Muthoot Microfin Ltd (NSE: MUTHOOTMF) Q4 2025 Earnings Call dated May. 08, 2025
Corporate Participants:
Sadaf Sayeed — Chief Executive Officer
Unidentified Speaker
Analysts:
Mayank Mistry — Analyst
Shubhranshu Mishra — Analyst
Nidhesh — Analyst
Unidentified Participant
Nitin — Analyst
Anush Mokashi — Analyst
Kamal Mulchandani — Analyst
Anant Mundra — Analyst
Ashlesh Sonje — Analyst
Deekshant — Analyst
Sarvesh Gupta — Analyst
Presentation:
Operator
Hello, ladies and gentlemen, good day and welcome to Microfin Limited Q4 and FY ’25 Earnings Conference Call, hosted by JM Financial Institutional Equities Institutional Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded.I now hand the conference over to Mr Mayan from JM Financial Institutional Securities Limited. Thank you, and over to you, sir.
Mayank Mistry — Analyst
Thank you. Thank you, Manov. Good evening, everyone, and welcome to Q4 FY ’25 earnings conference call of. First of all, I would like to thank the management of Micro for giving us the opportunity to host the call. From the management team, we have Mr Thomas Mitud John, Executive Director; Mr Said, CEO; Mr Pravin, CFO; Mr Udish, COO; Mr Rajat Gupta, AVP, Investor Relations; and Mr Amnar, AVP, Investor Relations — Head of Investor Relations.
Operator
I would now like to hand over the call to Mr for his opening remarks, post which we can open the floor for Q&A. Thank you, and over to you, sir.
Sadaf Sayeed — Chief Executive Officer
Yeah. Thank you, man. Good evening, everyone. Thank you for joining the earnings call for Matut Micro for Q4 FY ’25 results. Before I get into the financial performance, I would like to take a moment to reflect on what actually defines us. Our values, our culture and the principle that guides our decision.
These may not always translate into immediate financial results, but they are the bedrock of our long-term success. They shape who we are, how we operate, how we navigate challenges and especially in uncertain times like these. It is these softer yet deeply critical aspects of our commitment to integrity, innovation and resilience that sets us apart from rest of the competition.
They may not always be quantifiable, but their impact is undeniably reinforcing our foundation and enabling us to stand strong even in the face of external disruption. As we look-ahead, we will continue to invest in these areas, not merely as a complement to our strategy, but as a core pillar of what makes us unique and resilient. In this context, I am proud to share with you a significant development.
Within 16 months of our listing, Matthood Microfin today has been awarded an ESG rating with a score of 72.2, which is a top-tier rating for with ESG 1 rating. Care ESG Rating Limited is a FDA licensed ESG rating provider. This is not only a powerful endorsement of our responsible and sustainable growth strategy, but also the highest ESG rating ever awarded by Care in the financial services sector. It really, really indicates our commitment towards environment, social aspect and also governance.
If you look at the score, we have scored 79 points in governance of — as compared to the median of 54 points. So it really shows how the company is committed to its governance aspect. Apart from that, to highlight some of the key achievements during the quarter, one of the key aspect is that we got an EKYC license from Adar authority.
We are now able to do EKYC for our customer. This not only improves our ability to identify customer better, it also ensures that we are able to prevent frauds and eliminate bad customers. And this is going to play-out in a big way in our digital foray that we are trying to do. Apart from this, we have made progress in-app download today out-of-the 34 lakh customers that we service, 18 lakh customers have downloaded our Metra app.
Our commitment towards overall well-being of our customers is always there. We have around 740 clinics — e-clinics in our branches, out of which we have done around 10.2 lakh consultations to our customers, which is also helping us to retain customer and also ensuring that in difficult times, the customer is protected and is getting the service. Apart from the softer aspects in terms of our financial performance, our AUM for the financial year has grown by 1.3%.
We closed this financial year at an AUM of INR12,357 crores. This was a calibrated strategy. As you are all aware, this was a particularly challenging year for microfinance institutions. We had multiple challenges starting from a Q1 slowdown, resulting in over-leveraging of the customer because there was lot of growth in microfinance segment earlier, leading to guardrails being introduced by SROs, which of course had an impact on the number of customers which were able to be eligible for disbursements.
But considering that we have made sure that we do calibrated disbursement as a result, we did INR8,857 crores of disbursement, INR8,872 crores of disbursement during the financial year. Our net interest income has grown by 14.3% year-on-year. We recorded a net interest income of INR1,551 crores.
Our PPOP has grown from 8 — has grown to INR868 crores and our total income for the year stood at around INR2,564 crores, which is a 13.7% year-on-year growth. And if you look at our overall GNPA, it has reached to around 4.84% from 3.03% in the last quarter. One of the things which I would highlight in this financial year, we have paid considerable attention to ensuring that we insulate our balance sheet from uncertainties. So this year, the credit cost has increased. Our overall credit cost has come out to be around 9.4%, which includes around INR230 crores of management overlay. If you exclude that management overlay, our credit cost for the full-year is around 7.5%, that is in-line with the lower band of our guidance of 7.5% to 8.5%. As a result, of course, the PAT has been impacted. For the quarter, we have a loss of around INR401 crores. And for the full financial year, we have a loss of around INR22 crores. But as I said, what we have laid down is a foundation of a stronger balance sheet, which is insulated from any uncertainty. We have had instances like Karnataka legislation, which came into place, which had an impact even though the legislation is directed towards unregulated entity, but by the time the regulation is put in-place, there was lot of speculation and which impacted the collection efficiency. We have already seen a drop — very good improvement in collection efficiency post that. But of course, our initial portfolio was impacted because of that. We have made adequate provisions to ensure that there are no uncertainties going-forward. And this INR230 crore provision includes the provision that we need to have for any adverse impact to the portfolio in Karnataga. In the meantime, I’m sure you guys are aware that there is a legislation which has been proposed in Tamil Nadu also, but the good part about it, unlike the Karnataka legislation, this Tamil Nadu legislation is not based on any customer grievances or anything, this is a proactive step that the government has taken. So as far as at the moment, it is concerned, there has been no disturbance in the performance of the portfolio so-far. We have been able to continue to collect the way we were collecting and the portfolio remains pretty stable in Kamil Nadu as of now. Overall, for the full financial year, our collection efficiency stands at around 93.6%, which is around 4.8% dip from the last financial year. And our ex-bucket collection efficiency remains 99.5%. If you look at in terms of our investment, we have opened more branches this financial year. We have reached a branch count of 1,699 branches, which is around 12.7% growth year-on-year. Last year, the branch count was 1,508 branches. And in terms of our employee count, it has reached to around 15,989, which is also a 15.3% growth year-on-year. Our disbursements have come down as compared to the last financial year. As I mentioned, we have done calibrated disbursement around INR8,872 crores, which is around 16.8% lower than the last financial year. Our — meanwhile, our customer acquisition continues. We have reached a customer count of 34 lakh 30,000 customers, which is a 2.3% growth over the last financial year. I think in terms of our growth, in terms of our branch expansion, in terms of our strategy, we have put foundations there. We have also had a very in-depth analysis of our portfolio. We — during all of these crisis, you get an opportunity to understand what you’re doing right and what you’re doing wrong. And we have analyzed our 34 lakh customers and we have found that around 12 lakh — 70,000 customers also have retail loan exposures. And out of those 12 lakh, lakh 70,000 customers, a good amount of customers have gold loans exposure, a very good amount of around 14,000 customers even have housing loan or mortgages exposure and around and 1 lakh 56,000 customers have two-wheeler loan exposure. These are the products that we are already offering to our customers as a part of a cross-sell opportunity that we have through our group companies. In the coming financial year, we wish to leverage on this opportunity. Cumulatively, if we see the customer-base that is having exposure and retail loan, their outstanding is almost INR28,000 crores. And if we tap that opportunity, we do feel that we can easily tap those customers out of that and build a good portfolio of secured loans of INR5,000 crores. So going-forward, this would be one of our growth strategy. This will also help us retain more customers, also build our wallet share of our customers. The good part about it is that these are all loans which are already outstanding with our customers and we would — by offering these products, we will be replacing the existing loans. So we would not be overleveraging this customer, but we were insulating our customers from any sort of unregulated lending and also helping them grow and build better portfolio with us. So that’s the growth strategy going-forward and that will really help us build a strong balance sheet. And as I mentioned, our commitment to social goals and double impact of both on the bottom-line as well as social impact will remain and we will continue to focus on that. With that, I’ll close my opening remarks and I’m happy to answer any questions.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and want to ask a question. If you wish to yourself from the question queue, you may press star and 2. Participants are requested to use handsets only while asking a question.
Ladies and gentlemen, we’ll wait for a moment while the question queue assembles. I may repeat. If you wish to ask a question, you may press star and 1. We have our first question from the line of Shubhranshu Misha from PhillipCapital. Please go-ahead.
Shubhranshu Mishra
Hi, thanks for the opportunity. The first one is that something result and the investor presentation can be put out in time to have a look at it. The investor presentation is still not there in the stock exchange. Having said that, I just have one question. How are we going to implement the guardrail versus the interest in two-plus one format. How do we restrict the fourth lender coming in? Thanks.
Sadaf Sayeed
Yeah. So on the guardrails, we have already implemented all the guardrails that have been recommended by MPIN as well as. The guardrail one we had implemented in August itself and guardrail 2 as we started the financial year have already been implemented. And in terms of its impact, of course, there is an impact on the throughput.
We have had higher rejections because of that, but that has not deterred us from the business performance that we have continued to do. But if you look at the impact of the guardrail is more from avoiding over-leveraged customers and I think we have given that information in our presentation also, if you look at a consistently quarter-on-quarter the number of customers which were having four loans are coming down.
In Q4, it has come down to around 6.2%, which started from around 8% in the financial year 10.6% in Q2, which reduced to 8.2% in Q3 and around 6.8% in Q4. And at the same time, the unique customers have increased, which were around 32% in Q2. It has reached to around 35% in Q4. And even if you look at from a INR2 lakh cap Cap per borrower. Those percentage of customers have reduced from 3.8% in Q2 to 1.8% in Q4 and unique customers or customers which are only having 50 lakh of exposure with us are around 39%, which were around 38% earlier. So from that perspective, we are much better placed. Almost 81% of our customers, 83% of our customers are having only us plus two lenders. So we have opportunity to lend that currently. [Foreign Speech]
Operator
Yes, there was some disturbance from some. Please continue.
Sadaf Sayeed
Yeah, I think that’s all that I would like to say. On the presentation upload, my apologies, but I think before the call started to be uploaded. We have just concluded our Board meeting and uploaded the presentation. We take your feedback.
Shubhranshu Mishra
Thank you. Best of luck for enjoying quarters.
Operator
Thank you thank you. Thank you. We have our next question from the line of Nidhesh from Investec. Please go-ahead.
Nidhesh
Hi, thanks for the opportunity. The first question is on how the collection trends in the month of April in terms of export collection efficiency for the month of April.
Unidentified Speaker
Yeah, the collection efficiency is 99.5% in April.
Nidhesh
Okay. This is a ex bucket. Okay, that’s — so trends are holding up quite well. And sir, how are the trends in Tamil Nadu in terms of ex-bucket collection efficiency, though it’s I think it’s still a bit early to say. But do you expect any disruption in Tamiladu the way we have seen in Karnataka?
Unidentified Speaker
Yeah. So Tamil Nadu, there has been no disturbance at all because of this legislation. The continues to be 99.6%. That correction efficiency is holding well. So there is no such disturbance as of now.
Nidhesh
Okay. And third question is on the Stage 1, Stage 2, Stage 3 coverages because I think the presentation is now uploaded, I can get those numbers from there. Sure, sir. So third question then is, sir, what is the guidance on credit cost next year if you have made all the provisions on the existing stress already. So how should — so whether the next year credit cost will be steady steady-state credit cost and what will be that number?
Unidentified Speaker
Yeah. I think that’s a very good question. I think first of all, I would like to mention that based on the feedback that we have received from various analysts and also our own internal assessment and assessing that the Karnataka issue is also very decent. On the Stage 2, we have increased provision considerably. So Stage 2 provision today stands at around 30.8%, which was a year-ago at around 1.06% and in the last quarter, it was around 9.01%.
Our Stage 3 provision coverage has also increased considerably. In Q3, it was 58.72%. It is now 73.3%. So we have made considerable effort in terms of making enough provision. Having said that, I think Karnataka portfolio is — in fact is still very new, not the — much of the loan has to Stage 3. We don’t anticipate that to reach to Stage because the collection pullback has been pretty good in Karnataka as well.
But we have made adequate provisions. We are carrying a INR230 crores of management overlay, which should be adequate to take care of any concerns that may come in Karnadaga. But in terms of our guidance, we are guiding towards a 4% to 5% credit cost, that is our worth is kind of a scenario that is what we are guiding towards.
Nidhesh
4% to 6% or so. So because as we have made all the provisions right now, next year should be a credit cost should be a steady-state number of, let’s say, lower than this number or you expect higher credit cost earlier in first-half?
Sadaf Sayeed
Yeah, Vivesh, I think that that’s what our anticipation is also there. But again, as I said, situation is developing. Karnataka just happened in February and the impact of it is being seen and we are right now, the early trends are positive and there is no impact so if all of that holds good, then definitely there would be no incremental cost or no surprising since these situations are very, very nascent and they are still developing, I don’t want to say that the cost would be like a normal year, but what we are guiding towards 4% to 6% credit cost for the next financial year.
Nidhesh
Okay. Thank you, sir. That’s it from my side. Thank you. Thank you, guys.
Operator
Thank you. We have our next question from the line of Mayank Mistry from JM Financial. Please go-ahead.
Mayank Mistry
Yeah, hi, sir. So sir, my question is for the quarter, we have taken such elevated credit cost and even after that, our Stage 3 is also up by almost 180 bps from 3% to 4.8%. So now my question is that if we have taken such high credit cost, what would be our write-offs because 73%, although we are providing, again, there is some stress we are looking at in our book, right?
Sadaf Sayeed
Yeah. So Mayank, to answer to your question, as I said, we have increased the credit cost because we have increased our provision in the Stage 2 bucket, Stage 2 bucket, if you look at it has gone from 1.06 in the last financial year to 30.8 and also from last quarter, it has gone from 9% to 30.08. So because the Karnadaka portfolio is very new in terms of the delinquency, we don’t anticipate all of it to go through NPA and then to write-off subsequently.
But we are providing it for so making sure that there are no further shocks that are there. As far as the write-off are concerned, this year, we have had cumulatively around INR538 crores of write-off, which includes around whatever waiver and settlements are there and any ARP-related write-off and other write-offs that we have done is INR538 crores of write-offs.
This is on a worst year. We don’t anticipate similar kind of write-offs to come in the next year. The elevated credit cost will ensure that we have sufficient buffer. If you look at overall NPA versus provision, it’s 127% provision cover over the NPA. So which really, really kind of puts us in a comfortable position to ensure that there are no shocks.
Mayank Mistry
Okay. So there is a possibility that some of the book also might reverse from sales two, right, for which we are already making 30% coverage this year.
Sadaf Sayeed
Correct.
Mayank Mistry
Okay. And secondly, sir, how is this ordinance different from Karnataka because I think that both are only for unregulated entities, right? It’s not like is only on is on both regulated and non-regulated both entities. So there is a possibility even from Tamil Nadu that the people might start taking advantage of situation like they did in Karnataka.
Sadaf Sayeed
Yeah, I think both the things being a part of SRO where ICE is on the board and had a opportunity to engage with the state government at both the sides quite closely from the SRO side. I have a very good perspective on this. I think on the Karnataka legislation, it was driven by lot of news reporting which started before and multiple news were items were there that there is distress because of microfinance lending and all of that and because of which government came up with the legislation, essentially, it was only targeted at microfinance entities and stuff like that, but we were able to demonstrate to the government that it is not microfinance entities which are causing the distance.
It is unregulated entities which are causing the distest. Most of the microfinance entities follow a court of conduct which has been laid down by RBI and also SROs. So we were able to convince. But of course because of the news reporting, there were certain amount of confusion which was created by among the borrowers and that had an impact on overall collections. But as the legislation came In, there is lot of clarity which has come in that regulated entities are not part of this. So we are seeing better collections coming in in Tamil Nadu, on the contrary there is a very good clarity the legislation is more driven out of proactive steps that have been taken by the government to avoid coercive lending. If you read the Act, the name of the Act itself is prevention of coercing — coercive lending practices. And it is not talking about microfinance, it is talking about all the lending practices. And it is very clearly from the day-one focused on unregulated entities. It is not focused on microfinance as such. So I think that is the main part. Apart from that, of course, Tamil Nadu is a very mature market. It has been one of the top markets for microfinance business for last 20 years and we have not seen any such confusion being created in the market. So I think from that perspective, the market is pretty much insulated. We have not seen any such impact of this legislation so-far and hopefully that will not be there in coming days as well.
Mayank Mistry
Okay, okay, sir. And sir, why are plus currently are at 11.1% and plus four is 4% about that is 4.8. So yes, four lenders is at 6.8% and three lenders yeah so when, when do this book go to 0% now from here?
Sadaf Sayeed
So if you look at from an AUM perspective, it is already at 1.8% of the four lender plus. I think in a couple of quarters, it should be less than 1% or close to 0% as the loans wind-up, it usually microfinance loans wind-up quite fast. So I think by September, we should have close to a zero number
Mayank Mistry
By September. Okay. Okay, sir. And yes, sir, that’s all from my side. Thank you and all the best for coming quarters.
Sadaf Sayeed
Thank you.
Operator
Thank you. Thank you. We have our next question from the line of Anil Kulsiram from Best Research and Advisory. Please go-ahead.
Unidentified Participant
Yeah. Thank you for the opportunity. Sir, we have always highlighted our use of scorecards and separate credit officers in our process and how this will help us to reduce the credit cost compared to our peers. But I don’t think it has helped us in any way. So can you help us understand how this process has helped you in any way and what is that I am missing?
And what changes we have made or plan to make in the underwriting process so that we can avoid such huge credit cost in future? Thank you.
Sadaf Sayeed
Yeah. I think if you look at from a perspective of industry GNPA versus our GNPA, they have considerably kind of different. We are at 4.84%, the industry is close to 13% GNPA. So from that perspective, of course, the trade scorecard is making that impact. But again, the credit scorecard does not take into consideration any political kind of a disturbance that has created. So that of course cannot be modeled in.
But having said that, I think what is our future strategy, as I mentioned in my opening remarks, we are looking at a little bit of a diversification of our portfolio of as an industry SRO and as a company, we have made multiple representation to RBI in terms of looking at liberalizing qualifying asset criteria and there is a high likelihood that RBI might look at that and that will open us an opportunity to do multiple products.
And we have already started products like a and also we have a product called NSED, which is gold-based product and we have two-wheeler financing and housing finance available from our company. And I think we will leverage on this opportunity and the analytics that we have done on our portfolio. We have around 12,37 customers which have multiple retail loan products, almost INR17,7 crores of portfolio between these three products, which is gold LAP and two-wheeler loans, around INR8,000 crores of our gold portfolio alone.
That definitely will help us minimize our cost. One thing we have also noticed in our analytics is customers which are having gold loan exposure there comparative delinquencies lesser. This is from a point that those customers are having some ability to, that’s how they have created gold assets and they are able to generate some surplus cash and they have the better ability to service their capital.
So as we increase our exposure to the customers who have gold loans and build a portfolio, that will definitely help our balance sheet to be more secure.
Unidentified Participant
Yeah. Sorry to harp on this point more. Sir, G1, which is based in Karnataka itself and which is also facing the same climate has reduced much lower credit cost and the guidance is also much lower. So that is what I’m trying to understand. What exact — something that went wrong in our internal processes that our cumulative credit cost is 15% for the current crisis.
So can you elaborate some of the steps which went wrong and which we are planning to fix it going-forward in microfinance?
Sadaf Sayeed
Yeah. So I think what barring, as we look at the Southern portfolio has really behaved well. Karnataka because of specific issue has had an impact. But other than that, if you look at for us, Kerala is one of the best portfolio for us where credit cost as well as any sort of delinquency is lesser, the collection efficiency is 100% on ex-bucket and close to 99% overall.
Our focus would be to continue to focus on these markets and build a little bit more portfolio. Also, if the new markets that we have entered, which is Andhra and Telangana, we have 100% digital collection and 100% collection on-time. Our focus would be to build those markets also. So going-forward, our focus would be to build more portfolio in South and have a a 60-40 ratio instead of what we have today in 50, 50 ratio.
Unidentified Participant
Okay. Thank you, sir. Thank you. That’s it from my side.
Operator
Thank you. Ladies and gentlemen, in order to ensure that the management is able to take questions from all participants in the conference, please restrict yourself to only one question per participant. Should you have a follow-up question, we request you to rejoin the queue.
I repeat, please restrict yourself to only one question per participant. We have our next question from the line of Nitin from Green Capital Single-Family Office. Please go-ahead.
Nitin
Good evening to the management. So I speak more as an investor rather than an analyst. So just for the recall, extremely disappointing set of results from the company. My question is in terms of impairment of financial instruments, you’ve taken an impairment of INR652 crores this quarter and your total impairment for the year is INR1,04242 crores, which has obviously your net has gone down to INR22 crores in the PAT versus INR449 crores.
Something is drastically going wrong and it was not about the microfinance industry. What is the company doing? And this is a tough question to ask to the management, what is the company doing to come back from this? And can you please tell us how will you ensure that your gross NPA levels are not crossing because your gross NPA levels are shooting and there is no demand in the market.
Sadaf Sayeed
Yeah, so our GNPA level are at 4.84%, which is at an elevated number, but this is the peak of these GNPAs. We feel that in coming quarters, these numbers will only come down because we are seeing better collection efficiency as well as this year, we have calibratedly not grown our portfolio. Our portfolio has remained almost stagnant.
The new trend that we are seeing that there is opportunities to build portfolio, the markets are stabilizing. Also, we — as I outlined that our strategy is to diversify towards some of the new products which are more secured in nature that will definitely help us to ensure that our portfolio remains more stable and we don’t have higher GNPAs.
But having said that, from the current portfolio also, we anticipate better collection. We have seen that in our vintage costs that the peak of those NPA cycle has already been achieved and they are trying — they are all Coming down. So going-forward, we don’t anticipate such high credit cost barring any sort of an event. The focus is on to build a sustainable balance sheet. That’s why the credit cost is high and it includes around INR230 crores of management overlay.And despite like these provision cost and the loss that we have incurred for the full financial year of INR232 crore. We continue to have around 28% — 27.9% capital adequacy and consistently, like we are able to bring our cost-of-capital down and our leverage is just around 3 times. And we have focused on maintaining adequate liquidity. We have around INR700 crores of liquidity on our balance sheet. And all of that ensures that our balance sheet remains robust and there is consistency and stability in the business. Of course, the year was a challenging year and there were multiple challenges which came around and which has impacted the performance for this financial year. But in the history of microphone, we have reported losses. This would be an exceptional year. And hopefully going-forward, we will continue to improve from here and report better results.
Nitin
So what I wanted to check was that is the financial impairment going to stop or will the provisions reduce or is it going to continue in-quarter one, quarter two, quarter three, quarter-four of next year? What is the management perspective on the reduction of the provisions because it’s sitting in your bottom-line.
Sadaf Sayeed
Yeah. So we have guided towards 4% to 6% credit cost as compared to 9.4% for the full financial year. We are carrying INR230 crores of management overlay, which will if there is any challenge, we anticipate this to a lot of these provisions or the write-off recovery to happen and also provisions to roll-back. So the credit cost would not be as elevated as this is for this financial year.
Nitin
I’m not very convinced, but I wish you all the best. And I hope you can return some wells to the shareholders through dividends because obviously the growth is not there.
Sadaf Sayeed
Thank you.
Operator
Thank you. A reminder to all participants, please restrict yourself to only one question. We have our next question from the line of Anush Mukashi from Academy Private Limited. Please go-ahead.
Anush Mokashi
Hello. Am I audible?
Operator
Yeah.
Anush Mokashi
Yeah. Thank you. Thank you for the opportunity. So, so sir, my question is about — I mean, I’ve observed this that there are banks which are opting for this CG SNU, the sort of a hedge against the macrofinance spreads. So can microfin opt for the same and then we can — I mean that can help us reduce the provisioning number and the credit cost eventually. Your thoughts on this piece?
Sadaf Sayeed
Yeah. The credit guarantee screen is a useful scheme? Scheme definitely but there are certain limitations of that scheme. One is that there is certain amount of coverage that can be availed in that scheme which is limited to around 15% of the portfolio. It comes into — it’s like buying an insurance. In the area you buy it is not effective, but in the subsequent year it is more effective. It is also having a upfront cost, which is in the tune of 1.5% to 3% and subsequently, there is a first loss which we need to take to around 5%.
So in a year like this, where your credit cost is more than 5%, it definitely helps. But in a year where credit cost is much lesser that CGMFU becomes a little bit of a cost prohibitor, but we are critically evaluating this for certain portfolio, we can definitely take that. That is something that our risk management team is evaluating.
Anush Mokashi
Okay. Can I ask one more question?
Sadaf Sayeed
Sure,
Operator
We would request you to rejoin the queue.
Anush Mokashi
Sure. Thank you.
Operator
Thank you. We have our next question from the line of Kamal from Investec Capital Services. Please go-ahead.
Kamal Mulchandani
Hi, sir. Thank you for the opportunity. Sir, can you please guide us what is our current policy of giving a top of loan or a second tranche of loan while the existing loan of the customer is going on
Sadaf Sayeed
For the next cycle of loans, the current policy issue should complete at least 50% of the loan amount or 50% of the net disbursement amount should get as a lawn amount and she should complete at least nine installments without a utilization. And nine instalments without any delinquency or sorry and the net disbursement amount should be greater than 50% amount.
Kamal Mulchandani
Okay. So whichever or a higher is met, then you consider giving a second
Sadaf Sayeed
Yeah.
Kamal Mulchandani
And this is same for your existing customers or a new customer.
Sadaf Sayeed
So this is for — this is only for the existing customer. So a customer who has taken a INR50,000 loan, she should have at least repaid back INR25,000 for her to be eligible for a second cycle loan or top-up loan and minimum instaurant should have been paid is nine months.
Kamal Mulchandani
Okay. Okay, got it. And have there been any interest over the quarter and if you could quantify the same?
Sadaf Sayeed
Okay. Yeah. So we have taken a higher write-off in the current quarter, so which is around INR332 crores for the entire year and the bulk of the write-off is taken in the Q — in the current quarter, Q4, which has led to an interest reversal to the tune of INR49 crores.
Kamal Mulchandani
So can you give some guidance over your disbursement in AUM growth for next year? That would be my last question. Thanks.
Sadaf Sayeed
So we have guided for 5% to 10% growth into the next financial year and we expect we can retain the NIM which we have reported in the previous — in the current financial year because the cost of fund is coming down in the — in the certificate environment, we have seen the cost of under coming down by around 18 basis-points and plus we have seen the rate cuts very recently and it will take around six to nine months-to translate this trade cut into the rail system.
So that also should help us in terms of managing the NIM. And the opex also we will retain in the same range as in the current branch here. The credit cost, as we discussed earlier, will definitely come down compared to the current financial year because of whatever stressed.
So I think we expect a better performance coming up in FY ’26.
Kamal Mulchandani
But sorry, I’m not seeing the PPD cost I just off your guidance. But why is the growth so low is what we are expecting for the next year? Like if you are expecting the credit cost to peak out and the asset quality starts to peak out. So why are we not so much confident over growth.
Sadaf Sayeed
No, we definitely can grow more. I think what we are guiding here is based on how the guardrails kind of play-out. The second guardrail has just been implemented and we are seeing increased rejection rate definitely, which is also impacting on the operating cost. But I think in couple of months that will smooth out.
And I think the field officers will also understand the policy and they will source better qualified customers and our strategy of looking at other products will also play-out. So I think these are conservative guidance. Definitely we can do better than this.
Kamal Mulchandani
Okay. Thanks.
Operator
Thank you. We have our next question from the line of Anand Mundra from My Tample Capital. Please go-ahead.
Anant Mundra
Hello. Thank you for the opportunity. Sir, so firstly, the PCR across buckets has been increased, so that’s a good sign. And I just wanted to understand, is this going to be a standard feature going ahead or over-time will be reversed back to the earlier provisions that we had in our Stage 1, Stage 2 and Stage 3 buckets. So is this a permanent kind of a change? That was question number-one. And my second question was on, I just wanted to understand what is the total write-off pool size that we have as As at the end of this quarter from which there could be potential recoveries in the future.
Sadaf Sayeed
So on the provision coverage, as I said, there is a INR230 crores of management overlay. So management overlay, as I think things play-out, it will be sub-assumed in the overall credit cost. So while we would continue to maintain sufficient provision coverage. But Stage 2 coverage might have some changes. Stage 3 coverage, if you look at historically, we have maintained Stage 3 coverage of 66%, 65% on an average, which based on the portfolio and based on our ECL calculation will remain.
And definitely, I think the — from a perspective of recovery from write-offs, that will happen. This year, we have around INR538 crores of write-off and previous year we had INR131 crores of write-offs. So between these two pools, we do — we have seen recovery of good 20% over the period of time.
So we anticipate that money would be recovered and that will contribute to the bottom-line. Got it. And sir, when is it that we renew — review our ECL model like is it an annual exercise or something or when do we review it? Yeah. So this is a very good question and a very relevant question. So we have renewed our ECL model with our statutory auditors and based on our reviewed EACL model, we have expanded it a little bit.
We are considering — earlier we were only considering GDP growth and we were considering inflation. But now we are also considering what is the employment ratios like in terms of labor participation rates and also the per-capita income of each state because each state has a different impact.
So our ECL model is a lot more robust now and we will be implementing that from Q1. So the management overlay that we have created is considering that ECL model. And the idea is to have one full financial year with the existing ECL model and change only in the next financial year going-forward.
So we have taken into consideration the impact on the portfolio that has happened over a period of time and new PD LCDs have been developed. This has been vetted by BDO and our internal auditors as well
Anant Mundra
Got it, got it. And sir, this provision — sorry, this management overlay that we’ve created is lying across buckets. It’s not in a single bucket.
Sadaf Sayeed
Yes, yes, correct.
Anant Mundra
Okay. That’s it from my end. Thank you, sir.
Operator
Thank you. We have our next question from the line of Ashlesh Sonjay from Kotak Securities. Please go-ahead.
Ashlesh Sonje
Hi, sir, good evening. Sir, first question is just a clarification on your comment around terminal. This 99.6% collection efficiency number which you have given, I assume that one is for April. What are the trends in this — in this month, specifically in the last few days in the month of May.
Sadaf Sayeed
Yeah. So we have not seen any adverse impact on the portfolio in the last six, seven days of operation and 99.6 for April for exported for April and currently also the collection remains quite robust.
Ashlesh Sonje
Yeah. So these ordinances come on 27, it came on the newspaper. So on 28 29, there were few questions were asked by the customers, but afterwards there is nothing even if you look at the May first week also the remained as earlier we used to get. Okay, got it. And secondly, how is Karnataka trending now in terms of collection efficiencies for the month of March and itself for you?
Sadaf Sayeed
Yeah. So collection efficiency is improving. So if you look at the fresh delinquency, which was there in Karnataka was in February, the peak was there, which was around 9.1%. So ex-bucket collection efficiency at that point of time became around 91%. It has — in March, it has gone back to around 94% and it continues to improve month-on-month. So even for April month, it was around 95%.
Ashlesh Sonje
And just lastly, can you explain the chart which you have put on Slide number 17, where you have shown the impact of delinquency on specific retail loan products for some type of loan to type of loan and so on?
Sadaf Sayeed
Yeah yeah, so if you look at this chart basically talks about the delinquency on various product exposure that is there. So if you look at the customer who is having a gold loan exposures, the delinquency for those customers is much, much lesser. So these are customers who are having one-type of loan or two type of loan or three type of loans.
So across, I think if the customer has multiple type of loans also for one loan among them is gold loan, so usually the delinquency is lower. I think the second-lowest category is credit card. If the customer has a credit card exposure, they have lesser hedge delinquency. But among our products, if you look at, if they have some sort of a mortgage loan, then also there is a lesser delinquency. I think both of them basically indicate towards if the customer has an ability to create assets that is creating savings, which shows that their income is creating some sort of a surplus for the household and that really makes them a more credit-worthy customer
Where if you look at our business loan product where the delinquency is much higher, which indicates that the customer is a higher profile, which is there for business loan, but she is coming out and taking a microfinance loan-only because she is not getting any more business loan. And hence the delinquency relatively is considerably higher.
So we are not looking at those set of customers. We are looking at gold loan. We are looking at the mortgages, we are looking at vehicle loans.
Ashlesh Sonje
Understood, sir. Thanks a lot.
Sadaf Sayeed
Thank you.
Operator
Thank you. We have our next question from the line of Vikshant from DV Wealth. Please go-ahead.
Deekshant
Follow us up. Sir, firstly, can you — since you have mentioned that this is the peak of our provisions, can you one mention excluding the management overlay, what is the total provisions? And secondly is what is the percentage of these total provisions that can be recovered in the coming three to four quarters?
Sadaf Sayeed
So excluding the management overlay, our credit cost is 7.5% and see bulk of this overlay around INR134 pertains to Karmatica portfolio, which is basically kind of a just two month or less than two months kind of an old problem which started in February mid of February so we anticipate good amount of this money to come back because usually the customer gets influenced because of the media reporting and other group customers who are not paying and then eventually when she realized that it is hampering her credit worthiness and the future borrowing, then she starts repaying.
So after two, three months, they generally starts repaying. So we anticipate not all of this to go into an NPA and-or write-off further. This good amount of this would get reversed, that is our anticipation. That’s why our guidance towards credit cost is 4% to 6%, 6% in a worst-case scenario if a similar thing like happens elsewhere. But in a normal scenario, it will be close to around 4%.
Deekshant
So you are expecting around 70%, 60% of your provisions to come back to you?
Sadaf Sayeed
Traditionally not 70%, but around 60% of our post provisions come back over a period of two to three years.
Deekshant
Okay. Okay. Okay. So at — the question I’m sure that our management has asked to ourselves is that what is wrong with the system that we have Right nowon the lending that we are doing and we have identified which are the low-risk and high-risk areas. What I really want to understand from you is, sir, what are we changing right now, which will make us a better business going-forward?
Sadaf Sayeed
So we have made multiple changes. So of course, I think the events like Karnataka, which are more driven by political interventions are beyond our control. But in terms of improving on our underwriting, our constant endeavor is to ensure that we improve our underwriting quality, understanding of our borrower.
We are focusing more on digital. We have got an EKYC license, so we’ll be using that to authenticate customers. You have a better KYC like Adhahar ID than it helps us to do or or Pan card. It helps us to do a better credit bureau share, which will also give us a comprehensive view of the customers leverage and the repayment track-record that will also help us.
Apart from that, we are introducing products to capture the wallet share of the customer. Our existing customers out of that 12,000 lakh, 37,000 customers are having multiple products, which cumulatively amounts to around INR28,000 crores of portfolio. We want to capture that without over-leveraging those customers, we will be able to make a greater wallet share of those customers and those customers will actually become a part of our performing portfolio and that will really result in better-quality of assets and greater customer retention and a better return on assets
Deekshant
Sir I understand that what we are doing ahead, what like and Karnataka is a very recent issue, as you have mentioned, but apart from Karnataka and even some of the cyclones that has happened, there seems to be a higher stress in our book than the total markets book in the regulated space.
Sadaf Sayeed
But something else must-have also gone wrong as many people are thinking here. And I don’t want to harp on this question too much, but sir, if you could just give us some color on what has really been the deciding factor that this is something that we won’t be doing again. Is there something like that for business, sir?
So if you look at the industry level, the delinquencies are much higher as compared to us. But in terms of prevention of any impact of natural clamity like a cyclone, we have a natural clamity insurance product, insurance which has really helped us in preventing any damage that was caused due to cyclones in Tamil Nadu or heavy rents in Tamil Nadu, 50,000 of our customers were impacted, but we were able to get those claims on-time, hence the regreement has remained better as compared to the industry.
But I think overall, we have relooked at our scorecard as well. We have included more variables into the scorecard, something like what we had just discussed regarding customer having gold loan exposure, having lesser of a delinquency. Those kind of inputs have gone into the scorecard, which will help us underwrite better.
Deekshant
Okay. Sir, my last question is on our ROA and ROE outlook. Since we are not expecting a lot of top-line growth right now or since we’re not guiding a lot of top-line growth right now, what do you think the ROA and ROE target should be for FY ’27?
Sadaf Sayeed
So ROA guidance, what we are giving in terms of FY ’20 fix is around 2% and ROE translates to around 10% and we feel that with the moderate growth also, we would be able to make sure that our operating costs rationalized, our credit cost will complete — come down considerably. And more importantly our net interest margin remained robust.
So we should be able to deliver around 2% ROA comfortably. And ’27 onwards FY ’27 definitely we will be back to around 4% ROA, provide there is no event situation that comes in.
Deekshant
So do you think that this micro-finance issue that we are seeing all-around at this point of time, of course, we are seeing that a lot of managements have also peaked out and since our management has been so good in borrow — lending and borrowing both parts. Sir, do you think that it has blown out of proportion at this point of time because we are seeing better collection ratios also?.
Sadaf Sayeed
So I think every business goes through a cycle. So definitely micro-finance these cycles have become little bit more frequent we had COVID a couple of years ago and now we are seeing a crisis of over leverage and then state-level legislation I think from a point-of-view of a rebound, definitely microfinance as an industry has shown multiple times, whether it was Andhar Pradesh crisis, whether it was demonetization or COVID, it has bounced back reasonably well.
So definitely, we get impacted quite a lot because our nature of our product is unsecured but we get back and are able to kind of get back to normalcy also equally fast because the nature of the loans is short-term loans and the borrowers are quite reliable borrowers and most of the borrowers are not intentional defaulters.
They are situational and circumstance which lead to this delinquencies. So I think definitely microfinance has a long-term kind of space in this lending space and we continue to play a very important role. And as we continue to see more-and-more borrowers are getting into this space and getting benefit and getting into the formal segment, it plays an important role in financial inclusion and I don’t think so that it will have a dark future.
It will have a bright future going-forward.
Deekshant
Thank you so much for the clarity, sir. Wish you the best.
Sadaf Sayeed
Thank you
Operator
Thank you. We have our next question from the line of Sarvesh Gupta from Maximal Capital. Please go-ahead.
Sarvesh Gupta
Good evening, sir. Sir, most of the questions have been answered. Just wanted some more color on how the growth in terms of new disbursements is getting impacted because of the guardrail to what are you seeing in the ground because we have been — like we have been having that for the last five, six-weeks now?
Sadaf Sayeed
Yeah. So I think because of the Guard 2, we have seen a little bit of a jump-in the rejection, which is on a temporary basis around 5% to 6% additional — a 3% additional incremental rejection has come in, I think definitely that impacts the ability to retain customer because if a customer has other loans outside, we are not able to give our loan.
But definitely it is in the interest of the industry, we have seen the industry has degrown from INR440,000 to 375,000 crores as of March. And the leverage has also gone down among the borrowers. I think from a long-term sustainability point-of-view, I think it is pretty good. And as a player who has been there for a long-term, we have good capital adequacy.
We’ll continue to contribute to grow. So we will definitely will be benefit — benefited once this over leveraging scenarios kind of unwinds.
Sarvesh Gupta
So on the Karnataka situation, so I think till December, it was one of the better-performing states. So I think we saw a lot of spike happening in the month of February for the industry also. And so now do you expect this problem to sort of take its own slow timing or do we think that a pullback in terms of asset quality can happen in a very short-time because all this problem just happened over late gen and
Sadaf Sayeed
So I think that the benefit of microphone that all of these challenges gets unwinded also quite quickly. We are already seeing a pullback in Karnadaka. We don’t anticipate any challenges. See, the guide — the regulation that is there, it is respective towards unregulated lending. So definitely, in the long-run, that will help the regulated entities like us to Service our customers because the unregulated players will move-out of this space and the bad name that the industry gets because of the practices of an unregulated player that will not impact our borrowers. So that definitely will help us in the long-run. It’s a short-term plan, but for a long-term, definitely this will be beneficial for the borrower as well as for the industry.
Sarvesh Gupta
And by when do you expect the situation to normalize there?
Sadaf Sayeed
I think by September onwards, things will start looking lot better and already we are seeing improvement, but these are early days. So I think we need to see a little bit more trend. But by September onwards, we should definitely see positive trends coming in.
Sarvesh Gupta
Okay, sir. Thank you and all the best.
Operator
Thank you. We have our next question from the line of Anush Mokashi from Yarnai Academy. Please go-ahead.
Anush Mokashi
Hello. Yeah, thank you for the opportunity. Thank you for the follow-up opportunity. So you called out that by September, you see things maybe turning up better. But in Q — in FY ’25, Q3 was impacted also because of some festive reasons. So do you expect the same to happen in this Q3 as well?
Sadaf Sayeed
No, we don’t anticipate that to happen because I think we have taken some proactive steps. So certain things like we have introduced a policy where all the installment which are falling on a festival date, they automatically gets kind of into an extension of a tenor while we are originating, not for the existing loan, but any loan that we are originating at the time of fixing the installment, if you see that installment is falling on a holiday or a holiday for the state which is at a large level, that loan tenor gets extended, so our 24 month loan becomes 25 months and then 26 months two installment.
That helps in multiple ways. One is on the collection because on a festival day, the staff is also not available and the customer is also not available the collection does not happen. But now that it will not be an installment day, so it will not impact the portfolio. Secondly, it will also help in staff retention in a big way because when there were no such holidays, then the staff was required to go and collect either just before the festival date or after the festival date, which also impacted his ability to celebrate his festival with the family.
So that to attrition and all those activities. But all of these initiatives will help us build a robust portfolio and help customer satisfaction as well as employee satisfaction in a big way.
Anush Mokashi
Okay. Thanks for that clarity. And you said that FY ’27 provided there is no any adverse situation. You see ROE of roughly 4 odd percent. Can you also call-out the estimated like the ROE number for that year as well?
Sadaf Sayeed
So we can — depending on the leverage, it will be including the off-balance sheet portfolio, we will have around 4.5 to 5 times leverage that can result into around 18% to ROE. 18% to 20%.
Anush Mokashi
Thank you. Thank you so much, sir. That’s it from my side.
Operator
Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Over to you, sir.
Sadaf Sayeed
So once again, I thank you all for participating in our earnings call. As I outlayed in my opening remarks, our focus is on building a robust and sustainable business model and short-term pains are for the purpose of laying down the foundation of a long-term sustainable book. We are taking up a very strategic move-in terms of exploring products which are of secure nature for our customers.
I’m hopeful that the regulatory guidelines on the qualifying assets will also come in rather quickly and which will allow us to take benefits of these data mining that we have done. I think with these products, we will be able to retain our customers better. We continue to have a very strong brand.
We are strong leaders in digital space. We have 1.8 million customers of which who are having our app and we have seen their repayment trends. We have very strong rating and we continue to maintain our rating. We have good ESG rating also now. We have a very strong liability franchise, which is consistently bringing down the cost-of-capital.
We have adequate capital dedequacy of 27.9% and we have a strong stable team with a very, very robust branch infrastructure. All of these are fundamentals which are in-place. The year which has gone by has been challenging, but I’m very confident that going-forward, these fundamental pillars of success that we have put in-place will help us achieve the double bottom-line that we have wished to and we have aimed for forever, that is social impact and also sustainable return for our investors.
With that, I appreciate your patience and request your support and look-forward to interacting with you in future calls.
Operator
Thank you. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you