Home First Finance Company India Ltd (NSE: HOMEFIRST) Q2 2025 Earnings Call dated Oct. 25, 2024
Corporate Participants:
Manoj Viswanathan — Managing Director and CEO
Nutan Gaba Patwari — Chief Financial Officer
Analysts:
Renish Bhuva — Analyst
Kunal Shah — Analyst
Shreepal Doshi — Analyst
Rajiv Mehta — Analyst
Raghav Garg — Analyst
Aravind R — Analyst
Chandra — Analyst
Harshit — Analyst
Pawan Kumar — Analyst
Ravi Naredi — Analyst
Jatin Sangwan — Analyst
Omkar Shinde — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Home First Finance Company India Limited Q2 FY ’25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Manoj Viswanathan, Managing Director and CEO of Home First Finance Company India Limited. Thank you, and over to you, sir.
Manoj Viswanathan — Managing Director and CEO
Thank you. Good evening, and greetings to everyone and a warm welcome to all the participants to the Home First earnings call to discuss the results for quarter two of FY ’25. Today on the call, I’m joined by our CFO, Mrs. Nutan Gaba Patwari. Together, we extend a warm welcome and hope you had a chance to review our investor presentation and press release that have been uploaded on our website and stock exchanges. Additionally, an XL fact sheet, including the historical data have also been uploaded on our website.
Let me start by giving you the highlights of our quarter two performance. We are pleased with the company’s strong performance during the quarter. We continue to expand our distribution footprint deeper into our existing markets. In quarter two, we added nine new branches, two branches in Gujarat, one branch in Maharashtra, one branch each in Maharashtra, MP, Chhattisgarh, New Delhi, Uttarakhand, UP and Rajasthan, bringing the total to 142 branches. With digital and potential branches, we now operate across 351 touchpoints in 138 districts spread across 13 states and union territories.
We continue our track record of quarter-on-quarter increase in disbursals with our highest ever disbursal of INR1,177 crores for quarter two. The AUM has grown by 34.2% year-on-year to INR11,229 crores. Employee strength has grown from 1,249 in March to INR1,642 in September ’24, which puts us on a good wicket for further expansion. Our asset quality remains strong with early-stage delinquencies under control. One plus DPD stands at 4.5%, which is flat on a quarter-on-quarter basis. 30 plus DPD stands at 2.8%, which is down on 10 — down 10 basis points on a quarter-on-quarter basis. Gross Stage 3 GNPA at 1.7%, again flat on a quarter-on-quarter basis.
Our credit cost at 20 basis points has decreased by-20 basis-points on a year-on-year basis and has remained flat on a quarter-on-quarter basis. The profit after-tax for the quarter stood at INR92 crores, which is an increase of 24% on a year-on-year basis, delivering an ROE of 16.5%, which is an increase of 20 basis points compared to quarter one. Our well-diversified borrowing profile has enabled us to manage borrowing cost effectively, maintaining the spreads at 5.3%, in-line with our guidance.
Technology remains central to our strategy. Account aggregated adoption has become mainstream with an adoption rate of about 49% among new approvals. This was 41% in last quarter. We continue to exploit opportunities in technology and data analytics and keep optimizing and tracking our operational processes and productivity. Penetration is strong with 95% of our customers registered on our apps. Digital fulfillment has reached 75% plus with the use of digital agreements and e-NACH mandates. 89% of service requests are raised on the mobile app.
With this, I would now like to hand over the call to Nutan to take you through the financials. Nutan, over to you.
Nutan Gaba Patwari — Chief Financial Officer
Thank you, Manoj, and good evening, everyone. Let us start with the key financial metrics. Starting with spend. After repricing in August ’24, our spreads excluding co-lending expanded by 10 basis points, and it is at 5.3% right now. Net interest margin was 5.2% owing to leverage effect. Operating expenses to assets were maintained at 2.7% for the quarter, in-line with our expectations. The slight increase in employee cost is due to the new ESOP grants during the quarter. We expect the opex ratio to remain range-bound within 2.7% to 2.8% as we focus on expansion.
Fees and commission income saw an increase. This is due to our product and agreements falling in-place with insurance companies after we received the corporate agency license in FY ’24. Credit cost is at 20 basis points. Our annual guidance for credit cost is around 20 to 30 basis points, just being conservative here.
Moving on to the balance sheet and capital position. Our balance sheet remains robust, providing a solid foundation to support the company’s good ambition. The company’s borrowing profile continues to be well-diversified and cost-effective, reflecting our prudent financial management. We continue to maintain three months of cash on the balance sheet and high liquidity buffers. Liquidity buffer at the end of September was INR3,000 crore plus. We also added a U.S. dollar ECB to the borrowings mix with a drawdown of $35 million from DFC during the quarter. This is a 10-year loan fully hedged on our balance sheet.
As part of our liquidity management strategy, we also executed a direct assignment transaction of INR154 crores during the quarter. With this, the borrowing mix now is 60% from banks, out of which private sector banks are 29% and the balance is from public sector banks. NHB refinance is 16%, direct assignment 3%, and co-lending is now 3%. NCD and ECB each constitute 3% in our borrowing mix. We have no commercial papers and zero borrowings through any short-term lines. Our cost of borrowing is competitive at 8.3% excluding co-lending and 8.4% on the total, enabling us to maintain healthy spreads.
On capital adequacy and liquidity, again, our total capital adequacy is 36.4%, and tier one 36%. Our debt-to-equity is 3.9%. As of September, our net-worth is INR2,289 crores. Our book-value per share is INR257 per share.
Finally, moving to the provisions and asset quality, we continue to adopt a conservative approach to provisioning, maintaining a provision overlay above ECL requirements. Our Stage 3 provision coverage ratio is 48% before NPA reclassification as per RBI circular. The provision coverage ratio is at 64%.
Overall, our business remains on a strong footing, supported by diversified borrowing profile on a solid capital base and prudent risk management practices. We remain focused on leveraging technology, expanding our distribution network and ensuring operational efficiency to deliver sustainable growth.
With that, we conclude our opening remarks and happy to take your questions.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Renish from ICICI Securities. Please go ahead.
Renish Bhuva
Yeah. Hi, Manoj, Nutan. Congrats on a good set of numbers. Just two questions from my side. One on the bounce rate, right?
Operator
Sorry to interrupt you, sir. I would request you to please use your handset. I am using handset only. Am I audible now?
Renish Bhuva
Yes, sir. Okay. Yes. So I have two questions. One on the bounce rate. So you know, while there has been a steady improvement since past many quarters, but when we look at the October month number, there has been a sharp 40 basis point increase in bounce rate to 15.6%, and this is in fact highest in last eight quarters. So how one should read this bounce rate rise in October month?
Manoj Viswanathan
As of now, nothing to read into it because if we actually look at the — I mean, we are on 25th of this month, and you know, a majority of the collections bounce, the cases collections actually happens by 25th. So we are actually trending, you know, you can say very well as far as the collection is concerned. So I mean, if we were to, let’s say, look at some of the good months of collections that we had in the last, let’s say, seven to eight months. I mean, October ranks kind of on par with that. So as of now, I would say, nothing to be read into it.
Also, if you see the collection figure six days post the bounce. So 15.6% was the bounce rate. Within six days, about 5.6% of the people have actually paid back. So if you look at the bounce number, after six days it is 10%, which is in-line with what has been happening in the last several months or several quarters.
Renish Bhuva
Got it, got it. So basically it is fair to assume that in last 10 days, let’s say, the collections by and large at par with the previous months?
Manoj Viswanathan
Yes, yes. Yeah.
Renish Bhuva
Got it, got it. Okay. And my next question is on the employee expense, right? So even in first quarter that line item grew by 14% sequentially, this quarter it is up 20% sequentially. And also when we look at the employee counts, you know, we have been adding almost 250, 350 people on annual basis. Last year as well, we added 250. First-half, we added 350. So are we redesigning our business model wherein the incremental, let’s say, disbursement of the business will be more driven by the DSTs and less from the connector? Or I mean, how one should think about it?.
Manoj Viswanathan
No, we don’t have a DST model as such. It’s the connector model, which is basically a completely variable expense model is what we are — we continue to operate with. Our employees basically consolidate these leads and then they contact the customer and take it to closure. So whatever model we have been following for the last 14 years, we have not changed anything in that. And it’s the number of employees, as we pointed out, we have actually increased the number of employees in the last two quarters and that is in kind of on track with our plan. So we are basically building the employee base for expansion over the next two to three years. So that is on in-line with our plan.
Renish Bhuva
Got it. Got it. And Manoj, just last question on the, let’s say, slightly medium term point of view, now since we have sort of crossed that INR10,000 crore mark on the AUM side. From next two to three years perspective, how confident we are about sustaining this 30% plus growth rate? Or do you foresee moderation in that?
Manoj Viswanathan
No, we don’t see a moderation in that. You know, the design was that we will grow by — we want to grow by 30% and all other activities in terms of employee hiring, branch expansion, new location expansion, etc., we have planned on that basis only. And so that is going as per plan. So if you look at this year also, we have disbursed more than INR2,300 crores in the first two quarters. And so the plan is that in the next two quarters we should get to about INR2,500 crore, INR2,600 crores. That was the plan. And so we are on track for that plan, and that should — that should deliver the 30% plus growth rate. Similarly, the plan for next two years is that we get to a INR500 crores run rate next year and a INR600 crore run rate the year after. And so the expansion in employee base increase is on par with that.
Renish Bhuva
Okay, okay. And maybe let’s say, given the current stress in the MFI, though our customer segment is very different and you know, given the regulatory is also sort of not happy the way, you know, HFCs or NBFCs are growing. So do you foresee that risk, let’s say, playing out for our growth plans in near-term as well?
Manoj Viswanathan
No, the MFI sector is, I would say, fairly disconnected with our sector. I mean, we have had cycles — MFI cycles in the past as well, but it has not really impacted our sector too much. The housing loan customer is generally fairly conservative in their outlook and in terms of their borrowing profiles. So — and we are very — very little overlap with the MFI sector actually. So these would be customers who generally would have started their borrowing profile with maybe a consumer durable loan or a two-wheeler loan, not really a MFI loan. So it’s a different profile of customers.
Renish Bhuva
And regulatory risk?
Manoj Viswanathan
Regulators, see the — as far as housing is concerned, frankly the, you know, regulator, what we are seeing is they are pro housing. I think most of their actions have been to curtail unsecured lending and to curtail lending where they don’t know the NDUs, etc., but as far as housing is concerned, actually the — there has been — there has been a lot of support coming through and the PMAY has also been relaunched. And in all the discussions with the regulator, etc., they — for the core housing sector, frankly speaking, there is — we are not seeing any headwinds from there at all.
Renish Bhuva
Got it. Got it. This is very helpful, sir. Thank you, and best of luck. Thank you. Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah. Hi, Manoj and Nutan.
Manoj Viswanathan
Hi.
Kunal Shah
So first question with respect to the geography, particularly Karnataka, it seems to be doing quite well, both with respect to sequential as well as the year-on-year growth. Anything specific to read into this? Is it like maybe the overall segment led by the network expansion or there is something else because that growth seems to be quite high? Both Karnataka, and I think UP is which was because of the presence, but Karnataka in particular.
Manoj Viswanathan
No, nothing, nothing specific as such, it’s — if you remember, maybe a year ago we — there was some struggle with Karnataka, but we have kind of turned the corner there, and you know, it’s it’s growing as per our expectation now. So there is — other than that there is nothing else to read into it.
Kunal Shah
Okay. And second, with respect to fee income, not sure if you indicated, but slightly higher fee income during the quarter. So is there any element of one-off out there?
Nutan Gaba Patwari
Yeah. So Kunal, it’s not a one-off. So we have, you know, the entire insurance partnerships after the corporate agency that we got in last year. So about INR4 crores of income per month is what will accrue to us on the back of that moving ahead. So it’s a new start which will more or less settle now.
Kunal Shah
So this is just for a month? So when we look at fee income of now INR9 odd crores, so this is like a month’s income and…
Nutan Gaba Patwari
So there are two components to this fee and commission income. One is the commission income which is approximately INR7.5 crores, INR8 crores for two months because the entire partnership actually started from 1st of August. And the balance INR1 crores, INR1.5 crores is the usual number that we used to have even before, which would be your bounce fees, some of the other fees and charges that get charged to the customer on an ongoing basis. So that’s a — which was there always, and about INR7.5 crores, INR8 crores is the new commission income that got added to the line, which will continue on a monthly basis.
Kunal Shah
Sure. And one last thing on the regulator part again, just to touch upon. So specifically they are highlighting that maybe because of the investors push there is a chase for growth ROE, and maybe the growth is significantly higher than what the actual demand seems to be at the ground level and they have indicated HFCs out there. So maybe any read through for us, maybe any indications from the RBI with respect to maybe how we are conducting or the pace as — pace at which we are growing here?
Manoj Viswanathan
No, no, Kunal. Actually, I would say that, you know, see on the pricing side, you know the rate that we are operating at, the 12%, 13% range which we are operating at and many — several other housing finance companies also operate at. That is a very well socialized figure with the regulator. It has been — they have gone into very extensive discussions on what that figure should be. And they have also agreed that, yes, the 12% to 13% rate is what is required in this business to sustain the cost and the credit cost and so on and so forth. So it’s a very well socialized number and frankly, we don’t find any disconnect at all over there as far as the pricing is concerned. When we are operating in a 12% to 14% range.
As far as the growth is concerned, again, we have never heard anything in the last two years from the regulator about, you know, being aggressive on growth, etc. In fact, we have had some — we have been part of some discussions where the regulators are actually pushing us for more housing growth. So I would say that this is something that is something that we have not heard at all.
Kunal Shah
Okay. Okay. Thanks and all the best, yeah.
Operator
Thank you. And the next question is from the line of Shreepal Doshi from Equirus Securities. Please go ahead.
Shreepal Doshi
Hi, sir. Thank you for giving me the opportunity. My question was pertaining to the rate hike that we had taken in August ’24. So do you believe all of it would get — would have been reflected in our pricing or in our yields now? Or would it still take some time for the repricing or for the impact on tenures years to get reflected?
Nutan Gaba Patwari
Fully reflected.
Manoj Viswanathan
Fully reflected, but you can say two third of it has got reflected last quarter because it got effective only from 1st August. So kind of maybe a full impact will come this quarter. So if we had a 10 basis points impact last quarter, maybe this quarter will be maybe 12, 13 basis points.
Shreepal Doshi
Got it. Got it. And the second question was on the leverage front. So the leverage has been inching up for us in the last 12, 15 months time period. So what is the peak leverage that we have in mind, up to which we would be comfortable with, and would look to — look at options like capital raise?
Nutan Gaba Patwari
So if you see the key financial ratio, the leverage right now actually on debt-to-equity is about 3.7%. So we think that we can touch it for a fair bit, perhaps closer to 5%. And so we have about 18, 24 months before we need to cut a captive rate, maybe 12, 13 months you can put it that way.
Shreepal Doshi
Okay. Okay. Got it. Got it, ma’am. And ma’am just last question was on ticket size front. So if you look at the one — above 1.5 [Phonetic] million ticket size, there the increase has been pretty sharp. So in FY ’22, it was closer to 32% of our overall loan book. Today, it stands at closer to 47%. So I mean — and of course, that is inching our ATS as well. So where do you see this sort of stabilizing or would it — or would it trend towards 1.3 [Phonetic] sort of number as well?
Manoj Viswanathan
You’re talking about the more than 1.5 million?
Shreepal Doshi
1.5 — so we give the ticket size base AUM as well, right? So in that if you look at the above 1.5 million ticket size…
Manoj Viswanathan
Yeah, above 1.5 million. Correct, yes.
Shreepal Doshi
So there you know [Speech Overlap]
Manoj Viswanathan
1.5 million you’re talking about?
Shreepal Doshi
Yeah. So it has increased from almost 30%, 31% in FY ’22 to almost 47% as we speak today. So where do you see this sort of stabilizing now?
Manoj Viswanathan
So, see the — some gradual increase will be there because ticket sizes of properties are increasing, the same-property, you know, in terms of size, five years ago and today the price is very different. I mean there is an inflation — inflation effect on one hand. On the other hand there is also, because incomes are rising faster than inflation. So there is also an aspiration impact effect that is taking place. So the same kind of customers, same profile of customers are actually now looking at larger properties. You know, there was — there was one scenario in Bombay where there was a concept of one-room kitchen. Now no builder is building a one-room kitchen at all because there is no demand for one-room kitchen. So even the basic first-time buyer is now moving from a 300, 400 square feet to a 600 square feet or 700 square feet requirement. So that inflation effect will be there and this trend that you’re seeing will probably continue — there will be a four — maybe a — maybe at least a 1% or 2% increase in ticket size every year. You know that is a trend that we are seeing.
Shreepal Doshi
Got it. Sir, just one follow-up here. So are we not seeing decent traction or decent number of opportunities in the, say, probably INR7 lakh, INR8 lakh ticket size as well because there would be a customer segment who would be moving from say probably INR4 lakh, INR5 lakh in the Tier 3, 4 geography to INR8, INR9 lakh loan as well as we go ahead — as we look at this inflation scenario playing out for that customer segment as well. So are we not targeting that customer segment or — so just some color here?
Manoj Viswanathan
So we — so we are not — we are not excluding any segment. The key issue is that, you know, earlier maybe five years ago also there used to be properties available — readily built properties. I mean, properties built by developers which were available in that INR5 lakh to INR10 lakh range. Today, those kind of properties are not available in the INR5 lakh to INR10 lakh range. So a INR5 lakh to INR10 lakh range property is only possible if the customer is constructing on their own, and if they already have a plot of land. So basically the supply in that segment is also reducing. You know, for the same reasons that I indicated, which is partly inflation and partly aspiration. The demand for housing in the less than INR10 lakh category is also slowly diminishing. So, today the INR10 lakh to INR15 lakh is the new INR5 lakh to INR10 lakh, you can say.
Shreepal Doshi
Got it. Got it. Got it, sir. Thank you so much for answering my questions and good luck for the next quarter, sir.
Operator
Thank you. The next question is from the line of Rajeev Mehta from Yes Securities. Please go ahead.
Rajiv Mehta
Yeah hi, good evening. Congrats on very good numbers. My first question is on disbursements. So when I look at disbursements on a Q-on-Q basis, there is a growth, but the growth has been lesser than what we have generally seen in Q2 over Q1, and generally what we have been delivering in the past few quarters. In terms of momentum, there seems to be a slight slowness. Any markets or locations where we are calibrating growth approach on our own for reasons like pricing, competition or initial quality indicators? Or otherwise if you can tell us whether can we revert to again the growth momentum that we’ve been delivering so far in the next quarter or so?
Manoj Viswanathan
So Rajiv, I would not read too much into it because if you see the trend of, you know, Q1, Q2, Q3, Q4. So generally Q1 is fairly slow. If you see the last two years before this, the Q1 growth has been generally maybe less than 3% over Q4. This year, we kind of reversed that, I mean, changed that trend and we had almost a 6% growth in Q1 over Q4. So to that extent, Q2 was a little more moderate. If you actually see H1 over H4, it has the same trend as the last two years. I mean, it’s about 11%, 12% kind of a growth of H1 over H2 — over H4. So if you take the last three years, the growth of H1 over H4 has been about 11%, 12% compared to H4. So this year also is the same trend. So it is I think just a rebalancing between two quarters. I mean, it’s a question of maybe INR20 crores, INR30 crores moving from one quarter to the other quarter. I mean let’s say, instead of booking it in the — in quarter one, we have booked it in quarter two, maybe we would not even be having those discussions.
Rajiv Mehta
Understood. So on an annual basis, that 28%, 30% disbursement growth run rate should continue, right? Yeah.
Manoj Viswanathan
So we are actually see — we have actually — our design has been to get to a 30% AUM growth, okay? So the design is not for a 30% disbursal growth, it’s for it is a 30% AUM growth. So somewhere between a 20% to 30% disbursal growth will be able — with a 20% to 30% disbursal growth we should be able to achieve a 30% plus AUM growth. So that has been the design. So the design is that this year we will clock a run rate of about INR400 crores per month. Next year we will clock our run rate of about INR500 crores. Next year we’ll clock about INR500 crores, and the year after about INR600 crores. So that has been the design principle. So — and that will help us to reach the 30% AUM growth.
Rajiv Mehta
Okay. Okay. And Manoj, do we play on pricing when we get into a new market or if you want to grow faster in a certain market, do we play on pricing? Or is the pricing standardized because the underwriting is centralized? Just want to check on that.
Manoj Viswanathan
Pricing is actually fairly customized. It’s a risk-based pricing model which we run at the back-end, and so you know, so what we have done is each — for each loan, we expect the relationship managers to discuss with the customer, and you know, onboard the customer data on the system. And based on the customer data, we then run the probability of default and then throw up the risk-based pricing for that customer. So it’s a customized pricing for literally — literally every customer. So it depends on the customer profile, it depends on the location, it depends on the risk profile of that particular area, etc. So based on all that, we kind of throw up individualized or customized risk pricing for each customer.
Rajiv Mehta
No, because I think I was coming from — trying to understand, for example, a market like Rajasthan, which is fairly mature and established, there’s a lot of competition already in that market and we’ve been growing very fast, and you know, the share of Rajasthan in overall AUM has been increasing. So just wanted to understand whether one aspect — one aspect of growth could also be a play on price. I understand distribution is a larger aspect, but we don’t do that, right? That’s what you’re saying. It’s purely customer profile specific.
Manoj Viswanathan
Yeah, it is customer profile specific, and of course, for example, larger cities, maybe a Bombay or Ahmedabad or larger cities where it’s — so it depends on multiple factors. It depends on the product, depends on the city. So we customize the pricing according to that. So in some places, yes, we may be more competitive on pricing, some places where we can extract the higher pricing we would be able to give, we will be doing that.
Rajiv Mehta
And just one last thing on funding. We have got INR500 crore NHB sanction. So is it between the two schemes of AHF and refinancing? That’s first question. And then what could be the blended cost of it when we avail it?
Nutan Gaba Patwari
So Rajiv, yes, it will be a combination of both. The exact breakup will be known when we come closer to the drawdown depending on how they are raising the funds from ministry or otherwise. Cost again depends on the proportion. So for example, the regular refinance is, you know, just above 8%, whereas the AHF portion is much more attractive, of course, we have to also pass on the benefit to the customer. So I think only once we availed this actually can we give you exact number, but…
Manoj Viswanathan
Because the ratio gets actually very close to the disbursal rate and we are still discussing with them on the disbursal. So closer to the date, actually they determine the ratio. So we don’t — we don’t — as of now we don’t yet know that ratio. How much is AHF and how much is normal.
Rajiv Mehta
And Nutan, just last one thing. The bank loans, you know, the mix across benchmarks, MCLR, repo and any other benchmarks.
Nutan Gaba Patwari
So the repo rt, TBill, etc., which is your short-term benchmark will be close to 20% of the entire borrowing book of the bank portion I’m talking about. The rest will be MCLR, three, six and 12 months, broadly equally split. So let’s say, once the rate cycle reverses, the first three months we should be able to get about 30%, 40% of the book repriced.
Rajiv Mehta
Reprice, right? Yeah, yeah. Thank you, and best of luck.
Operator
Thank you. The next question is from the line of Raghav Garg from Ambit Capital. Please go-ahead. Hey, hi, Manoj, and hi, Nutan. Congrats on the results. I have three questions. One is, can you give some sense on whether the balance transfer request this quarter were relatively on the higher side versus maybe what you would have seen in the previous few quarters or last year? And also if you can give some sense on what percentage of these BT requests were retained by you as compared to last time. So any broad sense would do? Just trying to understand the competitive intensity here for you. That’s my first question.
Manoj Viswanathan
So a balance transfer, it’s [Indecipherable] because the numbers are very close to each other. I think the peak that we have seen is about 8% and last quarter was about 6.7%. So I mean, one way to look at it is, yes, there has been some moderation on the BT out because last two, three quarters the number has been more closer to 6% rather than 8%. So there has been some moderation in the BT out. Now it’s difficult to say whether there is — it’s actually because of a reduction in intensity, BT intensity in the market or whether it’s because of our own efforts because, see, about two, three quarters back we launched a very concerted effort to retain the balance transfers. So we put in place the protocol and training for the branches to retain that. So we like to believe that has made some impact. So I wouldn’t say there is any reduction in the BT intensity in the market. It’s — it could be more or less similar to what it was in over several — over the last several quarters, but yeah, I mean…
Raghav Garg
So, the reason that I was trying to — what I was trying to understand was that you’ve taken a PLR hike in this quarter, right, two third of which has been passed on. And despite that, what I see is that the origination yields are flat. So I was just correlating as to whether the yields — incremental yields being flat here. Does it mean that you may have passed on some kind of benefit to the customer and as a result of that you may have been able to control the BT for you?
Nutan Gaba Patwari
Sir, Raghav, why are you comparing the origination yield with the PLR increase.
Manoj Viswanathan
Bookie.
Nutan Gaba Patwari
Bookie, right? The book yield is not [Speech Overlap]
Raghav Garg
The book yield has increased by about 10 bps. Okay. So okay. So there is no correlation as such.
Nutan Gaba Patwari
Yeah. And the increase happened effective 1st August, right? So it is not a full year.
Manoj Viswanathan
Also I think last year, if you see, Raghav, the — not last year, up to April ’23, that is actually in FY ’23, the rate increase that was passed on was almost 125 basis points at one short — not one short across two, three installments. But, so that was a pretty large increase that was passed on at that point. Compared to that, what we have passed on now is very small, 35 basis points, and it is coming after almost a gap of 15 months. So this has not created any ripple as far as the customers — customers are concerned. Also, a large part of this rate increase was passed on through a tenure change. Almost 93% of the customers actually underwent only a tenure change. I mean, they did not undergo any EMI change. So to that extent, they did not get disturbed. So I would say there has been not much impact of this rate increase on the customers.
Raghav Garg
Understood. That’s fairly clear. Another question is, you know, it’s — it’s pretty clear that you’ve been very aggressive in terms of hiring compared to the usual trend that’s there for your company. And as a result of that, what I am seeing is that the number of employees per branch has increased. It’s I think at an all-time high of some 11, 11.5 employees per branch. Is there some change in sourcing strategy or organizational structure? Can you throw some light on whether, you know, later on maybe you’ll expand branches at a higher rate and not the employee base, so the employees per branch would come down? That’s my limited question.
Manoj Viswanathan
So hiring — see there has been no change in the hiring strategy. Hiring, normally we do a lot of hiring in the first two quarters because that’s the placement season, and we do most of our hiring from campuses. And so they all — the campus — the campus recruits join during these two quarters. So that trend has continued. I think what you would be seeing is a more sharper increase in the employee base, right, from 1,215 in end of last year to about 1,650, so about 400 employee increase in the first two quarters, which generally it is a little more — a little more modest. That is because of the attrition also shrinking parallelly. So generally there is also attrition, which is in 30%, 35% plus. But this year the attrition has been sub 30% So to that extent, we have been able to retain more employees. So as a result, you’re seeing the employee base going up more sharply. But we don’t intend to let up on the hiring because we feel that this is a good opportunity. While the attrition is shrinking, this is a good opportunity to hire more employees and kind of build the — build the employee base for the future. And so that is really, I think what is behind the strategy. So in the normal course if attrition was lower, probably, you know, we could have ended up hiring fewer people, but we have continued with our hiring plan so that we are able to kind of get — add the employee base for the future.
Raghav Garg
So is it fair to assume that in H2 the employee hiring would be a lot more moderate compared to the trends that have been there in first-half?
Manoj Viswanathan
No, hiring — we actually do the hiring in H2. So we do the campus visits and we make the offers, etc., in H2, which we’ve — which we intend to do now, we are already in the process of doing, but these candidates generally tend to join us in — join us in the first two — first two quarters.
Raghav Garg
Understood. And you are still sticking to that branch opening for this year, right? I think 20 or 30, is that correct for the full year?
Manoj Viswanathan
Yes. We continue to operate on that format. So about 25 to 30 branches per year is what we’re looking at.
Raghav Garg
Thanks a lot, and that’s all from my side. Thank you.
Operator
Thank you. The next question is from the line of Aravind R from Sundaram Alternates. Please go ahead.
Aravind R
Hello, sir. Thank you so much for the opportunity and congratulations on the good set of numbers. Sir, like one question I had on disbursements. I think you answered that in terms of, like Q-o-Q the growth was flattish in disbursements. I understand that. But I also wanted to understand like in terms of asset quality, I understand like our GNPA has been stable. But do you track any data in terms of our customers in either defaulting or anything like that in their unsecured or in their other loans, and do we have any set of data or anything like that to track?
Manoj Viswanathan
See the data scrub we do once a year, but then that would be a bit dated. So, I mean we would not have something which is — I mean this phenomenon which we are seeing in the market is more recent, maybe in the last two, three months kind of thing phenomenon. So we would not have a have recent data to say anything about whether that is — that is there, that is happening. The data scrub normally happens once a year, so that will take some time.
Aravind R
Okay, because the stress was not just seen in MFA, but also in unsecured portion of even some large banks. So that’s why I was trying to understand that. And also sir, like in terms of fee income, I understand like this insurance broking business is just panning out and it can also grow. But do we see any other forms of fee income drivers that can come in the future? Like, do you foresee anything like that?
Manoj Viswanathan
Yeah. So we want to focus on insurance because insurance itself is a large — large business. We want to kind of focus, stabilize that before we think of something else. For next two years, we will be basically focusing on this to kind of stabilize it. And maybe after that we can think of other opportunities.
Aravind R
May I know like is this life insurance or like a general insurance, health insurance?
Manoj Viswanathan
Life and general both. So life insurance basically to protect the — protect the loan in case of any unfortunate event to the customer. And the general insurance basically protects the property from natural disaster, etc.
Aravind R
These two insurances we generally do. Okay.
Manoj Viswanathan
Yeah, yeah.
Aravind R
Okay. Okay, sure. Thank you so much for the opportunity, sir.
Operator
Thank you. The next question is from the line of Chandra from Fidelity. Please go ahead.
Chandra
Hi, good afternoon. Just three questions. Three questions. One is, to what percentage of the people was the last increase in PLR rolled out to? Was it rolled out for everybody or just a certain sector?
Manoj Viswanathan
So the PLR increase basically happens on the entire — the entire base. So it’s a — it’s a benchmark change — internal benchmark change. So that happens on the entire base. But what we also did was the customers who had a good track record for maybe more than one year, two years, we also gave them a discount on the rate. So to the extent of — to basically help them get a — to adjust to the PLR — increase in PLR. So you can say the PLR increase affected about maybe 50% of the customers.
Chandra
Right. So that, okay. Okay. Got it. And second is, is it fair to say that spread is sort of now plateaued from where they are, I mean, how do you think just around cost of funds and spreads? And then in the sort of previous cycle when the cost of borrow went down, you managed to sort of show an increase in spreads. As we sort of look over the next 12 to 24 months and keep sort of the rate cycle going the other way at some point in time, how just — how do you think of spreads?
And then just lastly, the ESOP pool, can you just remind me, does it cover — what percentage of people in the branch does it cover as well?
Manoj Viswanathan
Yeah. So see spreads at — spreads we have been maintaining that, 5% to 5.3% is the kind of spread that we will be able to achieve in this business. And so it’s kind of hovering over there. But if the rate — if there is a reduction in rates, the cost of borrowing reduces, there will be periods where we probably enjoy a larger spread because there will be some lag in passing that on to the customers. But on a steady-state basis, 5.2%, 5.3% is something that we should be able to maintain.
As far as the ESOPs is concerned, so we basically provide ESOPs to — from any — from a supervisory level. So basically at the branches, it is all the branch managers who are covered through the ESOPs. In other functions, it’s basically people who are supervising teams.
Chandra
Right. So every branch manager basically of these 140-ish branches each is covered in the ESOP pool?
Manoj Viswanathan
Food. Yes, yes, they will be covered by the ESOP pool. I mean, unless they have kind of just become a branch manager and they missed the previous cycle, but otherwise they will all be covered.
Chandra
Okay, great. Thank you.
Operator
Thank you. The next question is from the line of Harshit from Premji Investments. Please go ahead. Hi, sir. Congratulations for good set of… Sorry to interrupt you, sir. I would request you to please use your handset.
Harshit
Is this better?
Nutan Gaba Patwari
Yeah.
Operator
Yes. Sir.
Harshit
Just one thing. So on the model which we follow of the connector, I think when we recently look at the other players, maybe they were late in catching up and maybe it could have been — they were not aggressive in this, but the peers have started becoming aggressive on this channel itself. And in a very similar concept to ours, building up an app and then giving it to make it more technically — technologically easier for them. So do you per se see this that — is there a greater competition aggressiveness on this part of the segment?
Manoj Viswanathan
Yeah, there is always some, you know, new player coming or some players starting this concept. Also, this concept always I mean — concept always existed in some form or the other. Probably, you know, more companies are getting more — getting more formal or giving it a more formal structure to it, but otherwise, you know, many companies were sourcing through connectors earlier also. So ultimately it boils down to, you know, what new insights you can gain and how you can kind of make your own app more user friendly for the connectors and develop certain insights, which will, you know, kind of make it easier for them to deal with us.
So we continue to kind of keep innovating on that front. And so there will be others who are trying to catch up, but we will try to stay ahead of the — stay ahead of them, because we kind of have a personal advantage. So we have certain insights, we have certain database and track-record of these connectors. So we will hopefully we stay ahead of that curve.
Harshit
Got it, got it. Sure, sir. And one more thing, sir. I think for us, if I’m not wrong, the underwriting part is something that happens — the legal validation of the documents, etc., the technical part, that happens in-house — in the central location in Mumbai, if I’m not wrong.
Manoj Viswanathan
No, so there is — its a two parts — there are two parts to the process. So there is a legal check that happens through legal vendors in the respective locations and then that legal report also gets verified or veted by a internal person, internal property underwriting person. So it’s a two-phase approval process that we have.
Harshit
Okay. And that underwriting team is something which is there in-house in our Mumbai. Unlike other peers, it’s not diversified across the region.
Manoj Viswanathan
That is correct, that is correct.
Harshit
If you can sir, just help with the total team size of that underwriting team? And in general, how has the attrition been in that segment — in that particular region? And probably the third question more practically, since the nuances of individual areas differ a lot, how do we ensure that any recent updates, etc., whatever has been happening in a particular region or in a particular district gets adequately captured in the underwriting process?
Manoj Viswanathan
Yeah. So the underwriting team has the size of about 30, 35 people and we keep continuously adding to that team. So we do a capacity planning in terms of how many applications likely to be received and what is the processing time, etc., and we keep adding people to that team. And — so there are two, three things that we do to address the local nature of some of this information. So one is that we have these legal and technical valuers who are who are located in each of these locations and we have a relationship with them. So they process the application first, or they process the title papers and the technical report first. So they bring in the local nuance, and then that report is then checked by our internal person who is sitting here in head office.
What we also do is, we have — the underwriting team that you see, 30, 35 people over here, they are actually, you can say, cultivated from various parts of the country. So there would be — there would be people who have been branch managers or relationship managers in other parts — in various parts of the country. So we actually move them to Bombay to, you know, be part of the underwriting team. So they bring with them their local experience of those locations as well.
And thirdly, what we also do is we have a continuous process of field visits by the central team. So every month there are one or two or three people who are visiting various parts of the country to kind of correlate whatever they do in central — the central office with what is happening on the field. So — and to keep kind of update — keep themselves updated on what is happening in the field. So through this three-pronged approach, we combine the local nuance with the kind of centralized control.
Harshit
Got it, got it. Okay. Okay, sure, sir. Thanks a lot.
Operator
Thank you. The next question is from the line of Pawan Kumar from RatnaTraya Capital. Please go ahead.
Pawan Kumar
Hi. Can you just highlight why we should keep growing our disbursements lower than the AUM rate? Is it because of the adjustment you are making for assigned loans that are come, for which you are receiving money or how does that work exactly?
Manoj Viswanathan
No. So disbursement fee, the planning — what the planning that we have done for the next three years is based on a certain AUM growth, right? So we wanted to achieve an AUM growth of close to 30%, and we have done our planning on that basis. So the disbursal growth will be more of a derived number. So there is a certain disbursal growth that will lead us to a 30% AUM growth So that number will be the direct number. So like I said, the number that we are targeting is INR20,000 crores in the next three years. So FY ’27, we want to hit a INR20,000 crore number. So broadly that translates to, 30% AUM growth year-on-year. The disposal growth maybe 20% — 20%, 25%, 27%, it could vary quarter-to-quarter. But the ultimate aim or goal means that we have to grow the AUM by 30%.
Pawan Kumar
Okay. Okay. And any early signs of stress we are seeing, especially on our lower ticket size book?
Manoj Viswanathan
No, we are not seeing anything ticket size specific as such in terms of stress.
Pawan Kumar
Okay. And so going forward also, we are expecting the credit cost at least as of now to stay between 20 to 30 bps. That is — that is what our expectation is, right?
Manoj Viswanathan
The expectation, yeah.
Pawan Kumar
Okay. Thank you.
Operator
Thank you. The next question is from the line of Ravi Naredi from Naredi Investments. Please go ahead.
Ravi Naredi
Thank you very much. Mr. Mano Ji and your entire team doing a — very nicely working, it is good thing you reduce impairment on financial instrument. Sir, only thing to ask our net interest rise is 50.4% in this quarter and so — and against our AUM rise of 34%. So what is the reason?
Manoj Viswanathan
Sorry, sir, can you repeat the last part? Net interest.
Ravi Naredi
Our AUM rises by 34%, while our interest — net interest cost rises by 50.4%.
Manoj Viswanathan
64% you’re talking about.
Ravi Naredi
INR176 crore against INR117 crore.
Manoj Viswanathan
Yes, sir, there’s — because interest cost is also increasing, so the interest cost — whenever there is an interest cost increase on that particular — that number increases by a disproportionate percentage. So AUM is growing by 30% — 34%. But interest — first of all, there is the — there is high, I mean the company is getting more leverage. I mean, there is more debt getting added to the balance sheet. So that is one factor. And secondly, the interest cost is also increasing because of borrowing cost increase. So that is why you’re seeing a disproportionate increase in the interest cost line.
Ravi Naredi
So in longer-term, a rise of AUM percentage and interest cost will be similar?
Manoj Viswanathan
Sir, in a steady state it will be similar. But as the company is growing and adding more debt, while the leverage is increasing. So at some point, let us say we say that, yes, we are going to maintain a leverage of say 5.5% or 6%. So at that point, then quarter-on-quarter you will find that both will increase at the same pace. But as the interest — as the leverage keeps increasing, the interest cost will rise at a higher rate.
Ravi Naredi
Mr. Mano Ji, my one concern is there, we are maintaining more liquidity, that is the reason we are paying more interest?
Manoj Viswanathan
No, sir, there are two reasons. One is, as I said, the debt component in the balance sheet is increasing, right? So the last quarter you would have seen 4.6 was our asset to equity ratio. This time the — this time it is 4.8, or the debt-equity ratio has moved from 3.5 to 3.7. So there is more debt proportionally in the balance sheet. So that is one reason for the increase. In a steady state, once that number stabilizes, I mean once we hit — once we reach a 5 times debt-to-equity and we are maintaining the 5 times debt-equity quarter-on-quarter, then you will not see this disproportionate increase.
Ravi Naredi
Okay. And one more thing, net profit rise by 24% against AUM rise of 34%. This is main cost. One is interest and other is a staff maintenance — staff cost?
Manoj Viswanathan
Yes, sir, again same reason, because interest cost is rising. So we are — the PBT is — PBT is rising at a slightly slower rate than the AUM increase.
Ravi Naredi
Okay. But we are keeping the growth rate 30% onwards for the full-year, right?
Manoj Viswanathan
Yes, sir. Yes, sir. For the full-year.
Ravi Naredi
Okay. Thank you. Thank you, Manoj JI.
Operator
Thank you. The next question is from the line of Jatin from Burman Capital. Please go ahead.
Jatin Sangwan
Thanks for taking my question. First one is around the clarification related to fee income. You mentioned that fee income from insurance commission will be around INR12 crores. Earlier we used to book advertisement income from insurance that used to be around INR4.5 crores. So is my understanding right that the net delta would be INR7.5 crores or similar?
Nutan Gaba Patwari
So the net delta would be slightly higher. We will reduce the marketing income that we used to get, but not fully eliminated. So the delta could be in the range of INR9 crore to INR10 crores.
Jatin Sangwan
Okay, good. Second question is around this CLSS scheme. Now please correct me if my understanding is wrong. So my understanding is that if a customer gets the CLSS scheme, then he will have to stick with the same lender for the five years till he is getting subsidy. If he switches, then he won’t get the full benefit of subsidy. So does it mean that BT out rate will reduce because customer will anyway stick to the same lender and that will also get reflected in our BT out rate?
Manoj Viswanathan
Yes, theoretically, as of now the way the scheme is structured, that looks like a possibility.
Jatin Sangwan
Okay. Thank you.
Operator
Thank you. The next question is from the line of Omkar Shinde, who is an Individual Investor. Please go ahead.
Omkar Shinde
Sir. Hello. Am I audible?
Nutan Gaba Patwari
Yes.
Operator
Yes, sir.
Omkar Shinde
Yeah. So first question is on Madhya Pradesh growth. So Madhya Pradesh I have seen very good growth. It is now.
Manoj Viswanathan
Not able to to hear you clearly.
Nutan Gaba Patwari
We cannot hear you.
Omkar Shinde
Hello. Am I audible now?
Nutan Gaba Patwari
Yeah. Just be a bit slow so that we can follow you properly.
Omkar Shinde
Okay. So for Madhya Pradesh, the growth has been very good. Quarter-on-quarter, we have seen 15% growth. It is now at INR800 crore book. So — and almost every quarter we have added INR800 crore to INR850 crore in the book. So my question is, what is it that we are doing in Madhya Pradesh, like it is growing so fast because the share in the AUM has also increased very, very much in the past four quarters. So that is the first question.
Manoj Viswanathan
Which location?
Nutan Gaba Patwari
Madhya Pradesh.
Manoj Viswanathan
Okay. Yes, yes. So as we had articulated, sir, there are two, three states where we are focusing now. So earlier our focus used to be in the Western and Southern part of the country. And last — about maybe one yearago we said that we will now start increasing our distribution in MP, UP and Rajasthan. These three as the new emerging states, which have large populations and where affordable housing is coming up in a big way. So we are just going ahead with that plan. So we have actually opened up locations in MP. We have opened up — added more people in MP. So we are — the distribution expansion is picking up pace in MP. Also true to some extent in Rajasthan and UP also you will see that our pace of growth is higher than other parts of the country. So Rajasthan has grown by about 41%, and you know, UP has also grown by about 50-odd percent. So in all these three states we are now focusing or — focusing our expansion, and you’re seeing the you’re seeing the results from that.
Omkar Shinde
Yes, yes. I was going to also come on UP. So in the UP, Uttar Pradesh, you showed that it is a combined INR746 crores. What is — can you give us the — of the split between Uttar Pradesh and Uttarakhand if it is possible, what is Uttarakhand percent?
Manoj Viswanathan
Uttarakhand, would be about 2% of the AUM, if I’m not mistaken, and the balance comes from UP. So Uttarakhand would be, I mean totally it’s about 6% of the AUM, out of which Uttarakhand will be about 2% and the balance will be from UP.
Omkar Shinde
Understood, understood. And now one question on the ECL provision. So ECL provision Stage 2 has increased to 10.1% in the current quarter. Quarter-on-quarter, it has seen a big jump from 7.8%. So what is that? Because our credit cost, the provisioning that is there in the P&L, that has remained more or less stable. So have we seen any recovery or anything? Can you please explain?
Nutan Gaba Patwari
So when we do the ECL model, we look at the model as to what changes or any overlays that we may have to take. So if you see, year-on-year our number had reduced from 8.6% to 7.8% last quarter, and we just thought it is prudent to kind of take the number slightly higher. So we made some very basic changes to accommodate that. If you look at our 30 DPD that has improved. If you look at the composition of the credit cost also, about 90% of that is just on account of provisions. The losses are actually negligible in the credit cost line. So this is just being more conservative that we’ve added a little bit more provision to the Stage 2. We’ve also maintained our Stage 3 provision at 27%. This is just being a little bit conservative on maintaining healthy provision.
Omkar Shinde
Okay. So we have changed the model or we have taken management overlay?
Nutan Gaba Patwari
Management overlay.
Omkar Shinde
Because the overall — because the overall provision also has decreased. So that was just to understand. We have taken a management overlay, that is correct to understand?
Nutan Gaba Patwari
Yes. The overall provision has increased by almost INR5 crores.
Omkar Shinde
Okay. Okay. Thank you.
Operator
Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Manoj Viswanathan, for closing comments. Over to you, sir.
Manoj Viswanathan
Thank you, everyone, for participating and engaging in the call. We hope we have been able to answer all the questions to your satisfaction. In case you want to reach out for further questions, you can always reach out to Nutan or write to us at investor.relations@homefirstindia.com. Thank you so much. Have a good weekend, and Happy Diwali in advance.
Operator
[Operator Closing Remarks]