Five-Star Business Finance Ltd (NSE: FIVESTAR) Q4 2025 Earnings Call dated Apr. 30, 2025
Corporate Participants:
Abhijit Tibrewal — Analyst
Lakshmipathy Deenadayalan — Chairman and Managing Director
Srikanth Gopalakrishnan — Joint Managing Director and Chief Financial Officer
Rangarajan Krishnan — Joint Managing Director and Chief Executive Office
Chandrasekhar Sridhar — Analyst
Analysts:
Mahrukh Adajania — Analyst
Raghav Garg — Analyst
Adityapal Singh — Analyst
Renish — Analyst
Viral Shah — Analyst
Divyansh Gupta — Analyst
Pranav Gupta — Analyst
Manik Bansal — Analyst
Shrinjana Mittal — Analyst
Sarthak Nautiyal — Analyst
Siraj Khan — Analyst
Unidentified Participant
Nikhil Agarwal — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and Welcome to Five-Star Business Finance Limited Q4 and FY ’25 Earnings Conference Call, hosted by Motilal Oswal Financial Services Limited. 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. I now hand the conference over to Mr Abhijit Tibrewal from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.
Abhijit Tibrewal — Analyst
Thank you. Yeah. Thank you, Manav. Good morning, everyone. I am Abhijit Tibrewal from Motilal Oswal, and it is our pleasure to welcome you all to this earnings call. Thank you very much for joining us for the business call to discuss their Q4 FY ’25 earnings. To discuss the company’s earnings, I am pleased to welcome Mr Pati, Chairman and Managing Director; Mr Rangarajin Krishnan, Joint Managing Director and CEO; Mr Kopala Krishnan, Joint Managing Director and CFO. On behalf of Motilal Oswal, we thank the senior management of for giving us this opportunity to host you today.
I now invite Mr Pathi for his opening remarks. With that, over to you, sir.
Lakshmipathy Deenadayalan — Chairman and Managing Director
Thank you. Yeah, thank you, Abhijit. Good morning, everyone and welcome everyone to our Q4 and for the full-year earnings call. I am happy to say we have done a commandable performance for the full-year and in the last quarter. As I said in my last earnings call, financial year ’25 was a challenging year both from business and regulatory environments.
We at Five-Star had forecasted well and done all the needed precautions. Our proactive decisions on growth and lowering the yields has helped us to navigate the tough times. Our focus was on quality growth rather than just growth. With this opening remarks, let me take you through the operational performance of. We have opened 19 branches in Q4 and our total count stands at 748 branches as of 31st March. For the full-year, we have grown — for the full-year, we have grown from INR9,641 crores to INR11,877 crores AUM at 23.20%. If the disruption in Karnataka from January to March was not there, we would have done our guidance of 25% growth, which I said in last earnings call. Disbursement grew 9% year-on-year and 55% quarter-on-quarter, which indicates the business environment are better now. So we are back with quality growth.
On collections front, our unique collections metric was at 96.2% in Q4 versus 96.7% in Q3 and collection efficiency was at 97.7% in Q4 versus 98% in Q3. There was a small step due to disruption in collections in Karnataka from January to March. On NPA side, the gross Stage 3 asserts have inched up from 1.62% to 1.97% in Q4. Again, Karnataka has played a on growing this NPA from 1.62% to 1.79%. Having said that, but I’m very confident that this will get stabilized in this next quarter. And still I can say that we have one of the good asset quality for the profile of customers whom we lend and average ticket size of between INR3 lakhs to INR5 lakhs. We stand one of the best asset quality lenders in the entire country. On the cost of borrowing, our incremental cost of funds have dropped to 9.29% from 9.56%, nearly 27 bps drop. This shows the confidence that lender has on and the rates are starting to come down.
The cost of borrowing on the book is at 9.63%, same as last quarter. On profitability, I’m happy — I’m again happy to announce we have touched four-digit profit-after-tax for the first time in the history of. For the full-year, we have done INR1,073 crores PAT against INR836 crores PAT for the financial year ’24, registering a growth of 28%. To commemorate this achievement, the Board also recommended a dividend of INR2 per share, which works out to 200% on face value and translating to a dividend payout of 5.5%, which is roughly around INR60 crores on the total profitability of INR1,070 crores. I would also like to assure that this would not have any major impact on our capital adequacy and our need for capital in the future.With this, let me close my initial remarks and hand it over to Srikan for getting into more details. Thank you.
Srikanth Gopalakrishnan — Joint Managing Director and Chief Financial Officer
Very good morning to all of you. As Mr said, I think given the headwinds that we have been witnessing, our results are quite commendable. We have been seeing headwinds both in the form of over-leveraged and also the disruption in Karnataka, especially in the last quarter. So given this context and obviously the results will need to be looked at from this context. The results are definitely healthy and commendable. To get into some details, as of March 25, we had an active loan base of more than INR4.5 lakh. This represents a growth of 19% on a year-on-year basis in the borrower count.
So we ended March ’25 with a branch count of 748 branches. We have added about 228 branches over the last 12 months, but this is largely due to the split branch strategy that we had undertaken where bigger branches were split into smaller ones or newer branches from a risk management perspective. Disbursements saw a growth of 9% year-on-year and 55% on a Q-o-Q basis. We consciously slowed down disbursals in Q4 to get to our premium guidance of 25%. And this quarter we are back on-track on disbursals. So the 1/4 has not really had any impact on our disbursals. Our ability to pull-back the disbursals has been demonstrated in the last quarter. So AUM grew by about 23% on a year-on-year basis. If not for the Karnataka disruption, we would have definitely achieved our guidance. But again, like Mr said, I think we are an institution that focuses on quality growth and not growing for the sake of growth. We ended March ’25 with an AUM of slightly short of INR12,000 crores.
We ended with INR11,877 crores. So from a yields perspective, our yields gradually keep coming down. As you would recall, we had dropped our lending rates by about 200 basis-points for all incremental loans from November, which will have an impact on the yield. So for the quarter, the yield dropped to 23.7%. The spread remained healthy at about 14.1%, there was no movement in the cost of funds because most of the funds that we took, we had taken in the last week of March. So despite the incremental borrowing coming at a lower-cost, this has not reflected in the book yet. But the good part is it will start reflecting on the book, resulting in better spreads. So the NIM also dropped because of yield drop coupled with some increase in leverage. So the NIM dropped 16.84% as compared to 17.19%. The cost-to-income, despite the headwinds that we are seeing despite the credit costs, let me see, our cost-to-income inclusive of credit cost still stands at less than 37%, it’s at 36.3%, which is well within our guidance of 35% to 37%. It’s adding stuff a little bit because typically in Q4, we also take some provisions for incentives for certain conferences that we will — that we will conduct for our employees. So given this, typically the Q4 expenses will tend to be slightly elevated.
This has resulted in an ROA of 8.04% for the current quarter. ROE continues to remain healthy at 18.36%. From a borrowing perspective, we have about 47 lenders who Are lend to us. What we had committed to you about four quarters back that the company has been looking at diversifying its borrowing base. I think it’s clearly showing very strong traction. We had dropped our borrowing from bank. The proportion of borrowing from banks has come down from almost close to 80% to 63% as of March ’25. So we had about 63% of borrowings from banks. And then in the last quarter, we had received incremental debt of about INR700 crores. Those are — we availed about INR1,100 crores, primarily on account of some older sanctions that we had. And this came in at an all-inclusive cost of 9.29%, which is 27 basis-points lower than the incremental — the cost of incremental debt that we had in Q3. We continue to carry good amount of liquidity on our balance sheet. We had a liquidity buffer of close to INR2,300 crores and sanction lines of INR100 crores as of March ’25. The collection efficiency did drop a little bit, but if you look at it from a contextual perspective, the drop is not very material. There was a 30 basis-points drop-in overall collection efficiency and about 0.5% drop-in our unique customer collection efficiency. There has been a slight increase in NPA from 1.62% to 1.79% on a quarter-on-quarter basis. Again, a slight in the Stage 2 assets as well. But what is also important to note is that we are carrying a healthy PCR on our overall book as well as on our Stage 3 assets. Our Stage 3 PCR remains at 51% and our overall PCR remains at 1.63%. So given the situation, we’ll continue to create appropriate levels of provisions on our books that can sort of insulate the company from any shocks in the future. All of this represented in a PAT of INR279 crores, representing a 18% the year-on-year increase. For the full-year, like Mr said, we have crossed the PAT of INR1,000 crores. This is a really memorable achievement and an extraordinary achievement in the life of any company. We had a net-worth of over INR6,300 crores as of March. So I think we are very — we are very, very healthy from a capital perspective. There has been a little bit of asset quality impact, but if you look at it from a contextual perspective, I think we have delivered quite healthy results. What gives us confidence is the easing of interest rates, which will definitely mean lower-cost of funds, the tax that have been given for the middle-income people, which means there will be more money in the hands of people for consumption as well as investment, which means our borrowers’ businesses will go up. So I think this definitely should start — we should start seeing the demand picking-up, which will result in a healthy growth, good asset quality and a strong profitability for the company in the quarters to come. So with this, we will let our happy to take any questions.
Questions and Answers:
Operator
Thank you. 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 your touchstone phone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets only while asking a question. Ladies and gentlemen, we’ll wait for a moment while the question queue assembles we have our first question from the line of Maruk Adajania from Nuvama Wealth. Please go-ahead.
Mahrukh Adajania
Yeah, hi, good morning. I had a couple of questions. Firstly, you did mention the impact of Karnatakaan collection efficiency. So is that the only reason why your ex bucket and even your total collection efficiency is lower Q-o-Q? Or is that the only reason? And how do we look at it going ahead? Especially after the Tamil Nadu ordinance? So that’s my first question. And then I have a few more questions.
Lakshmipathy Deenadayalan
Yeah. Good morning, Maruk. Yes, you’re right, the impact of Karnataka ordinance was completely unexpected. No one was prepared for that. So till mid of Jan, this was as normal. So by the end of Jan, the draft ordinance came into — came into picture and the ordinance were introduced in the February month that had an impact till 10th or 15th of March. So we have bounced back very well in the month of March itself and this month we are bouncing — bouncing back better. That is one major reason. The another general reason is the over leverage crisis, which we have been talking for last two quarters is still prevailing. It’s not that completely they have gone. But I’m very happy to say that small-ticket lenders both from fintech and microfinance, we have stopped substantial lending to this segment.
So the over leverage, the threat of more overlay leverage is gone now. That’s why if you see our disbursement and business were back as usual. So I will say two-third contributed from Karnataka and one-third contributed in general.
Mahrukh Adajania
Okay. So is that — will that one-third ease anytime soon or it will take time only?
Lakshmipathy Deenadayalan
As I mentioned in last earnings call, let me recollect what I have said is, I think the guardrails, what microfinance and other small lenders have put in-place as to first put in — as to come into act. I think I have heard something in last week saying that, that is deferred to first June or 1st of July, whatever it is. So I think that is the first indication that the over leverage is completely stopped and more leverage comes down gradually. So I’m expecting at least from the June month or the July quarter, the small-ticket lenders, unsecured small-ticket lenders, they follow the guardrails what they have, the self-regulated organizations have been put in-place. So I think that’s the first indication. I’ll be looking very keenly. Second, I think since I have been saying that even though we lend between 3 lakh to INR5 lakh ticket size, we are fully secured.
So the behavioral aspect of customers remains completely different when they handle secured lenders. So I think we will be navigating this crisis helped with a healthy collections that has been shown on quarterly and monthly. So this will be prevailing for at least for two next two quarters is my guess.
Mahrukh Adajania
Okay, got it. And just in terms of your guidance, so now AUM growth will settle in the 25 range or do you see it picking-up to 13, maybe two years because the size still remains low, right? So how do you view your —
Lakshmipathy Deenadayalan
So this year also, I think we are giving a guidance of 25% what we gave last year-after October, till things get settled. So we have to see how the new Tamil Nadu which have passed, but we are well-prepared in Tamil Nadu. It’s a home state for. We can handle any kind of situations here. And let me tell till today, morning, the situations are completely under control. There is nothing that whatever we have seen in Karnataka, nothing has happened till now. But this is a state of bigger banks and bigger NBFCs. I think our state government will be very clear. And as I read initial draft — draft bill, the regulated entities like banks and NBFCs are completely excluded from this ordinance. That’s what the bill said. We have to deep-dive into the bill and see what are the implications. There will — there will be some kind of disruptions, but not like what we’ve seen in Karnata.
That’s the confident statement that I can keep.
Mahrukh Adajania
Okay, sir, sir, and I have a the last question, how do you look at-cost of funds from here on as and that when we build-out for the future for FY ’26, can we build and how much lower?
Srikanth Gopalakrishnan
So think what is currently coming out is, see, especially the first repo rate cut that happened, there has not been much of pass-on by the banks through lower MCLRs. But after the second rate cut, we have seen banks already starting to drop their SAR rates and deposit rates are also going down, which is a logical point for the MCLR drops to follow. So and the other point is also that over the last few days, the expectation of the market in terms of interest-rate drop during this year has gone up quite a bit. Originally, we were all thinking 50 to 75 basis-points, but today, I think people are talking a lot higher. So our belief is that on an incremental basis, we should at least see 25 to 30 basis-points of benefit coming through to us. We also have about 65% of our book, which is variable-rate, out of which roughly it is 50-50, MCLR live will be about 50% and EBR link will be about 3%. So even we should start getting — we should start getting benefits on reduction Because of MCLR drops. So my sense is, I think we should see a good reduction in cost of funds both in on the incremental debt as well as on the book in the next year to come. What is that proportion at this point of time, we just wait for banks to come down with their thoughts on the MCLR. But I think it should be a fairly sizable number is our — is our hope and gets.
Mahrukh Adajania
Okay, perfect. Thank you so much.
Operator
Thank you. We have our next question from the line of Raghav Garg from Ambit Capital. Please go-ahead.
Raghav Garg
Sir. Hi, good morning and thanks for the opportunity. Firstly, I just wanted to understand your thought process on ECL provisioning. Stage 1 and 2 provisions have come down despite stress rising. So I just wanted to understand that wouldn’t it be prudent to provide more or create some overlays in such a scenario?
Srikanth Gopalakrishnan
Rather, we are creating good amount of overlay. The only point is, if you really look at our PD and MGB rates, these are fairly low. In fact, our NGD on one of our biggest segments will be sub-20%. So when you have a sub-20% LGD, that means you are effectively going to be creating only 20% provision on your Stage 3 assets, right? But if you look at our Stage 3, we are carrying 51% of provision. Obviously, we want to be conservative and there is also some bit of an input from the Reserve Bank of India on this where they are sort of expecting the NBFCs to keep their provisions on Stage 3 at around 50%. So a lot of our overlays actually go towards the Stage 3 assets, which means you can’t keep creating too much overlays on a Stage 2 as well. But this quarter, we have also created a good amount of overlays on the Stage two assets where, let us say, a zero DPD customer at the beginning of quarter did not pay any installment during that particular quarter, we have created overlay on such customers.
So there is a small portion of such customers because of the over leverage and Karnataka disruption we have seen during this quarter. So there we have created overlay. But given the low ED and low LGD, there is a little bit of a constraint in terms of creating too much overlays on Stage 1 and 2. See, Stage 3 is relatively easier because if there is a deep delinquent account, we can just overrule the LGD and create a 100% LGD on that. But that becomes a little difficult to justify when it is a Stage 2 account. And in a Stage 2 account, the proportion is also high. So you start creating an overlay, it adds to too much of provision. See, our belief is a provision of 1.5% to 1.7% is a very strong provision for a secured loan portfolio like ours. Now how do you distribute this 1.5% to 1.7% is what the company takes a call-in with the Board and the statutory auditors. So there will be some ups and downs that you’ll probably see in Stage 1 or Stage 2. But I think this is a consistent messaging that we’ve been given for the last few quarters.
In fact, last quarter also I said that we will be more focused on the overall provision coverage rather than being — rather than too much on what should be the Stage 1, Stage 2 and Stage 3. Stage 3 is a little bit regulatory-driven. So we will probably maintain around 50% on Stage 3. The balance will be driven to Stage 1 and 2.
Raghav Garg
Understood. That’s fairly clear. The other question is, why has the ticket size gone up this quarter? Is that entirely an impact of low disbursement in Karnataka? And is that it or there’s something else to it? Because I think in last couple of quarters, you mentioned that you’ll try to contain your ticket size, right? So in that context, I just wanted to understand this a bit better.
Rangarajan Krishnan
So Raghav, the ticket size going up is a very conscious strategy. So we have been guiding over the last few quarters that in general, if you look at it, five-star ticket size will be trending more towards 4 lakh to INR5 lakhs rather than being around 3 lakhs. Pre-COVID, we were about INR3.5 lakhs and we were guiding you that the ticket size will grow at least at an inflationary rate year-on-year. So more-and-more, I think the sweet-spot for 5-star seems to be between INR5 lakh to 10 lakhs rather than consciously focusing on very, very small-ticket of sub 3 lakhs. So sub-3 lakhs also this — even this over leverage crisis exposed very clearly that people at sub-3 lakhs are the people and the vulnerable segments which got most affected because of the over leverage.
So there is a conscious strategy at least on in terms of incremental disbursements, can we move more-and-more towards a little bit higher-ticket prices and thereby get the overall average ticket prices up. So this is something that you will see trending in even in the future. I don’t think we are changing our customer segments because even earlier we were present in this segment, but just that the importance and the focus that we are giving to this ticket size segment is a little bit higher than what we used to do earlier. So I think the average ticket prices will tend to move-up and go closer towards 4.5 lakhs as we see that in the next few quarters.
Raghav Garg
Understood. No, the only reason I’m asking is because we — even specifically you had stated that you would try to control the ticket sizes until the situation is over. So should we understand that things are improving at a faster pace than what you had expected initially and hence the call on increasing the ticket side.,
Lakshmipathy Deenadayalan
What Ranga said is the profile of customers remains the same, but we have started to pick the higher category of profit of customers in last few months. So if you see, the addition of number of customers or loans to five-star stands at around 4% in last quarter, whereas the growth is at 6.25% in last quarter. Generally, if you see earlier quarters, this — both the numbers will go hand-in-hand. In this quarter, you see the addition of new customers to stands around 4% to 4.5, whereas the growth is around 6.25%. That shows the ticket size is slowly inching up to the better profile customers in this segment. So it is not that what we said in last two quarters, increasing the ticket size of the same profile of customers to whom we have been dealing with that we have still contained it, but we are picking the best better customers in the profile of — in the category where we lend.
And we will be within the range-bound of INR3 lakh to INR5 lakhs. That is the sweetest spot of where you see lesser competition and really it’s a — it’s a challenging underwriting and collections that has to be taken part. So there is no change in that.
Rangarajan Krishnan
Now just one point to add-in this is, as we reduce the interest rates, it’s also helping us be that much more appealing towards this slightly higher-ticket size segments and go focus towards them. So a combination of all this is helping the ticket size improve a little bit as compared to the previous quarters.
Raghav Garg
Understood. Okay, thanks. And do I have — can I ask one more question here?
Lakshmipathy Deenadayalan
So yes,.
Raghav Garg
Yeah. So any thoughts on pricing? This is a question that we keep getting very frequently. But any thoughts on reducing it further, will you keep it here? Or I think not so much from a pricing point-of-view, maybe from a spreads point-of-view, you know, what are your thoughts? I think right now you’re lending at 22%, right any thoughts of reducing it further?
Lakshmipathy Deenadayalan
, in my initial comments, I said proactively we have taken a call two quarters ago, reducing the rate of interest. I think that stands good for. I think we have brought down on a sizable and good from a lending perspective. I don’t see we will be doing it. But as Srikant said, we will be expecting the bank borrowing to come down in this quarter. As I said, comparing to last quarter itself, close to 25 bps have come down, incremental borrowing. Those incremental benefits what we get from bank, I think we and Board will take a joint call saying that how much it can be passed on to the new customers.
Raghav Garg
Thank you. That’s all from me.
Operator
Thank you. We have our next question from the line of Singh from MSA Capital Partners. Please go-ahead.
Adityapal Singh
Hi, hello.
Lakshmipathy Deenadayalan
Yeah, we can hear you. Please go-ahead.
Adityapal Singh
Thank you so much. Great performance. Congratulations the team. So a quick couple of questions. When we look at the deterioration of the collection efficiency, so you highlighted in your commentary that some part of it was because of Karnataka ordinance and some part of it was because of cash-flow problems or over leveraging problems in the — in some part of our customer-base. So if I were to say it, is it largely the 70 basis-points drop-in our collection efficiency Q-o-Q largely because of the Karnataka issue or there is some fundamental underlying problem with the cash flows of our Customers?
Lakshmipathy Deenadayalan
Yeah,, I recall what I said to the earlier questions is that the drop-in collection efficiency from 98% to 97.7%, it is a drop of 0.3%, just 0.3% quarter-on-quarter. That’s predominantly due to 2.5 month effect. It started in January and it — now the normalcy is coming back strongly, but in March month we bounced back very well. So that is the two-third impact and the balance impact is that in general, the stress in the system still prevails. It is not increasing, but still it prevails. So gradually you’ll see some kind of collection dips here and there in some pockets from certain customers. So both put together only that 0.3% drop you see in collection efficiency comparing to last quarter. And that general trend, I think will still remain in next two quarters, not the Karnataka one, that is that there is almost we are able to settle it very well. But the general trend in the system, especially in the middle and lower-middle class profile of customers will be — will be there for next two quarters is my guess.
Adityapal Singh
Understood. And just harping on the asset quality point again. If I look at all the asset quality indicators, be it Stage 2, be it 30 plus, be it a GNPA with one year lag and two-year lag. There has been a on last four consecutive quarters, we’ve seen it deteriorating. How much would you say that this is because of the the problem in the microfinance and unsecured loan part or I would say that the control that has happened that is that the guardians that have come in because of which the growth has slowed down in these pockets.
Lakshmipathy Deenadayalan
Aditya, our guidance, if you recollect our guidance for past many years and when we become listed, we said our cross NPA will be sub 2% because please understand we are not lending to the best of best profiles of this country. We are lending to a middle and lower middle-class people where their underwriting is was challenging and was challenging. As I said, even our asset quality has inched up to 1.79% still I feel and I see which is one of the best asset quality to the segment of customers whom we lend. So our guidance will be our Stage 3 assets will be sub 2%. That’s where our guidance always stands. Having said that, the overall credit cost, our guidance will be sub 1%. This is where the range that we like to operate and as someone indicated, our lending rate is at 22% and our return on assets are at 7% to 8%. So keeping in mind, asset policy at 1.77-ish percent is commandable a position in the market.
Adityapal Singh
And sir, just last two questions. So when I look at the branches, so in Q1, we had added — that is FY ’25, Q1, we had 27 branches. So what was the split branches in that far in that number and for FY ’26, how many state branches are yet to be completed?
Srikanth Gopalakrishnan
So Aditya, rest on an overall basis, if you look at, we are close to about 750 branches. Now out-of-the 750 branches, we’ll have roughly about 150 branches in just branches. Now majority of the branches which got opened last year. Last year we opened 228 branches, out of which 150 branches are split. We had explained this in the past and I’m just recontrolling that.
Adityapal Singh
Just wanted to data points.
Srikanth Gopalakrishnan
Yeah. Relating the strategy again, the first part of what we wanted to do as part of the split strategy is any branch which has more than 1,500 customers, we’ve already focused on them and then split it. That part of the split is largely over. Now we have a few more branches between 1,000 customers and 1,500 customers. This is a split that will continue to happen this year as well, but definitely it may not be as high as what happened last year. So in general, we are good to open about close to 75 to 100 branches every year, including the split branch. So I think we will stick to that same guidance as far as this year is also concerned.
Adityapal Singh
Understood. And sir, this — in the balance sheet, there is a capital working of INR62 crores. And another last question would be that a new state has been added. If you can just help me understand these last two points.
Rangarajan Krishnan
See, the capital asset is a building that we had purchased for construction of head office. So that will come up over the next few years because this is a place that we have purchased, you need to demolish the existing building and construct. So that is the capital work-in progress that you’re seeing there. I didn’t understand, we have added the Gujar state. What is your question?
Srikanth Gopalakrishnan
We wanted to understand which state, we have opened Gujarat, we have the first branch there in Ahmedabad.
Adityapal Singh
Understood. Understood. Thank you so much. That’s all from my side.
Lakshmipathy Deenadayalan
Yeah. Thank you.
Operator
Thank you. We have our next question from the line of Renish from ICICI. Please go-ahead.
Renish
Yeah, hi, sir. Good morning and congrats on good set of numbers. Also just two things. One of the sort of clarification sides, I will take that first. See, in terms of its ticket size and all, I think, of course, you did mention that INR3 lakh to INR5 lakh will remain a sweet-spot for us given the kind of yield and the credit cost. So on this adjusted basis, obviously, obviously beating the profit driver. But when we are saying that incrementally, we’ll move towards better-quality and higher-ticket size in the same customer segment to INR500 to INR1,000. So how one should think in terms of AUM mix changing over the next two to three years, have you given there is a bit of a change in strategy?
And obviously, 5 lakh to 10 lakh segment is more crowded than some highlights to the city, especially in TN, wherein even large NBFCs are also operating in same segment at a significant yield. So how one should think in terms of AUM mix changing? And also, will this have any corresponding impact on the yields which are at 22% currently?
Lakshmipathy Deenadayalan
Renesh, so let me go a little deeper into it. As we stand today, the ticket size of more than INR10 lakhs constitute close to 10% — sorry, 5% of our overall book, 5% of our overall book. And the majority of our book stands at below 5 lakhs. And some good amount of book stands at below 3 lakhs. What we are trying to do is below 3 lakh segment, we are trying to be little careful in these times and start focusing on the ticket size around INR3 lakh to INR5 lakhs more. So that is the first scenario. That is why you see the ticket size have gone up little INR50,000 from quarter-on-quarter.
Having said that, what Ranga mentioned was we will be also focusing on above 10 lakhs cases, but not in a big way. Maybe the overall above 10 lakhs, which stands at 5% now can go up to 7%, 8% in next one year or two years.
Srikanth Gopalakrishnan
So, just want to add. I think more than the focus that we’ve given greater than 10 lakhs, the focus will be a little more on 5 lakh to 10 lakhs. So what you’re seeing is about 13% of 5 lakh to 10 lakhs today that can even. So you know what is — and what is top 3 lakhs today, which is roughly at about 32%. If we are able to move about 5%, 10% of our book from less than 3 lakh proportion to 5 lakh to INR10 lakhs. So the way we probably look at it is less than 3 lakhs will be more around, let’s say, 20% level and more than 3 lakh or INR3 lakh to INR10 lakhs will be the large portion of our book. Today, you have one-third of our book in less than INR3 lakh. I think we want to cut that to maybe around 20% or 25% in the in the near-future.
Renish
Got it. Got it. Got it, sir.
Lakshmipathy Deenadayalan
And on the pricing side also, as we said, the yields drop, what we did four, five months back, that will also help us to get into a better ticket size segment and more focus will be on INR3 lakh to INR5 lakh segment. That will be the predominant book of 5-star.
Renish
Got it, got it. So basically, we are not changing the strategy maybe given the current time bearing below 3 lakh is appearing more vulnerable, so we are sort of changing that mix to 10% between 3% to 5 and 5 to 10. I mean that is the fair assumption, right?
Lakshmipathy Deenadayalan
Yes, yes, yes, yes.
Renish
Okay, okay, got it. And Now, sir, secondly, on this Kamilla issue, and I’m just sort of are drawing lines from the product again, how it impacted our book, right? So given only 6% exposure in Karnatak, you know, we saw at least a quarter facing a problem. And obviously, TN issue will be far lessure in terms of impact versus, but at the same time, we are almost 50% in TN. So how — how are you confident that Q1, Q2 sort of will be at bar with your assumption in terms of credit cost and asset quality? Because when you are saying that we’ll be able to maintain credit cost at 1% essentially means that we are actually not factoring any of the issue from PN. So how one should read this?
Lakshmipathy Deenadayalan
See, as I said in earlier question, the Karnataka was completely taken by surprise. So yeah. So that circumstance is not prevailing in Tamil Nadu as we speak now. So none of our employees from Tamiladu branches have reached out to Ed Office talking about this bill. So that means it’s very clearly contained and people have understood that banks and NBFCs are excluded from this. But having said that, there will be some kind of pressure, little bit of disturbance at the ground level. We can’t say there is nothing can happen.
For that, we have to wait-and-see. Maybe, 15 20 days from now can emerge as a clearer picture in Tamil Nadu rather than today. But my hope and confidence is Tamil Nadu is the home of many big lenders, both banks and non-banks, right, right. So in India, we are very acute here and the connectivity, brand setup, people all are well acute to handle any circumstance. And being a hometown, that gives me a confidence that we can handle it far, far better than Karnata.
Renish
Okay, got it. And sir, just maybe follow-up on that. So maybe asset quality, collection, etc might impact and sort of spent out as per our expectation. But just the thought that — I mean, as a cautious stance, are we thinking to recalibrate disbursement in P&L at least for Q1?
Lakshmipathy Deenadayalan
So as I speak now, we have not taken any decision on lowering the disbursement. The disbursement will be, as mentioned in Q1 for Tamil Naru. As I said, 15 to 20 days will give us a more clearer picture. If there is a need for that, definitely we’ll be proactive on that.
Renish
Got it, got it. Okay. Okay. Got it, sir. This is very, very helpful, sir. Thank you so much for giving answers. Thank you.
Lakshmipathy Deenadayalan
Thank you. Thank you.
Operator
Thank you. Thank you. We have our next question from the line of Shah from IIFL Capital. Please go-ahead.
Viral Shah
Yeah, hi. Thank you, sir for the opportunity. And first of all, congrats on, I would say, good set of results given the convin that we are in. Sir, I had a few questions. Just first one follow-up to your comment with regards to yields, basically you taking into account whenever the banks pass-on their benefit. Correct me if I’m wrong, but you had actually mentioned that you had proactively passed on this 200 bps of rate cut ahead of the, say, anticipated reduction. So with this reduction in cost of funds coming through, do we further anticipate I would say, incremental yield lending rate cut-over the next, I would say, six, 12 months.
Srikanth Gopalakrishnan
So Viral, I think what we meant as proactive was driven by us. But if you really look at our cost of funds, let’s say, two, three years back and where we were when we dropped our, it had actually come down from about 11.5% to 9.5%. So there was a benefit that was required to be passed on to the — to the borrowers. The only point was given the uncertain times, interest rates were moving up or rather they were not cooling off, you are seeing risk rates having an impact on possible capital and interest rates. So given the uncertain times, we had actually been pushing, but then when we were seeing that the regulator might step-in or is getting a little uncomfortable with the kind of rates that entire NBFC industry was operating at.
We proactively dropped the rates. So that is what we meant by proactive. Now we will definitely keep watching the space as and when we get a benefit that is — that we believe is longstanding. See, in this segment, you cannot keep dropping the rates and then pushing up the rates for on a quarterly basis or on a half yearly basis. Once you drop the rates, it has to be there for a long period of time. So when we believe that the benefit in cost of funds is longstanding and is permanent for us. Definitely on a proactive basis, we want to pass it on to the customer. So when we mean by proactive, it is not like at the insistance of somebody, we want to do it on our own. So that’s the intent.
At this point of time, again, just giving you a little more clarity, we believe that the rates that we are operating at and not just the interest-rate result, it’s including the processing fees and others, what you call as the portfolio rate or the average annual percentage rate APR, I think from what we understand this, we are at a range which is comfortable to the regulator also. So there is no additional action that is required from the company’s end at this point of time. We will keep evaluating the spreads. And if we see that the cost of funds is dropping materially and in a longstanding manner, definitely take the call to pass-on that benefit. But our thought at this point of time is that maybe this may not be required for the next three to four quarters.
Viral Shah
Got it. This is very clear. And just one more follow-up on that. Now that the regulator has again reverted the risk-weight on-bank lending to NBFCs, do you anticipate and want to say again go towards bank borrowings given the advantage that it has been a floating-rate book plus the relative ease of getting it?
Srikanth Gopalakrishnan
So your point is balance. In fact, we had a fairly detailed discussion internally on this yesterday at our Board meeting as well. So given that the regulators may not be too fussed about diversification, obviously, internally from a risk management perspective, we want to keep a diversified borrowing book. So it’s not like this is going to go back to 80% of bank borrowing again. But yes, given that the regulator may not be too pushy and the fact that it’s a declining interest-rate scenario, which means bank borrowings will come in lot cheaper. The risk base has not really had an impact on us.
Even when the risk rates increase, we were able to push-back any increases that the banks wanted. So I don’t think that had any major impact. But with the interest-rate cycle turning, definitely bank volumes will be a lot cheaper. If you look at Q4 where we had borrowed, we had — we have taken a lot of bank sanctions out of that, which is why you’re seeing a 27 basis-points drop-in the cost of incremental debt. So given that perspective, I think we will want to be a little more biased in favor of banks. So whether 63% proportion of banks will continue to keep dropping, it may not. Maybe we would like to operate at a 65% to 70% bank proportion, which will also give us a good benefit of the cost of funds.
Viral Shah
Got it, Srikant. And two more questions, I would say, for Mr Pathi or Ranga. If you can see, if we just take a step-back from all of this crisis, maybe it will take another two quarters or four quarters, whatever it is, but does this structurally increase the, I would say, the TAM and the ability for us to grow given there, I would say, relative pullback in the credit availability for those bottom of the pyramid customers? And are you seeing some of that happening already given that we are now probably now 12 months into the cycle? Just some from a medium-term perspective, any color if you can give on that?
Lakshmipathy Deenadayalan
So we are very optimistic on total addressable market. There’s no change on that perspective. But if you see the lower-middle class people where the leverage has gone up, I think fairly for last six months, the extra leverage was not building up. To that extent, the credit which was flowing very freely to them was completely pulled back, especially by the small-ticket unsecured lenders, fintechs and microfinance. So that we are able to see from our new applications which we are receiving on a quarterly basis. So that is a very encouraging signal. That is what I said in Q4, the business environment is looking better and this better will become better and better if you move quarter-on-quarter. But having said that, the guardrails what was being brought in by the MFI Has to be implemented. If that gets implemented, two things will be positive for. One is the credit demand will be — will be high because usually what they were getting from microfinance, the supply is now coming down. So that brings in a good-quality of customers to pick and choose from even below 3 lakhs segment. That is one positive. Second thing since over leverage is contained, the cash flows remains healthy in the rural market, our collections will be stabilized.
Viral Shah
Got it. And on your comment, sir, with regards to the MFI getting implemented, has the 300 cap not been implemented? Because our sense was that it has already gone into effect from 1st of April,
Lakshmipathy Deenadayalan
No. I think as per my information, what I have been received a few days back, it’s been pushed to June or July. But I’m not into that point because you have to check with the microfinance organizations.
Viral Shah
Fair enough, sir. And sir, last, if you can just give some updates on our medium-term strategy to say getting into another product, say affordable housing, what is the thought process and over there or is it too early right now to discuss that?
Lakshmipathy Deenadayalan
Yeah. I will not say it’s too early because we have been discussing this product all the while because it’s a 100% or more than that complementary to the existing product that what we have, mortgage loans to business and non-business customers. Definitely we will — you’ll see some kind of strides that we do organically in. Maybe we’ll at least start-up that initiative in the later part of Q3 or Q4 of this financial year to begin organically getting into that product with our existing branch network. As you see, we have close to 7,000 employees in business and collections and 750 branches network spreading across more deeper in South. So I think that gives us a easy runway to get into this product, which we have been talking and thinking for a long-time.
Viral Shah
Okay. Got it. And sir, in the — then when you do that, at least in the initial stages, I know you will be utilizing the same branch network and all, but it will require some bit of additional resources and processes to be there. Should we anticipate, say, some increase in your opex over once you start that for, say, a year or so?
Lakshmipathy Deenadayalan
Viral, that is too early to answer that. You asked my thought process, I told you the thought process how we are — will be planning at least later part of this financial year. We have to look into it. So a lot of these things will be addressed at that point of time.
Viral Shah
Got it, sir. Fair enough. Thank you and all the very best.
Lakshmipathy Deenadayalan
Thank you.
Operator
Thank you. Thank you. We have our next question from the line of Madan Gopal Ramu from Sundaram Alternates. Please go-ahead Mr, are you there? Mr Madan, are you there? We’ll move on to the next participant from the line of Devyansh Gupta from Latin Advisors. Please go-ahead.
Divyansh Gupta
Hi. One couple — one data point question. So what would be our total non-collection employee count of that 66 89 and the associated question is that if I look at the per loan per business employee, at least in the last quarter, it was one loan per month. So does it mean that for any scale-up, we will keep on increasing our headcount or is there a headroom in increasing this productivity?
Lakshmipathy Deenadayalan
So let and Ranga give the answer for the first one which you asked. On the second part, in general, when we move-up to INR12,000 crores of AUM, the general metric was our tar employee, the AUM will be around 1 to 1.25. That was our historical average. So we will be getting into that 1.25 crore AUM per employee. So that’s our endeavor. That’s also one of the reasons where the ticket size are moving up will help us to get into that INR1.25 crore per employee loan. That’s our comfort.
Rangarajan Krishnan
But the total number of business officers alone at the end of last quarter was 4,889. So Rod, we also ended-up disbursing last quarter 37,85 loans. So if you look at it on an on an average, every officer is doing about 2.6 loans per month.
Divyansh Gupta
Sorry, you said 4, 8, 89, right?
Rangarajan Krishnan
Yeah. 48, 89 officers disbursing 37,855 loans, translating to 2.6 loans per officer per month.
Divyansh Gupta
Got it.
Rangarajan Krishnan
This is what happened in Q4. Yeah.
Divyansh Gupta
Got it. Got it. Understood. The second one was that in the last con-call, someone had asked and we had mentioned that our average score is around 550, right? So if, let’s say I divide this into a spectrum of saying NTC and more than 650 and whatever remains, else. So what will be that distribution? And is there a — is this a specific, let’s say, underwriting policy and it is a part of the strategy itself to target a lower-single customer because then other banks are not lending to him, he only has an option of going to a money lender and therefore five-star wins with its products and offerings.
Srikanth Gopalakrishnan
So I think the completely new to credit we have been telling in December broadly remains flat and what we’ve been telling is about 25%. You will probably see about 10% of the people, 10% to 15% of people who are at 650 and above or maybe 700 and above. There will be at least 50% to 55% to 60% of our borrowers who are probably operating anywhere between 400 to 550 or 400 to 600. So see, the people who are, let’s say 700 and above or those they are being to by the larger NBFCs, banks, they’re getting higher quantum of funds, they’re getting cheaper funds. So that is not the target market for us. Our target market is either a person who is coming to the formal ecosystem for the first time for this size of loan.
You could have borrowed a product to like a microfinance or a gold loan, but for this size of a loan and a secured loan, we are probably the first lender to almost 90% of our customers. So we will continue to focus on this segment, the 80% being NTC and people with sub let us say, 550 to 600 kind of a credit score because these are people where the target market is high where we are able to command a slightly better pricing leading to better profitability and there are also not such alternatives available for them. So they will continue to be our target part.
Divyansh Gupta
Then will this also be for our home loan or home loan because at least in a lab, you know there is a — there is a house that you can go and take, whereas in a housing, he is actually putting in equity and building a house and therefore, the collateral is not necessarily of — I won’t say perfect from a documentation perspective, but it’s not ready, right? So will this change from a — from a home loan perspective if there is any thought on it.
Rangarajan Krishnan
Viyash, two points. Firstly, I think definitely the home loans profile should definitely look better than this because the yields are not going to be the same. So we cannot operate the same level of risk. If the risk-reward has to work-out in your favor, then obviously, we are going to target a slightly different set of customers from a loan perspective. But like Mr Pathi put it, we have enough time to think and put the product strategy for it. It’s not happening at this point of time. We still have a couple of quarters away. But broadly, the thought process is very clear that we cannot target the same set of customers here. But I think I also want to add a second perspective to what Srikan just said. Just because we are going and targeting as somebody with an average score of 550 does not automatically mean that the customer is a high-risk customer. Over the years, we have understood as to how to glean these customers and see how two customers having 550 score is not the same. Somebody could be having 550 because he has defaulted on a secured private lending loan and somebody would be having INR550 scores because he has secured on a gold loan or let’s say, a government-guaranteed loan.
So we don’t view the — we don’t give this to customers very, very similarly. And I think over the years, we have sort of understood as to which is an acceptable risk for and which is not an acceptable risk for 5-Star. So that gives us the edge to go to this customer segment even with a core of 550 and ensure that we are not as risky as what it is perceived in the general trend in the market. So I think if you keep this perspective Perspective, it’s slightly different targeting segment that strategy that we adopted 5-star.
Divyansh Gupta
Understood. Understood. Two more questions. One is a very basic data question. So in the call, we have mentioned more than 10 lakh AUM is around 5%, whereas in the presentation, it’s around 1 and zero for automotive, it’s 1%.
Lakshmipathy Deenadayalan
So you’re right. I think 5% was a little more mentioned, but it’s about 1% to 2%. It’s 1%.
Divyansh Gupta
Got it. Got it. And the last one is that if I looked at our lagged NPA numbers, so the level of, let’s say, 30d — two-year lagged NPA is around 3.7, which is at least from the presentation perspective that we have been disclosing was, let’s say, last year in September of ’20, which was, let’s say, a natural disaster not planned and not under our control, right? So it is reaching those levels. So while I understand there might be a Karnataka led noise, right, but Karnata, let’s say, two years ago was also 7% or 6% of our portfolio. So it cannot be only Karnatka. So one is how should we read into this and what are the actions we are taking to bring it back to, let’s say, a more comfortable number?
Srikanth Gopalakrishnan
So firstly, when you said Karnataka was 6%, 7% even two years back, we are not talking about Karnataka’s proportion. It is 6%, 7%, it has been for the last, let’s say, two, three years. But today, the level of NPA in Karnataka is higher than what it was two, three years back. So that is what is contributing. So if you look at our absolute NPA itself, it has gone up this quarter, right? And in the last couple of quarters, we have been — we have been seeing a little bit of impact on our portfolio. And when you compare this with a two-year lag, it will obviously look a little worse. See, our guidance to you on a two-year lag is it will be anywhere of the 1.3% that you are seeing in Q4 FY ’22, I think those are not sustainable. We are saying the normal NCA numbers for this business model is sub 2%, which means if you are looking at a two-year lag and I’m assuming 25% growth on a year-on-year basis, it should at least be 3% to 3.25%. So even in the current quarter, we are not way off on a two-year lag NPA number, but we would like this number to be more around a 2.5% to 2.75%.
And obviously, we are — there have been some disruptions, but we are taking the necessary action to bring this down. So with the portfolio moderating, you will — I don’t think you will ever see a 1.3, 1.4 kind of a two-year lag numbers and all that. We’ll probably see that in a normal NPA. A two-year lag will probably work more around a 2.5% to 3% number
Operator
We have our next question from the line of from Fidelity International. Please go-ahead.
Chandrasekhar Sridhar
Hi, good morning. So can you just remind us on the changes in the yields, which you had done? There were some thoughts around not having a blanket reduction, but changes in yield basis of the quality of the customer sort of trying to tell essentially to the regulator that you know, there’s a lot more times behind the pricing. Is that in-force as of now? And how does that play through in the context of, given that some more increase in ticket sizes, does that mean that the customers who are now coming closer to the 7, 8 lakhs will come at lower than the 200 bps reduction as a result.,
Srikanth Gopalakrishnan
When we — when we revised our interest-rate model at the time of reducing the rate, we had clearly gone to a risk-based pricing and no, short answer to your question is it is in. So the range of interest rates is anywhere between 21.5% to 22.95%. So the blended yield comes to about 22 quarter to 22.5%. So which is where we said it is a drop of 200 basis-points on an average basis. But there is a customer who today could get a 21.5%, there is a customer who can get close to 23%. So it’s a completely risk-based pricing depending on the score of — the credit score of the borrower, depending on the end-use of the loan that we give to whether we can classify whether it’s priority sector loan or not.
So clearly, it’s a risk-based pricing which is involved. See, our belief is the current drop-in interest is reasonable enough for us to even look at a slightly better profile of customers. So it doesn’t mean that if we have to go to a better profile of customers or given the fact that we are going to a better profile of customers, there will be more yield drops that we have to come. The current drop itself is sufficient to attract a better-quality of customers within the overall customers target that we have. So at this — that’s why we said at this point of time, we are not energing any further drop-in interest rates. I think the difficult because not further
Chandrasekhar Sridhar
Drop the question of the mix changing with the mix changing and given that you’re waking with rather than a blanket or you’re working with a range, you’ll have more customers coming in at the lower-end of the range is the question.
Srikanth Gopalakrishnan
I think we are
Chandrasekhar Sridhar
Indirectly sort of seeing the mix.
Srikanth Gopalakrishnan
No, I understand. We have seen that. So today, when we said it’s a 200 basis-points drop, our average lending, which used to be at about 24.5% or so prior to November, today it’s coming more around 22 quarter to 22.5%. So there are people — there are about, I would say, 25% of the customers who are coming sub to sub 22.5%, maybe some proportion, which is between 22.5% and 23%. So which is why you’re looking at a blended EBITDA of closer to 22.5%. We are not seeing the mix significantly changing in the — at least in the near-future.
Chandrasekhar Sridhar
Okay. The second was just on even plus employee. By when do you think you can get to this 1.25?
Lakshmipathy Deenadayalan
Sandrab, we are hoping that by this financial year end or mid of next financial year, you’ll see that AUM per employee inching up. So see this all depends upon the growth, right? So growth depends upon the environment, which we are. We are hoping this environment is — will be better, better as we move towards the quarter-on-quarter. That will inch up the growth, that will the AUM per employee to where we want to be.
Chandrasekhar Sridhar
So I mean, it essentially means that employee count over the next year should not be more than 4%, 5% increase in the indirectly saying year and a half to maybe 7%
Lakshmipathy Deenadayalan
. It should be, should be because that’s why I gave indication, the quarterly — quarterly AUM growth was 6.25%. The new addition customers were 4.5%. So to that extent, we don’t need so much of employees for the — for the meaningful quarters. You’re right.
Chandrasekhar Sridhar
Got it. And Mr last question, did I hear it right that the cost of fund reduction you expect for the whole year is 25 basis-points?
Srikanth Gopalakrishnan
At least. So 25 to 30 basis-points is what from the incremental cost. So this is from the current level standard. So we are at about 939 35. So from here, we are expecting 25 to 30 basis-points run on the incremental cost. Obviously, there’ll be some further benefit coming in from the book cost as well because MCLRs will drop, EBRs will drop. So then the overall benefit can be slightly higher than even 30 basis-points
Chandrasekhar Sridhar
Got it. Okay.
Operator
Thank you. We have our next question from the line of Pranav Gupta from Iones Ulfa management. Please go-ahead.
Pranav Gupta
Yeah, hi, good morning and thanks for the opportunity. Just a couple of questions. Even if you talk about TN and some of comments from a lot of other lenders. So maybe it’s I mean issues and most lenders are sort of face on there
Operator
Is your voice is bright
Pranav Gupta
Is it better now? Am I audible?
Lakshmipathy Deenadayalan
Yeah, yeah, better. Please go-ahead.
Pranav Gupta
Yeah. Hi, good morning and thanks for the opportunity. The question was mainly relating to Tamil Nadu, where a large — a large part of the issue faced by vendors in the last couple of years has been high attrition rates. And if you sort of now think about it along with the ordinance, how should — how should one think of you’re fairly confident that the fact that we saw kind of something that we should see in coming out, but just about
Lakshmipathy Deenadayalan
Nthe audio is not clear. Is it clear right now? Can you can you all hear us?
Operator
Yes, sir, we can hear you. Okay. We were unable to hear your half question.
Lakshmipathy Deenadayalan
But I understood this question. Let me address it to the extent I have understood the question. See, I think the ordinance is just got cleared, right? It’s just yesterday it got cleared. So in 15 to 20 days, we will know-how the impact is going to be at the ground level. But the arguments clearly states that regulated Entities are out of this. So that’s the confidence that I said that disruption may be, but it will be far lesser than Karnataka. That is from a collections perspective. From a disbursement perspective, I see nothing getting stopped in Tamil Nadu because this is the hometown of 5-star. We have been here for last 40 years and we know the customers better in this segment, like beyond anyone. From attrition perspective, see, it’s too early to talk about attrition. How is this attrition is — I don’t think attrition is directly connected with the bill or what gets cleared in a state, right? There will be some kind of difficulties in collections and we agree the difficulties and we let the people to do what best they can do. That I don’t think that has a direct impact on the ordinance what — because I can clearly say in Karnataka, the attrition was not — anything got alarmed because of the ordinance. There was disruption, there was some kind of harassment because we didn’t anticipate that kind of ordinance to get into a state. But here in Tamil Nadu, we are well-prepared. I don’t think that would be any cause of concern from an attrition perspective.
Pranav Gupta
No, so just on the attrition bit, just to clarify, obviously, I was not implying that the attrition sort of links to the ordinance. What I was trying to understand is that most lenders have seen attrition, which is why collections in Tamil Nadu for lenders have sort of been impacted. And now that the ordinance is also in-place, which increases the impact further, how should one think about that? That was the question. But I’ll probably take that offline later. The question is,
Lakshmipathy Deenadayalan
Pranav, I can answer that. I got it. From Fisar perspective, Tamil Nadu is one of the best collecting states. I don’t know about other lenders for that comes on the top of our list from a collections perspective. So that’s our a confidence and strength what we have in the home state of, that will keep continuing. So this bill will have a very less disruption and very short disruption. That’s what I hope for.
Pranav Gupta
Right. But just as a follow-up to that then I mean, how should one tie that up with the relatively slower-growth there in Tamil Nadu, given that it’s the best collecting state, how should one think of that just as a follow-up?
Lakshmipathy Deenadayalan
Yeah, that I’ve been talking in the earnings call for quite a long-time. So we said this financial year, Tamil Nadu and Karnataka will inch up their growth. That’s what exactly happened in Tamil Nadu. If you see Tamil Nadu on a quarterly basis, it’s performing really, very well. So you’ll see, right, Tamil Nadu as a state, today being at little sub 30% will cross 30% very comfortably.
Pranav Gupta
Sure, understood. So second is just a clarification on the cost of funds bit. I know you sort of highlighted that on multiple occasions. But just to clarify, you know, given that you’ve already taken the price cut-off on a blended basis of 200 basis-points, obviously, that’s more on a risk-based level. But this sustainable dip in cost of funds that we think would sort of play-out over this year of 30 basis-points 35 basis-points. Mentioned that we could see some pass-through to incremental customers. But is that sort of tied-up purely with the risk-based pricing or is it — is it sort of a downward revision of the overall range of pricing that we mentioned earlier.
Srikanth Gopalakrishnan
Yeah. So Karav, first thing I want to clarify, I think this 25 35 basis-points that we are looking at for the current year, that is not going to have any impact on the yields because see, again, in our customer segment, 25 basis-points of reduction in rate and all makes absolutely no difference for the customers. So when you do a yield drop, it has to be closer to 2,500 basis-points or so. That is what makes a meaningful difference for you to attract better customers. So this 30 35 basis-points, I think is not going to result in any yield reduction. If, let us say there is a possibility of a rating upgrade that we get and the situation becomes a lot better, we are able to borrow at much cheaper path, like we are able to borrow at 75 basis-points lower than where we are borrowing today.
That is when we will start looking at the yield reduction, which is why we said given that all of these things look a little unlikely at this point of time or may happen only towards the second-half or end-of-the year, there is unlikely to be any interest-rate reductions for this financial year.
Pranav Gupta
Okay. Perfect. That’s very clear. And just one last question regarding the dividend that we paid out. Obviously, this is more of as Pathi sir mentioned on a milestone basis, but any policy that we are stating around this or is — can we look at this just as one-off milestone event?
Srikanth Gopalakrishnan
No,, I think now we are getting into a dividend-paying mode. So it’s not a milestone-based event. I think we will become a dividend-paying company. The payout will obviously be gradual. We are not going to take it to any significant numbers shortly. I think we want to be gradual and measured and pay the appropriate level of dividend to our shareholders. So we have kept our max range, which is quite high. So at this point of time, I don’t even want to talk about that. But our payouts will probably range anywhere between 5% to 8% for the foreseeable future. So that’s — but I think you will see the company paying out dividends every year thereafter.
Pranav Gupta
Great, great. Thank you so much and all the best for the next quarter
Operator
Thank you. Thank you. We have our next question from the line of Manik Bansal from Master Capital Services. Please go-ahead.
Manik Bansal
Thank you so much for this opportunity. So my question is, what is the reason for this 35 bps increase in capex? I mean opex.
Srikanth Gopalakrishnan
35 bps increase in opex, okay, three sequentially. No, that is primarily because of the denominator also being lower, right? So where we want it to be at 25% growth, we are at 23%. So consequently, you’re also seeing the total assets being lower than where we wanted to be. So if you are looking at another 2%, that means it will at least be another INR200 crores to INR300 crores of balance sheet size going up, which will obviously would have dropped in. So the question is the opex is a little front-ended. This will get absorbed by — sorry, change the big opex bit increase in opex. So assets only are right.
Manik Bansal
Okay, great.
Srikanth Gopalakrishnan
So when the assets are lower, the opex to assets will be lower. Will be higher as
Manik Bansal
Okay. So next question is, as you mentioned that there is one branch opened in Bujarat, right? So how do you look to expand in that state? What kind of opportunities you see there? Because if we look at the branch network other than Andhra Pradesh and, so it has not grown that much in past many quarters. So is that the same thing that is going to happen in Gujarato?
Lakshmipathy Deenadayalan
Marik, I don’t know, basis on which you are making this comment that branches have not increased only in these two, except in these two states. We have given the branch count and it has increased across. And today there are multiple states where we are inching for the company branches, including our latest state, which is Maghya Pradesh, which is having 94 branches as of March. We have expressed our strategy multiple times in the past. Any new state that we enter the first 18 months-to 24 months will be a very measured growth. We will not put up more than four branches. And only when we get confidence in the state, we expand further. Gujarat is no different. So for the first 18 to 24 months, you will not see us opening more than four, five branches.
Once we get confidence in the state, it’s a very, very large state. Many established lenders have been doing business for decades in that state. So it’s important for us to understand and track that state very well. But we will take our time. After, 18 24 months of good operations there, then I’m sure that is going to be a very big state for us.
Manik Bansal
Thank you thank you.
Operator
Thank you, thank you. Thank you. We have our next question from the line of Mittal from Ratnaraya. Please go-ahead.
Shrinjana Mittal
Yeah, hi. Thank you for the opportunity. I have two questions. So I understand that the Karnataka impact on the collection has already been discussed. But I just wanted to see if you — if it is possible, can you share the collection efficiency number ex of Karnataka for the last three, four quarters?
Srikanth Gopalakrishnan
Sunilla will probably take it top-line. We don’t have the data ready for the three, four quarters.
Shrinjana Mittal
Yeah.
Srikanth Gopalakrishnan
So we’ll have to take it offline.
Shrinjana Mittal
Sure. Just one more bookkeeping question. So in this quarter, what would be the number of split branches that we have opened? Sorry, in this quarter, can you repeat the question? The number of split branches that we have opened In the last three, four quarters, if you can share that. So last one year roughly about 148, 148 split branches out-of-the 228 overall branches. Understood. Okay, thank you. Thanks
Operator
Thank you. We have our next question from the line of from Capital. Please go-ahead.
Sarthak Nautiyal
Hello.
Lakshmipathy Deenadayalan
Yeah. Yeah, we can hear you. Please go-ahead.
Sarthak Nautiyal
Congratulations on a good set of numbers. So sir, I have few questions. Considering 25% of AUM growth and drop-in yield roughly by 200 basis-points versus last year, what kind of earnings growth are we expecting in FY ’26 and what is our target for ROA and ROE in the near-term?.
Srikanth Gopalakrishnan
So see for FY ’26, you’re right, the earnings growth will be slightly muted. So if we are looking at a portfolio growth of about 25%, given that we have dropped our yields from November and you will see a full-year impact. I think we should look at an earnings growth anywhere between 12% and 15% for — for FY ’26. See, ROAs, I think if the leverage is not going to go up significantly, ROAs will continue to be around 7.5% to 8%. We are not going to see any significant reduction in ROA, which also means that ROE will also not go up in a — in a quick manner. So both of them will move-in a gradual manner. Earnings growth will be at about 26%.
Sarthak Nautiyal
Okay, sir. Okay. Also, sir, wanted to understand what is the end usage of our loans and what kind of collaterals we have against the loans?
Rangarajan Krishnan
End-use of loans is probably three purposes. Business purpose constituting about 60%, 25% will be for construction of a house or purchase of a property and the balance 15% will be for personal consumption, which has a large cash outlay. So it could be medical emergency, education and our consumption-related purposes. And the kind of collater that we have for all these loans, we don’t differentiate the loans based on endues, both the underwriting and the product features are very, very similar for all the three end-users. The collateral is the self-occupied residential property. 95% of the loans is backed by a self-occupied residential property. The balance 5% could largely be commercial properties that the customers own. Maybe about a percentage out-of-the 5% will be also on vacant lands, but it’s a hard collateral.
Sarthak Nautiyal
Okay. So also as far as our NPAs are increasing, so are we planning to auction the collaterals that are addressed to address this issue.
Lakshmipathy Deenadayalan
Right. No, I think we are well within the range in terms of NPAs. What the numbers that you have seen is because of a temporary disruption in a particular state, we have never auctioned any of this and we are confident of our usual negotiated settlement with the customers. There is a legal team in-house that we have, which pursues the 90 plus customers. And we are very, very confident that it will happen in the normal-course. We have never auctioned any collateral so-far in the history of 5-star and we will continue to do the same at this point of time also.
Sarthak Nautiyal
Okay, okay. Sir, just a last question. So how are the incentives of disbursement is structured, in any manner, aren’t they responsible for collection also or they are purely assessed on disbursement targets only.
Rangarajan Krishnan
So we have two types of officers at the base level, officers who do business and collections and this team generally handles the lower vintage customers. So typically about less than 24 month customers is handled by this team and we also have specialized collection teams, which handles higher vintage customers at the branch level. Now obviously, the people who handle only collections are incentivized and measured only on the collection efficiency that they do. In terms of business, what people are responsible for is one is what is the quality of sourcing and the disbursements. Second is of the loads that they have disbursed, how much of it is turning into early areas or early mortality accounts within the first 12 months and 24 months. The third-part is also within the 12 to 24 months that they are handling, how is the collection efficiency of those customers measured. So it’s a combination of all these three is where they are measured and revolted off.
Sarthak Nautiyal
Okay. Okay, sir. Thank you. Thank you for taking my questions.
Operator
Thank you. Thank you. We have our next question from the line of Piraj Khan from Capital Partners. Please go-ahead.
Siraj Khan
Hello, am I audible?
Lakshmipathy Deenadayalan
Yes.
Operator
Please go-ahead with your question.
Siraj Khan
Thank you for the opportunity. Sir, a few datakeeping questions, then I’d quickly come to my questions. Firstly, what is the breakup of the — in the AUM, salaried and self-employed customers
Lakshmipathy Deenadayalan
Self-employed will be roughly about self-employed, and salary
Srikanth Gopalakrishnan
See if you remove shopkeepers, so shopkeepers will be about 60%. Self-employed will be about 25%, 15% of our customers will be salaried, typically cash salaried or contractual laborers and all that.
Siraj Khan
Understood, understood. And can you just give me the number — the number of hikes five that we disbursed during the full-year and the sanction, the number of fives, if that is available or amount, whatever the
Srikanth Gopalakrishnan
Full-year disbursement we have given is close to INR5,000 crores, INR4,970.
Siraj Khan
So the count, the count, I mean, I mean to say the count of is.
Srikanth Gopalakrishnan
Go-ahead. Just go-ahead with the next question.
Siraj Khan
Okay. Thank you. So the first question that I have with respect to the growth. Now I know that the state of — that we have some of cost problem with state. Ex of that, how do you see the growth panning out with respect to a breakdown of how much of the growth will be productivity-led in inflation in the average ticket size and the change in the mix. So what I want to understand is the breakdown of the growth with respect to these aspects and also with the Maharashtra now becoming in the range of a inflection point where we have 25 branches, that state should start scaling up. So with respect to new geographies and existing geographies, how will the growth break-down in these two parameters?
Rangarajan Krishnan
So Kiraj, firstly, the overall growth guidance the company is giving is at about 25%. Now obviously, the mix of — how this 25% is going to be achieved is going to be through a faster growth in some of the inflection point states like rightly you mentioned Central India, we have just crossed the milestone of INR1,000 crores portfolio in Central India at this point of time. So that will definitely continue to grow at a faster pace than some of the older states that we have. As of now, the mix is roughly about 8% of our portfolio is Central India and that will continue to pinch towards the 10% and 12% in the years to come. We had guided that over the steady-state of about three to five years, we will have at least 15% to 16% coming in from Central India and the rest of it coming in from the southern states.
So within the state-specific strategies will continue to happen like this. Productivity-led improvements to an extent will definitely happen and that’s — I think we are — we are not bad on productivity like I mentioned to a previous question, we are almost already at about 2.6 loans per officer per month-in terms of disbursement. We will expect this to inch up to closer to three loans per officer per month and that’s a great productivity for us to maintain.
We will also gain some things out-of-the increase in the ticket size. So even if the ticket size increase is close to, to, let’s say, 5%, 6% per annum, a combination of productivity increase and the ticket size increase, we are very confident of delivering a 25% kind of a growth that we have guided for. But so like just to break it down. So like 10% would be productivity, 10% would be growth with respect to volumes and. Could that be possible to do it or no, roughly you can say 5% productivity increase, 5% ticket size, the balance 15% is acquiring incremental customers, both through our existing branch network and the new branch network.
Siraj Khan
Understood, understood. Thank you. And with respect to the reasons now, as you said that Central India will be a good part of the coming few years as we move ahead. So in the current scenario with respect to some of the other peers that and other companies that are there in the model segment, there are some more-and-more of respect to Central India, specifically the states of, Pradesh, geared, even parts of Maharashtra are seeing some bit of stress that is being built-up. So are you seeing any of that or as the customer segment is exclusive of that what the other players are seeing? That is one.
Rangarajan Krishnan
So-far, no specific trends that we are observing. But these are early days. Having spent more than five years in states like Madhya Pradesh, we understand the state fairly well and we have built-up good teams, both at the leadership level in the respective state and at the ground level. So anyway, we’ll be watchful of how any of the states are going to emerge and confident of handling it. So Hiraj, also just answering your prior questions on the number of loans which got disbursed, it’s 1,38,660 loans during FY ’25.
Siraj Khan
Okay. Okay. So that is the disbursement Count on the count. And could also the sanction number if that is available, the number of sanction counts, the
Rangarajan Krishnan
Sanction does not matter and we don’t reveal it specifically. Usually the sanction to disbursement ratio for us is about 95%
Siraj Khan
94% is sanctioned to disbursement.
Rangarajan Krishnan
Yeah.
Siraj Khan
And the login to sanction, if that could be possible in amount basis or account, however.
Rangarajan Krishnan
So maybe about 5% to 80%? Yeah.
Siraj Khan
75% to 80% is the same log-in the sense, log. Great. And just final bit on the branch expansion. What will be the absolute new number of — new number of branches, not the split, the absolute new number of branches that we are targeting for the full-year. And will that be again predominantly focused on the core geographies or more on the x new geographies?
Lakshmipathy Deenadayalan
I think specifically this year, Piraj, given that we have opened quite a lot of branches in FY ’25, the focus of the company will clearly be on getting productivity and making sure that these branches are performing up to their optimal level. That will be point one. So maybe the branch count will definitely be slightly lesser. We usually guide for about 75 — minimum of 75 new branches in a particular year. So maybe that number in terms of new branches will be slightly lower this year. A combination of new plus split will be equal to 75 to 100. That’s the guidance that we are giving you for this financial year.
As usual, the focus will be more in the established states that we do. We will, of course, open new branches in the new locations. Last year, if you look at it in FY ’25, we opened close to 50 branches in Central India. Maybe it will continue to be a slightly lesser or equal number in Central India. The rest of the branch will come in from our core geographies of the three states in South India, which is Tamil Nadu, Andhra and.
Siraj Khan
Okay. Great. Thank you. And finally, on the credit cost, what would be the guidance for FY ’26,
Srikanth Gopalakrishnan
Our guidance stays at 75 to 100 basis-points.
Siraj Khan
Understood. Thank you very much. That is very helpful. And congrats on a good set of numbers.
Operator
Thank you. We have our next question from the line of Madan Gupal Ramu from Sundera Maltenance. Please go-ahead.
Unidentified Participant
Hello, sir. Sir, this is Arvind, sorry. Sorry for the last thing. And thank you. Thank you for the opportunity and congratulations on the good set of numbers in the light of tough situation in the segment we operate in. Sir, like we are building capacity in terms of branch addition, in terms of employee addition and we are focusing more-and-more on like 3 lakhs to 5 lakhs rather than like less than 3 lakhs and under 5 lakh to 10 lakhs. In the wake of all this like do we still have a very conservative guidance of the group guidance of visit. I’m just wondering like do you think like if the demand — that if the environment credit environment improves, I know we can easily increase the growth guidance like, let’s say, two, 3/4 down the line if the demand improves. Sorry, if the credit situation improves.
Lakshmipathy Deenadayalan
So yeah, you’re perfectly right. As I said, total addressable market is very big and Five-star is in this segment for last 20 years that gives a clear edge for to move ahead. That’s why we are doing it. But as I said in the initial point that quality is almost these most important for any lenders. So if you see, I think the political issues are also now starting to come up. You saw Karnataka last quarter, you are seeing Tamil Nadu now, we don’t know, right, which will be the next following state. So keeping these all-in mind and INR12,000 crores of AUM, 25% growth is not a normal one. I think it’s a commandable growth. Keeping your asset quality and credit cost, one of the lowest in the industry for the — for the yield what you generate. So I think that’s more important. So a growth comes a little later, the quality and profitability has to be in front-end, so the growth is always can be taken-up.
Operator
Thank you, sir. We have a last question from the line of Nikil Agarwal from BT Capital. Please go-ahead.
Nikhil Agarwal
Hi, good morning. Am I audible?
Lakshmipathy Deenadayalan
Yeah, please go-ahead.
Nikhil Agarwal
Hi, thank you for taking my question, sir. While it has been touched upon, my question is more for strategic aspect related, which is your shift from the less than 3 lakh cricket size to 50 lakh ticket size. I just wanted to know that the drop that we have seen in-production efficiencies, like you said that not entirely is attributable to the market and some of it is to the lower-ticket size equals lower leverage. So just wanted to know-how much of that is from this segment, which is why we have taken the decision of.
Srikanth Gopalakrishnan
So I think, Nikhil, we are — first of all, we are not taking the decision of quitting any segment. We will continue in that segment also. Yes. 10%. Yeah. So one thing is given that we have also dropped our yields, it is allowing us the flexibility to focus on the premier customers within this segment, which is where we are going to, let us say INR to 5 lakhs or INR5 to 10 lakhs. So — and see, one of the points is the less than INR3 lakhs, typically, despite the fact that we do secured loans, we do much longer-term as loans, there is a tendency for people to bucket us with microfinance institutions. So this is probably maybe one reason that could have that could have caused some impact. At this point, if you ask us to break the impact between these various points, I don’t think we’ll be able to do that like this. But this is the broad thing that we have seen is about two-thirds coming from one is one-third into sub 3 lakh, 3 lakh to 5 lakhs, I think that will be — that’s beyond the company at this point of time. But our belief is the spreads in the less than INR3 lakh segment is probably slightly higher as compared to, let’s say, 3 lakh to I lakhs or 5 lakh to INR10 lakhs, where the customers are a little more savvy, their incomes are a lot more stable. So from a collections perspective, they tend to be lot better customers. So which is why we are moving, let’s say 10% population from sub 3 lakhs to 3 lakh to 10 lakhs.
Nikhil Agarwal
Yes, I got my answer, sir. And one last question. The credit guidance is 75 to 100 bps. Is it a on long-term guidance or is it for FY ’26 only?
Srikanth Gopalakrishnan
See, that means this — I would say it’s a midterm guidance at least. We are not going to change the range unless situations get very different. For FY ’26, I can probably say that we’ll be more closer to the lower-end of the range rather than the higher-end of the range. But our guidance stands at 75 to 100 basis-points for the medium-term.
Nikhil Agarwal
Perfect. Thank you, sir. Thank you. Best of luck, after the question started.
Srikanth Gopalakrishnan
Thank you.
Operator
Thank you. Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Lakshmipathy Deenadayalan
Yeah. Thank you. So good to hear a lot of questions coming out from state-specific and growth specific. I’m confident that we will navigate all the tough times and will come out of better results in the first-quarter of this financial year. Thank you.
Operator
Thank you. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.