Jana Small Finance Bank Ltd (NSE: JSFB) Q2 2025 Earnings Call dated Oct. 21, 2024
Corporate Participants:
Chintan Shah — Investor Relations
Ajay Kanwal — Managing Director and Chief Executive Officer
Sudhir Madhavan — Head, Retail Financial Services (Assets)
Krishnan Subramania Raman — Executive Director and Chief Credit & Collections Officer
Rincoo Vachha — Head, Affordable Housing Loan and Micro Housing Loan
Shrinivas Murty — President & Head, Branch Banking & Marketing
Abhilash Sandur — Chief Financial Officer
Analysts:
Manish Ostwal — Analyst
Shailesh Kanani — Analyst
Kamal Mulchandani — Analyst
Rajiv Pathak — Analyst
Ashlesh Sonje — Analyst
Yash Mehta — Analyst
Gautam Jain — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Jana Small Finance Bank Q2 H1, FY25 Earnings Conference Call hosted by ICICI securities. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Chintan Shah from ICICI Securities. Thank you, and over to you, sir.
Chintan Shah — Investor Relations
Yeah. Thank you, Thanmaya. Good evening, everyone, and welcome to the Q2 FY25 Results Conference Call for Jana Small Finance Bank. I would like to thank Jana Small Finance Bank management for giving us the opportunity to host their quarterly earnings call. We have with us from the management, Mr. Ajay Kanwal, Managing Director and Chief Executive Officer, along with other members from the senior management. So without further delay, I would now like to hand over the floor to the management. Thank you, and over to you, sir.
Ajay Kanwal — Managing Director and Chief Executive Officer
Thanks, Chintan, and good evening, everyone. I would quickly introduce the management who is along with me on this call. So we have Rincoo Vachha who heads our Affordable Housing business. We have Shrinivas who looks after Branch Banking and Marketing. We have Sudhir Madhavan who looks after MFR and Gold business. We have Abhilash who is our CFO. We have Raman who is our Credit and Collections Head. We also have Sumit Aggarwal who is our MSME and Supply Chain Head. We are Gopal Tripathi, our Treasury Head, and Mr. Tamal Bandyopadhyay who is our Senior Advisor. So that’s everybody along with me on the call from Jana, and we’ll be really happy to answer your questions later.
So let me start. I’m sure many of you, if not all of you would have looked at the numbers which have been uploaded on the websites, both DSC and NSE, as well as our presentation. I will talk through the presentation. I’ll swiftly move to Slide 2. So first and foremost, I must tell you that as we began the bank in 2018, it was our commitment to turn the bank into a secured bank with 80% of our assets being secured, that journey continues. We also wanted to build a very healthy liability franchise, that strategy and that delivery and execution continues. We also wanted to be an anchor bank for our customers, which means that it should see us as a broad financial services provider, that journey continues.
We obviously are challenged in the NFI business but that has not changed how we are executing on our core plan. Firstly, if we start with deposits, we have grown 31% year-on-year and 10% in the first half. Now out of the 10% that we have grown in the first half of 2024, the time deposit growth has been 9% and the CASA 12%, so a very healthy click, 10% first half, TD at 9% and CASA at 12%. Our advances year-on-year has grown 17%. First half is 7% with secure now becoming 65%. Now obviously 7% growth rate is slightly lower than what we would have thought, which is mainly driven by unsecured growth. As negative 7%. Our Secured business grows a very strong 16% in the first half. So again Secured business moves very strongly to 16% first half growth. Unsecured business given the environment, our reason to be conservative and cautious has grown a negative 7%.
Our capital adequacy continues to be strong at 18.8% with Tier-1 at 17.8%, and very important quality of deposits leads to an LCR of 261% for the bank. This is as of September. ROA at 1.6% and ROE at 14.5%, slightly muted over first quarter, purely because of the provisioning we have done in the second quarter. Gross NPA is at 2.86%. Net NPA at 0.95%, and very importantly, PCR is at 67.2%. So our PCR in the second quarter is higher than the first quarter, and given advice from many of the folks on this call, we’ve also elevated our Secured PCR to a 28%, which was approximately 18% in March. So that is one of the things that we were asked that, would you look at a higher PCR, which is also done? So while yes, Gross MPA is up, which is largely MFI-led. It is still at 2.86%. Net NPA at 0.95% and PCR at 67.2%.
Our profit for the first half post-tax is INR267 crores after giving an additional provision of INR115 crores to make sure our net NPA remains below 1%, and we’ve added a major INR19 crores in our DPA. Finally, if you add the pack of INR267 crores to our capital adequacy, it will even strengthen further to 20.3%. So, to sum it all, it’s been a tough half that we continue to execute very consistently and strongly on our strategy, and we’ll talk more about the MFI business as we come to that particular section.
I’m moving to Slide 3, where again the highlight to my mind is really our PAT along with an NPA of 0.95%, PCR of 67.2%, and like I mentioned earlier, this is after giving INR115 crores additional provision to make sure that our NPAs are below 1%. You can see from this page, which is on Slide 3, that all parameters are functioning well, and the bank is on track. If you move to Slide 4, here again, you will see that our Secured is at 65%. Our NIM is at 7.7%, in spite of a drop off 7% of our MFI book. As you know, the MFI book is a high-yielding book, and of course, the delinquency has caused some interest in suspense, but I’m glad to report that then continues to be 7.7% with a stable cost of funds at around 8.1% for the quarter, for the half it’s about 8% [Phonetics]. So very steady on our cost of funds.
Our Secured business is doing very well and our MFI business, we do think the one which are done especially on the individual loan side and the bank, performs very well and we’ll talk more about as we go along. So to sum up the first half, PAT at INR267 crores, Net NP at 0.95%, PCR at 67.5%. Secured has now become 65% of our total book, which was at 60% in March, so a healthy growth of 5%. It’s grown a bit faster than we imagined to 65% Secured because the MFI Book has degraded by 7%, so obviously that ratio is looking much better.
We go to Slide 5, which exhibits the national franchise that we have, well spread across 24 states. We have 4.5 million customers, roughly about 24,000 employees. On the right-hand side, on Page 5 you will see the BC contribution, which used to be at 9.9%, it is down to 7.4%. One of the degrowths that we have seen in MFI business for the bank as well as the gross NPA, is lining it through a BC network, and we will show you the numbers as we go along. Page 6, we have reformatted this page from what it was — from last time because we felt that there are too many ratios, so best is given through this format. So, first and very important news, is our Affordable Housing and Micro LAP business, which is led by Rincoo Vachha, has crossed the INR10,000 crore mark. And Affordable housing, which was just trailing the Micro LAP business, has become our largest business on the bank.
If you see the LTVs growth rate, gross NPAs, net NPAs of both the businesses, that’s where our primary focus has been and will continue to be, and we are glad to report that it works very, very healthy for us. Our MSME Loans have grown 16.5% year-on-year and has grown for the first half at 12.9%. And again, we are happy with the parameters. In the following page, we did talk to you last time that we will show you what is our Supply Chain versus what is our LAP business, and we will show you the differentiation on the next page. And I must add that this business, given how the economy is growing, how the small manufacturing is doing, we can see more tailwind here. Our NBFC business, which has been always something that we have kept a reasonable proportion of, has grown for the first — for the quarter at 3.1% and year-on-year growth at 3%. It shows a slightly elevated growth on [Technical Issues] because we tend to grow it in the first quarter and then we tend to not grow in the balance three quarters.
Our Two-Wheeler business, and I mentioned it in the last call too, as we expand number of cities in the Two-Wheeler business, our Two-Wheeler business will see a naturally high growth rate. So when I spoke to you last time, I did mention that we were in 90 cities going to 120. I must tell everyone that our total number of cities that we are present is roughly about 180. So we have enough and more cities to keep growing and expanding our Two-wheeler business. So when you see the growth of the Two-wheeler business, it is about us taking the same product to multiple cities, it is not about changing the credit parameters or any such other activity, which will result in such a big growth. Of course, not to mention that INR651 crore, which is our Two-wheeler business, it is not a large number, but our percentages, obviously, are much more pleasing so to say.
Gold Loans has seen a very strong growth. Again, Gold Loan, our primary sales channel is our MFI book. And while we did see stressor MFI, most of our book, the collection continues to be at the 90% or 99% range, so our collectors are spending time on really encouraging customer get gold loans. So you’ve seen a very healthy growth in gold loans, which is roughly 80% for the year and 67% for the first half itself. And then Loans against FD, we have now given the exact product breakup rather than lumping anything so that we are very clear. Now, INR17,000 crores of the bank asset which is secured in nature. Our unsecured is essentially microfinance or graduates of group loans who have got individual loans, whether they have for business or agri purposes, and because there has been, obviously, stress in the Microfinance business, this business has degrown to 6.5% for the first time. Gross NPA at at 4.97% for microfinance, and we’ll talk more about it as we go to that page.
So that’s our book. I think the high point is Affordable Housing, Micro LAP crossing INR10,000 crores, and the other important piece is the development of supply chain for MSME business, which is doing very well, which I will just share with you on the next page, Page 7, where I think, if you notice, MSE is broken up with term loan, supply chain, and loans covered by guarantee. Loans covered by guarantee also has property backing it up, but this is additionally where we have taken guarantee from fugitive currency. Supply Chain has gone from INR378 crore to INR597 crore business. And again, the reason why this business does well is not just because of demand it is also because as we get new customers and add new geographies, we have barely started the business early last year — sorry, and given that there is enough there is no room for us to grow.
We continue to be very diversified geographically, which has been advantage for us, especially when we want to grow. Also when there is concentration of portfolio, it can cause stress in the environment and we continue to be taking advantage of our geographical spread. It’s been hard work to get to so many cities and so many geographies, but I must say that the hard work is behind us, and now we are very established and have a reasonable presence in all the cities. Of course, lot more room to grow, I must say. I’m moving to the next slide, which is Slide 8. And here I would like to bring in Sudhir Madhavan. Sudhir Madhavan looks after this business for the last five years, and prior to that he used to be with Bajaj Finance and he joined Jana in part of collections. He did a fantastic job in collections and was promoted as business head.
So Sudhir, over to you. Sudhir really would like to give his view on what is happening in MFI business from our Jana lens, and then we’ll go into our portfolio. But over to you, Sudhir.
Sudhir Madhavan — Head, Retail Financial Services (Assets)
Thank you. Thank you, Ajay. In the last two quarters, we have adopted a very cautious, wait-and-watch attitude. Look at the first line, the big three issues what we are faced with is customer leverage, busy performance, and employee attrition. The next line is to look at breakdown of what we hear in industry, there’s a breakdown in batch discipline. This is not very relevant to Jana because, we actually from 2017 to 2018, we started migrating our book towards — more towards individual loans. So 50%, 60% of my book is now individual loans. KYC issues, it doesn’t bother us much because we are 100% e-KYC. So there is no concept of any fraud coming into that place, so it is not Jana relevant.
A lot of actions we have taken in last two quarters, specifically focused on customer leverage. We tightened down norms, which are already very tight. One thing what we’ve implemented now is the exposure offers for any customers, whether it’s existing to Jana or new to Jana cannot be more than INR50,000. Total exposure for the new to bank customer cannot exceed INR1.25 lakhs, and it was initially INR1.5 lakhs, and for a new to the existing it was INR2 lakhs, which both have gone down to INR1.25 lakhs. Overall exposure of Jana, I think this should be one of the very few organizations where we look at all the bureaus, including unsecured plus MFI. Yes, we have a sudden stress in the BC performance. We have BCs across INR1,900 crores of book. We have — two of them are slightly challenged, but well within the limits, 14 of them are doing absolutely fine, fantastic. One of them was challenged in a certain way.
We have a service guarantee with all of them and this is on disbursements and not on the portfolio. What in last two quarters we have done is we have actually shifted a lot of good collection senior resources to support the BCs. So some of them put in the BC head offices, some of them actually shifted to their branches to help them to understand collections and the way we drive collections actually. They use our best practices across more than that. Plus we’re putting additional guardrails across the BCs so that we restrict the growth which was very high last year. So we can show the growth are controlled.
And then Slide 9 now, employee attrition. We have elevated our employee engagement programs. We do a lot of family connect, calling the families. We do a lot of festival celebrations. Strategically, what we have done, we have actually reduced the account to collector ratio, which was somewhere around 350 to 360 in the month of March, we have actually got it down to 292, 295. We have completely improved our compensation program, making sure that it’s aligned with increased difficulty in collections. Plus now being a bank, we are able to offer a good carrier path to our people. Those people who have done three years, four years in microfinance, they actually moved to two-wheeler, they actually moved to goal loans.
Some of the open items which is beyond our control is like, even if I have a very high degree of control on the unsecured exposure [Technical Issues] what we give some other lender comes and gives him a loan, which we can’t control much. I know [Indecipherable] have introduced new guardrails, but let’s see how that works out here. Our future strategy is very clear. We will use RFS distribution team to grow more two-wheeler and gold. Micro LAP would be our business, which will accelerate more and more. Increased CGTMSE for Micro Enterprises as we gradually move towards more and more individual loans. We currently have a book of INR120 crores, by March end we should be looking at INR800 crores to INR9,000 crores of books, which will be completely under guarantee program, focusing on existing customer, even closed loan base. We see business would continue but with a much more stringent learning.
Krishnan Subramania Raman — Executive Director and Chief Credit & Collections Officer
This is Raman here. [Technical Issues] I just wanted to recap a few items from what Sudhir had said. I think the first piece is that there is some element of stress in Microfinance, but particularly it is coming through in BC. In the BC, as Sudhir had said, there are 17 BCs, 14 are behaving absolutely fine. If at all, there is only some slight challenge in three out of that one is a little more challenged, but the key aspect is that my FLDs — my service guarantee is on the disbursed amount whereas the current portfolio is a lot lower than the disbursed amount. We’re doing a lot of streamlining. We’ve tightened a lot of credit.
Sudhir talked about a few aspects of credit that we had tightened. INR50,000 is my — when I’m going to either a new to bank or an existing to bank, my office exposure should not exceed INR50,000. My [Indecipherable] plus office exposure, we brought it down to INR1.25 lakh irrespective of whether it is existing to bank or new to banks. So these are really a few key aspects, and Sudhir has also outlined what we really need to do going forward in terms of the business, focusing on CGTMSE. So I just wanted to highlight these are the critical aspects.
Ajay Kanwal — Managing Director and Chief Executive Officer
Thanks, Raman. Back to you, Sudhir.
Sudhir Madhavan — Head, Retail Financial Services (Assets)
Okay, let me go to Slide 10. This gives a snapshot of our Microfinance book. As what Ajay said, we actually have degrown by 6%. On year-on-year or if you look at first half to second half, we are actually flat. Strategically what we have done is, the BC book is actually degrown by 11%. Our book has almost remained flat, but because of the high degree of stress in the BC book, we made sure that they’re focused on collections and then we grew up BC. Our GNP is at 4.97% and NNPA at 0.49%. We still focused more on digital payments, which is 25%. Of the average ticket price across the book is only INR36,000. I think should be one of the lowest in the industry. Let me go to Slide 11, just give a snapshot of the INR9,300 crores book, 60% of the book as compared to last year, which was 50%, are existing customers who already had a good track record with us and this gives a confidence saying that our books will remain stable and our book predictions coming in future. Thanks.
Let me pass it on to Rincoo, who heads of Micro LAP and Affordable Housing. Rincoo, over to you.
Rincoo Vachha — Head, Affordable Housing Loan and Micro Housing Loan
Thank you, Sudhir. A very good evening to all of you. We are at Slide 12. As we saw at the outset, our Affordable Housing Loan business continues to grow at a robust pace, and so does our Micro LAP business. In the quarter gone by, we have increased our frontline field by around 16% in anticipation of a sizable scale-up further on for H2, which traditionally is a growth-oriented period for industry as a whole. Moreover, as Ajay mentioned, our LTE ratios continue to be amongst the best in the industry with affordable housing loan LTVs at 50% and Micro LAP at 36%. Now this healthy buffer on LTV continues to augment our home 360 offering wherein we offer multiple products to our customers with Housing Loan and Micro LAP at the core as an anchor product for the bank.
With upcoming festive season, if we move to Slide 13, we foresee a very good uptick on Pre-approved business loans, which we offer to our existing Housing Loan and Micro LAP customers, who exhibited excellent repayment behavior and discipline both on us and offers. Now, this will help them to support — help to support them with their working capital requirement to grow their business for the upcoming fasting season. This quarter under our Home 360 strategy, if you see our product offering per customer is at 3.7 products. That is, we sell 3.7 products on an average to a Housing Loan or a Micro LAP customer. This includes sustained health insurance penetration, which is not a bundled insurance product, above 90% and CASA penetration is close to 100%, at 99% to be precise. Incrementally, we have seen average monthly balance per customer grow to INR26,700 per customer from around INR20,000 in previous quarters.
On this note, may I invite my colleague, Mr. Srinivas Murty who heads our Liability business, to speak about our achievements on liability front.
Shrinivas Murty — President & Head, Branch Banking & Marketing
Yeah. Hi. On the deposit side, we are clearly witnessing excellent growth. We are growing faster than the competition whereas the industry is growing at 12% on the total deposit. We have grown 31% y-o-y. Similarly, on CASA, industry growth has been at 14% y-o-y. We have grown at 28%. This is double the growth. For the half year ending September 24, CASA has grown by nearly 12%. Total deposit for us grew by about nearly 10%. So deposits are clearly going extremely well. On the CASA ratio, we are seeing stability from 19.7% in March. In the month of March, we are around 20.1% now. Therefore, whereas the deposits are going faster than the assets, the CD ratio has come down from 110% to nearly 100% now as we speak. So deposit rate is higher than the assets for us. Incremental CV ratio is less than 100%. Clearly, deposits are going well.
Cost of deposit is at 8%. In the month of July, we brought down our fixed deposit rates, and similarly in the month of October we brought down our saving band rates, which will help us to bring down the cost to deposits further. 59% of our bulk TDs are non-callable. They offer stability. Similarly, 88% of our bulk TD is one-year or above, and the 93% of our RTD is one-year, all of this is leading to a very high LCR of 261%. On Slide 14 on the right-hand side, if you see, this tells us the concentration of states. The top three states, which are Karnataka, Maharashtra, and Punjab, from 35%, they are now down to 30%. Similarly, the next four states UP, Delhi, West Bengal, and Tamil Nadu, their share has come down from 30% — to 30% from 33%. The rest of India is now up from 32% to 41%. What it tells us is that we are able to reduce dependence on few states and increase the new geography and grow them well.
This is clearly aligned with our branch expansion plan and we are really expanding across and the business is showing up and upgrade. The key markets which are Bangalore, Delhi, Mumbai, Kolkata, they are doing extremely well. Large centers like Gurugram, Lucknow, Chandigarh, Indore, they are doing extremely well too. So I mean what are the key drivers, which are resulting into this growth? So we have continued focus on optimizing our branch network like I mentioned. We added 22 new branches in the last one year. We added four new branches in the current financial year with 16 in pipelines. The product innovation and launch of new key segments are also helping us to grow deposits.
We launched something called Legend, which is a senior citizen product, which gives us monthly interest for senior citizens. We launched NRI product. We launched exclusive premium. We launched something called Liquid Plus FD. This is a short-term fixed product. I’ll talk more about it later. We’re also improving our productivity through branch sales process. Our per employee deposits is stable at INR9.13 crores for the last three quarters. We’re also augmenting our digital ecosystem and it is playing very well for us. Like I mentioned, on Slide 15, this is the spread of branches as per their weightage. We have added 22 branches, which is the first bar that you see. And as the weightage of the branches grow, we see increase in the average deposit both on CASA as well as on the overall deposits.
If you witness, nearly 100 branches have moved from one-year to three-year bucket to three-year to four-year bucket, and that is, those set of branches will play well for us in going forward. The new product that we’ve come up is Liquid Plus FD, which is a short-term innovative FD product, which offers liquidity and a short return, and this product we are witnessing extremely good fraction. Similarly, Senior Citizen product that we launched that I talked about Legend is also showing excellent results. We’ve acquired nearly 3,000 customers under it with an average ticket size of nearly INR9 lakhs. The staff productivity, which is another key driver for us is also playing very well. We remain one of the highest per-employee business as far as the deposits for business is concerned.
On the Digital front, our mobile app has witnessed 10 LAP downloads with nearly five lakh active customers. And on the reviews, which is a large number of reviews, as reviews are rated as 4.6, this is primarily because of the easy registration process and easy interface, and therefore it is leading to higher active users. We have added new functionalities to our mobile banking app. We’ve added BST payments, we’ve added loan EMI payments, we’ve added tax payments, and we’ve also introduced what is called reward programs. One can sign on to our mobile app and redeem the rewards, right? In the current financial year, we’ve added nearly 3,000 merchants on QR, about 600 on the soundbox. Most of these are active. Our emphasis on debit card showing well. We have 84% acquired customers who are carded, which is leading to 71% of the base being carded. So these are the key drivers and they continue to help us stay on course on our deposit journey and play a catalytic role in deposit growth.
With this, I hand over to Abhilash, who is our CFO and homegrown. Over to you, Abhilash.
Abhilash Sandur — Chief Financial Officer
Thank you. So moving on to the Slide 18, that’s what I’m talking about. So the Unsecured business strategy, what we have adopted of negative growth has led to a decrease in revenue and also we have taken additional credit cost as a buffer, additional provisioning. This has led to a lower revenue for us and also slightly higher cost-income ratio. We believe that the peak is behind us. So extrapolating this, I think it will normalize over the next two quarters into next half. I think the cost-income ratio and the revenue should normalize. So this is one of — this is what I can call about. So that’s Slide 18.
If I go to the Slide 19, this is clearly visible in terms of disbursement, so last year in Unsecured we did INR4,000 crore disbursement. This year it has gone down to INR2,975 crore. And that had a positive impact, which is the growth in Secured business, but it had an overall impact on the revenues. In terms of GNPA and NPA and asset quality, 67.2% is the PCR for us and we are holding on to the NNPA below 1%.
And I hand over to Raman with GNP and NNPA. Thank you.
Krishnan Subramania Raman — Executive Director and Chief Credit & Collections Officer
Thanks. Thanks, Abhilash. I’m moving on to Slide 20. So I just wanted to make two, three points here on the slide. First is, if I look at my Secured NNPA, actually the first thing is NNPA, 83% of that is Secured. Out of INR247 crores of NNPA INR204 crores, which is 83%, is in the form of secure. Second point is, my LTV on the Secured is at 45%. The third point I wanted to make is that my PCRs have grown pretty healthily. They pointed out that last quarter we were at 18% PCR on Secured and we wanted to grow it. We’ve grown it to 29.7%. Unsecured also has shown an increase in PCR. The third piece is on the BC book. While we are covered 93.4% in terms of PCR, there is also a service guarantee, which we haven’t really considered in all of this.
So at the moment, we believe that we are perfectly, and in fact more adequately provided. On the right-hand side, we’re talking about the restructured book, which has fallen a further 10% compared to the previous quarter. And bulk of it, INR73 crores out of INR79 crores is Secured, which has an LTV of 38%. So these are the key messages I wanted to pass on Slide 20. On Slide 21, again, Ajay talked about an accelerated provisioning of INR115 crores in his introductory slide, if I adjust that and the recoveries — recovery, which is reflected in the other income line, my net credit cost is INR247 crores for the half year, which is at about 1.9%, that is pretty much stable with what we presented in the earlier quarter as well. So these are really some key messages that I wanted to place on record as far as the GNPA, NNPA, and credit cost is concerned.
I’ll hand you back to Abhilash. Thanks.
Abhilash Sandur — Chief Financial Officer
So while we have spoken about deposits and advances, one point which is also relevant is the borrowing. So in the quarter, in the previous quarter, we have repaid SNTR [Phonetics] borrowings of INR800 crore at a lower cost, that was at 4%. Even after repaying the low cost SNTR borrowing, we have held on to our cost of funds, which is at 8% for the half year. So that’s one key takeaway which I wanted to mention. And we are expecting new sanctions and borrowing limits during this quarter, probably it will come in end October or early November from refinance institutions, which is NHB and SIDBI. So that is expected during this month or next month, which is at a competitive rate to deposit, and also it is long term, which is helping out my ALM because I’m doing a lot of Affordable Housing and Micro Housing, which is longer duration assets. So that’s one key takeaway which I wanted to mention in Slide 22.
I’m moving on to Slide 23, which is on the P&L statement. So key takeaway in the statement in terms of recoveries, so we have mentioned — I think there was one request on providing the details of other income, which we have provided in the slide. Comparatively covering the other income passes, the major drop against last year is from the recovery, which has come down from INR80 crore to INR44 crore. However, the PSL income has grown from INR42 crore to INR55 crore. Costing fee, there’s a drop, which is from INR118 crore to INR114 crore. This is mainly because of the block in disbursement in Unsecured from INR4,000 crore to INR3,000 crore approximately. Insurance commission, we are doing well in terms of insurance, so — and other part is the other fee which is basically the liability fees. Other than that, if you look at the provisions and contingencies seems elevated against last year, last first half, which is from INR343 crores to INR406 crores. This includes INR116 crore of additional forging for the first half. And in Q2, we have done additional provisioning of INR61 crore.
So moving on, hand over to Ajay.
Ajay Kanwal — Managing Director and Chief Executive Officer
Slide 24. On the guidance piece, I have reiterated the guidance you’ve given earlier. We will work on this in quarter three and come back. Very importantly, for us is to also go through quickly a few things which are no relevant from the bank’s perspective, which is on Slide 28. Here again, our strengths of being a digitized bank of having a governance framework, all is bearing out in good stead. Our strategy remains very steady. There are a few things that I would like to add before I close and it’s very important for all of us to take note. See first, Abhilash mentioned about what has Unsecured growth in the first half been negative, what kind of challenges it has caused. So first, of course, as Unsecured has come down there is drop in fee, there is drop in revenue, there is elevated collections cost, and there is, of course, an increased provisioning on this Unsecured book.
However, I wouldn’t extrapolate that for the next two quarters because we don’t anticipate a 7% drop in portfolio. So obviously fee will get better, revenue will get better, and at the same time, cost income will get better. So these are three things I must add because we run the risk of taking the quarter and extrapolating ahead, so I’m absolutely providing that clarity. I would also like to reiterate what Raman said, which is our credit cost and Unsecured side have seen the peak. So that is very important for us to take into account as we go ahead. The third thing that you heard from Abhilash is, our recoveries in the first half are down versus year-on-year. This is nothing to do with our recoveries except that all our collection people are more busy trying to make [Indecipherable] 98 and 99. So obviously that deserves a lot more manpower to be shifted towards the early buckets, which we have.
Having said that, now that we’ve had a good quarter of 98% and 99% from MFI, we will be seeing more recoveries come in the second half. So again, a good reason why we should not assume the first half and second half will be identical. I do think that as a management team, we responded to a stress moment, and our bias has been that we should make sure that our future is very secure. So our bias in the first half had not been to grow the Unsecured group to make revenue or to give cost income low or any other measure. Our first half attempt, seeing the stress in the system, is to degrow, get clear what the environment is really showing to all of us, and then decide to grow, which is why the policy has been conservative and our strategy has been conservative to that extent, but I do believe that with this strategy, our credit cost in the second half, our cost income coming back towards late 50s that it used to be, should we think that one can expect, and we will be working towards that. So that’s a few things I wanted to add based on what some of my colleagues have mentioned.
In closing, I just would like to say one simple thing, which is, from a strategy perspective, we have been absolutely on track to deliver a secure bank. We are continuing to deliver on this strategy. For us, what has happened of stretch in the Microfinance business is a small aggression, which we will certainly be able to conquer, and you can see very well that Jana’s own book reflects a much healthier portfolio. Yes, I do compliment all our BCs, they’ve done a fabulous job. A few of them did go off track. We’re bringing them back. Happens to be three out of 70. We do believe in the BC business for sure. Our Liability business is growing very well and we certainly will make sure that our second half, some of the gaps that has arrived from the stress, gets fully covered. Our Secured business, as I mentioned earlier, has grown a 16% clip in the first half alone, and that will continue to see the same solid growth that we’ve seen in the first half.
With that, I would like to stop here and I would like to request, Issac [Phonetics], to open the floor for questions.
Questions and Answers:
Operator
Thank you so much, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Manish Ostwal from Nirmal Bang Securities. Please go ahead.
Manish Ostwal
Yeah. Thank you for the opportunity. My question on your comment around the second half will be better, but with the operating environment remains challenging in the MFI space, what gives you confidence to do better compared to the actual performance, especially in the credit cost collection of money from the MFI customers, the collection cost and overall income growth because you shared the fee revenue, and revenue also goes down because of this pressure in the MFI book, so can you explain the factors which make you confident to deliver that kind of performance in the second half?
Ajay Kanwal
Thank you, Manish. So, first half, it has been a reaction to stress, I think, very little chance all of us got to plan. Second, given that the stress was still evolving, it’s very difficult to say that is our final response. So the first bias has been, it’s an evolving situation, let’s watch it, let’s be very conservative, and we will take our measured step on how to respond to it as we go forward once we see the full picture. So I think, which is why, if you see, a lot of the things, and we’ve done this special two slides, Manish, from Sudhir, to tell you how we will respond to the Microfinance situation of where we are tightening and how we are tightening.
So few things, I’ll tell you why second half will be better, and I think it will be significantly better. First, we will not have a drop in Unsecured by 7%. This means revenue will be better and fee income will be better. Second, we will not see an elevated provision like we saw in the first half because what is the biggest flow-through possibilities they’ve all flown through, I did mention that we’ve seen a 98%, 99% collection in quarter two. So that is the second reason, which is credit cost will be lower, dispersal [Phonetics] will be higher, fee will be higher, interest will be higher, and the reason why it will be different is also because, for us to kind of believe that everything will be okay very quickly is not real, so we have taken time to respond to how we want to rebuild and where we want to tighten and which is what you are seeing right now, which Sudhir has clearly explained. So that’s the second thing.
The third thing, very importantly, like I mentioned, is a lot of our staff did get diverted towards holding early buckets strong, because there is no point getting early buckets weak while you collect at the deeper buckets. We obviously see more of our teams now getting focused on the deeper buckets, so deeper buckets will give us a better result, which is going to result into lower credit cost for the second half. So the second half credit cost will be certainly a lot lower purely because you won’t have so much to provision. Your credit cost is much better and you can see from the Secured book everything is good. Remember, out of my book, 65% is Secured. So that’s completely a book that is very well managed and we are very confident of it. The important thing, Manish, since you brought it up and I would like you and everybody else to make sure that, please make sure when you do credit cost calculation, you finally use this page, which Raman has referred to, which is Page 21, because we run the risk of using a wrong credit cost in a calculation because a lot of the recoveries do come in the P&L line for fully return of accounts.
So we will not see that in the credit cost, but obviously, they come to the P&L. So when we do a credit cost extrapolation it is best that we use Page 21. And while you use the recoveries in the income line — in the credit cost to be biased, you please reduce it from the other income. So that you reduce other income by so much and you reduce the credit cost by so much, it will give you a good chance to extrapolate. So, Manish, I am very confident that our second half will be a lot more different and our first half has been absolutely what we think as a team here, something that we have to considerably respond because we do want to make sure that not only we respond for this year, but we are also well prepared for next year.
Manish Ostwal
Sure. The second question on the balance sheet side, we saw borrowings in investment down by INR1,000 crore on quarter to quarter basis, so can you explain what has caused to that kind of drop on both line items?
Ajay Kanwal
Yeah, so very simple, I think Abhilash did mention it. There was an SLTRO, which was given by RBI during COVID period, that was a four-year tenure. The expiry of that happened in April [Speech Overlap] in July, which is why the drop in borrowings has happened. We have not repaid anything. Nobody has done any — anything else for that. It’s repayment of RBI, which was to be happened — which had to happen. I must also say that given there have been very strong liquidity in the bank, so as we finished our September quarter, we have INR1,400 crores as cash. So we have enough cash on — as we have, so we haven’t tended to borrow also in the last few months.
We will be borrowing now because I think the rates are a bit better on the refinance side than they were six months to one-year ago. So there is nothing here except that we repaid RBI. Second, our borrowings will come this quarter. We are expecting from two refinance institutions and our borrowings will be back up, nothing for there, which is something for us to worry about. All I can tell you is that the borrowing cost from next quarter will be lower than what it is this half because we expect better pricing.
Manish Ostwal
Two small data points, what is the collection efficiency for MFI during quarter two versus quarter one, and then total slippage [Phonetics] for H1 number and quarter two numbers? Thank you.
Krishnan Subramania Raman
98.3, 98.4.
Ajay Kanwal
No, he said first quarter or second quarter difference is how much? [Speech Overlap] So this is ranging between 98.5 to 98.7, the regular bucket. That should be answering the question. So we are ranging between 98.5 to 98.7.
Manish Ostwal
What is the quarter one, sir?
Ajay Kanwal
Quarter one was around 98.6% to 98%. So it’s always between the range of 0.2 basis points year, so it’s always range between 98.2 to 98.5.
Manish Ostwal
And total slippage for H1 and quarter two.
Ajay Kanwal
H1 of last year?
Manish Ostwal
No, H1 of ’21, current year.
Ajay Kanwal
Right. Total slippages in quarter two for MFI was roughly about 10%, Manish.
Manish Ostwal
Okay. Okay, sir. Thank you. That includes the BC book?
Ajay Kanwal
That includes the BC book, absolutely. And so primary, Manish, the slippage is from the BC book, and if you go back to the slide, I would encourage you should go to that slide because that is a very important slide to get this sorted out from us. If you see Slide 10, where if you look at everything on our book, which is Jana’s book, it is 4.2% gross NPA, net NPA of 0.5%, and 3.5% for aggregate group, it’s a BC book, whereas we have explained it is with a service guarantee, and the service guarantee is in form of deposits, which the bank holds, and in cashes as it goes into NPA. But if you talk of slippage at Jana, then it will be less than 50% of the BC book. So the percentage that Raman mentioned is largely led by the BC book.
Operator
Thank you so much, sir. The next question is from the line of Shailesh Kanani from Centrum Broking. Please go ahead, sir.
Shailesh Kanani
Thanks for the opportunity. So, just wanted to understand the accounting in case of tie-up with the BC, so suppose the BC book size is around INR100 and the GNP is INR10, so how does this FLDG of four to five work, and how much is it reflected in the books, and how the PCR is calculated? Can you just give some idea of the accounting on this?
Ajay Kanwal
Yes. So, Shailesh, first let me explain this. There are 17 BCs, 14 of them are nowhere close to the FLDG that — or the service guarantee that they have given to the bank. Two are on borderline and one is there it will cross the amount of money he has given the bank. Now let me explain how do we take this service guarantee. It is based on dispersals and not portfolio, which is why if you see Page 10, where while the gross NPA is 9.7% it doesn’t mean we are out of pocket because our service guarantee is on dispersal amount and not on outstanding. So we have a lot more money than the current average outstanding of all BCs. But like I said, we do not see us being out of pocket with any BC except one. Second, very importantly is, all BC’s are committed to getting recovery behind them so full steam ahead.
They are all focused on recoveries, which is why if you see their book has now shown a negative growth of 12.7%, and like Sudhir mentioned, wherever they have seen a bit of turnover and because we had obviously a larger workforce, we have seen COVID and [Indecipherable] in the past, we have lent them some of our senior collection resources to support them. So shall I — just to answer your question, does the bank anticipate any big challenge out of — if the service guarantee is surpassed, then I am clarifying that to you that there is only one case where it will be surpassed. We are sure that that’s not a number which will change our view on the next half. And second is, we also know that everyone who is close to the service guarantee provided by them or the one who surpassed it, they are all very committed to making sure that they bring it all within their line because it is a very important P&L item for their businesses also.
Shailesh Kanani
There was an ancillary question on accounting on the PCR [Speech Overlap]
Ajay Kanwal
So gross NPA remains — whatever is coming through the books the moment an account becomes 90 DPT is gross NPA and then thereafter you have either the provision or the service guarantee invocation. Together, both of them get deducted to come up with a net NPA number and the net NPA number falls, BC book is roughly at about 0.7% and the PCR is at 93.4%. So, Shailesh, you must look at Page 10 because the 0.7% net NP of the BC book with a PCR of 93.4% is stated there and that will give you a good sense of the service guarantee the bank had. But again, I would also like to add Shailesh, we should not extrapolate first half into second half. I’m not saying everything is perfect. Obviously, we have seen the peak and you can see that in the numbers here.
Shailesh Kanani
Fair enough. I just wanted to understand this includes the cover what we have, so I got an answer for that. That is fine. So again, on this BC book, as you rightly mentioned in your remarks as well as at the beginning of the, where out ATS is one of the lowest in the industry, so just wondering why we have such an high GNP [Phonetics] in this book? Have we done some analysis? Because quarter-on-quarter also the quality has kind of gone down, so any thoughts on that in spite of having so low ATS, and from your commentary that they are the old partners for the bank. So any, any color we can draw on this?
Ajay Kanwal
Good question, Shailesh. I think I should have probably covered it, but let me just check. So I really wanted to go back, Shailesh, to this slide which Sudhir presented. Now here, in the BC book, one of the BCs under challenge is really the BC who had used CSP points to support them. And there has been obviously a breakdown of communication. There has been a breakdown of operating rhythm between the CSP points and the BC. So our learning really is that BC using CSP points for collections may not be the best answer. Now, fortunately, this BC does not have his entire book with CSPs but some geographies where he uses CSPs, we got bit challenged. We have decided that we will stop CSP points for any BCs to use. They have to use their own stuff. So that’s the one reason where one BC is challenged and that is the one challenge BC, and this is the primary reason, he is the most challenged. So that question from you, Shailesh, is absolutely fair, which is why does an institution where their own book is pretty much reasonable? ATS is low, why is the BC book more challenged? So one of the reasons of the most challenged BC is the use of CSP points as one of their challenge, which hasn’t worked well.
The second is, let’s talk about the two people who are on borderline, so very good institutions, you would do more business with them. I did think that going into new geographies led to new people who did not know the processes. And certainly, if they would have had a lower growth, they would have been less challenged, which is why Sudhir mentioned that we will put guardrails on growth even if you were a BC, now the challenge, obviously, if you’re a BC and you are small, percentage will look high. So we will obviously model it to some sensible number. But our takeaway is two. The most challenged one had CSP relationship issues. The two on the borderline had faster growth rate like the rest. And as you can see out of the 17, if you leave these three out, rest are pretty much in the 1.5% to 2.5% — sorry, 1.5% to 3.5% ranges of gross NPA, which is well maintained book. And that kind of reflects everything on Jana’s book also.
Shailesh Kanani
But unfortunately for us, this seems to be little on the bigger size in terms of contribution to the book, right? These three BCs which you’re referring to.
Ajay Kanwal
Yes, is one of the larger ones and is one of the oldest ones.
Shailesh Kanani
Okay, fair enough.
Ajay Kanwal
I must say that [Indecipherable] Shailesh, that you understand, the CSP model — this BC has been practicing even before he became our BC for many years. So it’s not a new model guide with us. But unfortunately, in this crisis, again, due to a mix of a few issues, it has not turned out well. So it’s not a new model we tried with us. It’s a model it’s been doing for years. It’s been our BC for over four years. We never had a challenge we got worried about. But somewhere, I think in this stress payment, this is kind of snapped. So, yeah, that’s just to give you some background of both these BC as well as what happened.
Shailesh Kanani
Okay, so just last question from my side. Sir, any targets for PCR per se? How would that — we should build up in our models? And also on a bookkeeping side, can you share the gross slippages recovery write-offs for the quarter?
Ajay Kanwal
Okay. So, Shailesh, one is for your model, I would always expect Jana to have net NPA below 1%. That will be our going in position for every other quarter after this. And whatever is required to be provisioned, we would provide for that. Like I mentioned, Shailesh, we got feedback when we were doing the calls last time around that some of the analysts would like to see our Secured PCR go up. So while we could have declared a higher net profit and cost of 100 for the psychological mark, et cetera, we decided that, listen, we would not do that, we would actually raise our PCR even on secured to 27.7% this time. So that’s the second piece we should know. We would like to retain that at that levels.
Thirdly, I would not assume the same flow rates as quarter two. I would assume a very low rate, because if you look at the BC group, there is only so much more that can flow now, the worst is already behind us. So that’s the third piece I would do. On the slippages, again, I would like Raman to quickly work out a slippage, which is BC, non-BC, and share that with you, but I could do that later because I don’t think so that number is ready with him right now.
Krishnan Subramania Raman
That’s right.
Ajay Kanwal
And we will come back to you, Shailesh.
Shailesh Kanani
Okay, sir. Thanks a lot, and best of luck.
Ajay Kanwal
Thank you so much.
Operator
Thank you. The next question is from the line of Kamal Mulchandani from Investec Capital Services. Please go ahead, sir.
Kamal Mulchandani
Hello. Hi, sir, thank you for the opportunity. So can you please guide what has been the par zero trends in the MFI loan book for the company?
Ajay Kanwal
Yeah. Hey, hi, Kamal, you’re talking of par zero trend in terms of collection ratio, what do you mean by par zero trend? One plus bucket, right, Kamal?
Kamal Mulchandani
Yeah. Yes, sir.
Ajay Kanwal
Give us a few seconds. If you have follow-up question, ask, while we get the data out.
Kamal Mulchandani
Sure. So secondly, I wanted to ask that quarter-on-quarter we are seeing increase in GNPA for Affordable Housing and Micro LAP, sir, can you please elaborate like, what has been the reasons for this?
Krishnan Subramania Raman
Right. So the increase in GNPA for Affordable Housing is actually in line with what we would expect. So if I look at the — and if I look at secured as a whole, my overall net slippages is somewhere in the region of 2.5% per annum annualized, and that’s broadly in line with what we expect for all these secured portfolios put together. So that’s one part. The second part is, if I looked at my LTV ratio for the NPA — GNPA, that said about 45%, and therefore the loss that I would expect from this portfolio is going to be very minuscule. So I think these are really the two points I just wanted to highlight.
Ajay Kanwal
I just want to add to Raman, one point. You have probably 20 bps to 30 bps extra gross entry at this point of time purely because of slowness of getting the 30 to 34 [Phonetics] and activities organized in the first quarter. We do have a backlog, and I mentioned in the last call that we should clear about 60% of that backlog in quarter two and the balance 40% for the last quarter. Like, we have a lot of cases where we are waiting for reposition orders. Most of the territories have cleared it. We have one or two states where it is still a backlog. Once that is done, you will see a gross NPA, which is slightly lower than where it is today. But other than that, like Raman mentioned, given our slippages, where we are, it’s hardly a LTV book at all — at our end. We are not seeing any microfinance rub-off on our book.
So I am saying this very simply because there is no connectivity you can see, and we are not feeling any challenge coming from a MSI behavior into any of our secured books. Our commonality of customer isn’t large. It is something as a strategy we will do more of now. But that has not been our biggest push in the past.
Kamal Mulchandani
Okay, sir. Like, that’s what I wanted to ask. If the one-plus numbers are ready, that could be great.
Ajay Kanwal
Okay, Kamal, while we — [Indecipherable] come back to it [Indecipherable]
Kamal Mulchandani
Perfect. Cool. Thank you so much, sir.
Ajay Kanwal
Thank you.
Operator
Thank you. The next question is from the line of Rajiv Pathak from GeeCee Holdings. Please go ahead, sir.
Rajiv Pathak
Yeah. Hello. Good evening, everyone. So just to reconfirm, are you saying that in Q2, the stress levels in the credit cost in the unsecured book would have peaked, and Q3 onwards, you will actually see a decline in the stress levels and the credit cost? And second part is, on the secured book, I think it is very heartening to see that we have increased the PCR on the secured book. But if you were to look at the three main components of this book, the Housing, the Micro LAP, and the MSME, there is a quarter-on-quarter increase in the GNPLs, so can you just share some thoughts on what has led to this increase and whether you will see some kind of a trend going into the second half also?
Ajay Kanwal
Okay, so, thanks, Rajiv. So, Rajiv, yes. I think two things will happen in second half. We will not have as much flow into gross NPA as we had in the first half. And if you really look at our slide on Microfinance, which is Slide 10, you will see that our BC book is already sitting at a gross NPA level of 9.7%. So there is not much room [Technical Issues] And I just tell you, the peak number roughly was INR2,500 crores of BC book in March. It was down to INR1,950 crore. So a lot of the tougher customers, which were on the borderline have already skipped. So that is one simple reason.
Our book, if you think, what is on Jana first and select book, we pretty much are more or less steady with where we were in the first quarter. So we really don’t have any slippage of a serious nature there, which is why you should expect lesser flow through. And like I mentioned earlier, a lot of our collectors were basically moved to the early buckets to extend the flow. Now that the flow, like Sudhir mentioned, 98.6 to closer to 99, we have more time with our collectors to really work on the recoveries of the deeper buckets. So we should see better credit recoveries, we should see lower credit flows, which means lower demand for provisioning and better recovery. So net number is much more positive.
Rajiv Pathak
Okay.
Ajay Kanwal
So that’s given. And thirdly, remember, we have not grown unsecured in the first half. We have actually run negative. So I have not added new customers, which will give me new NPAs. So while it is not flattering on the first half numbers, because I’ve obviously lost fee, I’ve lost revenue. But I do think that negative growth of first half, 7% of unsecured, will add a positive to the credit cost of second half. And we certainly are very sure of what growth we want to build because now we are certain that this growth will be something that will be good credit even as you go forward. Because, Rajiv, as you know, if you try and grow the way out of the problem, you can probably solve today’s problem, but we’ll create tomorrow’s bigger problem.
Now, on the secured book, I said — listen, PCR, we happily put it there because we wanted to make sure that nobody shared any doubt. We are very committed to make sure that we are well provided slightly extra the way we look at it. So right now I’m referring to Slide 20, the PCR has increased to 29.7% — I’m sorry, I missed it earlier. So roughly 30% on secured. 88.8% on Jana’s book and 93.4% of BC book, so we’ve got very good PCR coverage and I think very well balanced now. So PCR should be same as we should anticipate. I really don’t have a different answer to give you on gross NPA for secured, except that, like Raman mentioned, if you actually model it and you look at gross NPA, net NPA, LTVs, your LTVs will come to less than 0.1%. And you just have a look, just multiply it and you see it. We will not even use the provision here.
Many of the analysts said last time that other housing companies have given higher PCR, why don’t you also look at it? We’ve actually put PCR here. Our increase of PCR is not any reflection of what we anticipated as a loss. I just want to make sure that I clarify that. [Speech Overlap] The one thing I did mention, and I said this in the last time also, first quarter of the sector [Technical Issues] that was all delayed maybe because of elections. There is not — the machinery which is supposed to give orders or work with us, whether it is, the thasildars, or the law enforcement, everybody busy with elections. I did mention last time also, we will probably solve 60% of that backlog in Q2, and the balance 40% in Q3, which is what we will do. So you will see gross NPA getting better. There is no specific action we are taking, Rajiv, which worries us on shipyard [Phonetics]. We have a good scorecard. We have a new version of that scorecard and we are seeing good growth as you can see in our business. So all very steady, Rajiv.
Rajiv Pathak
So that point is I’ll take an — in fact, your Housing, say, gross NPA is 1.2%, Micro LAP is 2.2%, and MSME is 2.4%, which is kind of well below what we have seen in the other guys in the industry. So my point was that since we are already better off within these three sub-segments in terms of the gross NPL, this should still be maintained, right? You will still be clocking better than industry averages in this sub-segment, right?
Ajay Kanwal
Absolutely. I would say that you should expect us to remain here or get better in second half.
Rajiv Pathak
Okay.
Ajay Kanwal
That’s what I was trying to say, Rajiv. Because we have some backlog to clear. We are fully focused on it and we will certainly do a better. At least our sense is that from here it should remain steady at — get 20 bps better and gross NPA. That’s what I can expect. And like I want to repeat for unsecured because that is most important thing, which should be like a cause for concern. Don’t extrapolate unsecured either revenue or cost income, but also realized that as a management team, we have to make sure that we have to convert to Universal Bank next year. We have to have net NPAs below 1%. We have to have gross NPAs below 3%. And we would not chance one quarter numbers to make them look nice, but then put the whole next year at risk. So we rather felt that not growing, watching, getting clarity in our minds of what’s happening is more important, and then once we are sure in our mind what has happened, then we’ll respond. That is what we have seen, which is why we’re very happy telling you that second half will be different.
Rajiv Pathak
Just one data-keeping question. How much would have been the interest reversals in this quarter because of the slippages?
Ajay Kanwal
Rajiv, interest in suspense is RBI norms, therefore, whatever goes into NPA, the entire money is reversed. I don’t have the number offhand with me, which is what is — are you asking for a rupee value, right?
Rajiv Pathak
Yeah, yeah, rupee value, absolutely.
Ajay Kanwal
I don’t have it [Technical Issues] have it.
Rajiv Pathak
No problem. I’ll take it on later.
Ajay Kanwal
Okay, Rajiv, thanks.
Rajiv Pathak
Wish you all the best. Thanks.
Ajay Kanwal
And [Indecipherable] question for the that, next time we are more prepared for it.
Rajiv Pathak
Thanks a lot and wish you all the best.
Ajay Kanwal
Thanks, Rajiv.
Operator
Thank you so much. The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead, sir.
Ashlesh Sonje
Hi, team, good evening. A couple of questions. Firstly, on the MFI book you have said the slippages are roughly 10%, and if I go by Slide 10, where the overall book is roughly INR9,300 odd crores, does that mean a roughly slippage of about INR230 odd crores, assuming the 10% number was annualized, is that fair?
Krishnan Subramania Raman
230 crores, that’s right.
Ajay Kanwal
Ashlesh, the thing that I’ve asked Raman to do is to break this into BC, non-BC, that will kind of solve the problem and that will give you a good feature to how to measure the two.
Ashlesh Sonje
And secondly, you mentioned that the Gold Loan business, one of the sales channel for that business is your MFI customer base. Can you share a rough number as to what is the proportion of your gold loan customers who would be either an existing or an erstwhile MFI customer? A rough number.
Ajay Kanwal
[Technical Issues] so, listen, we are able to hazard [Phonetics] a guess, we can tell you existing customers, so that will probably be about 15% at best, but what is our old MFI customer, very difficult to say. But if you ask me, an active customer base right now will be MFI customer base, 15%.
Ashlesh Sonje
Understood. Perfect. And, sir, just to confirm what you said, you’re saying that while there are challenges on the unsecured piece, there is no rub-off on the secured segment, at least for now, right?
Ajay Kanwal
Absolutely. And you heard Rajiv before you, there is challenge on — there is no challenge on the securities, which is why, if you see, we have grown at half-on-half growth is just 16.9% in Affordable Housing, 8% Micro LAP, so no real challenge there, and we are not seeing any rub-off because we don’t have a large proportion of MFI customers which are based — our average ticket size is INR6.5 lakhs for Micro LAP. So there is not a high proportion of Microfinance segment customers. There is a small proportion, but nothing challenging. We had also done some study earlier where we found that existing customers of MFI actually behave very well when they borrow on Micro LAP. Even though it is a small percentage that we had, we always felt comfortable with that, and that’s mainly because once we’re able to collect from them an unsecured loan of INR40,000, INR50,000, then there’s a secured loan, INR1.5 lakh, INR3 lakh is not such a big issue. So I would like you to be very sure from what Abhi said, we don’t see any challenges on secured one, and unsecured, we will not see more flow-throughs because larger flow-throughs are in the BC book where the real elephant has passed.
Ashlesh Sonje
That helps, sir. Thank you. Those are all the questions.
Ajay Kanwal
Operator, is there any further questions?
Operator
Yes, sir. So the next question is from the line of Yash Mehta from Art Ventures.
Yash Mehta
Sir, I wanted to ask that on an industry level, for how long do you expect the stress in the Microfinance sector to continue or when you expect the revival in the Microfinance sector?
Krishnan Subramania Raman
Here is the answer that — I think it will be dependent on player-to-player. Average ticket size will be a big determinant of how much you have leveraged of your customer. The geographies you are present at will be another determinant, because if there are too many players and your customer is leveraged quite highly, then the problem will be worse. I think people will try to grow out of this problem by disbursing early, may find that this may come to bite them later, so that would be the third piece I would think would be a differentiator. So those are my three big reasons of saying it is very difficult to say everybody will look similar, and I think people will look extreme, and they will be — I think you will find different players at different points given their challenges because their responses will be different.
But we do know that there will be institutions who would have grown in the first quarter and in the second quarter value have degrown. So our answers will be different. So that is what I am saying, I dont have a straight answer. Depending on the institution and the strategy they take to resolve the issue. I think the question which is important to all of us, and certainly, it is to us. We said what business model is the MFI business looking at? And I think that is a bigger question, because frankly, as you have seen in the past, leverage — using leverage to grow and growing your institution is not the answer. There is no hard guardrail that if you lend a small amount, somebody has to lend on top, what do you do? There is no good answer also there.
So I think becoming more conservative in the MFI business, both in its growth and what you wish to do is important. And that will mean that all of us should, at least at Jana, we think our MFI business contribution is more guarded in the future also. While we always had a plan to get to 80% secured, our mind is to get there faster now, because I do think there will be a bit of a question of the model, right, which is — okay, if this stretch is over, what next? We can’t go back to the same model because this model causes stress, so then what is the next model? How do all of us has responsible lenders behave and will we get the behavior from all the rest of us? May not be an easy answer right now. It’s not so obvious to us. So our bias is, listen, we were anticipating to become a 76% — 67% to 68% secured by the end of the year, we’ll probably end between 68% and 70% now.
Yash Mehta
Okay. And sir, one more question. Sir, will you be able to grow the advances by 20% in the second half, or what kind of growth rate do you expect in the second half for advances?
Krishnan Subramania Raman
So if you look at our first half, first half is very clear, we were 16% secured growth, 7% negative unsecured [Speech Overlap] composite 7%. So composite was 7%, but unsecured grew minus 7%, secured growth plus 16%. Now if we make sure our unsecured is at 0% growth, I am just being conservative, I am not saying it will be zero, and secured growth by 16%, I think we will be closer to the number you would anticipate. And by chance if secured grows 5% in the second half and unsecured continues to grow at the first half, then you can look at the number. I can only add that first quarter in all our banks is not the strongest quarter for disbursements. It is normally Q4, which is the peak quarter, and Q3 is always a very good quarter. So I would think that our growth rate in second half on asset side will kind of cover the gap of the 20% growth in asset business that we would like to do.
Yash Mehta
Thank you, sir.
Krishnan Subramania Raman
And 16% growth on a 70% of the book is about 11%, 12%, and that is the 7% you are already acknowledging.
Yash Mehta
Thank you very much, sir.
Operator
Thank you so much. The next question is from the line of Gautam Jain from GCJ Financial. Please go ahead, sir.
Gautam Jain
Yeah, thanks for giving opportunity. Good evening, everyone. My question — a couple of questions. First is, can I get the yield of secured business and unsecured business, every NIM?
Ajay Kanwal
NIM, right? Sure [Speech Overlap] one second, Gautam. First is, Gautam, thank you for asking the question and coming to this call. I’m just getting Abhilash, the CFO, to give you the range of yields for both secured and unsecured. Do you have another question, which I can answer in the meantime?
Gautam Jain
Yeah. Also, can I get the stage two numbers for Q1 and Q2 of this year?
Ajay Kanwal
Gautam, third question.
Gautam Jain
Third question would be, do you think there’s a risk to on the guidance you have given? Because if I take first half, the number are quite low compared to what we have guided for in terms of PBT or paid. So do you think we can fill that gap in second half and meet our guidance? You have given 30% to 40% PBT there on those.
Ajay Kanwal
So among the guidance things, AUM growth of 20%, I think, is not a risk. It is something that I do think we will hit in second half. Deposit growth of 20%, given that the first half is more closer to 10%, I think is something that we will certainly do. I think the PAT growth is what we will watch, which we will get a good sense of in this quarter, which is largely due to the credit cost that we have in our minds as well as unsecured — a portion of the growth coming back, which we will certainly see how the response is. I must tell you that in the first 21 days in October, it looks encouraging. So we will certainly have a look at that. I think fair to say the 40% may not be a possibility now. More closer, we will be fighting the 30% answer is how I look at it.
Gautam Jain
Okay. And the last question is, if I look at your PPOP sequential from INR355 crore to INR298 crore, so luckily we have [Technical Issues] there is a decline of around INR57 crore, INR58 crore sequentially from Q1 to Q2, and that’s mostly because of the drop in net interest income and that again because of high proportion of secured book. So just a question which is coming to my mind that if we continue to increase our secured book, do you think same rate of decline in yield will come and that will lead to again very, very marginal growth in operating profit Y-o-Y and sequential?
Ajay Kanwal
So, Gautam, just to clarify, the PPOP drop is also you will have to consider the sale of PSN which we did. We earned INR40 crore in quarter one, and this quarter we have earned only INR10 crore out of that. So that is the impacting factor for the PPOP.
Abhilash Sandur
So, Gautam, here it is. The real big change in the first half is negative 7% in the unsecured book. My rough estimate of revenue loss it has caused, if I add that with some interest in suspense, high level estimation, it should get between INR100 crores to INR120 crores. That is the primary reason of change. Now, even if the second half gets back 3% or 4% of the 7% negative, easily back to normal. I don’t think so our secured book is causing any change in the mix causing problem. It is more the negative growth in unsecured, and you can do a quick number, INR10,000 crores minus INR9,300 crores, INR700 crores, which are a yield of 19.9%. If I remember while, that will give you the number. [Indecipherable] disbursement will give you the second number because disbursement means, of course, less revenue and less fees.
So I want us to be very clear that once we don’t grow secured aggressively, just grow enough, we will be recovering a lot of the gap in revenues, which will obviously cost income will look better, revenues will look better, PPOP will look better, but Gautam, we did want to do that in the first half because we didn’t want to go in a very environment, which is unclear, what is the depth of the issue that is surrounding us, and we wanted to make sure that before we take and decide where we are going, we get clarity on that. So yes, that is the only reason I would be worried about. So when I’m calculating second half, I will build back some unsecured growth and you will find a much better number across the board, whether it’s cost income it is, et cetera, et cetera.
The other piece, I must tell you that, on credit cost, you all must use our slide, because if you use any other number, then we will always have a reconciliation issue amongst us because the recoveries we do, which goes to the fee line for the fully provisioned book, we miss that and then we have an elevated cost, which we should — cost of credit we should avoid. So that’s my only other request, Gautam.
Gautam Jain
Okay. So I expect this stage two number in Q1 and Q2 and the yield and [Technical Issues]
Ajay Kanwal
Sorry, Gautam, we have one minute, let’s do the next question, if any.
Gautam Jain
No, the cost of funding this quarter is 8.1%, don’t you think this is much higher than the one compared to our PAs, or do you think still has room to go up or this is the peak cost of fund and it declines from here?
Ajay Kanwal
Yeah, so good point, yes, I think it is higher than our peers and the reason it is high is because our LCR is at 261% and that is also higher than our peers. Industry average is 130%. Our peer group is in the 100% to 150% range of LCR. We are at 261%, Gautam, and that causes obviously a higher cost because we would like that we have a large portion of our deposits non-callable, and certainly, given last year environment where — and some of it this year where the talk of the town is the growth of deposits in banking, we wanted to make sure that we do have a very solid liability book under any circumstance, so conscious strategy. Would you like to reduce our LCR and hence our costs slowly over the next six months as the situation needs? We will do it.
Gautam Jain
Okay.
Ajay Kanwal
But you must see that slide and I would — Gautam, you must have a look at it. It is Slide 14 and the LCR of all the peer group that you are comparing also in the public domain, you must have a look at it. So conscious strategy of paying the extra 20 basis points, 30 basis points to buy certainty in an environment where deposit growth rate in the industry is challenged. We aren’t challenged. We are doing very well. But we want to make sure that we have a bit more strength in our book. Certainly on the deposit. [Technical Issues] I would say that our LCR at 260% is roughly two times the peer group that we talk of.
Gautam Jain
Okay. So you think that, Ajay, that Q3 will [Technical Issues] peak quarter in terms of gross NPA and then it will fall down from that level?
Ajay Kanwal
I think — so I think, Gautam, like I said, we are on 21 days of October, I mentioned to Rajiv earlier, secured nothing that [Technical Issues] unsecured you take the biggest flow through with BCs, and the INR2,500 crore book is down to INR1,900 crore, so the worst is kind of flow through already. I can see all the BCs very focused on collection. So all credit to them. And I must say that they are very well coordinated. So fair to say that, yes, Q3 will be a lower credit cost for sure from Q2. But I think it’s less about the rupee value, Gautam, because the flows are lower, it is also giving us confidence to start disbursement.
Because for a business which is having a lot of slippages, when to focus on disbursements may not be the healthiest answer, but which is why we feel that this quarter the book will grow, credit cost will be lower, which means credit will be higher, interest in substance will be lower, recovery will be higher for sure in Q3, and — so we should see a much better performance, which is why I said we will deposit a 20% growth rate, yes. Asset growth rate of 20%, yes. That I would still fight for the lower range of 30%, which is because we had indicated 30% to 40%. We will certainly be focused on getting that right.
Operator
Thank you.
Ajay Kanwal
Sorry, I do want to respond to Gautam. Gautam, if you take my MSME, Home Loan and Micro LAP book, the yield is 13.41% between the three. And I mentioned earlier, the yield on the unsecured book, which is largely Microfinance, minus the payout to BCs, because they have a portion of the revenue, is roughly about 19.9%. I’m not adding, you know the weaker loan, I’m not giving you — I think your question was more around our top three businesses of Home Loan, LAP, and MSME, what is the yield that the bank gets? That’s 13.4%.
Operator
Thank you, sir. Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the conference over to the MD and CEO, Mr. Ajay Kanwal, for closing comments.
Ajay Kanwal
Thank you so much. So listen, in closing, I just would like to say a few very simple things. This small bump in the road doesn’t change our strategy. Our strategy always has been growing a secured business, and if anything, this six months has again proven that we have been on the right track as a strategy for the last six and a half years. We, fortunately, have the product, we have the geographies, we have the people in secured, so I must say that we are fine here. I must add that in our unsecured, the peak is over. We will get better in Q3, which will include us growing the book, which will include lower credit cost and will include more recoveries, all three will happen, because that is the nature of the business. And we will remain always focused on making sure that our book is ready for application of a Universal Bank next year after we finish our audit. I am sure that this half is bit of a, I must say, more unexpected than we thought, but we have decided that we will use this moment to really do the right thing and not really focus on how to make this quarter’s profit look better.
With that, thank you so much, and thanks for coming for this call and hope to catch you on the next call when we declare our December numbers. Thank you so much.
Operator
Thank you so much, sir. On behalf of ICICI Securities, that concludes this conference. [Operator Closing Remarks]