks.
We are at the end of getting our actions right and from here onwards we should start seeing improvements coming through. So one, we saw the problem much later than the unsecured lenders and it has been for a much shorter duration as compared to the unsecured lenders.
Unidentified Participant
Why am I asking is in the past what I looked for the book and what I know from, you know, in the numbers on your side, there is no period of time which, you know, you have taken 3, 4 quarters over a long period of time. So the stress is continuing for a longer Period of time compared to the history which we have in the past. So therefore, because as you speak rightly said that we are as a secured lender so the problem is not that way but this time the stress has been longer than compared to our history.
Lakshmipathy Deenadayalan
Yeah, you are right which we have told two quarters before itself. This is the lenders made crisis. This is the first lender made crisis ever. Any lender would have seen the earlier crisis was not lender made crisis. It’s a health crisis and economy crisis. And demon was a short lived crisis. So this is a lender made crisis. If you want to be short lived, as I said, the only way for short lived this crisis is clean up the entire book and start afresh. We don’t want to do that. We don’t want to do that. I said in the opening remarks itself, it’s a very easier way to answer your question.
This quarter you will see thousand crores of write off and we start afresh. We don’t want to do that because that has a not PNDL implication. That also has an implication in the cryptocurrency and the behavior of the customers whom the others of going to lend in the future. So we want to be a very prudent and a straightforward lender educating the customer that how important the EMI has to be paid back and how important your credit score is for you to go up. So it takes little bit more time. Be patient with us. As I said, the fruits are able to see in the current quarter itself, maybe 1, 2/4, we will see back back our good quality as well as the good growth.
Unidentified Participant
My last question would be on that, that as you, you know in the call you said that we have taken a larger steps. We have, you know, doing all the right things which we have to do. And from that perspective I’m asking that since the industry is growing at a healthy, healthy base and you know, we see the disbursement growth is going down. You have rightly said that you already eluded that you know, you will see the growth going forward. But since all the steps has been taken, did we see from a couple of quarters away, did we see the past growth which we used to do at 30. 30% is the. Yeah, yeah.
Srikanth Gopalakrishnan
Sanjay, like we said, see at this point are you able to hear us?
Unidentified Participant
Yes.
Srikanth Gopalakrishnan
See at this point of time like what we have been telling, we are setting our connections in place. You know, we can keep talking about why we are facing the stress for maybe one more quarter than what you know, others face. But yes, we started seeing this late and we are, we have taken cognizance of the problem. We know why the problem was caused. We have taken the necessary actions to address this problem. The actions are already showing us the results. So we are almost at the fag end of getting our strategies and actions in place.
Now post this. I think we will definitely start accelerating on disbursements and growth. What that number will be like we said we will probably come back to you over the next one or two quarters. This is probably not the right time for us to give you a number because we also need to get the complete confidence that this entire stress is behind us and then it will give us the confidence to push up on the growth. So you’ll have to wait for maybe another quarter for us to come back to you with what our growth plans can be for the future.
Unidentified Participant
Thank you so much for answering the question. Thank you.
operator
Thank you ladies and gentlemen. That was the last question for today. I now hand over the conference to Mr. Lakshmi Pati sir for closing us. Thank you. And over to you.
Lakshmipathy Deenadayalan
Yeah thank you all for patiently listening our voices which we reflect from the ground level activities what we have been doing. So let me repeat what I said in the opening remarks. We don’t look for a short term recovery. We want to be a long term and fully recovered lender from this debt crisis and behavioral crisis. So we are very confident in saying that we are at the fat end of setting all the putting all right things and seeing all right results in our favor. The last but the most easiest is to accelerate the growth.
Let me not comment on numbers. Let me not comment on guidance on that. As I said in the opening remarks itself, maybe next quarter we will start working on accelerating the growth. So thank you with you all. So see you soon on the Q4 best collections numbers with a very optimistic note. Thank you.
operator
Thank you on behalf of Ambit Capital Private Limited. That concludes this conference. Thank you for joining us. And you may not disconnect your lines.