L&T Finance Ltd (NSE: LTF) Q2 2025 Earnings Call dated Oct. 21, 2024
Corporate Participants:
Sudipta Roy — Managing Director & Chief Executive Officer
Sachinn Joshi — Chief Financial Officer
Analysts:
Kunal Shah — Analyst
Rahul — Analyst
Mahrukh Adajania — Analyst
Avinash Singh — Analyst
Sameer Bhise — Analyst
Nischint Chawathe — Analyst
Abhijit Tibrewal — Analyst
Alok Srivastava — Analyst
Shreepal Doshi — Analyst
Chintan Shah — Analyst
Zhixuan Gao — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to L&T Finance Limited Q2 FY ’25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
We have with us, today, Mr. Sudipta Roy, Managing Director and CEO; Mr. Sachinn Joshi, CFO; and Mr. Raju Dodti, COO, and other members of the senior management team.
Before we proceed, as a standard disclaimer, no unpublished price-sensitive information will be shared during the call. Only publicly available documents will be referred to for discussions during the interaction in the call. While all efforts will be made to ensure that no unpublished price-sensitive information will be shared, in case of any inadvertent disclosure, the same would, in any case, form part of the recording of the call. Further, some of the statements made on today’s call may be forward-looking in nature. A note to this effect is provided in the Q2 results presentation sent out to all of you earlier.
I would now like to invite Mr. Sudipta Roy to share his thoughts on the company’s performance and the strategy of the company, going forward. Thank you, and over to you, sir.
Sudipta Roy — Managing Director & Chief Executive Officer
Thank you. A very good morning to all of you. I welcome you all to the investor call for the second quarter of FY ’25.
With me on the call are our CFO, Mr. Sachinn Joshi; our Chief Operating Officer, Mr. Raju Dodti, and the senior management team of L&T Finance. Today’s call is divided into two sections, taken up sequentially by myself and our CFO, Mr. Sachinn Joshi, who will be talking about the overall business metrics and the financial performance at length. Post our opening commentary, we’ll be happy to take questions on the call.
I would like to start the call by sharing the highlights of this quarter’s performance, wherein we have registered a quarterly consol PAT of INR696 crores, a growth of 17% year-on-year while maintaining a satisfactory trajectory in our quarter two disbursements, ending with an overall disbursement growth of 11% Y-o-Y, with retail disbursements standing at INR15,092 crores, a growth of 12% Y-o-Y, and 2% sequential growth over Q1 FY ’25. Our retail book now stands at INR88,975 crores, a growth of 28% Y-o-Y.
These numbers reflect the strength of the retail business franchise that we have created over the years, which has been further sharpened by our five-pillar execution strategy, and I am happy to state that the company’s execution momentum to transform into a granular retail financial services provider continues unabated.
Having met Lakshya 2026 goals at the retail level two years in advance, in Q3 FY ’24, we have reoriented ourselves for convergence at the consolidated level by FY 2026, as detailed in the last quarter’s earnings call. Accordingly, our quarterly performance as against the new targets for Lakshya 2026 are as follows. Our Lakshya goal was to achieve retailization of greater than 95%. I am pleased to share that we have surpassed this target with 96% retailization at the end of this quarter. Against a retail book growth target of 25% CAGR in Q2 FY ’25, our growth stood at 28% Y-o-Y.
While we have improved portfolio quality by sustaining retail GS3 and NS3 within the threshold levels, we have now tasked ourselves to converge consol GS3 and NS3 below 3% and 1%, respectively. The corresponding numbers stood at 3.19% and 0.96% at the end of Q2 FY ’25.
On the ROA front, we have moved from tracking retail ROA to consol ROA in the range of 2.8% to 3% as per our original Lakshya 2026 targets. Our consol ROA for Q2 FY ’25 stood at 2.6%, up by 18 basis points year-on-year, which in the last quarter — last year’s same quarter, stood at 2.42%. I would like to draw your attention to slide number 5 of the investor presentation where this has been delineated in detail.
I would now like to quickly run you through the key highlights of our performance in Q2 FY ’25. Quarterly consol PAT of INR696 crores in Q2 FY ’25, a growth of 17% year-on-year. Quarterly retail disbursements of INR15,092 crores, a growth of 12% year-on-year. In spite of a challenging operating environment, our acquisition engine and persistent execution strategy ensured that the disbursement exhibited a sequential growth of 2% over the last quarter. Quarter two FY ’25 retail book stood at INR88,975 crores, up by 28% year-on-year. Consol book growth has picked up pace, growing at 18% year-on-year, reaching INR90,015 crores in Q2 FY ’25. The on-book wholesale assets closed at INR4,040 crores at the end of Q2 FY ’25, which is about approximately 4% of the overall book.
This quarter marks the completion of one year of our five-pillar transformation strategy and it continues to be central to our roadmap to the future, details of which are available from Slide 11 to Slide 24 of the investor presentation.
Consol GS3 and NS3 numbers came in close to the target metrics of 3% and 1% at 3.19% and 0.96%, respectively. The slight erosion in GS3 performance over Q1 FY ’25 is largely on account of the macro operating environment deterioration in the Rural Business Finance vertical in certain pockets, rationalization of tractor reposition policy in early buckets, and some localized adjacencies in the two-wheeler business. Collections efficiencies in our Rural Business Finance vertical was maintained at 99.43% for September ’24, which is a 13 basis points erosion over the corresponding figure of 99.56% for June ’24.
I would now like to give you some flavor on the macroeconomic scenario and the sectoral outlook before proceeding to the five pillars of our execution strategy. The spread and width of rainfall distribution this year from southwest monsoon has been unprecedented, with rainfall being at 122% of long period average this year, and most of the parts of the country have received adequate or more than adequate rainfall. This augurs well for the restoration of depleted water tables and reservoir levels in most parts of the country.
The success of the southwest monsoon bodes well for the possible resumption of consumer demand in rural areas and improvement of rural liquidity post the arrival of the Kharif crop, and a possible bumper Rabi cropping season. This could have a positive implication for our Rural Business Finance and Farmer Finance verticals in H2 FY ’25. We have already seen the green shoots of improved tractor offtake in the month of October, and are hopeful that the trend sustains and positively impacts the entire rural sector.
We would like to share that we have seen localized impact on collection efficiencies in the Rural Business Finance vertical due to widespread floods in certain geographical pockets, namely North Bihar, Gujarat, and parts of West Bengal. We also saw disturbances from certain unscrupulous elements hampering our collection efforts in the northeastern UP, and headwinds in Odisha on account of temporary disruption in social welfare schemes. I am pleased to share that our RBF team was able to proactively address these issues, minimizing the impact on the business overall.
I would also like to reiterate that the incidence of our customers with chronic over-leverage is one of the lowest in the industry, with customers having more than four external associations standing at about 5.4% of our total RBF outstanding book. Granular details of our customer leverage have been given on Slide 17 of our investor presentation. However, we are seized to the fact that the industry is passing through a period of deleveraging which might have a ripple effect continuing into Q3 FY ’25 and Q4 FY ’25, thereby moderating our growth outlook.
I would like to inform that we did not need to dip into our macroprudential provisions specifically created for the Rural Business Finance vertical in Q2 FY ’25. We would continuously assess our collection outcomes in the impacted geographies highlighted above, and keep our options open on differing [Phonetic] possible slippages through existing macroprudential provisions in H2 FY ’25.
As far as the global economy is concerned, it has weakened over the last quarters with some of the major economies, including U.S., China, and the Eurozone, now shifting their focus from targeting inflation to fostering growth momentum. The start of Fed’s calibrated quantitative easing cycle, along with RBI’s signaling of a neutral accommodation stance, indicates a movement towards a more benign policy rate regime globally and in India in the coming year.
Pockets of worry remain due to conflict zones remaining red-hot in Europe and Middle East, and demand constant attention due to possible spillover impacts into the Indian economy in case of a sustained worsening of the conflicts. In spite of certain uncertain global and macro geopolitical situation, the domestic growth story remains intact, despite some sluggishness in high-frequency indicators as rural consumption and private investment demands start to gain momentum. We hope that a higher government expenditure in the second half of the year and the bountiful rains should add further fillip.
As mentioned earlier, I would now like to give a brief update on the five pillars of execution that we had enumerated one year back and continue to be in implementation mode against the same.
Number one, Customer Acquisition. The focus has been sustained on maintaining customer acquisition momentum in a challenging macro environment while doing the necessary credit adjustments to maintain future portfolio quality. Accordingly, rationalizations have been made in dealer network in both two-wheeler and tractor and farm equipment business in Q2 FY ’25, and focus has been sustained on new customer acquisition in the Rural Business Finance vertical to tap into non-leveraged customers by expanding new village footprint. Consequently, the cross-sell penetration in Rural Business Finance has been calibrated downwards to exclude customers of higher-risk profiles. Details of the same are available in Slide 12 and 13 of the investor presentation deck.
Number two, Sharpening Credit Underwriting. Project Cyclops, our three-dimensional credit engine that was operationalized in Q1 FY ’25, has now been scaled up to cover 55% of the two-wheeler monthly throughput. Two additional scorecards, the fraud scorecard and the dealer scorecard, have been implemented in Q2 FY ’25, taking the number of scorecards in deployment to 16, only for the two-wheeler business. The initial results remain encouraging, with through-the-door net bounce numbers for fresh acquisitions being approximately 125 basis points lower than those underwritten by legacy algorithms. Project Cyclops will be implemented for tractor business in Q3 FY ’25, followed by other lines of business, notably personal loans and SME business loans in Q4 FY ’25.
Futuristic Digital Architecture. The work on upgrading the technical capabilities and IT framework remained unabated in Q2. On the large partnerships initiatives, deep integration with CRED enabled us to go live on personal loan sourcing within expected time lines. Progress has been made in optimizing cloud user expenses and building robust disaster recovery infrastructure, alongside dishing up the cybersecurity capabilities. The organization has embarked on the task of housing the entire core IT data sciences and operations capabilities in an integrated facility in Navi Mumbai, slated to go live in Q4 FY ’25.
L&T Finance is also happy to announce that the inaugural edition of RAISE, India’s premier BFSI-focused artificial intelligence conference featuring luminary speakers, will be held in Mumbai on 26 November, 2024, showcasing practical use cases of AI in financial services domain to BFSI industry and fintech participants. We urge you to visit the website www.ltfraise.com and register for the same.
Brand Visibility. Over the past few quarters, we have invested in building visibility around high-traffic customer points like airports and in-site advertising on the urban side, and wall paintings and melas on the rural side, and marked our presence in the global fintech fest. We will be launching integrated marketing campaigns for two-wheeler and SME-focused products in the coming months. We are pleased to inform that we have signed a contract with Jasprit Bumrah as a brand ambassador for L&T Finance products.
Capability Building. In line with our objective of boosting the human capital of L&T Finance with an execution bias towards various initiatives, the regional business infrastructure was operationalized in Q2 FY ’25 to provide more granular distribution and risk control on ground, aid cross-sell and inter-business synergies, and reduce response times to tap emerging market opportunities. Four senior professionals from the banking sector have been onboarded in Q2 FY ’25 to transition L&T Finance from a business silo-driven organization to a more participative matrix organizational structure with far more granular senior supervision on ground in the four geographical regions of the country.
During the quarter, we also launched our first model branch in Madurai, Tamil Nadu for elevated customer experience and brand visibility, and will continue to replicate this templated design across all our new and legacy branches over the next few quarters. Details of the new organizational structure and the model branch are provided on Slide 24 of our investor presentation.
The organization also continued on its people development objectives emanating out of the Great Places to Work survey conducted in April 2024 to transition the organization into a truly differentiated and employee-focused workplace.
In addition, I would like to provide a half-yearly update on our wholesale assets and security receipts portfolio. As guided earlier, we continue to maintain that we are on track in ensuring the orderly rundown of this book over time. Many of our real estate assets in the ARCs, especially those in residential projects, have gathered significant momentum towards resolution with the resumption of construction and increasing velocity of sale of units to end users. As part of the ongoing process to enable faster resolution, we may be required to transfer one on-book assets to ARC in Q3 FY ’25. This in no way diminishes our expectations of eventually recovering more than the net carrying value on our books. We’d like to reiterate that our provision coverage and one of prudential provision of SRs accrued in Q4 FY ’24 would be more than sufficient to deal with the resolution of these assets.
Now, Mr. Sachinn Joshi will take you through the financial updates for the quarter.
Sachinn Joshi — Chief Financial Officer
Thank you, Sudipta. As always, I will be walking all of you through the financial performance of the company for the quarter.
So, starting with quarterly performance, our quarterly consol NIM plus fee remained strong at 10.86% owing to change in the portfolio mix and weighted average cost of borrowing improving by 5 basis points on a sequential basis on account of astute liability management. Our quarterly consol PAT at INR696 crores was up 17% year-on-year. Healthy quarterly retail disbursements of INR15,092 crores were up 12% year-on-year. Our retail book stands at INR88,975 crores, which is up 28% year-on-year on the back of healthy retail disbursements during the current quarter. Our consol book stands at INR93,015 crores, which is up 18% year-on-year. Consol ROA stands at 2.6%, which is up 18% year-on-year. And on the same lines, consol ROE at 11.65% is up 84 basis points year-on-year.
Talking about rural retail businesses, starting with Rural Business Finance, this business registered a quarterly disbursement of INR5,435 crores, down by 5% year-on-year. The book size has reached about INR26,500 crores, which is up 22% year-on-year in the second quarter. In Farmer Finance, disbursements stood at INR1,782 crores in the second quarter, up by 16% year-on-year. This led to the book reaching a size of INR14,488 crores, reflecting a growth rate of 9% year-on-year.
As far as Urban Finance is concerned, which comprises of two-wheelers, personal loans, home loan, LAP, this whole piece saw a 29% year-on-year jump in overall quarterly disbursements. As a result, the overall book size increased to INR41,578 crores in the second quarter, translating into a 33% year-on-year growth.
The two-wheeler business registered quarterly disbursements of INR2,393 crores in the quarter. Disbursements were up 32% from INR1,817 crores in the same quarter last year. 60% of these disbursements were contributed by prime customers during the quarter. The book size increased to INR12,699 crores, which is up 33% year-on-year.
As far as personal loans are concerned, we achieved disbursements of INR1,361 crores. Last year, we had done about the same, INR1,308 crores, and the book size stood at INR7,178 crores, an increase of 11% year-on-year. During the quarter, growth in this segment was aided by expansion of physical distribution through the DSA channel, focusing on salaried prime customers.
Moving on to housing, it achieved quarterly disbursements of INR2,531 crores, up 46% year-on-year. Last year, same time, we had done INR1,734 crores. The book size crossed INR20,000 crores milestone. The book finally closed at INR21,731 [Phonetic] crores, an increase of 42% year-on-year. The momentum was sustained in the business through strategic measures, including collaborative launches with prime developers across top locations. Additionally, the launch of LTFs, The Complete Home Loan offering across 11 locations, drove higher lead generation, which should lead to tangible results over the next few quarters. The Home Decor Finance package of The Complete Home Loans program has seen a good customer acceptance, and we expect increased penetration of this add-on to lead to greater customer stickiness as well as higher portfolio yields.
On the SME Finance front, our Q2 disbursement stood at INR1,244 crores, up 43% year-on-year. The book stood at INR5,190 crores at the end of September 30, 2024. The strong growth in business volumes was aided by building additional channels to diversify the existing sourcing funnels. We are in the final stages of launching our supply chain product in Q3 FY ’25.
I will now hand over the call back to Sudipta to make his closing comments.
Sudipta Roy — Managing Director & Chief Executive Officer
Thank you, Sachinn.
In summary of my opening note, I would like to maintain that Q2 FY ’25 remained one of the most challenging operating quarters post-COVID in the BFSI sector. We expect Q3 FY ’25 to be as intense a quarter as Q2 FY ’25, with a normalization runway visible only in Q4 FY ’25. We are confident that we have enough buffers and safeguards available to ensure a consistent outcome in Q3 FY ’25, even as we continue to operate in a difficult credit environment. On the back of a good monsoon, we remain cautiously optimistic about improving rural and urban demand and credit outcomes in Q3 FY ’25, and we will remain focused on execution of our transformation agenda across all lines of business.
I thank you all for joining the call and for a patient hearing. The floor is now open for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question comes from the line of Kunal Shah with Citi. Please go ahead.
Kunal Shah
Yeah. Hi. So first question is overall on the credit cost front. So when we look at it, the ECL provisions have actually come off. So would it be fair to assume that there would have been a significant write-off? And if you can just quantify the amount of overall write-off and write-off in the MFI portfolio, that would be helpful, yeah.
Sachinn Joshi
Hi, Kunal. Good morning. This is Sachinn here.
Kunal Shah
Yeah. Hi.
Sachinn Joshi
Yeah. As far as the overall credit cost is concerned, it has gone up, no doubt, and the PCRs have also come down. Actually, the impact has been — as Sudipta mentioned in the initial comments, there has been some impact, whether it is rural business loans, there has been some challenge we also had on the repo as far as farm is concerned and some issues on the two-wheeler. So it’s a mixed bag, I would say. It’s not just relating to microfinance.
The write-off is actually — once the 100% provisioning is made across any product or any asset, the write-off actually becomes an accounting entry for us. So there will be 100% provided assets which are still part of GS3 and every quarter the write-offs keep happening. So we really don’t share the actual write-off number, but the PCR reduction is primarily on account of some write-offs, which you are right, and addition of certain Stage 1, Stage 2 assets which would have moved — rolled forward to 90 plus. Naturally, these have a lower provision compared to the 100% provision which was on the written-off assets.
So that has led to a reduction in the overall PCR, but we believe that our PCRs have been pretty helpful at 75%, 76%, which has come down by a few percentage points. If you have seen, we have been mentioning this also during our earlier discussions and on various calls, that we have been maintaining a very, very conservative approach and whether it’s PCRs, whether it’s macroprudential provisions that we create, all these — the additional overlays that we have, all these are meant typically for a rainy day. So, these are difficult times, no doubt, and something which was 75%, 76% going down to 71% and all is really not — we don’t think it’s something really worth worrying at this point because we believe that it’s a matter of couple of quarters and it should be business as usual.
Kunal Shah
Yeah, and write-off would have had impact even in terms of slightly lower increase in Stage 2 and Stage 3 as well because maybe otherwise when you look at it in such a challenging environment, GS3 and GS2 is up hardly by like, say, 14-odd basis points, both put together.
Sachinn Joshi
Yeah. That’s right.
Kunal Shah
Yeah, and secondly, on the MFI side, so hearing the commentary from the peers, it seems like Bihar is going through some kind of a strain. You also highlighted floods have impacted the northern part of the Bihar, but there, if we look at the SMA 2 pool or SMA 1 pool, that has gone up quite significantly, which suggests some flow through into Q3 as well. Okay, so now looking at the overall environment in the MFI, are we worried? You also indicated like Q3 would be challenging, but then in that case, are we looking to utilize some of the macroprudential provisioning getting into Q3, given the stress which is flowing in? And a general commentary on the overall MFI would be very helpful, yeah.
Sudipta Roy
Yeah, so on — specifically on Bihar, though we don’t normally give state-wide collection efficiency, but I will say because there has been some floods in Bihar, especially in North Bihar, we ended our September collections efficiency in North Bihar at about 99.5%, right? So basically, what I want to say is that in spite of floods, in spite of whatever disruptions come in, our focus on collections and our people’s focus on collections continues unabated, right? So, and we expect that in October, the situation improve as the flood waters recede.
It is true that the industry is passing through a period of deleveraging, and obviously as the industry passes through a period of deleveraging, it will show up in numbers of the players in the microfinance industry. However, I would like to put on record a couple of things, right? And frankly, we have seen some commentaries on our performance, which needs clarification. And the first thing that I would like to say is that L&T Finance as an organization, especially in the Rural Business Finance vertical, we do not lend to a single customer who is zero DPD, right? So that is the first thing that I’ll need to point out.
The second thing is that, our overall guardrails are always judiciously maintained. That means we underwrite not only the customer, but we underwrite the customer’s family as well. So we calculate leverage at a family level. The second thing is that if a customer’s overall AUM goes above INR2 lakhs at any point in the cycle, right, whether if he’s a fresh customer or if the customer is eligible for a repeat, but the leverage is more than INR2 lakhs, that customer goes out of the lending window. So that means, we make sure that when we lend to a customer, the overall leverage of the customer is below INR2 lakhs.
And I would also like to point out that some of these guardrails have been introduced by MFIN as late as June, July of this year. However, L&T Finance has been maintaining these guardrails since 2020, right? So it’s not that these guardrails are coming to us suddenly new. We have been doing it for last four years.
A couple of more things, first and foremost thing, our approval rates in the microfinance vertical is 40%, right? Once our sales guy goes and sources the particular file, then there’s an independent check by a branch process manager, which is a completely different vertical, and then last but not the least, about 15% of all our disbursals are checked by our risk control unit. So, it’s a three-tier process through which our customers come across because our focus has always been to bring in non-leveraged customers.
The other thing which I would like to state is that we realized early — actually early this year, and the latter part of last year, that the industry is probably getting into a situation of leverage. That is why we upped our efforts into new customer, non-leveraged customer acquisition from September last year, and from January of this year, we started cutting out close to INR75 [Phonetic] crores to INR100 crores of repeat disbursements, right? Because we felt that those customers were on the borderline of getting leveraged. And this exercise has been continuing for us since January of this year.
And sort of last but not the least, we have brought down our average accounts per collector sharply from about 570 or 560-odd to about 480, right, which means we have put in about 100 — actually 1,000 additional collectors in the field and we did it early on. So our AC, average collector, sort of accounts per collector ratios actually dropped, which helped our collectors also to address the sort of issue — the flow issues much more effectively.
So overall, it has not been a single axis action. It has been a multi-axis action. And I would like to say is that the discipline with which the business has been built is not a one-year phenomena. It’s a three, four, five-year phenomena, right? So which obviously when the industry is in stress, through deleveraging, obviously, we are in an industry, there will be a ricochet impact on us. There will be some leaching on us. We are not immune to it. And on top of that, because of the monsoons and the floods, etc., it has added to a little bit of additional pain of — through what the industry has been going through. But I can assure you that our business is fully capacitized to handle this.
And last but not the least, we have INR975 crores of provisions which has been kept aside as macroprudential provisions, which we have not touched this quarter. However, as Sachinn said in his call, right, if for example, if you have an umbrella and it’s raining outside, right, any logical person will open the umbrella to prevent himself or herself from getting wet, right? So we have this umbrella. We are not saying that we will use it. But the fact is that, that option is on the table. But however, as of now, our collections teams are working and our business teams are working to ensure that we have the best outcome possible through these difficult circumstances.
Kunal Shah
Sure, just one thing, one clarification. Macroprudential is INR977 crores because last time we highlighted closer to INR1,100 crores. So not sure, and you mentioned like there is no utilization of macroprudential at all.
Sudipta Roy
Macroprudential provision allocated to microfinance is INR975 crores. Overall INR1,100 crores is OTR outlays, etc. So that is separate from microfinance. Microfinance — pure microfinance is INR975 crores.
Kunal Shah
Okay, okay, thanks. Thanks and all the best, yeah.
Sudipta Roy
[Speech Overlap] PCR in our Rural Business Finance is close to 100%, if not 100%, yeah?
Sachinn Joshi
Yeah, so 90 plus everything is anyways 100% provided.
Kunal Shah
Got it. Okay, thank you.
Operator
Thank you. [Operator Instructions] Next question comes from the line of Hardik Shah with Goldman Sachs. Please go ahead.
Rahul
Yeah, hi, this is Rahul here. Hi, Sudipta. Hi, Sachinn. A couple of questions. One is, appreciate the detailed explanation that you gave just a while back on the macroprudential and the PCR and the portfolio that you’ve been underwriting. But just wanted to understand the PCR bit again. So Stage 2 also saw a dip. So wanted to understand how do you all kind of think about Stage 2 provisions and Stage 3 provisions. And where does this provision coverage needs to go before you start opening an umbrella, which is your macroprudential provisions? How should we think about — because your commentary about the outlook also was a bit soft, at least for the third quarter, so how should we think about utilization or the PCR trajectory from here on?
Sachinn Joshi
Yeah, Rahul, this is Sachinn here. So, initially, Sudipta made a mention that the deterioration in GS3, it was primarily through the macro operating environment deteriorating on Rural Business Finance vertical, a rationalization of sector repo policy, and some localized adjacencies in two-wheeler business, right? So it was not just about — yeah, there has surely been challenges externally in the microfinance segment. But that’s about 30% of our — or 26% of our overall book. There are certain other challenges, which he spelled out on the call.
Now, as far as PCRs are concerned, and you talked about Stage 2. Now Stage 2 percentage actually includes the macroprudential provision, which is sitting over there. We have not enhanced this macroprudential provision, it has been INR975 crores, and the book has been growing. So in percentage terms, you will find that there will be a decline as far as Stage 2 is concerned.
The utilization, the overall PCR that we spoke about, just to repeat, we have gone from 75% to 71% on the aggregate basis, more to do with some write-offs of 100% provided portfolio. Not necessarily that the whole piece has been completely written off, it’s an accounting decision, which is taken more to do with cash flows rather than anything else. As far as taxation is concerned, already we take a hit, whenever write-off happens, there is a cash inflow for us.
The 71% is primarily because of new assets, which were, say, in Stage 2 moving into Stage 3. For micro loans, as Sudipta mentioned just a while back, anything which is 90 plus, we do 100% provision, but that’s not true, because you also have a very safe book like Home Loan LAP, you have a book like two-wheeler, tractor, everyone, the ECL model decides what will be the percentage provision required for a specific Stage 3 asset. And hence, this movement from Stage 1, 2 to Stage 3, and 100% book being — which has been provided, being written off, leads to these changes.
Now, when there is — where we done, we ensure that we maintain the PCR at a particular level, but — like we spoke about overlay just some time back. But at this point of time, the requirement was not there. If you look at the peer group, comparative financials, if you look at, broadly a 50%, 55% PCR is a pretty comfortable situation to be in. We have always tried to be conservative. As and when the P&L permit, we can always rebuild. We had mentioned a couple of calls back, couple of quarters back, that this macroprudential provision also, which is currently on rural business loans, we would take a call on whether — as the unsecured book starts growing, whether this whole macroprudential provision should be applied to the full unsecured book, but that will be over a period of time. I hope I have clarified.
Rahul
Very helpful explanation, Sachinn. And just if I were to have a follow-on to this, your credit cost that you talked about, I think the news channels were flashing some of the comments that it’ll stay elevated for the next one or two quarters more. Does it take into account any further buildup of macroprudential or it will be completely to respond to any potential flow-through into Stage 3 provisions?
Sachinn Joshi
So, if the challenge in micro loan piece actually increases any further, then as Sudipta mentioned, we always have a choice to dip into the macroprudential provisions and utilize part of it. He also mentioned that we are better placed compared to the industry. Our numbers are much better, our collection efficiencies seem to be in control. And if Diwali — post-Diwali, things really improve, there may possibly be a need for macroprudential provision utilization, but at a much lower level. But if things worsen from here, yeah, we keep that option open.
Rahul
All right. Secondly, on the MFI portfolio, basis your details given in the presentation, we understand 0 plus is about 3.5% of the portfolio, right, MFI portfolio? Is it possible to get the granular cuts as to how much is 0 to 30, 30 to 60 and so on and so forth?
Sudipta Roy
See, normally, we don’t give such granular cuts. So we have — what we have done is that, this time around, we have put the association-wise cut, which is in Slide 17 of the presentation. So that’s what we have given. So — and I believe that the entire market is poised now for — this is our belief, that on the back of a strong monsoon, the entire market is poised now for a gradual recovery. Right? We have seen very good tractor demand in the first half of October. And we remain hopeful that the tightness that we saw in the market, especially in certain geographies, will start dissipating towards the latter half of Q3 and probably sharply improve over Q4. So, as I said, we remain very optimistic of a — I would say, a soft landing between the latter part of Q3 and early part of Q4.
Rahul
All right. Got it. Very helpful. Thanks, Sudipta and Sachinn.
Sudipta Roy
Thank you so much.
Operator
Thank you. Next question comes from the line of Mahrukh Adajania with Nuvama. Please go ahead.
Mahrukh Adajania
Yeah, hi. So, is it possible to give any cut on what proportion of total credit costs was attributable to rural MFI? I mean, would it all be driven by rural MFI and farmer finance this quarter? Because nothing really bad is happening on the corporate front or other businesses. So — because everyone’s kind of indicating some level of credit costs for the MFI business. So, if you could share those details?
Sachinn Joshi
So [Speech Overlap], yeah.
Mahrukh Adajania
Sorry, sorry.
Sachinn Joshi
Yeah, you want to continue? Please continue.
Mahrukh Adajania
No, no. You please continue. I’ll ask my second question then.
Sachinn Joshi
So, on the breakup of credit costs, of course, we don’t share, but I’ll just give you a general response to this. We spoke about micro loans. We spoke about farmer finance and two-wheeler finance. Naturally, it’s slightly higher for micro finance followed by farmer and followed by tractor — two-wheeler. So, it’s a mixed bag, I would say. It’s not just a composition of one particular book really going back.
Sudipta Roy
See, Mahrukh, you’ll recall that, there were industry-wide reports of difficulties in collections in April and May, right, which was reported by many players across the industry, right? So, now, obviously, you can understand that if INR100 flow at any point in time, not the entire amount flows back, right? And not the entire amount is collected back. So, obviously, some portion of that has flown, right, in Q2, and we have seen stabilization in the latter part of Q2. But obviously, the credit cost components are, as Sachinn said, all components of this.
Mahrukh Adajania
Got it. And my next question is that in the first few days of October, say, has the collection efficiency deteriorated or stable or only marginally down? Any such inputs?
Sudipta Roy
This is with the…
Mahrukh Adajania
In micro, in micro. Yeah, in micro only, nothing else.
Sudipta Roy
Okay, so, barring Bihar, the flood-affected villages in Bihar, collections efficiencies has remained relatively stable in the first half of October.
Mahrukh Adajania
Okay, okay. Thanks a lot. Thank you.
Operator
Thank you. Next question comes from the line of Avinash Singh with Emkay Global. Please go ahead.
Avinash Singh
Yeah, hi. Good morning. A couple of questions. The first one is that there is a reasonable improvement in opex ratios, particularly the non-employee opex. Now, can you help us understand what is sort of improving and is this sustainable? And even if you were to sort of ramp up your employee headcount further, will this sort of a ratio sustainably improve or not? That’s one. And second, just on this microfinance again continuing, you are suggesting that Q3 should be likely bottomed with Q4 or early Q4 recovery. Given the fact that many of the peers, the banking as well as non-banking, who have sort of started acknowledging the pain earlier are still kind of not giving a very clear cut sort of a deadline to end up in, what makes you — of course, you have explained, you have given detailed data, but eventually if the geographies, the customer segments are undergoing pain, what sort of gives you confidence that your pain will be sort of end in one, one and a half quarter? Thank you.
Sudipta Roy
So the first question, Sachinn will take, I’ll take the second question.
Sachinn Joshi
So as far as opex is concerned, I think every quarter-on-quarter, there you may see some improvement or some increase in opex. This is primarily to do with investments that we are making either in IT, various technology investments are being made. We are also undertaking certain branding activity plus rollout of new branches. And also these are the major components of expenses which we are currently seeing. So quarter-on-quarter, you may see some kind of increase/decrease. So I don’t think you should really try to get some meaning out of it. We have mentioned that we would like to be — the opex plus credit cost, we would like to keep it in the range of about 7%. So at this point of time, we believe that a couple of quarters, we will have some challenges as far as credit cost is concerned because of the external environment.
We have — branding and all will be undertaken as an investment depending on the external environment. There is no point in really going out and go very aggressively with our branding and advertising when the market itself is a challenging piece. So 7% is I think the overall range that we keep ourselves. It can be plus or minus a few basis points here or there. So nothing specific to really make any assumptions if you’re thinking of modeling it. I think you should continue to model it in the same line because when we talked about the ROA tree, we spoke about the NIM plus fee in the range of about 10.75% to 11.25%. Naturally, in these times, we may possibly see a NIM plus fee range coming down from about 10.5% to 11%, maybe for a few couple of quarters till the time the challenge is addressed. The opex plus credit cost being in the range of 7%, it can be plus or minus something.
But the ROA trajectory in the medium to long term, we would want to pursue the Lakshya ’26 goal of being in the range of 2.8% to 3%, maybe a few quarters of some turbulence, we will try to deal with during that time.
Sudipta Roy
Yeah, thanks, Sachinn. I’ll take the second question. So obviously, a couple of things has — and then I gave some commentary on how our underwriting and our management of the entire Rural Business Finance vertical is classified to focus on more predictable customers. Now, a couple of — why we think there might be a soft landing and I used that term. First and foremost thing, we have had good monsoons, right? And the first signs are variable [Phonetic] and improved tractor demand. So we’ll have to wait for the commentary from the various FMCG companies as to what level of demand that they are seeing, right, to put two plus two together. But the fact is that normally monsoon slips in income and these monsoons have been really good. So we are hopeful that towards the latter — Kharif crop arrivals seems encouraging. We are tracking the arrivals and basis the water table levels, we think Rabi crop will be a bumper crop, right? So we do believe that rural incomes will improve.
Secondly, obviously, the social schemes — the government social schemes have started flowing again, right? They had a temporary hiatus on the background of the elections. They have started showing again, which will again improve rural liquidity. Last, MFIN has come out with the norms, right? So MFIN norms got implemented from June, July. So players have started adhering to the MFIN norms. So basically, the leverage adding obviously has stopped and we have to understand that most of these loans are 24-months loans. And the problem really started in January — December, January of this year, this calendar year. So actually, if you see we are already 12 months, almost — not 12 months, but maybe about 9 to 10 months into the problem, right?
So a lot of deleveraging already has happened. Maybe some tail end deleveraging is still left, but that might happen over Q3 and the earlier part of Q4. But I do guess that maybe 60%, 70% of the deleveraging has already gone through. So — and overall, I think each and every player has become cautious, overall leverage has been coming down. And so I do believe that with all these factors playing in, we actually remain hopeful that there’ll be a soft landing in the latter part of Q3 and the earlier part of Q4.
However, there has been a significant amount for the industry that has flown into PAR plus zero, right? And that will continue — from a financial point of view, that will continue to flow and cause impact on the downstream P&Ls between Q3 and Q4.
Avinash Singh
Okay, thanks.
Operator
Thank you. Next question comes from the line of Sameer Bhise with JM Financial. Please go ahead.
Sameer Bhise
Yeah, hi, thanks for the opportunity. I just had one question on the home loan piece. I see the ticket size on the LAP has kind of inched up meaningfully. Just wanted to get some sense here, and it is — I’m asking because it’s, say, higher than the HL average ticket size.
Sudipta Roy
Yeah. So the team has been focusing on LAP and the team has been focusing on LAP primarily in the urban areas. So the LAP — and the LAP proportion of the entire portfolio also has slightly gone up. We have been also focusing on another product of ours, which is rural LAP, in which our book size is now about INR178 crores and average ticket size there are about INR5 lakhs to INR6 lakhs odd. So overall, on a weighted average basis, there has been a focus on pushing yields upwards on the LAP portfolio, both in our urban LAP as well as on our micro LAP product to just balance the yields a bit. So that is…
Sameer Bhise
And what kind of yields would be there, urban and rural?
Sudipta Roy
Sorry?
Sameer Bhise
What yields would you be earning right now on urban and rural LAP?
Sudipta Roy
So urban will be about 10% to 10.5%. Rural LAP, the yields can go up anywhere between 17% to 18%.
Sameer Bhise
Okay, okay. This is helpful. That’s all from my side. Thank you.
Operator
Thank you. Next question comes from the line of Nischint Chawathe with Kotak Institutional Equities. Please go ahead.
Nischint Chawathe
Hi, thanks for taking my questions.
Sudipta Roy
Nischint, I’m barely able to hear you. Can you, I don’t know, use a….
Nischint Chawathe
Yeah, am I better now? Is it better now?
Sudipta Roy
Yeah, better. Yeah, yeah.
Nischint Chawathe
Yeah, sorry about that. Just a couple of questions. One is, your fee income was almost flat. Is it to do with the micro loans business? Or are there any other factors out here?
Sudipta Roy
No, not really. Sachinn, you want to take that?
Sachinn Joshi
Yeah, yeah. So fee income, of course, has a composition of processing fee on disbursements. So if disbursements are slightly subdued, naturally for the rural business loans has higher levels of processing fee income. Number two is the cross-sell income, which is the CLI, credit-linked insurance. With the disbursements, the new disbursements coming down, naturally this also gets impacted. Year-on-year basis, one more factor is that Q2 FY ’24, there was a one-off item of interest on income tax refund, which led to the overall fee income increasing in the previous year, same time, which has actually not been part of it. So that’s also one of the reasons. But otherwise, in general, I think the trajectory-wise, we are — it’s — directionally, it’s 1.92% fee income, which we feel is a very healthy fee income as a percentage.
Nischint Chawathe
Have you called out how much was the quantum in the base year for the income tax refund?
Sachinn Joshi
Should be about anywhere — I think it was about INR15 crores to INR20 crores.
Nischint Chawathe
Okay, not very meaningful, okay, got it.
Sachinn Joshi
Not meaningful.
Nischint Chawathe
Got it. Sure. You also mentioned that — we discussed a little bit about tractors and the stress from first quarter, sort of, flowing into slightly higher credit cost this quarter. But what exactly happened on two-wheelers? I believe you mentioned something about localized adjacencies. So just curious what actually happened over there.
Sudipta Roy
Certain markets in two-wheeler that really performed, like, not with the — according to our expectations. So for example, markets like suddenly — and this was primarily deterioration that happened in April and May, right? And I’ll give you one example. For example, Surat, suddenly we saw galloping delinquencies in two wheelers, right? So as I said, localized adjacencies means there are certain pockets in which we saw heavier flows in the month of April and May. Again this is not us, but the industry saw it, right? But if you see, we continue to fare much better than industry in terms of our overall sort of full credit costs and our index delinquency.
So in two-wheeler we are about 87% of the delinquency of industry, right? And if you see our collections efficiencies actually have been continuously improving from about 97.1% to above 98% by the end of quarter two FY ’25. So whatever sort of slight deterioration that we saw in April and May in last quarter, that has stabilized. And that has — on a pathway to a sort of resolution.
We have pushed up the prime share of our two-wheeler business to almost 60% prime share right now. And if you can see in Slide 20, where we have given our prime share in disbursements compared to same time last year, and prime share on book compared to same time last year. So, I would say that, a majority — quite a significant portion of our two-wheeler business is now prime two-wheeler. And this has been done to make sure that even some of these localized adjacencies that we see are better managed in the future.
And because of our new three dimensional credit engine Cyclops is completely upscaled on our two-wheeler business, 55% of two-wheeler business is now going through Cyclops. By the end of November, maybe early December, 100% will flip over to Cyclops. And early signs are very good. The Cyclops first net bounce is 125 basis points lower than from our legacy algorithm.
So obviously, there has been a lot of work which has been done to even sort of prevent any sort of this sudden one or two-month blowout that happens in the future.
Nischint Chawathe
So probably, going forward, your guidance for second half, which tends to be a little more guarded is largely from micro loans. I think these two segments you believe are sort of [Speech Overlap].
Sudipta Roy
It is largely from micro loans. And, again, I would like to point out, and thanks for asking the question, largely I’d point out that the sort of the worries on micro loans for us is less. Okay, yeah, there is worry from sort of ricochet impacts on the overall ecosystem for people who have borrowed from others, right, and are leveraged. There is a little bit of worry from that, but we are more worried about the impact of this environmental impact, like Bihar floods, there is some unscrupulous elements operating in the Northeastern UP, right, who are sort of hampering collection efforts, the resumption of the social flows in Odisha, etc.
So our pain is more from those areas. Because of our guardrails and because of our assiduous focus on avoiding non-leverage customers and always maintaining sure that only one customer has one loan at a point in time from L&T Finance, I think we have been able to sort of not be in the eye of the storm, if I were to use that particular term, right? But, when a storm happens, there are like gusts of wind that comes to the farthest player as well. And so we are not immune to that.
Nischint Chawathe
Sure. And just final one, with all of this, where does — where do we go on loan growth for a company as a whole, and let’s say even for the microfinance piece over the next couple of quarters?
Sudipta Roy
See, our guidance is that 25% loan growth as per Lakshya objectives. Now, obviously, if there is a one or two quarter calibration, we will have to go through that because, we have braked on the MFI and Rural Business Finance disbursements. And for sake of greater caution, we have braked on it, right? I would say that we — on the festive season, we are seeing good demand in tractor. On the festive season, we are seeing — for the last one week, we are seeing good demand in two-wheeler. Lot of new housing project launches are happening. We have been working on building our developer finance vertical.
And if you look at our personal loans, our personal loans have significantly grown this quarter-on-quarter, right? And we have gone — and this quarter, we’ll be also adding new digital partners and very large digital partners on our personal loans portfolio. So again, personal loans will go on a risk-calibrated fashion. We have braked on one lines of business, but the fact is that on a risk-calibrated way, we remain continuing growing on the other lines of business and take benefit of the festive momentum.
So I cannot, at this point, at the beginning of the quarter, pinpoint and say where we’ll end up at the end of the quarter, but you will be seeing that apart from Rural Business Finance vertical, where caution rules the roost, for all other businesses, there’ll be a growth bias in this quarter and the coming quarter as well.
Nischint Chawathe
So broadly remain in the corridor is what you would suggest.
Sudipta Roy
Yes, yes.
Nischint Chawathe
Perfect. Those were my questions. Thank you very much and all the best.
Sudipta Roy
Thank you so much.
Operator
Thank you. Next question comes from the line of Abhijit Tibrewal with Motilal Oswal. Please go ahead.
Abhijit Tibrewal
Yeah, thank you. Good morning, everyone. So just wanted to understand, while this results as well as our communique shows that we’ve been better off than a lot of other peers in microfinance, I think one of the things — and this is just a suggestion, that some of the metrics which are also shared by our peers like collection efficiency, including arrears, excluding arrears, because the collection efficiencies that we share, which is 0 due to the customers, that somehow, unless we are compatible with our peers, will not give as much confidence. And while I appreciate we saying on the call that we do not share segment-wise, GS3 or segment-wise credit costs, when the environment is such where the sector itself is going through a pain, we have almost one-third, almost 30% of our book coming from microfinance, sharing some of these details during maybe one or two quarters will help all of us kind of gain better confidence, higher confidence in LTFs microfinance book. So if you could please consider that, maybe in the coming quarters.
But sir, the question that I had really was on this statement that we made, in the fact that Q3 will be a challenging quarter and Q4 seems like improving. So I’m just trying to understand if you see today, unsecured itself, what started with credit cards spilled over to personal loans is now spilling over to microfinance now, right? And if you look at credit cards and personal loans, that pain is still not over yet. So unsecured credit cycle, what we are seeing in Rural Business Finance now, and at the sectoral level, do you think it is just a hope today or moving the goalpost where we think that maybe the problem will get resolved by Q4? Or how to read it is what I’m trying to understand because once you — when everyone posted their earnings call, everyone said, yeah, things look like we’ll start improving from Q2. Having seen Q2, now we are seeing maybe things will start improving from Q4. So I’m just trying to understand, is it like just things getting delayed and we’ll see when it comes or is there another way to look at this? This is my only question.
Sudipta Roy
See, the thing which is there is that the first thing obviously which gives us hope is good monsoons. The first thing which gives us hope is good monsoons, and the first green shoots of a very rural product which is sector’s demand going up, right? So that gives us good hope. The second thing is that, you see all these are 24-month loan, right? And as I said, we realized that the industry was going to get into inclement weather as early as January of this year. So the fact is that, though it started showing up in results sometime around May, June, but the fact is that the signs were visible in January only. Signs were — the early signs were visible in January.
So the fact is that the industry actually has now gone for a period of deleveraging for about close to 9 to 10 months, right? So — and since it’s a 24-month year [Phonetic], the book runs up very fast and which is the nature in any unsecured product. The typically unsecured product picks and peaks and the bad portion of the book peaks very fast, typically within a period of 6 to 12 months. So by December, we would be already been 12 months or almost 9 months into the leveraging cycle. So that gives us sort of reasonable amount of hope that there will be a soft landing in the latter part of Q3 and the early part of Q4, right?
The question is that if suddenly something — if, for example, rains were bad, we would have said that, no, no, we really don’t think that this might elongate. The only thing that — because monsoons have been good, the Kharif arrivals are good, social flows have started, we expect a bumper Rabi crop, if on the back of those things, things don’t improve, then when will they improve, right? So — and lenders have become more responsible, deleveraging has started across the entire industry. So I do believe that things will move towards normalcy in the early part of Q4.
Abhijit Tibrewal
Got it, sir. This is useful. And just one last thing, while we’ve spoken a lot on tractors, two-wheelers, even microfinance, sir, personal loans, like you rightly said, we started growing again, we are expecting some new large digital partners to come onboard in the next couple of quarters. Just trying to understand, banks, which reported last week, large personal loan players on the NBFC side, still seeing stress in personal loan portfolio. Are we comfortable there now? And maybe that is a sign that we started growing again?
Sudipta Roy
Yes, so if you see, we really slowed down personal loans sometime last year. I mean last Q3 of FY ’24, we slowed down our personal loans. So if you see Q2 in FY ’24, we did about INR1,300 crores or INR1,350 crores of whatever disbursement. After that, we dropped it to as low as INR700 crores. We dropped the volumes at 50% because we wanted to rework the way we wanted to do personal loans, right? And now in personal loans, we are completely focused on the prime segment, again and the salaried segment, prime salaried segment. And frankly, we are very happy with the new portfolio that we have garnered, which is showing excellent credit outcome.
So — and that has given us confidence to start scaling it up once again. But you will see that this will not be a mad scale-up. This will be a gradual, calibrated, risk-focused scale-up. Obviously, personal loans is an essential component and ingredient of any retail lender’s balance sheet, right? Because this is a good product to do from a yield perspective. And frankly, if you maintain your guardrails well and don’t go crazy in disbursements, then actually the outcome can be very, very good. So we are now focused on a very risk-calibrated scale-up with large amounts of data thrown in, in the underwriting process. Cyclops, our new credit engine, will be pushed into underwriting personal loans, where we’ll be using multiple lines of data digitally to underwrite a customer. So we are very confident of being able to scale up this business with an excellent credit and return outcome for the business.
Abhijit Tibrewal
Got it, sir. And that’s all from my side. And I wish you and your team the very best.
Sachinn Joshi
Abhijit, just on the first point that you mentioned in terms of disclosure, last couple of quarters, if you see, especially on the Rural Business Finance, we have gone and provided more than whatever we otherwise keep sharing in terms of information. This quarter, we have talked about — we’ve given the bucketing of the number of associations that we have across the book. The collection efficiencies, you’re right. There are different methodologies used by different players.
I think what is important to look at is how the collection efficiency has changed between the two quarters. Because if you look at only the differential, the methodology could be whatever, but the differential will actually spell out what has been either a deterioration or improvement in the overall quality of book. I think there are — plus there is also an industry-related [Speech Overlap].
Sudipta Roy
And Abhijit, I’ll point out to the Slide 18 where we have given the 12-month on-book performance from July ’23 to July — so that is — we are at 23% of industry. Industry is indexed at 100. We are at 23% and this is [Indecipherable] data. If you look at Slide 18, it will give you a sense.
Abhijit Tibrewal
Yes, sir, I’ve seen that. Yes, yes, absolutely. So sir, the disclosures that you have given out is indeed increasing every quarter and that’s appreciable. My limited request for you is if some of the data points which are reported by peers as well, if you start reporting them, if possible, it will just give all of us greater confidence in what you have articulated that our experience in this credit cycle in microfinance is better than it was. That’s the limited point that I wanted to make. Thank you so much.
Sudipta Roy
Sure, sure, we’ll take this on board, benchmark ourselves against the others, and then we will see. See, our level of disclosures has significantly gone up over the last couple of quarters across all our lines of business, but definitely we’ll take the suggestion on board and see to the best what we can do.
Operator
Thank you. Next question comes from the line of Alok Srivastava with UBS. Please go ahead.
Alok Srivastava
Yeah, hi, Sudipta. Hi, Sachinn. Just going back to the macro buffer part, I was just trying to understand if there is any quantifiable metric internally that you will look at, let’s say, or externally, like collection efficiency, before using it, or it is fully subjective. And secondly, as things are today, let’s say things worsen slightly and your base case of improvement, end of 3Q, early 4Q, doesn’t happen, do you think this INR950 crore odd that we are carrying, is that good enough for whatever stress could come up in microfinance?
Sachinn Joshi
Yeah, thank you, Alok. This is Sachinn here. Yeah, see, macroprudential provisions that have been created, this is based on a Board-approved policy. So creation of macroprudential provisions as well as utilization has to be approved by — we need a sign-off of the Board. So the way it has been defined is the macroprudential provisions have been created to deal with specific events; events like flood, famine, political instability, industry-wide credit events. One of the events which we saw was COVID, right? I mean, when we created this policy, we did not know that something like COVID would really happen. But yeah, those are the kind of events which cannot be modulated or modeled in our ECL, are the ones which get covered.
The — Sudipta talked about the increasing leverages. Now, if the increasing leverage is just limited to a particular geography, it’s not an event. But if it’s going to spread across the country, and it spreads across, the whole industry is going to get impacted. This also will get — very clearly become part of a macroprudential event. So it is — we have to see. We have — we spoke about Bihar floods. At this point of time, the collection efficiencies are — have not deteriorated to a level where I really need to dip into it. But otherwise, that will be a clear cut example of me being eligible to dip into it and get the Board consent to utilize it.
Alok Srivastava
But Sachinn, just following up on that, then does that mean that only the part which has been impacted by an event, against that only you can use or you can use against the entire MFI book?
Sachinn Joshi
No, we can’t use it against the entire MFI book.
Alok Srivastava
Okay, got it. And second question I had was that the circular — the action that RBI took last week against four NBFCs, so have we had any communication on interest rate being charged by us? And also, does our MFI interest rate continue to be 24%?
Sudipta Roy
No, see, our MFI interest is now in a band of 18% to 24%. The more mature that the customer gets — the starting interest rate is 24%, but the more mature a customer gets, especially in Cycle 3 and Cycle 4, the customer moves down the rate of interest. The second thing is that, on our personal loans business, etc., we are focused on our prime customers where we give in interest rates from, say, 12% to a band of about 16%, 17% is what we do. So, no, we haven’t received any communication regarding anything.
Sachinn Joshi
The 24%, Alok, was being charged for over a decade. And based on the MFIN guidance, in fact, everyone has moved into risk-calibrated kind of structure. So we have interest rates which range from 18% to 24%. And depending on the riskiness of the customer, depending on whether the customer is in the first cycle, second cycle, third cycle, and her behavior, the interest rate gets decided.
Alok Srivastava
Okay, okay. Got it, Sachinn. Thanks, those are my questions.
Sachinn Joshi
Thank you.
Operator
Thank you. Next question comes from the line of Shreepal Doshi with Equirus. Please go ahead.
Shreepal Doshi
Hi, sir. Good morning and thank you for giving me the opportunity. The question was on how are the collection efficiencies trending in states like Karnataka and Tamil Nadu for us and any update for the trends in October month?
Sudipta Roy
See, October month, we’re very candid. October month, as I said, we are holding at efficiencies of previous month, right, except North Bihar, we are mounted by flood. In Karnataka, the collections efficiency, though we do not give out specific, but at this time I will give out. In Karnataka, our collection efficiency in September was 99.6%. And Tamil Nadu, our collection efficiency in September ’25 was 99.45%. This is 0-DPD collection efficiency.
Shreepal Doshi
So these are like — I mean basis June quarter, how are these trending broadly?
Sudipta Roy
As I said, I don’t know. There was one particular call which I had said — I said, these are holding patterns. These are holding patterns, very stable.
Shreepal Doshi
Okay, okay, got it. And sir, just one more question on this write-off. So what is our Board-approved write-off policy for the micro loan category?
Sachinn Joshi
No, the Board approves the provisioning policy which states that whenever the asset becomes 90-plus DPD, you need to provide 100% against the rural business loans. The write-off policy is, as I mentioned earlier, is more of a technical issue. It’s for the CFO office to decide based on the — it’s more of a cash flow issue, right? Because once the asset gets written off, that does not mean that the business stops following up for those collections. There is actually no difference as far as the collection team is concerned. The collection team continues to keep following, because 90 days is a small period that way, right, as far as RBF is concerned.
Shreepal Doshi
Right.
Sachinn Joshi
But — so the follow-up continues whether the asset has been written off. And there, in fact, every month we keep receiving monies even out of the asset which has been fully provided for. So there are teams which actually work specifically on 90-plus. There are teams which work on 30-plus, 60-plus, just specific coordinated efforts made to ensure that there are — we don’t leave the customer just because we have provided it in the books.
Shreepal Doshi
Got it. And sir, we don’t consider that number, the pool of customers which have been written off, or say, which is 100% provided for, in collection efficiency?
Sachinn Joshi
No, this is 0-DPD, as Sudipta just mentioned it. So 0-DPD customer whose billings have been done at the collection, out of the billing.
Shreepal Doshi
Got it, got it, got it, okay. Thank you, sir, thank you. And good luck for the next quarter.
Operator
Thank you. Next question comes from the line of Chintan Shah with ICICI Securities. Please go ahead.
Chintan Shah
Yeah, hello. Thank you for the opportunity. So, sir, I just had a question, again, on the Rural Business Finance. So yeah, as we don’t get the segment-wise breakup of slippages, but if we look at the additions to Stage 3 for the Rural Business Finance specifically for Q4 FY ’24 and Q2 FY ’25, so how much could be the rise in absolute number in percentage, if also you could quantify that so that we could just get a sense how much stress also we’re getting on our books? So any rough idea on that would be helpful.
Sachinn Joshi
See, actually, if you look at — if you’re wanting to know the stress on the book, you should actually look at Slide 17, which talks about 5.4% of the loan book of LTF is LTF plus more than four associations, and there we have actually even given a further breakup of more than four associations, five associations, six associations. So it will show very clearly that the pain level is pretty limited, and the reason why we’ve done this bucketing is also to ensure that — I just mentioned earlier that the focus can be done. We actually mark out in our system the most leveraged customers, and the focus of the collection team is first to — to be the first one in the queue, because if there are six lenders, I would want to be the first in the queue to go and collect. And this discipline that we maintain has actually helped us ensure that the collection efficiencies, though they have dipped, they have not dipped to the level which we see in the industry.
Chintan Shah
Sure, sure. And sir, if I heard it correctly, our MD sir also mentioned that we would be working to enter into — working on building the developer finance vertical. So apart from retail also, are we planning to venture into any other businesses?
Sudipta Roy
No, no, no, not developer finance vertical, I’m saying that the developer — basically, the APF origination team, where basically we work with the developers to sell house to retail customers. So developer channel basically, it is the part of the home loan channel working with the large developers.
Chintan Shah
Sure, sure, sure, so nothing on the corporate side, yeah?
Sudipta Roy
No, no, no.
Chintan Shah
Yeah, I think that’s it. Yeah, that’s it from my side, thank you for your time.
Sudipta Roy
Thank you.
Operator
Thank you. Last question comes from the line of Gao Zhixuan with Schonfeld. Please go ahead.
Zhixuan Gao
Hey, thank you for the opportunity, just some data keeping question. Do you mind sharing what’s our interest reversal in our NII this quarter and also last quarter? Because the margin seems to be coming down there, I suppose, it should be somewhat affected by the increasing returns, sir?
Sachinn Joshi
I mean, you’re referring to the yields or you’re referring to the NIMS?
Zhixuan Gao
Yeah, the yield, right? The yield is coming down obviously [Speech Overlap] so just trying to get a quantum of the interest reversal in there, yeah?
Sachinn Joshi
Sure, sure. So as far as yields are concerned, the wholesale book was actually coming down dramatically over the last four to six quarters. And as the book was moving more — tending more towards retail, the yields were increasing. You would have noticed that last quarter and this quarter especially, the wholesale book has broadly remained around the 4% level, 96% of the book now is retail. So what will actually move the yields, positively or negatively, will depend on the kind of disbursements we do. Because the retail business comprises of various products which are rural business loan, which is perhaps the highest yielding product for us. And home loan and LAP is the lowest yielding. You would have seen that the disbursement this quarter have been more towards HL and LAP. We wanted to be conservative and do secured business. And hence you see that the yield has got a bit impacted.
Once the challenges in the micro loan segment actually comes down, we will see the disbursement firing up again. To support the micro loan business, we also have personal loans, SME. These are the businesses. Micro LAP, which we have started on the book is small. The potential to grow this secured book is also very high. So as we go forward, we will keep seeing the change in the yield within a particular band. And rather than talking about the yields, because it is equally important to look at how the interest costs span out, this quarter we have been able to bring down the weighted average costs down by about 5 basis points. So 7.85% in the previous quarter has come down to 7.80%.
So rather than looking at the yields, it’s good for a company like us to monitor the NIM plus fee as a monitorable metric. And we have already communicated the band within which we would like to be, which is in normalized time about 10.75% to 11.25%. And in difficult times like this, perhaps between 10.5% to 11%.
Zhixuan Gao
Got it, sure. And I guess on the mix part of the disbursement, I just want to understand the interest reversal, increased maturity this quarter sequentially that also impacted our yield temporarily a bit. I just want to understand that.
Sachinn Joshi
Sorry, I did not get. Can you please repeat the question?
Sudipta Roy
Can you please repeat the question?
Zhixuan Gao
Yeah, so I just want to understand the interest reversal increased maturity this quarter sequentially, which also impacted our yield on top of the mix change in disbursement that you were talking about.
Sachinn Joshi
Yeah, yeah, yeah. So interest reversal…
Zhixuan Gao
If you can quantify that if it’s possible, please?
Sachinn Joshi
Yeah, interest reversal impact would be about 5 to 6 basis points.
Zhixuan Gao
And how much was that last quarter?
Sachinn Joshi
Last quarter would be lower than this, slightly lower than this.
Zhixuan Gao
Got it. And just last one on the Slide 17, appreciate the break up on the LTF plus external vendors. Just want to understand for the 5% rural customer group that is not compliant with the MFIN guardrails. What’s the collection efficiency there for the month of September?
Sachinn Joshi
Which product you’re talking about, collection efficiency?
Sudipta Roy
No, I think he’s talking to RBF. Sorry, the audio line is not very clear. So we’re just not able to get the full gist of the question. If you can repeat the question once again?
Zhixuan Gao
Yeah, sorry. Yeah, so I’m referring to Slide 17. So we have about 5% of the MFI book that is not compliant with the MFIN guardrails…
Sudipta Roy
The collection efficiency in this particular segment for the month of September was about 97.5% odd.
Zhixuan Gao
Got it.
Sudipta Roy
Yeah, yeah, so that bucket — the buckets of the people more than — you’re asking collection efficiency of the bucket of people more than 97 — more than four associations. Is that the question?
Zhixuan Gao
Yes.
Sudipta Roy
Yeah, that’s 97.5%.
Zhixuan Gao
And what was that in April-June?
Sachinn Joshi
How was it in June?
Zhixuan Gao
Or March? I just want to get a historical comparison.
Sudipta Roy
Yeah, so June, it was about same, about 98.45% odd — 98.4% odd. The March number, I don’t have handy with me right now. Maybe we can give it to you offline.
Zhixuan Gao
Sure, thank you.
Sudipta Roy
Yeah, okay.
Operator
Thank you. We have reached the end of question-and-answer session. I would now like to hand the conference over to Sudipta Roy for closing comments.
Sudipta Roy
So thank you, Vinobha, and thank you for joining the call. As I said on the beginning, in the opening comments, that we expect Q3 FY ’25 to be as intense a quarter as Q2. However, what we are very confident about is that our teams are very, very well prepared and well equipped to take care of the challenges on ground.
In terms of our work on the five pillars, it continues unabated. We remain focused on ensuring building our other lines of business with a focus on risk and ensuring great outcome in the coming years. I would like to qualify the phase that we are passing through as phase of inclement weather, rather, and I would also like to reiterate that we as an organization are perfectly capable of dealing with this. So we will work very hard to ensure a consistent outcome in Q3 FY ’25, and we will be happy to meet all of you on a one-on-one basis whenever time permits and allows us to give a further granular view of our lines of business and progress.
The other thing which I wanted to tell you is that on June — sorry, on November 26, we have our first AI conference where we will be sharing some of our developments on AI side as well, which we have implemented and including also overall discussion on applicability of AI to BFSI segment. Registrations are open on www.ltfraise.com. if your schedule permits, we would like you to register for it and attend the same. Thank you so much for attending the call.
Operator
[Operator Closing Remarks]