L&T Finance Ltd (NSE: LTF) Q4 2026 Earnings Call dated Apr. 27, 2026
Corporate Participants:
Sudipta Roy — Managing Director and Chief Executive Officer
Sachinn Joshi — Chief Financial Officer
Analysts:
Shreya Shivani — Analyst
Kunal Shah — Analyst
Pranuj Shah — Analyst
Avinash Singh — Analyst
Chintan Shah — Analyst
Anuj Singla — Analyst
Abhijit Tibrewal — Analyst
Deep Vakil — Analyst
Unidentified Participant
Abhishek Murarka — Analyst
Suraj Das — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the LNT Finance Limited Q4, FY26 and full year 26 earnings conference call. 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 call concludes. Should you need assistance during the call, please signal the operator by pressing Star then zero on your Touchstone phone. Please note that this conference is being recorded. We have with us today Mr. Sudipta Roy, Managing Director and CEO, Mr.
Sachin Joshi, CFO and Mr. Rajat Doherty, 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 Before we proceed, as a standard disclaimer, no unpublished price sensitive information will be shared during the call.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 interaction in the call. While all efforts would be made to ensure that no unpublished price sensitive information will be shared in case of any inadvertent disclosure, the same would in any case form part of the recording of the call.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 Q4 results presentation uploaded. 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 and Chief Executive Officer
Thank you. A very good morning everyone. I welcome you all to the Investor call for Q4, FY26 and the close of the financial year 26 today with me on the call are our CFO Mr. Sachin Joshi and our Chief Operating Officer Mr. Raju DHT along with the senior management team of LT Finance. As you may have gleaned through the Exchange notification, I’m pleased to welcome Mr. Sachin Joshi and Mr. Raju Dotti as whole time Directors designate onto the Board of L and T Finance. Obviously subject to necessary approvals.
Similar to our previous calls, today’s call is divided into two sections taken up sequentially by myself followed by our first CFO Mr. Sachin Joshi. We’ll be talking about the overall business metrics and financial performance. In today’s call, we shall focus on the performance update for Q4, FY26 and FY26. Alongside sharing our roadmap for our five year strategic plan Laksha 2031. Post our commentary, we’ll be happy to take questions on the call. Before we delve into the highlights of the quarter, I would like to give you some pointers on the current macroeconomic scenario and sectoral outlook, which becomes important given the volatile global scenario and the ongoing energy market disruptions.
Amidst ongoing geopolitical tensions and volatile global conditions, India’s economic activity continues to be resilient. The economy has performed better than expected throughout the year, laying the groundwork for continuous upward revision to forecasts. According to NSO second advance estimates, with the new base year being 2022-23, real GDP growth is placed at 7.6% in FY26, up from 7.1% in 2024-25. The pickup has been led by steady private consumption both in urban and rural and sustained investments in sectors like construction, power production of electronics and capital goods, etc.
Domestic demand remains strong, supported by both rural and urban demand, GST rate rationalization and monetary easing. Structural reforms, favorable financial conditions and the government’s thrust on infrastructure spending have aided investment activity and bodes well for sustained strength in demand conditions. The government’s focus on scaling up domestic manufacturing in several strategic and frontier sectors augurs well for India’s long term growth trajectory. Against this broadly resilient backdrop, spillovers from the ongoing West Asia conflict pose potential downside risk.
However, as per RBI’s assessment, strong fundamentals including sustained growth, low inflation and fiscal consolidation provides India the wherewithal to withstand the adverse impact of heightened global uncertainties. The IMF has also raised India’s FY27 GDP growth forecast, highlighting resilience despite global risks and the middle distinctions and high oil prices keeping India among the fastest growing major economies yet again. While the duration and intensity of the West Asia conflict and its broader macroeconomic implications are yet to be fully ascertained, we remain hopeful that the resilient domestic demand and coordinated policy support will provide the wherewithal to withstand the adverse impact of such global uncertainties.
Coming to this quarter’s highlights, I’m pleased to inform you that we have concluded FY26 with our highest ever annual profit after tax or rupees three thousand three crores up by 14% year on year before our one time impact of labour code or rupees 21 crores post tax in quarter three FY26. Our quarterly profit after tax for quarter four FY26 stands at rupees eight hundred and seven crores, up 27% year on year. This has been achieved on the back of highest ever quarterly retail disbursements of rupees 24,107 crores, up 62% year on year with contributions received from all our lines of business.
For context we had posted retail disbursements of Rupees fourteen thousand eight hundred and ninety nine crores in the corresponding quarter in the previous financial year. The significant thrust of disbursement momentum year on year has been the result of our continuous focus on risk calibrated growth in all lines of business during FY26, duly supported by our next gen credit administration framework Cyclops. The retail book now stands at rupees 119,508 crores reflecting a growth of 26% year on year while the overall book size reached rupees 1.21,728 crores in FY26 and a ROI of 2.4% reflecting a growth of 18 basis points year on year in quarter 4 FY26 this quarter we registered a strong growth in total income which grew 26% year on year and 4% QQ with a PPOP growth of 31% year on year aided by an increase in our NIMS and fees to 10.47%, a sequential increase of 6 basis points largely driven by a sharp focus on yield optimization across businesses, fee improvement and efficient liability management.
In the last call I had emphasized upon our trajectory of bearing credit cost on account of implementation of structural credit policy measures in our businesses and the realization of positive dividends of the early implementation of Cyclops in two wheeler, SME and farm businesses. I’m pleased to inform that consequently credit costs moderated to 2.64% on 19 basis points reduction from the previous quarter. I would like to take some time to share a brief update on the broad themes outlined in our guidance last year in the corresponding quarter.
The previous year when we spelled out the guidance for FY26 I had focused on four broad themes resumption of the growth trajectory in our rural group loans and FM5 business growth being the primary agenda across all our lines of businesses. Granular focus on building OPEX efficiencies in our collections and credit administration verticals as a byproduct of Cyclops implementation and enhancing productivity of our sales channels. I’m pleased to state that we have tirelessly worked on these four things throughout FY26 and the profitability and the growth that you see today are a result of the continuous efforts of our teams making significant progress on these initiatives.
Our RGL and MSI business has showcased sustained resilience and uptick in both disbursement volumes and the complete restoration of collection efficiencies to the Pre crisis level of 99.8% plus. As far as productivity enhancement is concerned, we have granularly focused on improving productivity and throughput across all lines of business using digital tracking tools. For instance in our microfinance business the productivity per field level officer increased to 16.1 lakhs in quarter four FY26 from rupees 11.7 lakhs in quarter four FY25 up 38% year on year while our personal loans business the productivity has increased to rupees 1.6 crore per sales manager in quarter four FY26 from rupees 1 crore in quarter four FY25 up by 60% and the two wheeler business displayed an increase of 36% from rupees 14 lakhs to rupees 19 lakhs.
Similarly our retail housing business the throughput per employee registered an increase of 11% to rupees 1.96 crores in quarter four FY26 and our SME business registered a productivity increase of 66% to rupees 3.11 crore from rupees 2.93 crore in quarter four FY25. In the farm business the productivity increased from rupees 57 lakhs to rupees 63 lakhs up by 11% in quarter four FY26. We continuously benchmark our productivity ratios with our peer group and while we compare favorably we will continue to strive to improve further.
We have taken concerted measures with the help of our digital tracking tools to enhance optimization of deployment of manpower while also providing opportunities to use them for cross selling other products. This coupled with the opening of our multi product Sampuna branches will help us to augment productivity and bring in operational efficiencies while helping us to focus on cross sell in a concerted manner. As all of you are aware, LNT Finance as an organization Has Been investing consistently and building in building and deploying proprietary AI tools to help us Sell, Underwrite, collect and operate more efficiently. We consider ourselves as one of the pioneers in adoption of AI at scale in an Indian BFSI sector and we intend to keep this strategic lead as the world moves towards increased adoption of AI led efficiency. To this end we’ll continue to invest in the latest AI tools, both hardware and software and make an attempt to acquire market leading talent to retain our execution lead. Our annual AI Conference raise is already considered the most definitive AI conference in the BFSI sector in India and will continue to strive to maintain the thought and execution leadership in this space to substantiate our position as India’s leading AI enabled organization in the BFSI sector.
We will start giving performance metrics on our AI initiatives on a half yearly basis starting with this result cycle. We would like to draw your attention to slide number 20 on the investor presentation where we have given the early credit performance metric of our cyclops two wheeler portfolio benchmarked against industry over a period of 10 months. We are pleased to note that Cyclops has outperformed the industry by a wide margin during the aforementioned observation window. Slide number 21 gives details on the effectiveness of the AI interventions in our collections vertical, especially in measurable activities like pre Delinquency management and self cure.
It is to be noted that our successful AI driven pre delinquency management and self care resolution process has significantly lowered our cost of collection across all our urban finance products. The number of AI copilots and tools used by our operating departments have mushroomed and we have given a complete listing of the successful implementations in slide number 22. Our Helios copilot for SME underwriting has significantly reduced the underwriting tat for our SME clients and we expect to improve this even further with deployment of additional modules in Q1 FY27.
We also intend to embark on a Pan Organization Tech DNA upgrade exercise this year where our operating managers and distribution workforce would be equipped with AI productivity tools and training to use the same efficiently. Project Nostradamus L&T Finance’s AI driven automated real time portfolio management engine that went completely live in the two wheeler finance business in November 25 has started delivering measurable outcomes in predicting and containing portfolio risk at a granular micro market level and we expect to implement it in our personal loans business in Q1 FY27.
This will be followed with implementation of Nostradamus in the Rural Business finance vertical in Q2 FY27 and subsequently in the SME and farm businesses. As we have concluded Lakshya 2026 and now embarking on Lakshya 31, we would like to give you a final update on Laksha 26 metrics and the aspirational goals for Laksha 31 Against the Target of utilization of greater than 95% by FY26 we have achieved a retailization of 98% at the end of the plan. We have outperformed the retail book growth target of 25% CAGRADE across the plan. By clocking a CAGR of 28% across the LAKSHA 26 plan, the organization achieved the asset quality goals with our consol GS3 and NS3 standing at 2.88% and 0.96% respectively against our target of GS3 of less than 3% and NS3 of less than 1%. With regard to the last goal of achieving ROA of 2.8 to 3%, we achieved an ROA of 2.4% in quarter 4 FY26 during the large part of the Strategic Plan’s tenure, we remain on track to achieve our Laksha ROA target of 2.8 to 3%.
However, we faced certain headwinds on account of the microfinance crisis which set us back on this front by a few quarters. We are hopeful that we will achieve this ROI goal by the exit of Q4FY27. I would now like to share our Lakshad 2031 goals which will serve as our North Star for our next phase of institutional transformation. Designed to establish LT Finance as India’s premier AI enabled risk first Tech first multi product retail financier of choice. This plan is a result of rigorous bottom of granular business analysis and exhaustive peer benchmarking ensuring that our growth opportunities are risk calibrated while taking advantage of the market share gain in the opportunities that we have identified.
We are focusing on tech enabled granular execution to sharpen our competitive edge allowing us to maintain dominant Market leadership In our fulcrum business segments while developing sufficient market presence in our new business lines. The measurable goals for LAKSHA 31 are as follows as shared in slide number 9 of the Analyst presentation, We will attempt a book growth CAGR of 20% plus over the Laksha period. We will endeavor to drive credit costs down to a level of 2% or less. We will target to achieve our return on assets in the range of 3 to 3.2%. We will strive to deliver return on equity in the range of 16 to 18%. The successful achievement of the stretch targets of Lakshad 2026 plan period gives us the confidence of achieving the goals we have set for ourselves in the 5 year Lakshad 31 plan period. I’d also like To take this opportunity to brief you about the go forward plan on FY27 as we enter FY27 the first year of our five year strategic plan lecture 31. We expect the momentum gained in FY26 to sustain with AUM growth of over 20% supported by robust consumer demand in urban finance, gold loans and our rural franchise while maintaining a calibrated and quality led approach to expansion from a profitability and ROA standpoint The investments that we have made over the last few quarters position us well for operating leverage to play out meaningfully in FY27.
We expect our NIMs and fees to remain stable in our guided range of 10 to 10.5% while credit costs should trend lower in the range of 2 to 2.2% by Q4. FY27 as newer portfolios season and our AI led underwriting frameworks mature further. At the same time will continue to add rapidly to our gold loans distribution footprint and our multiproduct Sampurna branches while deepening cross sell opportunities across our customer base of close to 3 crore customers. We will also expand our two wheeler and farm equipment distribution footprint by covering our hitherto uncovered dealer base.
We’ll build and operationalize an AI based cross sell and service engine this year, thus completing the modular intelligence framework for our technology architecture as first detailed during the Investor digital day in November 2024. Overall, we see FY27 as a year where the foundation built over the last 12 to 18 months begins to deliver consistent high quality growth with lower credit cost profiles leading to improved profitability and return metrics. As I mentioned earlier, by the Last quarter of FY27 we are targeting to achieve an ROA of at least 2.8% as announced through our Exchange Declaration on Friday, the Board approved the setup of a payments platform by LNT Finance to take advantage of the rapidly evolved digital payments and commerce landscape in India and to build a responsive and a personalized payments frame framework for our rural and urban customers.
The focus will be to infuse the strong AI expertise gathered by LNT Finance into the payments domain through an agentic commerce paradigm. The organization has already started laying the blueprint for the same and expects to operationalize the platform by Q2. FY27. The payments business will strategically serve as a catchment for new customers, acquisition and diversification of fee revenues and simultaneously will capture rich transaction data for use in our lending businesses through our proprietary AI tools.
We’ll keep you periodically updated on the progress of this initiative. As mentioned earlier, I would now like to give you a brief update on the five pillars of execution that we had enumerated in October 2023 and continue to be in implementation mode against the same customer acquisition. The focus continues to be on maintaining customer acquisition momentum both vertically and horizontally while proactively implementing credit adjustments to ensure sustained portfolio quality. To ensure focus on acquiring new non leveraged MFI customers, the team focused on deepening reach into new non covered villages, hence the Number of new villages, 0 disbursement villages activated for the rural group loans and the MFI vertical stood at 28,335 villages in Q4FY26 as against 27,146 villages in Q3FY26.
We are also expanding our geographical footprint to new P, Maharashtra, Andhra Pradesh and Assam. This quarter we have added a total of 8.3 lakhs new customer which is the highest ever and with this our overall customer franchise stands at about 2.8 crore unique customers at the end of FY26, the two wheeler finance segment also saw renewed growth by reactivating dealers to target prime customers. Further details around customer acquisition and repeat share are available on slides 27 and 28 of the Investor presentation.
Sharpening Credit Underwriting I’ve already spoken at length on the impact of our proprietary credit underwriting engine Project Cyclops, which is now live in two Wheeler Farm SME and personal loans and will be further extended to home loans and rural business finance in FY27. Futuristic digital architecture we continue working on upgrading our technical capabilities and our focus on continuously strengthening our IT framework remains unabated. I’ve already spoken about the Project Cyclops and Project Nostradamus.
This year we saw the launch of 20 plus new digital journeys among which the HL Neo 2.0 journey has led to 2x productivity and the 3x performance in our pharma portal. As well, we enhanced credit governance through the Sachet app and an EWS investigation portal for early warnings. These advancements have built a highly efficient, scalable and secure digital infrastructure for our retail future. Brand Visibility we continue to focus on targeted engagement through multichannel and multi product brand building.
With Jaspreet Bumra as our brand ambassador, we expanded brand visibility through targeted branch initiatives and event participation including the branding of 200 new gold loan branches and the presence of the flagship Business loan industry event to also reach captive audiences. We also have implemented AIRPORT branding across multiple cities. Capability Building on the capability building front, as you are aware, we have taken a series of measures during the year. During the quarter we have completed our annual long range planning cycle across all verticals, reinforcing the alignment of function level talent strategies with our overarching business objectives.
On the employee initiative front, we launched the Employee Engagement Service including the third edition of the Great Place to Work Survey to enable the management to effectively listen to the voice of its employees. Additionally, Golden Expansions remains on track with 330 branches live as of quarter four FY26 notably 30 of these new locations are integrated into a multi product Sampurna branch network. We intend to deploy 400 plus new gold loan branches this year of which at least 100 would be Sampurna branches.
This reflects to fostering. This reflects our commitment to fostering a high performance culture and scaling our physical presence to serve our customers better. Now I would like to give you an update on the wholesale business and the related investments in security receipts with the ARCs. The wholesale book has been reduced from 2,582 crores in FY25 to 2,220 crores in FY26, a reduction of 14% year on year. The net security receipts book has also been reduced from 5862 crores in FY25 to 4808 crores in FY26 down 18% year on year mainly due to monetization of assets driven by active stakeholder negotiation, completion of projects and subsequent sale of constructed units and recovery measures implemented through legal action.
Details of the same are available on the slide number 15 of our investor presentation. With wholesale ARC book production progressing satisfactorily, we’ll continue to work with ARCs focusing efforts towards further reduction in outstanding SRs. I will now request Mr. Sachin Joshi, our CFO to take you through the financial updates.
Sachinn Joshi — Chief Financial Officer
Thank you Sudipta. As always, I’ll be walking you through the financial performance of the company for the quarter. First, talking about the quarterly performance. Consolidated NIM plus P for the quarter stood at 10.47% versus 10.15% Q4FY25 and 10.41% for Q3FY26. Consol PAT for the quarter was rupees 807 crores up 27% year on year. Quarterly retail disbursement stood at 24,107 crores up 62% yoy retail book stands at 1 19,508 crores up 26% yoyo and our consolidated book stands at 1,21,728 crores up 25% year on year.
Consol ROA stands at 2.40% up 18 basis points year on year. Consolidated ROE stands at 11.71% up 158 basis points. Yor now coming to annual performance. Consolidated PAT at rupees 29.81Cross up 13% yoy. If we exclude the one time impact of Labor Code which was there in quarter three FY26 PAD showed at 3,003 crores. Our highest ever consolidated NIM plus Fee at 10.33% versus 10.59% for FY24. Highest ever annual retail disbursements of rupees 83,213 crore up 39% year on year Consolidated ROA after one time exceptional items stood at 2.37% down 7 basis points year on year.
Before one time exceptional item it is 2.39%. Consolidated ROE at 11.25% up 38 basis points year on year. Before 1 time exceptional item it is 11.33%. Now before I move on to our retail business performance, I would like to briefly talk about our annual ECL model refresh. We have already provided a detailed impact of annual ECL model refresh in slide 13 but would like to just reiterate the same. The Company undertakes refresh of the ECL model annually including recalibration of probability of default I.e.
PB as well as loss given default LGD methodologies across stages. The model refresh also incorporates updated assumptions and forward looking risk parameters. This year ECL Model refresh has resulted in release of ECL provisions of 301 crores. These were carried as management overlays over and above the provisions required. As per ECL model, 290 crores were in stage 3 and 11 crores in stage 2. There is a corresponding increase in ECL provisioning of 301 crores in stage 1. Additionally, as part of this exercise, 125 crores of macroprudential provisions have also been subsumed within the ACL model.
This leads to improved provision coverage on performing stage one book which constitutes a substantial around 96% of the total exposure from 0.52% in Q3FY26 to 0.80% in Q4FY26. The PCR on stage two assets improves marginally from 23.23% in quarter three FY26 to 23.59% in quarter four FY26. Correspondingly, the PCR on stage three assets comes down from 73% to 68% which is an adequate level of coverage and does not in any way diminish or impact existing coverage requirement as per model within Stage three.
Overall this does not have any P and L impact which exhibits structural consistency and balance sheet resilience. This exercise strengthens the Company’s credit risk framework and reflects its continued focus on prudent credit risk management. Talking about retail businesses now, first one is Rural Business Finance which registered quarterly disbursements of 7,208 crores up by 41% year on year and annual disbursement stood at 25,882 crores up 24% year on year mainly on account of improved collection efficiencies and sectoral trends.
The book size reached Rupees 30,805 crores up 6.3% quarter on quarter and 17% year on year in Q4FY26. In the pharma finance vertical, quarterly disbursement stood at 2,037 crores in Q4FY26 up 16% yoy while the annual disbursement stood at 8,674 crores up 9% yoyo. The book size reached 16,970 crores reflecting a growth rate of 12% year on year. Talking about urban finance which comprises two wheeler personal loans and home loan lab business saw a 61% year on year jump in overall quarterly disbursements, Rupees 9,850 crores and a 38% jump in annual disbursement totaling to 34,514 crore.
As a result the overall book size increased to Rupees 59,048 crores in Q4FY26 translating into a 29% year on year growth. The two wheeler business registered quarterly disbursements of 2,930 crores in the quarter up 58% yoy and annual disbursement stood at 10,787 crore. The 16% y. The book size increased to Rupees 14,372 crores up 17% yoy with 90% plus of March 26 two wheeler disbursements. In the prime segment we continue to prioritize high quality growth and optimized risk adjusted returns. In the personal loan business we achieved our highest ever quarterly disbursement of 3,786 crores translating into a growth of 98% YoY and annual disbursement stood at 12,220 crores up by 100% YoY with the book size of 14,666 crores an increase of 70% year on year.
The double digit growth is attributed to the scale up of digital channels. In the housing loan business we achieved quarterly disbursements of rupees 3134 crores up 34% year on year and annual disbursement stood at 11,507 crores up 20% year on year, the book size reached 30,009 crores, an increase of 20% year on year. In the SME business, quarterly disbursement stood at 1,838 crores up 20% year on Year and annual disbursement stood at 6,130 crores up 23% year on year the book stood at 8,507 crore, up 30% year on year.
The growth in business volumes was aided through an increase in direct sourcing and an existing strong network of distribution channels. In the gold loan business, quarterly disbursement stood at 2779 crores up by 97% quarter on quarter and the total annual disbursements for FY26 reached 6700 crores. The closing book reached 200845 crores at the end of the year representing a significant growth of 63.1 quarter on quarter. Let me now hand over the call back to SUDIPTA to make his closing statement.
Sudipta Roy — Managing Director and Chief Executive Officer
Thank you, Sachin. In summary, our performance in quarter four, FY26 has been satisfactory and overall performance for FY26 has been up to our expectations. Despite a difficult start due to the Karnataka Microfinance Ordinance issue, we have started the new financial year on a strong footing with disbursement momentum keeping pace with the previous month. And we are reasonably confident of a strong growth trajectory in FY27 as we go forward. In FY27, with the backdrop of the West Asia geopolitical tensions and the possibility of El Nino conditions later during the monsoon season, we are hopeful that we can maintain the upward momentum in risk calibrated growth and profitability in FY27 and beyond.
As we continue our journey of executing the LAKSHA 2031 plan. I thank you all for our patient hearing. The floor is now open to questions.
Questions and Answers:
Operator
Thank you, ladies and gentlemen. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press Star and two participants are requested to use their handsets while asking a question. Ladies and gentlemen, please note in the interest of time and fairness to others, we request you to restrict to one question per participant and rejoin the question queue.
One moment please. While the question queue assembles, we take the first question from the line of Shriya Shivani from Lumura. Please go ahead.
Shreya Shivani
Yeah. Thank you for the opportunity. Congratulations on a good quarter. Good year. So my one question is actually going to be about the impact of the West Asia War in terms of we have all these AI capabilities and are probably able to see the data quite upfront versus many other players. Is there any areas of concerns that you can highlight, whether it be across your SME book, whether it be across your personal loan book? Also going ahead this year there are a couple of headwinds in terms of the rural economy can face because of El Nino, there are headwinds of the war continuing to cause disruption or maybe causing inflation later in the year, etc.
So how are we thinking about the full year across certain critical segments which are susceptible to the monsoon impact, for example? So that’s my one question. Thank you.
Sudipta Roy
Thank you so much for the question. So at the outset let me tell you that though the West Asia crisis continues to go on, the domestic consumers have been largely shielded from any energy shock as of now, barring the little disruption on LPG supplies that we saw. However, there are there have been sort of tightened supply of industrial gases etc. Which has also impacted some of the SMEs. As of now we really do not see any significant worsening either or impact rising out of the West Asia crisis on any of our portfolios, whether be it SME or any other portfolio like rural business vertical or tractors or two wheelers.
As of now there is no visible impact. However, we continue to be cautious. One of the things that we remain continue to be cautious is the fertilizer supply because the curry season is down the corner and many of the input stock for fertilizer production, as well as some of the commonly used fertilizers originate in and transit to the Middle East Middle Eastern corridors. So if the crisis does not resolve in time for the Kharif sowing season, then we might see some sort of construction of supply fertilizer availability there which might have downward impact on yields on some of the agricultural produce later during the so these are all second order or third order impacts.
Obviously we are cognizant of the energy shock that might Come at some point in time Because the foal prices, the oil prices continue to be at a higher level. So we obviously are looking at being cautious in our approach to the urban unsecured lending, especially in the estimate business as well as in the personal loans business. But I would like to point out that our focus for the last two years have been more of prime customers and we do believe that our prime customers have a larger factor of safety in terms of dealing with the vagaries of economic cycles than the more sensitive below prime or near prime customers.
However, we remain vigilant. Our portfolio management engine Nostradamus, which is in two wheeler is already giving us measurable benefits. We’re implementing it in personal loans as well. So you will probably be able to see any risk pocket developing much, much earlier than maybe others. So in conclusion, we remain vigilant. As of now, there is no immediate signals that we are seeing of worsening of credit parameters that is directly related to the West Asia crisis. But we will have to monitor this space continuously.
Shreya Shivani
Right. And just to follow up here, your 20% 20% AUM growth guidance for FY27 is inclusive of all these risks that you, all these concerns that you’ve talked about. Right.
Sudipta Roy
We have taken everything into concern. See, the fact is that as of now we remain committed to that 20% plus growth guidance. However, if there are unseen geopolitical shocks that might happen later during the year, those are not factored into the guidance. However, as of now we stand by the 20% plus guidance.
Shreya Shivani
Okay, that’s very helpful. Thank you. And all the best.
Sudipta Roy
Thank you.
Operator
Thank you. We take the next question from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah, thanks. So a couple of questions. Firstly, you have spoken about the AI and efficiencies which it can bring in. Just if you can touch upon within the overall guidance, both near term as well as maybe 2031 guidance with respect to how the cost ratios should pan out, be it in terms of cost to income as well as cost to assets, that would be helpful. And second question is on ECL model refresh. So the contingency buffer has been subsumed and I presume it was, it was in the stage two. So ideally when we look at the release from the stage 2 then X of contingency, it wouldn’t have been anything related to PD or lgb.
That can be clarified. That will be useful because there is hardly 11 odd crores and 125 crores was contingency. And so we don’t carry any contingency as of today within the ecl. That clarification would also be helpful. Yeah, thank you.
Sachinn Joshi
Yeah. Hi Kunal. Thank you. So, so let me take the second question first on the macro prudential provisions utilization, the stage one, two and three, you know the. When the recalibration has been done anyways, when we show the slide on stage 1, 2, 3. Yes, you’re right. 125 crores was part of stage 2 itself as we have recalibrated 125 crore has been subsumed primarily taking in account the last four to five quarter challenges that have happened at the micro loan sector. The requirement naturally increases because each ECL model runs, it runs at a lag.
We have actually this quarter come out of this whole challenge with March ending at 99.80% collection efficiency. Right. But the 125 crore which was remaining is anyways part and parcel. Earlier it was separately available. Now it is part and parcel of stage one and two as part of the ECL model itself. So it’s not gone anywhere anyways it would be, it is just strengthening the same piece. It’s just change the color. That’s it. Going forward as we step into the next financial year whenever there is a possibility and a requirement we will anyways continue building micro potential provisions which will take care of the future events.
So this is, this is as far as the you know macro potential is concerned. In terms of the Laksha 31, you know the Opex to book range I think we are looking at a range of 3.75 to 4% range. Primarily keeping in mind the investment that will be required because over the next five years there will be further investments in technology which will be required. Investments in setting up branches, you know Gold loan, micro loans, micro lab. These are the businesses which we will continue investing in. And the branch network, you know setting up the branch network comes at a cost.
So we have continued to factor these in when we build the 31 projections. So I hope I have answered.
Kunal Shah
Yeah, cost ratios, maybe near term cost ratios will be same or maybe some positivity.
Sachinn Joshi
Yeah, so. So as far as the operating expenses are concerned, if you talk about FY27 we intend to assuming that the external conditions remain normal. We continue to plan setting up about 150 to 200 micro loan branches. Further 150 to 200 micro lab branches and about 400 to 500 gold loan branches. Now these will come at a cost and hence we said that the credit cost trajectory coming down exit we are expecting exit Q4FY27 we are expecting it to come down to a range of 2 to 2.2%. So keeping the reduction in credit cost in mind and the investments to continue in FY27 I think we are looking for an ROA target of 2.8% to be achieved by exit FY27 basically the Laksha 26 target of 2.8 to 3 we expect to achieve with a lag of about 4 quarters.
Because we are out of the crisis now and we should start moving towards achieving that target.
Kunal Shah
Perfect. Thanks. Yeah, that’s helpful.
Sachinn Joshi
Thank you.
Operator
Thank you. We take the next question from the line of Pranuj Shah from 3P Investment Managers. Please go ahead.
Pranuj Shah
Hi, thank you for the presentation and taking my question. So first one is just on the fee income. It is relatively tepid. If I look compared to your disbursements growth of 61 and 6%. So is this M2M losses that is pulling this down or what is this exactly?
Sachinn Joshi
No, fee fee income does not include any MTM losses. Primarily there is an amount of liquidity income. So depending on the liquidity that is kept, we have the income coming in as part of the interest cost and if there is a negative carry on that, that comes over here. So otherwise the disbursement trajectory, you know, the processing fee and the CLI income remain, you know, rainbow.
Pranuj Shah
But do you expect this to grow in that 20% range in line with your AUM and disbursement target for next year? The fee income,
Sachinn Joshi
I think the fee income has continued to remain in the range of about 1.7 to 1.8, 1.9. There are, there are, you know, quarters where we receive something more, quarters where we receive something less. So I think the range, rather than looking at standalone fee income, we always give a range for the NIM plus fee because ultimately it’s a part and parcel of whatever fee income that we garner depends ultimately on disbursement on a specific business. Microloan will give a particular range of fee. Gold loan bill, gold loan financing gives some something else.
So to remain within the trajectory of 10 to 10.5 is what we have assured and we have been maintaining that this quarter we have done 10.47. So some plus minus, you know, few basis points here and there will keep happening. We can’t really monitor on exactly what will be the fee income, but broadly this range should continue.
Pranuj Shah
Understood, thank you. And lastly, just on clarification, like your reported nims versus the calculated based on period and averages, there’s quite a bit of delta. So your reported is on daily average assets, Am I correct there
Sachinn Joshi
No reported. What we do is we do an end of the period averages.
Pranuj Shah
Okay, I’m getting a bit better of that, but I’ll take this offline perhaps.
Operator
Thank you. We take the next question from the line of avinash Singh from MK Global Financial Services Ltd. Please go ahead.
Avinash Singh
Yeah, thanks for the opportunity. A couple of questions. First one is more on, I mean AI, of course you are kind of leading there and leveraging it my question is more on the, you know, that medium term impact of AI in the job market. I mean the hiring scenario in it looks muted at the moment. Uncertainty is there. And even if you were to look at financials as a sector world, the wage growth has been slowing and hiring is also relatively slowing. Now these two sectors typically will be very, very key for your, you know, targets of, you know, the two wheelers as well as the pl.
Now if these two sectors are kind of a bit clouded here now how do you see this risk in terms of your growth asset quality over the medium term? Because these two are kind of very, very critical to your growth. The two wheelers and personal loan growth are very, very critical to your growth trajectory and plans. But we have this big sort of uncertainty coming in. So I mean on one hand of course AI is helping on the operation side, but this is kind of creating a cloud. So that’s one second again, I guess this has been discussed and you answer from this FY31.
So broadly if I see, I mean if I were to remove this drag on earnings from the security receipts and see the credit cost improvement by and large it looks like that. Okay, in terms of even over the medium term, 4, 5 years, your play is like mean plus fee changes and opex changes basically offsetting. I mean there is very little play from these two parts. A lot plays from credit cost and some of course SR drive going on. So now if you were to continuously invest in technology, I mean why it is so that even exit, I mean after even four, five years you do not see that OPEX play to come into pictures.
And this branch, 150 each for microfinance micro lab and 400 for gold is to be open in how many years and will there be some overlapping advantages? Thanks.
Sudipta Roy
Okay, I’ll take the first question. The first question is that, you know, the fact is that yes, there are a lot of headline moderation in hiring by some of the, some of the sort of the bigger Indian IT firms as reported in the media. However, one of the things we should be cognizant of that much of that slack is also being picked up by the huge expansion of GCCs in India. So the fact is that and we are in the hiring market almost every day, it’s still as difficult to get qualified talent as it was two years back.
Right. So maybe, you know, there might be a little bump in the freshly minted engineers getting hired into some of those big Indian IT services firms. But the hiring by the GCC’s expanding is quite strong. So according to our assessment, we really do not expect the IT staffing or hiring industry to completely fall off a cliff, at least for the next 12 to 18 months. And the fact is that because we have been very early in adopting, in adopting AI based tools and now we have a significant AI development team as well, our realization is that the front end of AI development is only 15%.
To make AI solutions useful for use in the frontline or for use by operating managers, you require a heavy engineering wrapper around it. And that requires software engineers and developers to put it together in a usable format. So I do believe that, and this is obviously this is my own personal opinion, you know, some of the gloom and doom regarding job losses from AI, like, you know, being a unstoppable stream has been probably a little overblown, right? Yes, there will be some losses because of efficiency gains, etc.
But I do believe that some of those will be deployed into tools manufacture tools development or manufacturing of AI enabled solutions. So overall, I do believe that there’ll be a marginal impact and not a massive impact. But again, the caveat is that we’ll have to see as it plays out. My guess is as good as yours and no one can predict with 100% certainty as to what will happen. Having said that, we are cognizant of wherever there are like large scale job losses offline, there was a large scale job cuts by One large global U.S.
Player, right. In the IT segment. And so, you know, our underwriting sort of paradigms as well as underwriting processes, especially in SME or personal loans, et cetera, remain cognizant such risks. Right? And we incorporate such things into our decisioning process. For example, if you get advanced news of a particular large heavy amount of job losses in a particular IT services company, right? Or downsizing in an IT services company, automatically any application coming from that company for a personal loan or for a credit facility goes through an additional amount of security scrutiny, right?
So those things are built into the underwriting process. The second, as part of the second question you were asking whether you know, on the gold loan branches, the golden branches, 400 plus gold loan branches is for deployment only in this year. That means from 1st of April till 31st March of 1st of April 26th to 31st March 2027. In between, this period will deploy this microlab branches and we’ll deploy this 400 plus gold loan branches. So the rate of deployment of gold loan branches will be at the rate of almost 1 to 1.2 a day.
Right. And so, so that is, you know, to answer the question, the third thing is that obviously you know, the, the, the OPEX and, and the credit cost trajectory will evolve over the period of the Laksha 31 framework. So you know, currently we are at about 2.64. You can see that our slippages, our slippages have been coming down. Our slippages same quarter last year were about 900 crores plus this quarter it is 402 crores. Right. We have given it in slide 20 the impact of cyclops on our two wheeler portfolio.
Where you can see our 30 plus number at 10 months from the observation period is 2.8% where the industry average is 7.1%. So actually our cyclops portfolio, two wheeler portfolio which is like almost 11,000 crores right now is, but the observation window book which is about 3250 crores is outperforming the industry by almost a factor of, almost a factor of two. Right? So we remain very, very confident on the trajectory of paring our credit cost during the lakshar cycle to sub 2%. That is why we felt confident enough to put it as part of the Laksha guidelines.
And the fact is that you are right to a certain extent the ROA expansion will come from some part of the efficiency that is arising out of OPEX as well as we will build headline efficiency in our OPEX plus credit cost. As you, if you had been part of the analyst call previously, at one point in time we used to guide saying that our OPEX plus credit cost will be in the corridor of 6.5 to 7%. Now we have moved that to a corridor of 6 to 6.5%. And during the Laksha period we expect that to be in the corridor of 5.75 to 6%.
So that is where we expect that to be, in the corridor. So obviously there will be efficiencies building OPEX line, there will be efficiencies built in the credit cost line and obviously we will try to hold on NIMS and fees in the corridor of 10 to 10.5%. There was a question on fees. We have launched the payments business primarily because we want to diversify our fee revenues. Right? We are cognizant of the fees that you know, our primary fees comes from insurance revenues as well as from origination fees.
So we want to diversify our fee revenue pipelines. So that is why with the reason the payments business has been launched or payments business is proposed to be launched. So we are working on diversifying our Fee revenues as well. So that is why you know for the near term our guidance on Nimplus fees remain at 10 to 10.5 for the near term. Right. So we are very confident that given the fact that the structurally the changes that we have done to the businesses and the way we do our businesses will help us navigate the Laksha 31 period and deliver those metrics that we have put on put on the paper.
Avinash Singh
Thank you. Very clear.
Operator
Thank you. We take the next question from the line of Chintan Shah from ICICI Securities. Please go ahead.
Chintan Shah
Yeah, thank you for the opportunity and congratulations on the quarter. So sir, firstly on this LAKSHA 2021 ROE guidance of 16 to 18 percentage. So in that are we considering any benefit from the SR portfolio as in any provision reversal which we are, which we could expect from that or what is kind of the recovery rates on the SR portfolio. So this quarter I think we have this year we have a reduction of almost thousand crores in the SR book. So has that gone anything towards the provision and any add back on the capital front?
Yeah, that the first.
Sachinn Joshi
Yeah so. So first thing is yeah we have not taken into account any gains coming out of SR portfolio because earlier we had guided that as and when such gains come in we will actually utilize the those credits to take care of the you know further macro prudential provisions to be created. And you know once we have sufficient provisions created for micro loan we may also consider creating provisions for the unsecured portfolio overall. So that’s a top up which has not been factored in over here. And as far as the current credits are concerned you would have seen that the overall portfolio used to have, the SR portfolio used to have about 59% provision that has now gone up to 64%.
So till the time the ARC has more than one asset the the release of these credits to P and L is not possible. So whatever credits have been received have actually just gone to you know create more buffer for the balance assets which are currently going in for resolution. So we will you know over a period of time there will be a redemption of assets and at that point of time the credits will come in and we will like had guided earlier. We will utilize the monies to take care of the in creation of additional macro prudential provision.
Sudipta Roy
But this question is that is, is that 3 to 3.2% it does not, does not include also. But one of the important points to note is that the SR portfolio still gives us a drag right because you know we have to still provide for the funding cost for the portfolios with arc. So as and when the portfolio is resolved, the drag resolves to a larger extent which releases a marginal ROA into our entire earnings stream. Now if you had to look at. So if you were to look at standalone basis, our retail portfolio is actually at exhibiting roas level at a level higher than our consolidated roas.
Right. So as the drag reduces. Yes. There is a secular benefit that will come into the ROI profile as well. Right. So to that extent, yes, the resolution of the SR portfolio will aid our ROA expansion. Definitely.
Chintan Shah
So just on that retail portfolio ROA standalone RO, which you mentioned is higher in the overall. So how much would be the delta? Which retail portfolio ROE would be having? What the console?
Sachinn Joshi
Rather than talking about the delta on retail, I would like to just talk about what is the money that is stuck. We have 2,200 crores of portfolio on the book, the loan book, the wholesale portfolio and about 4800 crores of SR portfolio. So totally about of 7000 crores. Right? Six And a half. Yeah. 7000 crores is the, is the money which will get released over a period of time. And right now the 4800 does not give me any interest income because they are part of SR 2200 must be giving me around 11 to 12% kind of yields. You can do the calculation there. You know, this money will get released and will get redeployed in a high yielding retail business.
Chintan Shah
Understood. And fair to expect that this will get resolved in three years, timeline at least.
Sachinn Joshi
Yeah, three to four years. So that may be a long tail but yeah, larger resolutions. You know that there has been a moment positive movement which we are seeing. Ultimately it’s with nclt so it’s anyone, anyone’s guess. But yes, next two to three years significant part of the assets will come up for resolution. Yeah.
Sudipta Roy
You know, let me add to what Sachin said, Chintan. You know, in many of the assets, you know, there has been significant progress over the past one year and we are reasonably positive about the trajectory of that. But you know it will take another three to four years. It will take another three to four years because you know, for one of the assets, for example, about to give an example, you know, the JD has just been signed, you know, last quarter. Now once the JD has been signed last quarter, the construction period is at least two two and a half years.
Right. You know, and so it will take about four years for the four to four to four and a half years for the full project to get delivered. So the delivery will come across the next three to four years is what we, what we look at. And so we have a team, we have a reasonably focused team that keeps on working on this and so far the outcome has been positive.
Chintan Shah
Fair enough. That was very helpful. Just one last question on the fee income part. So I think in order to boost fee income, so are we looking at any opportunities to further expand into co lending or are and are we doing any co lending as of now? So what are the thoughts on that here?
Sudipta Roy
See, co lending we do on the personal side, but on a very selective basis with only a couple of partners. Co lending always remains on the plan for us, on the table for us. You know, there can be opportunities in home loans to do co lending. There can be opportunity, personal loans, obviously the opportunity arises in SME, there can be an opportunity to do co lending. You know, on a product like warehouse receipt finance, there can be opportunity to, to do co lending. So the only thing about this is that co lending frameworks are slightly complex to implement as well as it requires a little bit of tech integration as well as monitoring.
So if we find the co lending, see, we are not starved of capital, right. So we will do co lending wherever we get access to newer customer pools. Right. And the partner also wants the once, say in the control of the customer experience process. Right. So there are various considerations that go into co lending or the partner does not have enough capital to deploy to, you know, to do a certain amount of product to its customer base. So there are houses for courses. Yes, we remain open to doing co lending frameworks, but obviously at terms which, you know, we think are favorable to our business philosophy.
Chintan Shah
That’s it. From my head, I’ll come back in the view. Thank you.
Sudipta Roy
Thank you,
Operator
Thank you. We take the next question from the line of Anuj Singla from JP Morgan. Please go ahead.
Anuj Singla
Yeah, so my question is on the ECL refresh. While you have elaborated quite a bit on that, on the stage three PCR cut, is there a change in LGD or PD assumptions there?
Sachinn Joshi
See, the PD lgd, there are two ways, you know, within the industry there are certain players who have PDS which, which keep increasing, which have an increasing trade trend as they move stages. And there are some players who also have the LGD moving, you know, showing an increasing trend. There are other players in the industry who have a moving pd, but the LGD is static, which means that LGD is decided at a portfolio level. And accordingly the overall LGD is applied to every Asset right from. So it’s fixed for all the three stages.
So you know, when we have done this exercise over last two years, we have actually been recalibrating the stage, you know, stage one, two and three PD LGDs this year for the. Based on the impacts of FY26, we have revisited this and accordingly the stage one, if you look at what has actually happened is that the overlays which were kept in stage three, which were over and above whatever was requirement as per ACL model, you know the difference of PCR between 74% and 68% that differential was nothing.
But the management overlays they have got released as part of this whole exercise. And the 96% of the portfolio which is in stage one there, we have actually enhanced the overall PCR plus from 0.52% to 0.80%. So right on day one, as the loan gets sanctioned and disbursed, 80 basis points is set aside in, if you, if you are aware in the RBI prudential norms this used to be a minimum requirement of 40bps. It’s actually double that number. And the LGD across the stages has been fixed. That’s the result.
Why you see that right from day one the stage one carries the 80 basis point. Stage two also there is a small increase which has happened from about 2.23 to 2.47. And stage three there has been a release. So this release of provisions out of stage three does not in any way bring down the provision coverage in terms of what is required for that portfolio. I hope I have, I’m clear on that.
Anuj Singla
So my question is if there is a LGD or PD change for stage one. So let’s say for the incremental portfolio build up in FY27, do you take, will you be providing it 80 basis points incrementally as well or it will be 50. So you have created a buffer between this 30 basis points of incremental buffer. But that’s a one time buffer. Or have you changed the assumptions that every incremental asset buildup will now need to be provided of 80 basis points first? It will be.
Sachinn Joshi
It will be. It will be.
Anuj Singla
Okay, it will be. There’s a permanent change in assumption then. So does that also any. Yeah, yeah.
Sachinn Joshi
Also, you know there, there, there are still certain overlays continuing in stage three. So we have not fully exhausted the, the overlays which are part of stage three. Okay. Number two, number two, if you have seen that last four, four to five quarters the Whole rural business loans business has gone through a crisis. Okay. So just simple arithmetic. If you, if you exclude one good year and you add one difficult year to the overall ECL model, you will find that the PD LGDs will increase. Okay. Now the actual behavior of our portfolio if you see, has only been improving.
We have actually gone back to the pre crisis levels. Our collection efficiencies are back to 99.80% which means the actual requirement as part of the credit cost will come down significantly whereas the ECL model requirements will continue for some time. Yeah, Just As a pure arithmetic. So, so that, that also one of the factor which leads to this increment in a way it actually creates. If, if my, you know asset book is going to be improving with every quarter this will actually create only cushion in the system. And that’s what we ultimately intend to. We used to hold 975 crores of macro prudential provision at one point of time. And in a way by you know, the acceleration of stage one provisions, it only helps us create that cushion at the early stages of life.
So the standard asset, you know, gets a higher coverage by the time some roll forwards happen. We have also shared the role, you know, how the roll forwards have been slowing down and that actually shows very clearly that the overall portfolio across all businesses is only improving and the, you know, the overall requirement for provisions will go down in reality. But when we look at the provisions to be created it is purely dependent on the ECL model. The Cyclops impact, partial impact through the segmentation and all has been already considered as we move into the next financial year you will see the further impacts coming in and which will help us improvise on the overall credit cost.
And that’s why we, we are pretty, you know, bullish on how we will end this financial year FY27. And you know, we’ve taken a aggressive target I would say in terms of bringing down the credit cost to range of 2 to 2.2%.
Anuj Singla
So just to clarify, this does not the change in this quarter does not have impact on the next quarter next year credit cost outlook because mathematically it should. I just want to clarify if the, the stage one you are now factoring at 80 basis points versus 50 basis points till 3Q now we have increased the positioning on stage world build up which will incrementally will be adding in FY27. Does it change in any way the outlook of credit cost for FY27?
Sachinn Joshi
No, no, no. See the reason for that is the actual Actual roll forwards, if they slow down the hit to P&LV is expected, expected to come down significantly. So the, the provisions requirement, you know, based on the book increase will go up but more than compensated by the reduction in the roll forwards.
Anuj Singla
Got it, Got it. Pretty clear. Thank you. Thanks a lot.
Operator
Thank you. We take the next question from the line of Abhijit Tibrawal from Motilalo for Financial Services Ltd. Please go ahead.
Abhijit Tibrewal
Yeah, thank you for taking my question. Good afternoon sir. Just to clarify what you just answered, that we now plan to keep stage one provision cover at 80 basis points. I was under the impression that this quarter, because we have had a release from stage three, rather than taking the benefit of that in the P and L, we chose to be prudent and we parked it in stage one. But if we start providing on stage one at 80 basis points, it essentially means that our PD and NGD assumptions are now telling us to provide on stage one at 80 basis points.
So which is not just ECL model refresh, in other words, sparking whatever release we had from stage three. In stage one, this is our ECL model now telling us that provisions on stage one is required at 80 basis points. Is that understanding correct?
Sachinn Joshi
No. No. So Abhijit, the way it works is that the, if the, if the LG is like I was mentioning earlier, either you have an increasing trend in the lot given default the way you have it for PDs, then you will have a lower provision created for stage one, slightly higher in stage two and then finally higher in, much higher in stage three. The way the model was worked out was stage three actually the ECL model used to give a particular result and the incremental provisions. If you look at our PCRs historically also you would see that our PCR for stage three assets have been always on the higher side.
We have been in that 70 to 75% range. When you know, other peer group you will see that similar businesses, the PCRs have been kept in the range of 50, 55 to for some time and you know, they have now been increased to 60, 65%. So 68 PCR like I was mentioning also includes some parts of the overlay. So we believe 60 to 65% is a reasonable requirement which comes in and which with Cyclops implementation. And you know, we have also shared some early results on that. The expectation is that the ECL models will naturally be recalibrating once again in September and next March.
And we will, we will be revisiting this because see, I don’t Think anyone else in the industry is currently working on the credit cost piece. Through implementation of a tool like Cyclops which has started giving early results we are we will possibly see the full fledged results in FY28 because the full book would have moved into through the Cyclops underwriting. So there are early, you know results which have come in which very clearly showcase. Sudipta earlier explained on one of the question how the two wheeler piece has been working out.
Similar thing we have been noticing on farm as well as personal loan. But the full full effect of it naturally will happen only after the book get the new book gets seasoned and the ECL model refresh we do once in four quarters as we revisit the ECL model next time you will naturally see that there is an improvement in that. And for next four quarters is what you know we will continue with this 80 basis point. If there is a need in September we will see because it’s up to us. If the results are really good and we can recalibrate the models in September end of September we will do that.
Abhijit Tibrewal
I hope I have clarified. Yes, that clarifies so so basically speaking till the time we do our next model refresh which could happen in September or March will continue with stage one at 50 basis points and maybe potentially in September or March. Stage 3 depending on how we see Cyclops benefiting the asset quality, the stage three PCR could further come down to 60, 65 because like you mentioned you’re still carrying some overlays in stage three. There is a possibility that.
Sachinn Joshi
No, no one second the last part if you have noticed over almost two to three years we have been carrying PCRs in the range of 70, 75%. So the recalibration exercise once it has been done it was right now just you know, significant part of stage one provisions moving to stage. Sorry, Stage three provisions moving to stage one. But this whole exercise now is not going to have such significant impact. And if like on one side I am talking about creating additional macro prudential provisions so the intent is not to really bring it down further from here.
We will be in the range in this range only the PCRs will will be kept in the same range.
Abhijit Tibrewal
Got it. That is useful. And then I had one last question for Good afternoon. Just one thing. This Lakshya goals are very very aspirational. It’s very heartening to see that we are at least aspiring to get to credit costs which are less than 2% a change in the product mix have a bigger role to play in bringing down credit cost to below 2%. Because the way we are thinking about it is by the exit quarter FY27 we were thinking of taking down credit costs to 2 to 2.2% which essentially means that this less than 2% credit cost that we are thinking about as part of Lakshya 2031 is not very far away.
It could come in FY28 or by FY28 N. So just trying to understand will it be more a function of the product mix changing or like Sachin sir was mentioning, the full impact of Cyclops will start showing up from FY28 almost. Will that play a major role or will product mix play a bigger role in getting us to less than 2% credit cost? Because the way the mix is today some of these products factors two wheelers PL including msme these are inherently if I look at the industry higher credit cost segments.
So if you could just help us understand this with thank you so much.
Sudipta Roy
Yeah. So see one of the things which is there is that the impact on credit cost would be primarily driven by customer selection through Cyclops. So and as you because the way we have implemented Cyclops is that we have implemented Cyclops in the credit aggressive segments earlier. So you know two wheeler followed by you know, tractor followed by SME. So as you rightly said, these are what I call the aggressive credit products. And so obviously we wanted to implement Cyclops first on this just to make sure that we are very certain about the credit cost trajectory of this business going forward.
And the early indicators we have given the 30 plus numbers out, we see the 90 plus numbers on Osteomus they are very, very encouraging. Which gives us the confidence that if you see a prime throughput on our two wheeler business, prime through put on a two wheeler business. While we are two wheeler business monthly originations have grown from 650 crores to almost thousand crores. My prime contribution has gone up from about 65% to almost 90%. Right. So I’m able to pull at that scale also. So we are reasonably confident about the credit cost trajectory which we primarily Cyclops driven customer selection.
So so in a way you are right. You know some of this might happen. You know the if everything goes well this is a caveat is everything. You know, you know sometimes, you know we hope for the best but sometimes, you know there is a spanner in the works. The Karnataka microfinance industry ordinance issue was nowhere in the blue. You know, nowhere. It came out of the blue right. In the month of February last year. And it was nowhere factored into any of our plans. Right. Which delayed the recovery of the entire microfinance industry by almost six months.
Right. So things remaining normal, which is a tough ask these days. Right. So you know, we are reasonably confident that, you know, even within those, you know, Jigsaw seesaws, etc. In terms of environment, we are reasonably confident of reaching that less than 2% trajectory by FY28 as rightly pointed by you. Now which quarter that might happen is something that I can’t point out. Right. But sometime during FY28 we should be in touching distance of that 2% or below credit cost. After that, you know, it’s a question of maintenance and see how far we can all optimize it even further.
So that is why we have stuck out our neck and said that it should be less than 2%. Right. So that is what it what we have stuck on net. How much less than 2% is a matter of execution and full maturation of our Cyclops portfolio. But a mix of economy, geopolitical factors, etc. Everything thrown in. Right. But we are reasonably confident of getting to that 2% or below trajectory by somewhere in FY28.
Abhijit Tibrewal
Got. Excellent. This is very, very useful. Thank you so much and I wish you all in your
Sudipta Roy
Thanks.
Operator
Thank you. We take the next question from the line of Deep Fakil from Bandhan amc. Please go ahead.
Deep Vakil
Hello, Good afternoon sir. Am I audible?
Sudipta Roy
Good afternoon. Yes,
Deep Vakil
One quick thing. I think the main motto that I could understand is branches. So does this have something.
Operator
I’m sorry to interrupt you there but there seems to be some background noise coming in.
Deep Vakil
Yeah, is it better now? Hello?
Sudipta Roy
No, there seems to be something ring phone ring at the background.
Sachinn Joshi
I think you will have to call back again.
Operator
Thank you. We take the next question from the line of Hardik Shah from mlp. Please go ahead
Unidentified Participant
Thank you for the opportunity. Congratulations Sudipto on good set of numbers. My only question is on the credit cost assumption. So what are we assuming in terms of through the cycle credit cost for two wheeler and personal loans for us to go from 2.6 to less than 2% from a structural standpoint.
Sudipta Roy
See we don’t give business wise credit cost estimates. We don’t give out because you know this is like too dependent on market conditions etc. So what we have given out is a 30 plus number as part of our cyclops 3250 crore book. So you might want to calculate it from there. 30 plus number on three and the 10 month observation window is about 2.8%. So you know there’s an assumption of a 90 plus from there and there’s an assumption of a loss given default from 90. Right. So basis this chart on that 3250 crore portfolio, you know probably at this point in time the caveat this is not a fully mature portfolio yet.
It has to go through 24 months for it to fully mature. You know it has gone through only 10 months by now. Right. At a full scale cost you are probably looking at a, in this portfolio, probably looking in the two wheeler broker, probably looking at a subject. But again there are not mature portfolios. So you know, but you know we obviously there are certain businesses which are lower credit cost businesses like mortgage etc. Gold loans. There are certain businesses with slightly higher credit cost business like you know, MFI as well as two wheeler overall at a balanced level.
We still, we still sign up to that 2 to 2.2% corridor by quarter for FY27 and over the Laksha period sub 2% is what we are signing up on. But having said that, the initial trends on the Cyclops portfolios, especially in SME tractors and two wheeler are very, very encouraging. Which gives us a confidence to stick out our neck and give that commitment.
Unidentified Participant
Got it. And how about personal loans? Given that our incremental share is increasing from the partnership loans,
Sudipta Roy
It’s a comp. See the personal loans industry loss rate especially for players, you know, especially for players who have a large amount of salaried customers in their portfolio will range in the corridor between 2 to 3%. Right. So our objective will be to land in that corridor as well.
Unidentified Participant
Okay, perfect. Thank you. That’s all.
Operator
Thank you. We take the next question from the line of Abhishek Muraka from hsbc. Please go ahead.
Abhishek Murarka
Yeah. Hi Sudipto Sachin and team. Congratulations for the quarter. So can you give a sense of at least your key segments like farm equipment, two wheeler, microfinance consumer. Is the disbursement yield higher than the portfolio yield at this point of time?
Sudipta Roy
Thanks Abhishek Microfinance. All of you guys know that the disbursement yield is more than. Other stuff. See, I’ll tell you other stuff. You know personal loans we continue to have. See we don’t give individual business wise deals but I’ll give you some pointers. Right. Personal loans we are higher than industry salaried average by almost two to two and a half percentage points. Primarily because of the online origination we are able to get a little Bit higher yield. This I maintained earlier and I stand by it.
Two Wheeler, you know, the industry operates between 16 to 18% overall yield levels. So you know, we are still at that levels, you know and we are able to maintain these levels in one dealership with a very large prime, you know, very, very high ticket bikes. You know, it might be slightly lower, you know, one dealership with a slightly lower Lottie advice. It’ll be slightly, slightly SME also. Yeah, sorry,
Abhishek Murarka
Just broadly, would it be higher than your portfolio yield even if it is not? I mean I just wanted to get that range. Even if you don’t give a number, is it higher or lower at this point of time?
Sudipta Roy
Yes, It is trying to
Abhishek Murarka
See where, where your, if, if there is any portfolio where there can be an yield improvement as you build the book. So that is what I’m trying to
Sudipta Roy
Yield improvement, the yield improvement. We are all continuously trying yield improvement in personal loans. We are trying home loans. We got hammered quite a bit last year. Home loans. We got quite hammered last year. Home loans though, you know, we have moved quite a bit to loan against property. So if you look at our sort of mix of home loans to lap, we were about 80, 20, about, you know, 12 to 18 months back. Right. Now we are about 60. We are about 60, 40, maybe 55, 45. Right. 55, 45, 55% home loans, 45% LAP.
So we are trying to push yields up. Right. Microlap is a business where we have reasonably high yield and Microlap, you know, book sizes cross thousand crores as we have disclosed for the first time this time. Right. And we are setting up almost 200 Microlab branches this year. So we need, we focusing on Microlab. And in Microlab our collection efficiency continues to hold at, you know, 99.59% plus. Right. So that portfolio is doing very well even in tractors. Right. We are trying to push our yields upwards.
In two wheeler we have been able to improve our yields slightly upwards over the last quarter. Right. So overall the pushes on improvement of bills across.
Abhishek Murarka
Okay, because I think using Cyclops and all your, you know, customer selection tools, you’re getting into better quality customers even within those portfolios. So then to push up your yields, how do you do that? Is it, I mean, so I’m just trying to connect the dots there.
Sachinn Joshi
So basically the only way you can do that is by changing the mix in the right manner. Right. And that is the reason why Gold Loans was introduced. Gold Loan, we expect. So if we look at how do, how will we fare in terms of our book mix, say by FY31, our micro loans, the whole rural business finance piece will, will be somewhere in the range of about 20%. 15% of the total mix will be for businesses like personal loans, gold loans, which is a very small piece right today. And you will have farm and two wheeler somewhere in the 10 to 12% kind of range.
Then you will have, you know what is left. SME is again going to be about 10 odd percent. So you know the mix itself is going to really do the work and it’s already doing. To your question on whether the disbursement yields are higher. It is, yes, it is higher because of the change in mix which is happening. And as the higher yielding book starts growing proportionately, the overall yields will start moving up. And that’s where you see that our ability to manage the overall NIM plus fee within the 10 to 10.5% corridor is not just a function of lowering of weighted average cost but also managing to stabilize the yields through acceleration of higher yielding businesses.
So we had challenge in four to five quarters when the rural business finance had to be slowed down. But with that coming into play and gold loans getting accelerated, Micro lab will get a big push. Personal loans, you have already seen 98% growth. You saw. So these are all pieces which are naturally higher. Mortgages will grow Perhaps we saw 20% growth growth over there and that was one piece which used to actually we had to do it because it was secured. But the yields over there, you know, especially now in the reducing interest rate cycle, the yields come under pressure that also will, once the interest rate cycle changes, there will be an advantage on mortgages also.
And we are also talking about getting into economical housing. So all in all the, there is always, you know an attempt to ensure that we, we have the right kind of mix for book growth so as to ensure that the overall yields don’t really get come under pressure that we, we have to, we are forced to again look at subprime kind of customers. It’s very clear that we change that trajectory and we will continue to be in the prime space and ensure that the collections cost as well as credit costs don’t go back to the older levels.
Abhishek Murarka
Got it, got it. And just the slippage number that you’ve disclosed, 400 crores for the quarter. How much of it would be MFI right now?
Sachinn Joshi
We don’t, we don’t give a breakup. But I, it has been coming down significantly. I mean you, you can actually look at, we had Jan and Feb 99.7,
Sudipta Roy
99.758
Sachinn Joshi
Is in March. So the corresponding number, I think December was 99.99.6. So the, the roll forwards are the differential of what, about 40, 45.
Abhishek Murarka
Right. So because I was just thinking that at 400 crores for the quarter, the annualized, you know, number works out to approximately 1.6%. Looks like a very good number. And probably with the kind of book mix you have and you know, looking forward with, you know, Cyclops implementation catching up in more, you know, a larger part of the book, would this 1.6 come down or is it like cyclically a very low number, very strong number already?
Sachinn Joshi
Abhishek 1. One thing which you should keep in mind is that there has been also a big trust. There is a project on the collections piece as well and there is being, you know, every chief executive is currently pushing for recoveries of whatever monies were provided for. So we may write off in the books, it’s a technical write off, but every chief executive is painstakingly trying to get the every rupee back. So the collections of the older receivables are also part and parcel of the final roll forward.
Right. Because they get netted off against the monies that we have to finally provide for. So, so there is, you know, there are targets taken by every business and you know, we are, we have been very successful in terms of doing the collections as well.
Sudipta Roy
Yeah. Having said that, yes, the trajectory is very encouraging for us. And let’s see how FY27 pans up. We remain. See, the customer selection for the last 24 months has been of an order of magnitude better quality. Right.
Abhishek Murarka
And that is
Sudipta Roy
What is flowing in terms of the credit numbers. And the fact is that we are not even diluting the customer quality that we have been acquiring over the last 24 months, even a wee bit. In fact, we are trying to see if there is an optimal opportunity to optimize that even further. Right. While doing volumes. Right. So and the tools that we have, Nostradamus for example, now on two wheeler, helps us to pinpoint one dealership in a district which is going bad. It is so precise.
Abhishek Murarka
Right. And
Sudipta Roy
So it helps us to attack it much faster and address it much faster before it, it even beyond becomes a problem. So in a way things are moving in the right direction. The geopolitical headwinds is a flying environment. So, you know, we are being cautious. Let’s see where it takes us in FY27.
Abhishek Murarka
Sure, sure. Thanks for answering my question. Sudipta. And Sachin. Thank you. And all the best.
Sudipta Roy
Thank you.
Operator
Thank you. We take the next question from the line of Suraj Das from Sundalam Mutual Fund. Please go ahead.
Suraj Das
Am I audible?
Sudipta Roy
Yeah. Yes, you’re audible.
Suraj Das
Yeah. Hi. Hi, sir. Thanks. Most of my questions have already been addressed but a couple of follow ups. You mentioned that your LGD assumption consistent across all stages. Did I hear that correctly?
Sachinn Joshi
Yeah, that’s right. Yes, that’s
Sudipta Roy
Right. Okay,
Suraj Das
Sure. Can you share the LGD assumption for stage and the number? No, no,
Sachinn Joshi
No. We can’t. We don’t share all those details. The
Sudipta Roy
Cell models are proprietary to every organization. So we just can’t diverge those details.
Suraj Das
Sure. So just, you know, directionally if I look at your stage two and stage three PCR over the last two, three years, that number is coming down very significantly. I think stage three PCR has come down to 67, 68. And you are saying that you also have some additional buffer there over and above what is required. So does it mean that your LGD number is also coming down because of maybe Project Cyclops and so and so forth, whatever you are doing, but your LGD number is also coming down. So you, you are recovering much higher now versus what you used to recover two, three years back.
Would that be a fair assumption? Because that’s how the ECL model will work. Right.
Sachinn Joshi
So Suraj, I. I think what you should do is you should also look at making peer group comparison as to what is the actual loss given default business by business that is required. Which will itself enable you in concluding that the PCR that we have been holding for so long have always been higher. In fact, when we kept it at those 70, 75% levels. There have been conversations which I have personally had where people used to question that are we expecting some challenges because of which we are keeping the PCR very high.
And my response to that used to be that we always have been conservative. We would set aside in bad times so that whenever there are any. In good times, so that whenever there are any challenges in bad times, it comes in handy. And you know, the microfinance crisis is a very good example of how setting aside, you know, the provisions, macro potential provisions helped us in difficult times. Same thing has, same thing comes in as far as the stage three provisions are concerned, which is the PCR which everyone usually looks at.
So across the industry, the actual, the, the money which is required as per the ETL model is in that range of about 60 to 65% and hence the incremental is nothing but the overlay. But as we move forward these, all these assumptions also keep changing depending on the quality of book that you’re building. Right. So, so our expectation is that the Cyclops underwritten portfolio will actually only keep improving the portfolio quality and hence the stage three percentages have to come down and once the roll forward slow down, even the stage one, stage two requirements will come down.
There are, if you look at, there are players in the market who have a very secured book and who are very comfortable with their 40% PCR. So it all depends on the kind of mix and how you have created a track record for yourself. We are right now in the process of creating that track record and hence the, plus the change in the assumptions. So we are at a juncture where there are certain segments of portfolio we have which have already moved to Cyclops and created through that underwriting. There are older portfolio portfolios and then there is a portfolio which has recently come out of a crisis.
So it’s a, because it’s a mix of all these, this is just the result that you’re looking at simultaneously. We have been focusing on collections like I mentioned earlier. So ultimately ECL model, you’re right, it’s a function of what you lend and how much you know, you end up spending to recover it, which comes in the form of collection cost. And if the roll forward slow down, the collection cost goes down and even the credit cost improves. So directionally. That’s why we believe that if you just look, compare last four to five quarters, you will see that the credit cost has started coming down directionally and this quarter again about 10 basis points lower compared to the previous quarter.
And we believe that we have a journey to, to complete. We are at 2.64. We have to go to a range of 2 to 2.2 by end of FY27. And I, I think we are fairly comfortable at this point of time based on the book that we have and the, the, you know, what do you say, the slippages that we are actually being able to factor in for the next four to six quarter.
Suraj Das
Sure. Thank you. Yeah, that’s from my side. Thank you.
Operator
Thank you. Ladies and gentlemen. We take that as the last question and conclude the question and answer session. I now have the conference over to Mr. Sudipta Roy for his closing comments.
Sudipta Roy
Thank you. I thank all of you for patient hearing and participating in our quarterly results call. I trust we have been able to address all your queries. As always, please do reach out to our investorization teams. In case any of your questions has been left unanswered, we’ll be happy to discuss the same with you. Thank you again and wish all of you a good financial year. FY27,
Operator
Thank you. On behalf of L&T Finance Limited that concludes this conference call. Thank you for joining us. And you may now disconnect your lines.
Sudipta Roy
Thank you.