Muthoot Capital Services Limited (NSE: MUTHOOTCAP) Q3 2025 Earnings Call dated Feb. 05, 2025
Corporate Participants:
Ramandeep Singh — Chief Financial Officer
Mathews Markose — Chief Executive Officer
Analysts:
Shweta Daptardar — Analyst
Devarshi Raj — Analyst
Tejas Khandelwal — Analyst
Nemin Doshi — Analyst
Unidentified Participant
Kshitij Verma — Analyst
Aditya Lathe — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Q3 FY ’25 Earnings Conference Call of Muthoot Capital hosted by Elara Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Daptardar from Elara Securities. Thank you, and over to you, ma’am.
Shweta Daptardar — Analyst
Thank you, Alare. Good morning, everyone. On behalf of Elara Securities, we welcome you all to Q3 FY ’25 earnings conference call of Capital Services. From the esteemed management we have with us today Mr Matthews, CEO; Mr Gil, CFO. We express our gratitude towards the management of Capital to provide us the opportunity to host this conference call. Without further ado, I now hand over the call to Mr Ramandeep Gil, CFO, for his opening remarks, post which we can open the floor for Q&A. Thank you, and over to you, sir.
Ramandeep Singh — Chief Financial Officer
Thank you, everybody. Just confirm whether am I audible?
Operator
Yes, sir. Please go ahead.
Ramandeep Singh — Chief Financial Officer
Thank you, everybody. Very good morning to all of you. I’ll just provide you the glimpse of our — of our Q3 numbers. And after that, we’ll be having a Q&A session. So talking about the business of the company, we had an ever highest quarter wherein we have sourced INR846 crore of business. With this, we have taken our AUM to INR2,833 crores, which marks a year-on-year jump of 46 percentage the company you know the company has taken a total balance sheet size to INR3,282 crores with borrowing outstanding of INR2,566 crores. In this process, we have acquired over 1 lakh customers in 1/4, which has took our customer-base to more than 5 lakhs for the first time. The PBT of the company stood at INR17.29 crores are taking our shareholder funds to INR652.12 crores. Talking about the GNP of the company, wherein Q2 ended — in Q2 end, we have taken a very conscious call of selling out one more pre-COVID, you know NPA pool or a bad pool to ARC. Therein also we — even after that the GNP of the company is standing as we speak at 4.73 percentage, the NNP of the company standing at 2.22 percentage. So just to give you a brief on that in NNP as well, wherein we have also specified in the notes as well, wherein then we have done the first ARC of the company with Phoenix ARC, wherein a major pool of the company has been sold to ARC, which was a pre-COVID pool, bad pool. After that, we have revised our PCR norms, making it at 75 percentage. And then after immediately selling the second pool to the ARCs, wherein we have again further revised those or revised those norms, still we are one of the highest PCR providers in the company — sorry, in the segment and therefore our TCR as we speak is now 60 percentage. Then talking about the AUM growth of the company, last year at the same time, the company was at INR1,940.30 crores. Now the company — now the company is operating at INR2,832 crores of AUM. As I said, year-on-year, it was a 46% jump. Quarter-on-quarter, it was 18.5% jump from Q2 to Q3. Talking about the products of the company, the company-operated with two-wheeler with corporate loans, four-wheeler, three-wheeler, loyalty loan and CVs. So in this — in this quarter or the — as we talk about the portfolio with year-on-year portfolio, two-wheeler, we have recorded a jump of 49 percentage corporate loan since we are not doing. So it has shown a degrowth. Four-wheeler has been gone up by four-wheeler and PL that has gone up by more than 300 percentage, loyalty loan and PL. Three-wheeler has gone up by 100 percentage. So as the CV, which we have started at the start of this financial year, it has again shown a remarkable growth quarter-on-quarter it grew up by 272 percentage. Talking about the business, same year-on-year Q3, we did INR478 crores. In-quarter two, we did INR643 crores. This quarter we closed, as I said, INR845.70 crores. Now talking about the total business on this year for the first-nine months, the company have been able to do a business of INR1,987.11 crores, which is again one of the ever highest. We already spoke on the GNPA, wherein I told about the GNPA percentage has been 10.69 percentage has now from the last — in Q3 of the last financial year has gone down to 4.73 percentage. Last quarter, it was 4.80 percentage. Talking about the NNP, as I said, because of the change in the estimate and since the entire bat pool has been sold-out, still we kept VCR on the higher side at 60 percentage. Talking about now this year-on — quarter-on-quarter growth we have seen in each and every parameter. Now we as a company, we operated at an average LTV of 84.6 percentage and the company is having an own funds of INR62.10 crores. The profit-after-tax, we are reporting at 12.7 cr. We can see quarter three of last financial year, year-on-year, it was 10.2 that has moved up — moved up to INR11.1 crore in-quarter four of last financial year. In-quarter one of this financial year, the profit-after-tax was INR11.4 crore. In-quarter two, it moved up — moved up to INR16.3 crores that also contained one of one of you know the profit on the reversals because of ARC that we did. And then in-quarter two in-quarter three, it is standing at INR12.7 crores. So the company has for this quarter-ending, the company is having an ROA of 2 percentage with ROE of 8 percentage and EPS is standing at INR7.6 rupees. We also did some analysis on our cost and yield, wherein we have seen continuous improvement in the last four quarters on the yield front of the company as we speak about the retail loans of the company. Corporate loan remains flat as I said at the start of the call, we are not doing much. Investor yield, we have been able to increase and borrowing cost of the company is again hovering at a range of 9.90% to 9.95 percentage, which we are assuming that it will — it will be hovering at the — in the same range till our Q4 results will be out. So talking about the — the own channel business vis-a-vis the co-lending business. So in this quarter, right from the October itself, October, November and for the — for the last three months, the company have been able to increase its dealer business as compared to the quarter three year-on-year by 227 percentage. The business which have been sourced by the group — group companies that has been increased to — increased by 203 percentage. And we have seen a dip in the co-lending, which has been dropped down by 8 percentage. Okay. So incrementally, 75 percentage of the business came from NCSL, channels and then remaining through partners we have. Talking about the portfolio analysis, which we’ve done, 95.27 percentage of the portfolio is remaining as a standard portfolio of the company, 4.73 percentage is our substandard portfolio, which comes under Stage 3. Further, dividing this into the portfolio of a standard portfolio of the company. The zero bucket portfolio stood at 85.22 percentage. The first bucket portfolio stood at 7.14 percentage, second bucket standing at 2.44 percentage, then above 3 and 3 and above, it is standing at 4.73 percentage. As we said, we do have a — we do have partnerships in terms of co-lending and DC models. DC model we are doing with our group companies, Mutu and Mutuf Automotives with partnerships, we do have co-lending partnership with organizations called Wheel VMI, Manba, DWC, specifically for our green funding and during the last quarter. So we divided our ECL and we have also seen that what sort of even after revising our ECL, and not revising our ECL, the change in the estimate, what is the — even after revising the PCR of the company, what is the total provision which the company is having? As per the IRAC requirement from the RBI norm, company was required to keep a provision on Stage 1, 2 and 3 amounting to INR55.30 cr. Whereas in terms of ECL per provision and considering 60 percentage effect, two company was having a provision of INR97 crores. Thereby we are keeping an excess provision still of INR41.45 crores. The requirement for IREC norms was a 2 percentage, whereas we are providing our — as per ECL, we are providing it 3.5 percentage. Talking about how the company has done in terms of ARC sale, which we did when we did the first ARC sale, that gave us the confidence to do the second one. Therein, we recorded a security balance of INR10 crore 2.22 crores. Those security receipt balance only through hardcore cash recovery in 15 months of time, INR102.22 crore has came down to INR41.09 cr. It’s a good — great achievement for all of us. Talking about the ARC wherein we did at the end of September, at the end of Q2, which also become a reason for my change in the PCR. So therein also, we have seen a remarkable growth in the remarkable improvement in the first three months itself. We recorded an SR of INR41.73 crores at the start of the ARC security receipt, ARC2, now that balance is INR36.75 crores. So therein also we have — the company has been able to recover more than INR6.5 crore only in the three months itself. Talking about the fundings of the company, the company has been able to borrow INR838 crores from the market in the — in Q3. Out of that, INR590 crores remains as my long-term funding and remaining has come as a short-term funding. When I talk — when we talk about short-term funding, it’s a mixture of working capital demand loan and also there are CPs which we are raising. We have also analyzed that where-is the — where-is the total funding of the company. So total borrowing of the company as of now, we are at INR2,576.59 crs. Majority contributor contribution has came from two things, one from bank at approximately INR1,050 crores, then there comes the NCD, which is again approximately at INR1,000 crore. Then there came the — there comes the contribution from commercial papers from PETs, from FIs and others. The company has been successfully able to roll all working capital demand loan from PSU in last quarter, which amounts to INR475 crores. We have also done one analysis on the change in the MCLR rate. So we have taken State Bank of India rate as an average NCLR rate. We can see that approximately 0.35 percentage of average NCR rate has been increased in the first-nine months, whereas borrowing cost of the company against that has been increased by 0.14 percentage. Talking about the fixed deposit of the company, the balance outstanding is as of INR40 crores, wherein the majority of the balance is coming from two to three years and more than five years. From that point, we are having a good liquidity, you know wherein we track our liquidity through our LCRs. In this quarter, since RBI norms have been changed from 85 percentage to 100 percentage, the company was successful in carrying that liquidity at 116 percentage of LCR. So that’s it from a brief snapshot of the company for Q3 and as of Q3 as well. Over to you, Matthew, sir.
Mathews Markose — Chief Executive Officer
Am I audible?
Operator
Yes, sir. Please go ahead.
Mathews Markose — Chief Executive Officer
Yeah. Good morning, everyone. Let me start by wishing all of you a very, very happy and prosperous 2025. Since Raman has already extensively covered all the numbers, I don’t want to repeat those numbers, but I would just give some of the achievements that we’ve done over the last quarter and some of the, you know, very important changes that have happened in our organization of on the positive side. So first of all, we had a — we had the fresh blood of the young next fourth-generation Mutu coming in our Board of Directors. So Tina Mut has joined as our Executive Director and Susan and Ritu have also joined as non-Executive Directors. So the company has brought in fresh blood into the company. Two, we have, you know, got the much-awaited corporate agency license from IRBA. So that is going to be a really big thing for us because all the insurance premiums which we were already doing till now because of the security of our customers, we were almost doing about 95% to 97 percentage coverage on the credit life insurance side, but we were not able to realize the income on that because we were not a corporate agency. Now that will be an additional income line for us. We have — we are proud to say that on all the forecast that we had given to investors on our — all our previous calls in terms of numbers, we have overachieved all those numbers. In fact, we had given a guidance of about INR3,000 crore of AUM to exit March ’25, we are already on INR2,833 odd. So we should hopefully by the have got exit at around INR3,200 crores. So that’s a huge positive. On the technology side, again, we have made investments. So we have changed our LOS for used-car and commercial vehicles. So that is, you know, has gone live, which is a big thing because now these two businesses are anyway picking-up and this will add rings to the momentum. And these two businesses are going to be really big for us in the coming year for two on two counts, one, larger ticket size, two lower credit cost; and three, lower tenor of loans, which means that the AUM will build faster than a two-wheeler loan. The runoff will be smaller. Then again on the technology side, we have, you know, launched the risk-based pricing in you know with has built the scorecard for us and that we have launched wherein now we will be able to price the customers in different risk buckets, low, medium and risk — high-risk customers separately. Till now, we were pricing all the customers based on scheme. So any customer taking a particular scheme irrespective of the risk profile would have got the same pricing, but now we will be able to differentiate it and we will be able to give a better pricing and better — yeah, better pricing to the low-risk customers whereas we will be able to price the high-risk customers appropriately. So all these at investments we have made on the technology — technology side, we have introduced a new CRM and lead management solution from Lead Squared that has gone live in the last quarter. Now all our leads that we had tied-up with the marketplaces are now passed on to the frontline through the lead square platform. Earlier, it used to be passed on through Excel, which was very inefficient way of tracking it. Now we are able to track end-to-end the lead. So all our customer service is happening through the platform, which is a CRM solution where customers can — or every complaint has a tat built into the system. And if the TAT is breached, then it automatically escalates to the next level coming up to my level if there is a need. So all those are really good for the customer. And so all these things we’ve done over the last quarter, of course, the work was in-progress, but we were able to successfully launch, you know this. Looking-forward, I think Q3 is also has started well. January was good compared to-market standards. Yeah, we also did a did a benchmarking of MCSL against other lenders in this business through the credit bureau. And on all the vectors, we are happy to say that on all vectors, we are you know we’ve done better than the players in the same line-of-business. But I think overall, the company has been doing well and we are extremely proud to present this result in front of you. Thank you.
Questions and Answers:
Operator
Thank you, sir. [Operator Instructions] The first question comes from the line of Devarshi Raj from Elara Capital. Please go ahead.
Devarshi Raj
Hello. Hi, am I audible?
Operator
Yes, please go ahead.
Devarshi Raj
Yeah. Congratulations on a good set of numbers. I just had two questions. The first one is on the two-wheeler sector and how the rural outlook is panning out in light of the budget and as well as how it will pan-out in the next two years? And the second question is on the margin outlook, like what do you expect in terms of after the rate cut happens? Thank you.
Mathews Markose
Thank you for the question. So this is something this data which we just took last week from the credit bureau. So actually over 50% or close to 50%, 49.67 percentage of the overall originations across quarters have happened from the below 100 cities. So we have segregated cities into top eight, then 9 to 51 and then 51 to 100 and above 100. Okay. So 50% of the originations across quarters. So it was about 46% about a year back and it has come up to 49 points something. So 50% originations are happening from the BP 100, which is below 100 cities. So that is where the market is growing and I think that is where the market will continue to grow. This year, fortunately, we had good monsoon, so rural demand is also picking-up. And we continue to — we will continue to see rural demand and this product is also largely the focus area where we operate in. We operate mainly in the commuter segment and not on the high-end bikes. Commuter segment is — is and has been growing in the rural belt and it will continue to grow. That’s on the number side. And second question that you asked there on the margins. So as of now, a rate cut, nothing has come in. But even if it comes in, I think it will be beneficially beneficial for us because it may impact immediately the MCLRs and therefore, the benefit will accrue to us. We are currently operating at a finance cost of about 9.75%, 9.8 that should come down progressively, because I also read articles about maybe the rate cut going up to 0.75 over a period of time. So whatever, whenever it happens and if it happens, it will benefit us. For us on the lending side, since we have implemented risk-based pricing, that is also beneficial for us because we will be able to price good customers lower and a high — slightly higher-risk customers appropriately. So I don’t think it is going to impact us on the yield side, but of course, it will impact us on the overall NII because our cost of borrowings should go down.
Devarshi Raj
Thank you so much, sir.
Operator
Thank you. The next question is from the line of Tejas Khandelwal from Prudent Equity. Please go ahead.
Tejas Khandelwal
Hello, am I audible?
Operator
Yes, just be a little louder Tejas. Thanks.
Tejas Khandelwal
Okay. So, sir, the other expenses have increased to INR20 crores this quarter from INR16 crores. So could you explain the key reasons behind this rise and what kind of other expense do you expect in next quarter and let’s say in FY ’26?
Ramandeep Singh
Okay. So I’ll take. Hi, sir. Very good morning. So in terms of my other expenses, see, there are two, three things wherein, as said by Sara as well. We have heavily invested in the software. So there are multiple AMCs which have come and we have taken that hit in the Q3, Q3 as well, Q3 only, wherein we have taken approximately INR2 crore of hit in our software usage fees itself. It’s more of a cloud services which we have taken. Then there — then in all other parameters, we can see that other than that, our expenses have gone down itself. There are some branches and some things which we have opened. So there we can see some of around INR15 lakh 16 lakh over there. And other than that, there are expenses led to. So INR1 crore of expenses, I will say that has been divided between our cost of acquiring new office for my — for the pending advertisements, which we have booked, I mean we don’t want to take it to Q4. So we have taken that it. Otherwise, if we talk about Q4, the 5 percentage here and there from Q2, that would be my other expenses as of now.
Tejas Khandelwal
Okay. So what kind of run-rate do you expect in other expenses in next quarter and in FY ’26?
Ramandeep Singh
Yeah. So as I said, we have — if we have to talk about and compare about the Q2, Q2, we do have been other expenses of close to INR16.50 crores. We are expecting 5%, 10 percentage jump only on that, wherein we have to book some sort of expenses in Q4 being it’s the last quarter of the year. So we are expecting to close it somewhere around INR18 crores, INR8.2 crores.
Tejas Khandelwal
Okay. Okay, sir. Got it. And sir, my second question is on NPA. So what portion of your total NPA is from pre-COVID period right now?
Ramandeep Singh
So yeah, I’ll tell you. So as I said, majority of the portion has already been splitted between two ARCs. Right now right now, there is a very small portion which is which is there from the pre-COVID, which comes around INR15 crores INR15 crore INR60 odd crores, which is still there in the books.
Tejas Khandelwal
Okay. So do you expect — do you expect to sell this INR15 crores INR16 crores to AS going forward?
Ramandeep Singh
Yeah. We wanted to, but the pool that earlier also that has become part of my previous pool, which wherein I did ARC 2 transaction. ARC II transaction, which wherein we can appreciate with the fact that after INR100 crore, we have to do a switch challenge on the ARC and all. Therefore intentionally we kept it — we kept it below INR100 crores while doing the ARC 2. That was a very conscious call. Now I don’t think so there is any need for doing another ARC at least for another, I’ll say 12 to 15 months from now onwards because what will happen in that 12 to 15 months, that will make as a third seasoning post-COVID period. Post-COVID, about my two — if we have to talk about the two-wheeler, wherein my seasoning generally do — generally happens with in two years of time, whereas I’ll get to know the quality of the portfolio somewhere in-between 15 to eight, 18 months of the time. So with that, after, after 15 16 months, it would be a third seasoning which is going to happen. Then we will see if we have to take any call on the ARC, including this pool. See, what’s one more thing which wherein you will appreciate us that doing ARC is not because we wanted to — we don’t know that whether this pool will be behaving what we can — we have also evident — we have also provided you the evidence that we have been able to bring down our security receipt. That security receipt has been brought down only through the hard cash recoveries. It’s just that preponing the NPA because end-of-the day, we have to make our finance costs also down. So for that, we have to approach all the bankers and the PSUs as well. And the post criteria was that your GNPA should be below 6 percentage.
Tejas Khandelwal
Okay, okay, sir. Understood. That’s all from my side. Thank you.
Operator
Thank you. The next question is from the line of Nemin Doshi from Geojit PMS. Please go ahead.
Nemin Doshi
I have few questions. Firstly, as you said that 50% of the overall origination has happened from below 100 cities. So just to get more sense here, where are we in terms of the market-share with dealers, especially in the mature market and what percentage of market-share do we aspire to reach over a medium-term? The first is just because will our first area of focus be to capture the incremental market-share from the existing market or the newer locations sharing out in?
Mathews Markose
Okay. So let me divide that question into two-parts. So one is that I will talk about market-share in the locations that we operate in because we don’t operate in — operate across the country. So we are present in roughly about 34% to 36% of the overall vehicle sales, right? So in that location where we are operational, we are at a market-share of about 7% to 7.5% now. But on the overall pan-India scenario, we are at a market-share of 2.6%. So — but then that excludes about 60% 64% where we are not at all present. So that’s on the market-share. As of now, we are introduced — getting into a few markets, new markets like we are expanding in Assam because we were only present in and the near abouts, but now we are expanding slightly more into SM because our portfolio has behaved extremely well there in all parameters, whether it is RC pendency or on delinquency, everything the portfolio has behaved excellently. And we are also expanding into Bihar, which is a new market for us. We were — we were not present in Bihar. So that’s a market that we are entering into because that’s a big market for two-wheeler. So that is on the listing side. All other locations, we will be going deeper in our existing locations wherever we are present. So in the location, we may be operating in three or four dealerships, but there could be about 10, 12 dealerships, we’ll get into all of them. So going deeper in existing geographies and selectively spreading our wings into newer geography, that is one plan. Two, we will shortly be launching our used two-wheeler product also because that will help us on two counts. One is on the building a better yield portfolio because they’re typically the yields tend to tend to be about 400, 500 bps higher than the new two-wheeler business. And two, we will also be able to give an end-to-end solution today wherever we have to repossess, we repossess and sell it online, et cetera and there are vendors who quote online and take it. When we launch this product, we will be able to place them in the dealerships who we have tie-up with and we will be able to sell it off at a better pricing, maybe closer to the cost outstanding than what we are currently selling. So from — and that — but that business will also be present only in the markets that we are present, we will not be venturing into new markets to do that. So this is a new line-of-business that we are getting into?
Nemin Doshi
Thanks. Okay, okay. And secondly, just related to this, how is the competition intensity panning out given the fact that banks have cost of funds advantage and they would be — they are looking to aggressively look into this two-wheeler segment. Are you facing any competitive — high competitive pressures from banks?
Mathews Markose
So interestingly, we have data, which we took from CICs, which is credit information center. So interestingly, the share of both private sector banks and private sector banks have come down in the vehicle loan segment and that share has been captured by NBFCs. So NBFCs have outperformed the private banks and PSU banks in the vehicle loan space. In fact, in most of the retail lending products, NBFCs are now doing better, but especially in-vehicle loan space, NBFCs have an edge. So competition whatsoever will be more from the NBFCs itself. I’m not saying there is no competition, but the competition is intense, but it is there from NBFCs, not because of the banks entering that. And two on two-wheeler business, nobody — because the opex is relatively higher, nobody indiscriminately cuts their pricing. So maybe they may be about 100 200 bps lower, but overall it’s range-bound. They don’t go indiscriminate.
Nemin Doshi
Got this. This is helpful. And second and next thing on like you mentioned that there is competitive intensity excess, and how are we positioned better compared to peers in terms of underwriting or sourcing.
Ramandeep Singh
So this — so this year origination, we have some interesting data we took it from. So we had you know we did a benchmarking of us with private banks and other NBFCs. This is a cohort, so I’m not in the liberty to disclose the names of the cohort, but we had put up some larger this thing and we’ve indexed that number. So suppose in Q1 of ’23, the number — you know, originations were 100, that 100 for private sector banks has gone up to 108, whereas it has gone up to 120 for other NBFCs, the cohort. But for MCSL, it has gone up to 174. So we have been clearly an outlier. So — and even in terms of the AUM growth, MCSL has grown by about 46% on the AUM. The NBFC cohorts have gone — grown their book at 18%, while LPS private sector has grown their book only by 10%. So there also we have been an outlier, but of course, you have to appreciate the fact that our book size was smaller, so it was achievable. However, on hard fax, we’ve outperformed.
Nemin Doshi
Okay, perfect. This is helpful. And lastly, if I may in terms of your PCR coverage, it has reduced to 60%. So are we seeing that the incremental asset quality is holding up? Is that true in — especially in the two-wheeler segment? And how are we scaling up the other than two-wheeler segment in terms of disbursements because it’s still less than approximately 5% of our AUM. You were there.
Mathews Markose
Yeah. Yeah. So the revision of BCR is a reflection of our better-quality portfolio. Raman, would you want to give more details on that, please?
Ramandeep Singh
Yeah, yeah. So I’ll just tell you first on the other portfolios that we are building, right? So we have started CV in this financial year itself. So therefore, we are not seeing any stress for used-car, we are doing it from last two, 2.5 years only. And therein, we have a stress of only 0.86 percentage, right? So then there comes now the two-wheeler, two-wheeler wherein we have seen — we have analyzed our — that as I told at the start of the call itself, we have analyzed that where we are in terms of various stages in terms of my portfolio quality. Therefore, we have founded at zero bucket 85.22 percentage is there. In one bucket, 7.14 percentage is there, right? And this zero bucket, one bucket, two bucket is coming from the post-COVID portfolio itself, right? And then even if you see the industry or you compare with the peers, right, all the industries specifically who are working in — who are operating in two-wheeler segment. They are hovering around with a GNP of 5% to 6 percentage, right? But within the kind of control we have seen and basis on yes, yes, 2.5 — 2.5 year back, 3.5 years back, we have seen the slippages had happened for a COVID pool. So on that, when we have taken the call, on the new pool, we can see that there are no slippages as such, which we are seeing and which could be alarming for the company. When basis on that, we took a call. Still after taking this call, we still had — we are still at — we’re still having — operating at 60 percentage of PCR, right, wherein if even if you compare with the peers or industry, industry operates at 45 percentage somewhere around that. Last thing in order to summarize the entire thing, we are still carrying in excess of INR42 crores as a provision in the books, which we’ll continue to carry because we will — we will assess that the portfolio which we have created over the last one year or so, that will get seasoned in next six months. So that also we have to look. So considering everything, the third seasoning of the portfolio will happen, then only we’ll be able to absolutely note the okay where we have to actually operate in terms of PCR of the company, whether it should be 40, it should be 45 or it should be equivalent to the IRAC norm sometimes. So therein now keeping a very conscious approach, we are still keeping at 60 percentage.
Nemin Doshi
Okay. Perfect, perfect. Got it. Thanks. Thank you and all the best.
Operator
Yeah. Thank you. The next question is from the line of Sauresh Pal from CRSP Capital Limited. Please go ahead.
Unidentified Participant
Thanks for the opportunity, sir. My question is — first question is, sir, if we see the presentation, I can see that the gross NPA from quarter one — sorry, quarter two of this financial year to this quarter three of this financial year increased from…
Operator
Sorry to interrupt, Sauresh, you’re breaking up. Can you please come to a region where the cellular network is good.
Unidentified Participant
Yeah, yeah. Am I audible now? Am I audible person now, sir?
Mathews Markose
Better, sir, better.
Unidentified Participant
Thank you, sir. Thank you. Yeah, my question is, if I see from previous quarter, that is quarter two of this financial year versus quarter three of this financial year, I can see that our gross NPA has increased from 100 cr to 120 CR. So does it imply that we are seeing any stress in the asset quality? That’s my question, the first question.
Ramandeep Singh
Okay. Sir, may I answer this?
Mathews Markose
Yes, go ahead.
Ramandeep Singh
So sir, as I said at the start of the call, we did a disbursement of close to INR2,000 in first-nine months, right, that is one. And even if you see in this quarter, we did the year business of INR845 crores. The total slippages, if we talk about the GNP of the company excluding the pre-COVID pool, it is hovering around at INR100 crores itself, right? So the slippage as a percentage of the business which we have done and as a percentage of the AUM, it is in check as of now. And as I said to my previous question as well, we are keeping a check that we are keeping a check considering our industry peers as well that where the GNPA is going up. Enormous slippages, which is — which happens in our portfolio that we are — we are totally assessing the same. And if you have to take all on that, which I don’t think so as of now because we are analyzing these slippages each and every month. So there is no — no requirement of taking the call, the slippage which has been moved from bucket 2, 2 and 3 and three and above is basically a normal slippage which happens in every two-wheeler business. So that comes to around 3 to 4 percentage.
Unidentified Participant
Okay, sir. And sir, as we are seeing press will as microfinance sector is getting hit. So is there any village effect we are seeing in our loan book?
Mathews Markose
No, nothing whatsoever. Nothing whatsoever because microfinance see our customer segment is separate. So we — the microfinance borrowers are ladies in our portfolio, about only 15% to 16% are lady customers, 85% are men and we have not seen any slippage perscalation of that stress coming to the vehicle loan portfolio.
Ramandeep Singh
Yeah. And one more I have to answer. Yeah, to answer on this, I have also shared one slide wherein we can see that MFI stress has came in the month of June. Post that we can see that each and every parameter of our efficiency — efficiency in each bucket have been increased only, right? So this stress has not came, as our CEO has said, we are only having 15% 16 percentage of the portfolio wherein the customer is having MFI loan and a two-wheeler as well.
Unidentified Participant
Okay, sir, my last question is in the presentation, I can see that our opex operating expenses has increased from 41 in-quarter two to 45 CR in-quarter three. So is there any specific reason?
Ramandeep Singh
So as I said, as I said on the — on the first question, which has come. So there are two, three reasons for that. Since we have heavily invested on the — on the softwares of the company wherein we do have a separate LOS for our two-wheeler, separate LOS for our used-car and for CCV. All that has come in the last 18 months or so. And CVs and used-car has come in this financial year itself. So yes, because of that, we can see a spike of INR2 crores INR2.5 crores of spike that we have seen in my software expenses, which is — which is — which is the hit that we have taken in the Q3. Other than that, there was a normal opex rise which we have seen considering the kind of business which we have done in this financial year.
Unidentified Participant
And sir, in the last quarter, you have given guidance that we’ll see rise in our ROA and ROE. So when do you see that happening?
Ramandeep Singh
Yeah, yeah, yeah, very, very well, sir, and thank you for asking this — asking this question. Sir, again, I would want to stick on that, that we want to keep an ROA of 2.5% to 3 percentage at all times, right? Yes, even if you see in the slides, which I have shown, the yield of the company is only increasing. We need to work on certain areas which wherein we have identified and we can see that in our Jan portfolio itself, we can — we are also seeing that what sort of things which we have to do in order to improve. So a proper check mechanism is there in the company that we can see that one more thing, sir, you can also see our Q3 results. Our top-line for the first time has been increased by INR17 crores, right? And since we did the business in Q3, the interest impact and income impact will come from Q4 onwards. So therein, considering that we can see that and I want to stick with that promise that, yes, we will be operating at an ROI of somewhere between 2.5% to 3 percentage. Yes, if you do any sort of DAs, which would be over and above that, so that will make to 3% to 3.25 percentage.
Unidentified Participant
And sir, that will translate to what type of ROE return on return-on-equity?
Ramandeep Singh
Yeah. Considering debt-to-equity of the company at 4 times and we will be somewhere around 4.5 times. So we can say that 4.5 multiplied by 3, which comes from 14-odd percentage as an ROE.
Unidentified Participant
And so that can be seen in next quarter since we have grown our loan book in-quarter three, half of the impact will be seen in-quarter four.
Ramandeep Singh
Yeah, yeah. Sir, in this test scenarios wherein the industry is operating, we just wanted to be very cautious specifically with the NPA side of the company, right? We don’t want to have another or another shocker for all our investors. Therefore, we are keeping check. Even if for doing all those checks, if we have to implement some software to traditionally, we will do that because at the end-of-the day, after six months or eight months, if you have to ask me, we want to have a stable chip who can give continuous returns to our to our investors. We just don’t want to go that aggressive and we don’t want to miss the seat belt during this period, wherein industry is not looking that good specifically on the NPA side. So I assure you, we at a normal steady-state will be operating at 2.5 to 3 percentage as our ROAs.
Unidentified Participant
Thank you, sir. Thanks for it because as a lending company, it’s very easy to show growth. So what other players they end-up is there going aggressive in the terms of loan growth and later blowing up the asset quality. So as a shareholder, I really appreciate that you are not going aggressive by compromising the asset. Thank you, sir. Thank you so much.
Operator
Thank you. The next question is from the line of Kshitij Verma from Rest Assured Wealth Advisors. Please go ahead.
Kshitij Verma
Hello, sir, am I audible?
Operator
Yes.
Ramandeep Singh
Yes, sir.
Kshitij Verma
Yes, sir. I had a query. What is the NPA ratio for co-lending book which we have?
Ramandeep Singh
Okay. So for co-lending portfolio, as of now, we do not have any NPA. As I said at the start, the portfolio for the co-lending portfolio will be getting seasoned after two years. So the seasoning is about to come. That is one, right? Second thing is we are sourcing a very high-quality portfolio with our co-lenders. It is not something that only they are approving. We also approve each and every case. Therefore, if you see the blended yield of the company has gone down in last year or so because those — all those cases that we are sourcing at a very lower yield, right? And proper mechanisms are there, wherein if there is anything which is going beyond 60 days or Stage 2, we immediately instruct our co-lending partners that please stage the customer, why it is not happening. If there is any mechanism, go there and foreclose and everything. So they — that’s what the strategy we have adopted in the in the co-lending as of now. But yes, the portfolio quality of the co-lending will come after six months, six months or so.
Kshitij Verma
Sir, so are we expecting a spike in NPA on that front? Because in the past, we’ve seen that it has been consistently 0% and it felt as if the underwriting quality of the co-lending book was pretty good because nothing incrementally was flipping there.
Ramandeep Singh
So yeah. Sir, zero percentage, we will not say, yes, NPA had happened in the co-lending, but those NPAs either got closed, foreclosed, you know, wherein we have been able to take a — their co-lending partners have been able to take a reposition out of it and close it. Second thing, the yield on which I’m operating — I’m operating at an 8 percentage lower yield in co-lending as compared to my normal two-wheelers portfolio. Therein, therein — also we don’t — though we — though I’m not incurring any cost of recoveries or any opex onto that, but still we expect a good portfolio. Third thing is that if you see my co-lending, wherein I was somewhere around INR600 crores as of March of last financial year. Right now, if you see, I’m hovering around somewhere 850 only. So the growth is also less because we also as a company want to see this seasoning and the God grades, as of now, we have not seen any major hiccup and we don’t expect any sort of further NPAs on the — on the co-lending portfolios as well. Third thing, sir, which we do in order to give assurance and in order to see what is happening. We do have audits of co-lending which is happening each and every quarter wherein all our partners will get audited through our independent auditors appointed by us so that we can see that if there is any portfolio thing or anything related to entity, anything which is coming that can also come into the picture on a real-time basis. Again, with, the audits have been well as of now and we are not seeing any hiccups to come in the future.
Kshitij Verma
Sir, could you confirm me what is normally the average ticket size of a loan, which we sanction on our books for two-wheeler business?
Ramandeep Singh
Okay. So right now it is coming at 84,000.
Kshitij Verma
So my belief would be that suppose if our customer is in this segment would primarily consist of say lower-middle and middle-income groups, if I’m correct, correct.. So now this new tax breaks, which have been announced by the government, which will start from next financial year. So does the credit underwriting change because there will be more disposable income in the receivers hand and maybe some NPA ratios may also become better looking because that incremental flow we can recover. Is there some working on that which we are looking into?
Ramandeep Singh
So, yeah, yeah, Matthe, sir, if you can take that question, I’ll just give you that — so we have divided this our portfolio into the formal income and sorry, and the informal income. So most of the customer, we are operating, you know, documented income is not there either they are through business and also, Matthew, sir, if you can take that question and basis on this because income tax…
Mathews Markose
Yes, I think that’s a very valid question. You are right. I think it should see a portfolio should see some improvement because the disposable income of people would go up. But we will see as the situation evolves, we are not going to make any changes right now on our underwriting norms. We will continue to use whatever we are using right now. And as and when we see the segment or maybe we’ll be able to build something specific to that segment like, for instance, now we have launched a couple of products based on GSP returns and all that for traders. So those kind of product development is an ongoing process and we’ll continue to do as and when the situation evolves. But thanks for giving that idea. As of now, we do not plan anything on those lines.
Kshitij Verma
Sir, just last two questions from my side. One, this RBI, now they are saying that there is an expectation of a rate cut, which may happen during the current calendar year at some time. How much does it translate for us in terms of margins? And second, sir, as a credit rating outlook, now that I believe we are A1 plus for many securities, but as we are doing since last two, three years, we are trying to repair the quality and gradually build a new asset book. So do you expect any upgrades on these two factors can help in our NIMs? Any input you have for that? That would be helpful from my side.
Mathews Markose
Raman, you want to take the question?
Ramandeep Singh
For ratings, I can take on that.
Mathews Markose
Yeah. On the margin side, see, whenever there is a rate cut, if and if at all there is a rate cut, that will translate into a benefit on the MCLR. So MCLRs have been slightly going up over the last 1.5 years, but a rate cut would surely mean that the transmission will happen sooner than later and that will benefit our MCLR and we will see a proportionate increase in our mix because on our book, as I mentioned before, we have introduced the risk-based pricing. So risk-based pricing would mean that today I’m applying a flat rate of interest to everybody based on the scheme and not based on the customer segmentation. But starting first of February, we have launched that risk-based license and I will be, you know, applying one rate to the low-risk customer slightly higher-rate to the medium and slightly more rate higher-risk customers to take care of my collection cost. So that clubbed with the fact that if the transmission of repo rate cut comes to the MCLR, we will see a definite positive moment on our NIM.
Kshitij Verma
Yeah. On the rating side of the company.
Ramandeep Singh
Yes. Rating side of the company. What we’ll do is we’ll be having our annual financials getting prepared by May end. And then we already spoke to agencies. We are constantly in to touch with them. We are sharing our each and every quarter financials also and we will expect a jump-in rating in the upcoming financial year, specifically after our Q4 results.
Kshitij Verma
Sir, normally if an upgrade in rating happens, how much does it impact our cost of borrowing? Is it a significant jump?
Ramandeep Singh
So I’ll say that — so there are two factors to it now. One, till September, we can say that our cost of borrowings were higher, but we have to do our own sourcing and business as well. Why our cost of borrowings are higher because of these one-time G&P hit which the company has to — has to face, right? So therein all the rollovers, every term-loan which has come and for all the long-term funding which we have started taking. So therein the cost of fund has increased. There is a good chance now and that we have already started from Q3 itself. Therefore, we have also provided in this slide as well that even if the increase in the NCLR rate by 0.36 percentage, our cost of fund has grown only by 0.14 percentage up. So we are continuously — on a verge of improving it. Second thing, I still believe that once we will be out with our annual financials having a GNP of lower than 6 percentage, more PSUs will welcome us and all the applications which are there and that will come. So from PSUs, I’m expecting a rate cut of at least — at least 0.50 percentage for sure that might go up to 0.50% to-1 percentage. Then when our rating will get improved, so marginal impact can come from it, that we will see what would be the impact. That impact will only be coming through the NCDs which I will be placing in the market. So therein, right now, if I’m operating at an X-AR of for the NCD side, XRR I’m talking about at 11.3, 11.4% that we can bring below 11%.
Kshitij Verma
And sir, are we looking at any avenue to raise equity in the future because currently our share price is below price-to-book. So it might look as an undervalued asset and may not be beneficial to existing shareholders. You have any feedback on some?
Ramandeep Singh
So yeah, yeah. So there is a — so there is — we are again on a path of recovery. Whatever happened two and a half year back wherein the company has reported one-time loss. After that, two things we have done. First, focus on increasing the sourcing of the — of our MCSL, how and that sourcing with an improved asset quality, which we can see also in the results, right? Second is taking — taking care of the GNPA of the previous pool. If I talk about on the call that we are having INR15 crores as a GNPA from the previous pool as of now, 2.5 year back, it was INR535 crores. So it was a — it was a huge — a huge improvement wherein the company has on each and every parameters, we have started working. And whatever we have said to said to the shareholders during our quarter-on-quarter call wherein earlier one year back, the question remains to us was the company is hovering out at 2,000 CR of AUM. Right now, if it — when we’ll be taking Q4 call or as we speak, where we have already crossed 3,000 CR of AUM. So on step-by-step, we are improving on each and every parameter and I’m 100% sure the ship is steady now. We know what to source and we know-how to source it. But basis on that, more than that, we also have each and every week call with our promoters and EDs wherein they track on the NPAs of the company personally. So that is how the — the kind of responsibility which flows from top to the lowest of level. So therein, we can also set good we can also drop-down in the GNPA as an absolute term as well in the quarters to come. Does that answer your question?
Kshitij Verma
Yes, sir, it’s all from my side. Thank you so much for your time.
Operator
Thank you. The next question comes from the line of Aditya Lathe from Akshita Capital. Please go ahead.
Aditya Lathe
Hi, thank you for having me here, sir. So sticking to the NPA theme, I had a question on Slide 32 of the presentation that you shared. So the gross NPA for the position as on December end is INR134 crores and the net NPA is INR61 crores. So just noticing that the gross NPA has grown by around INR19.7 crores over the last quarter, while the net NPA has grown by a higher amount by around INR24 crores. So could you just help me reconcile the reason as to this.
Ramandeep Singh
So both GNPA to NNPA has a function wherein PCR comes into the picture. GNPAs, NNPA for last quarter wherein we used to apply 75 percentage, now we are applying 60 percentage. Really movement — the movement in the GNPA, which we have seen is basically the normal moment wherein the portfolio has season. And if you see in a two-wheeler industry, generally, you will see the seasoning of the portfolio will come in Q3. Why there is a specific thing because entire business it starts in two — into quarters only, whereas in Q2 and Q3, if you see the entire scale-up of any two-wheeler organization, their highest sourcing will be there in Q2 — in Q2 and Q3. So in all cycles will get either completed in the Q2 of some year or Q3 of some year. So therein, you might see some jumps, but all those jumps are on in control and we are below par as far as the industry is concerned, which is that 5.5%, 6 percentage of GNPA, we are still at 4.7% of the GNPA that also includes some portion of my pre-COVID era as well, right? And I hope I have also answered your NNPA question.
Aditya Lathe
No, fair enough, sir. So I just wanted to understand why the net NPA growth should be higher than the gross NPA. So I — that is the only query that I had. The — so is it something to do with the reversal of around INR18.1 crores which you’ve taken due to reduction in provisions.
Ramandeep Singh
So that is the — that is that I have told you the PCR of the company is now 60 percentage, right? If you like INR133.86 percentage or 386 crore to 60 percentage. You will get this percentage 61.34 crore right?
Operator
Aditya, does that answer your question?
Mathews Markose
So Aditya ji, one more thing. It’s — if you see our GNPA has been increased, right, in absolute terms. And so I’ll give you the mathematics example into that. For example, my GNP was INR100 in-quarter two. On that, I was applying 75 percentage. Remaining was my NPA. That INR100 has become INR130 now. On that, I am applying a lower percentage. So growth in NNPA would always be on the higher side because therein the GNP terms has not changed. The NNPA term has been changed significantly from 75 to 60. That change has become — that change has because of the sector, as I already told you that we felt we don’t need the requirement of that high PCR.
Aditya Lathe
Understood. Understood, sir. So just a word to this. This 18.1 would this be routed through the P&L, the reduction in provisions that you had released?
Ramandeep Singh
So it will automatically form my part of my P&L whenever I bring down any PCR because we don’t find any need for — we didn’t find any need for keeping the higher PCR. So therefore, we have applied lower amount of PCR on the — on the NPAs, not the lower amount, 60 percentage on my NPAs as compared to the previous quarter wherein we used to apply 75 percentage, now we are applying at 60 percentage. Yeah, end-of-the day, sir, one more thing, the business is growing, everything is growing. So everything we want from the industry standards. So as PCR2, we want to keep it into — keep as per the industry as well.
Aditya Lathe
That’s right. Great. Thank you, sir.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing comments.
Ramandeep Singh
Sir, thank you so much all of you for joining us today and you know having a having asked such lovely questions and also some of the questions are really shot provaking, which would give us some ideas for building our business on those lines. Thank you once again and wish you all a very happy and prosperous 2025 once again from the side of management.
Operator
[Operator Closing Remarks]