Northern ARC Capital Ltd (NSE: NORTHARC) Q1 2026 Earnings Call dated Jul. 29, 2025
Corporate Participants:
Unidentified Speaker
Chintan Shah — Investor Relations
Ashish Mehrotra — Managing Director and Chief Executive Officer
Atul Tibrewal — Chief Financial Officer
Pardhasaradhi Rallabandi — Group Risk Officer & Governance Head
Analysts:
Unidentified Participant
Digant Haria — Analyst
Adarsh Parasrampuria — Analyst
Avinash Singh — Analyst
Deepak Gupta — Analyst
Prateek Sen — Analyst
Pawan — Analyst
Aabhas Verma — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to Northern Earth Capital Q1 FY26 earnings conference call hosted by ICICI Securities Ltd. 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 Chindansha. Thank you and over to you sir.
Chintan Shah — Investor Relations
Thank you, Biren. Good evening everyone and welcome to the Q1FY25 earnings Q1FY26 earnings conference call for Northern Earth from We have from the management Mr. Ashish Mehrutra, M.D. cEO Mr. Atul Tibrawal, CFO Mr. And Governance Head and Mr. Chetan Parmar, Head Investor relationship I would like to thank Madhanath Management for giving us the opportunity to hold this call and congratulate them for a good set of numbers. So now without further ado I would now like to hand the floor over to the management. Thank you and over to you Ashish sir.
Ashish Mehrotra — Managing Director and Chief Executive Officer
Thank you very much Chintam. Appreciate your kind words. Good evening everyone. Delighted to welcome you on today’s call. Thank you for joining us. Today’s conference call to discuss Northern our capital performance for the quarter one ending 06-30-2025 I’m also joined this call by my colleague Satul Tidrawal our CFO Pal Rasarti Ralabandi, a group Risk officer and head of governance Chetan Parmar, Head of Investor Relationships and Jigar Setha, Head of Strategy. As we step into 2026 it is important to acknowledge that we are coming off rather an eventful fiscal year ie FY25 which was marked by several headwinds including a decline in credit growth, delay in rate transmission, regulatory shift in MFI and digital lending space.
Global macroeconomic volatility and the sector created significant challenges across the lending landscape. However, as we enter into FY26 we are beginning to see some early signs of recovery. We witnessed two rounds of rate cuts from the regulator offering much needed relief both in terms of pricing and liquidity. The macro indicators are turning positive. Rising consumption demand increasing fixed capital investments by large corporate which we believe will expect to flow downstream to MSMEs strong agricultural prospects supported by above normal monsoon forecast, continued capital push by the government. All this abodes well for the economy and sets a positive growth momentum for the year ahead.
Having said that, we do expect the residual impact of FY26 stress to linger through the first half of the year. But as we approach the festival season, we anticipate the credit environment to stabilize, allowing the industry to regroup, reallocate resources efficiently, further amplifying this in the RBI’s recent rate cut. Combined with reduction in the risk weight for bank lending to nbsc, this sends a clear constructive signal reinforcing the regulator intent to support credit flow, easing liquidity constraints and promote sustainable growth. As we began FY26, our aim is to carry forward the lessons we’ve learned from the last year headwinds and rise regulatory tailwinds to build more resilient, responsible and high perform business Quarterly Business Performance Let me now turn and talk more about Quarter one performance.
I’m pleased to share that we recorded the highest ever quarter one placement volume in Northern Ark. This serves as a strong indicator of revival of credit demand that we’ve been anticipating. Traditionally, Q1 is seasonally a soft quarter for credit uptake. This year performance was further impacted by the residual impact from FY25 leading to the cautious deployment of growth, ongoing geopolitical headwinds and continued weigh on the sentiments. As a result, overall credit growth remained muted at about 12% on a year on year basis. Growth was predominantly led by our MSME business that has been a strategic posture.
Our AUM in the MSME business grew by about 34%. This was followed by growth in the consumer finance segments which grew by 25% and our intermediate retail which is more a trade solution business grew by about 12%. However, if you exclude the growth in the rural finance business, the overall growth of Northern ARC would be 20%. In the rural finance segment we are seeing meaningful improvement. The par 0 accretion has reverted to March 24 level at 0.5% primarily driven by the broader recoveries across most of the geographies excluding Karnataka. While in Karnataka as we started showing early signs of stabilization, we believe there’s still a significant headroom for further improvement and we are actively working towards that.
Our fee franchise which is a unique fee franchise saw a strong traction as well with the recorded placement volume and a consistent accretion. In our funds business, our core fee coming from our placement and the fund management grew by about 24% on a year on year basis while the balance sheet grew by about 12%. This reinforces our strategic posture of building a credit solution ecosystem not just pure balance sheet led model credit quality and risk management. Credit quality continues to be best in class driven by proactive risk management and conservative provisioning policies. We continue to maintain a high quality book, prudently provide for stressed assets and unsecured exposures.
Having said that, the credit cost remains elevated during the quarter due to the tail impact of FY25 stress. However, we believe the initiatives being undertaken across should help us going forward. That is essentially driven by responsible and sustainable lending implementation of Mthin Card Rails. We’ve ensured that all the assets are under the rural finance are now under CGFMU guarantee scheme and strengthening our collection infrastructure. This will help stabilize delinquencies going forward. Given the improvement in the environment we expect H2 we anticipate trade cost to land somewhere between 2.5 to about 3% or more importantly between 2.7 to 2.9% on liquidity and capital and the funding remains well capitalized.
ATUL will talk about it and I don’t want to steal his thunder but fair to say we are top quartile among our peers in the managing our liability franchise but good to dwell couple of minutes as we look at strategic and way forward. Given that the strong foundation and the growth over the next three years as we continue to execute our strategy, we are well positioned to achieve a growth target of 20 to 25% annually essentially driven by big growth in the direct to customer business. Taking our mix to 70% which will be predominantly led by lending to MSME and consumer and rural finance.
We will continue to judiciously expand our intermediate retail business to build a unique and a very powerful fee franchise which will help us gain incremental 30 to 40 basis point on return on asset which essentially comes from us which reflects in a loaded name. Our credit conscious approach will help us reduce and ensure that the cost credit cost on a reimbursed basis remains well within the outlook we’ve shared and operating efficiency to ensure we continue to capitalize and leverage on our current capabilities to get better expansion in our net interest margin and cost remains within the range bond of 3.6% to 3.9%.
With solid execution we expect the ROA to get to 3.7 to 4 with ample growth headroom. We are confident of delivering ROE in the range of 16 to 18% over the next three years. We are excited about the journey ahead and are confident in our ability to execute, capitalize on emerging opportunities and stay ahead with the principles of sustainable and inclusive growth. With that I’ll now hand over the call to Atul to walk you through Q1 numbers in detail.
Atul Tibrewal — Chief Financial Officer
Thanks. Thank you Atish and good evening everyone. I appreciate you joining us for Northern Arc’s Q1 FY26 earnings call. Let me walk you through the financial performance. Our assets under management stood at 13,351 crore reflecting a growth of 12% year on year and within the AUM mix, the direct to customer business contributed 53% with MSME finance at 20, consumer finance at 26 and MFI consciously calibrated at 7%. Net interest income for Q1FY26 stood at 298 crores which is up 10% YoY. Net revenue including the fee income rose 9% YoY to 325 crores. Fee and other income grew by 8% YoY to 27 crores driven by robust placement volumes.
During the quarter. Our cost of fund for Q1FY26 was 8.9% compared to 9.3% in Q1FY25. Incremental cost of fund for the quarter stood at 8.7% versus 9.3% in Q1 FY25. This is an improvement of close to 60 basis points. Operating efficiency also improved our opex ratio by 57 basis points yoy to 3.5% aided by tighter cost control. As a result, our pre Provisioning operating profit rose 18% YoY to 207 crores compared to 175 crores in Q1FY25. Provisions for the quarter were 102 crore largely due to stress in the MFI segment. We believe this stress has peaked and should moderate going forward.
On a percentage basis, the overall credit cost for Q1FY26 stood at 3%. Asset quality remains stable with GNP at 1.1% and NNP at 0.6%. Profit after tax for Q1FY26 stood at 81 crores compared to 93 crores in Q1FY25 and 38 crores in Q4FY25. On the liabilities front, in line with our debt strategy and AUM growth plans, we have continued to diversify our funding base with a very clear focus on long term sources. Liquidity remains quite comfortable with positive cumulative mismatches across all the time buckets. As of June 30, 2025 we held surplus liquidity of around 600 crores and undrawn sanctions of over 1200 crores from various banks and institutions.
Total borrowings at quarter end was 9,422 crores with approximately 75% linked to variable interest rate, positioning us well to benefit from the decline in interest rate scenario. Our funding mix remains quite diversified. 30% from offshore and DFI sources and 70% from domestic banks, institutions and capital market. Tangible net worth stood at 3532 crores or 3532 crores up 27%. YOY. We have strengthened the balance sheet materially. Our debt to equity ratio improved from 3.9 in March 24 to 2.7 as of June 2025. Capital adequacy remains quite strong at 25.5% well above the regulatory requirements giving us ample headroom to grow the balance sheet over the next three years.
Thank you so much. With this I would like to open the floor for questions.
Questions and Answers:
operator
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question will press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have a first question from the line of Digantharya from Green Edge Wealth. Please go ahead.
Digant Haria
Yeah. Hi. Thank you for the opportunity and congratulations on the really good performance of the intermediate credit and the consumer finance division. So my first question is on provisions that this quarter Also we had 19 crores because of the, you know, DLG provision. So. Is it safe to say that 80, 85 crores of provisioning. We have peace at this number and going ahead every quarter we’ll see some bit of decline.
Ashish Mehrotra
We’ve done 100% provisioning on account of DLG. There is no more residual stuff. Whatever you will see, you will see the court provisioning anyway. Our provisioning tends to be prudent on stage one. Stage two, if you look at a coverage, it’s still upward of 50%.
Digant Haria
Okay, okay. Okay. So actually it would be safe to assume that 80 crores is probably the number for. Right, the peace number. And as microfinance improves, we may improve from here.
Ashish Mehrotra
I think we’ve seen what I said earlier. You’ve seen the indicator is the par 0 accretion. If that is equivalent to 0.5% which is what was there in last year beginning January 24th, it tells you that broad stabilization has happened. I said Karnataka will stop, still see a couple of more months. There is further scope for improvement is the right word to use. I think we are in a good position and that’s why we said it’s very flexible stuff. We are fairly confident as we Move forward. And we’ve been very cautious in our own approach dealing with this entire.
Digant Haria
Right, right, right, thanks. My second question is on the capital northern arc. Like, you know, as an external observer, if I see like, you know, the interrogate credit and the consumer lending, you know, they take very little off and you know, they deliver very good roas the business. But when it comes to retail, you know, it’s been like four years now. Probably takes the largest portion of the operating expenses and capital employed. And you know, if I just give a simple sum of the parts, I think that, you know, our retail business is not even making a 0% kind of an ROA.
So my pointer is, you know, you said that in the long term we would want to increase the rural MSME business. So you know, before, like, you know, what have been our learnings of the last four years and you know, like why do we want to, you know, because this business has not given us, you know, any meaningful return over the last two, three years. Why are we doubling down on that? And yeah, so that’s the first question on this capital allocation.
Ashish Mehrotra
Let me try and take and break this into smaller parts. We at a management and at a board level are very sharply focused at the segmental or the product profitability. That’s the way we conduct our business. We allocate capital depending on where we make both the strategic investment and where will we get the expected huddle for return on assets, achieve return on assets and return on equity for the chains. We also know the headroom for the expansion on the return of assets as we build the business forward. Our retail business today is extremely profitable. If I look at whether it is digital lending business over the last year, year and a half, it makes really good return on assets significantly better than what we have on an aggregate basis.
Credit solutions business is a very unique business and we’re building more on expansion in our ability to do a lot more credit solutions. Fair to say we are very uniquely positioned. Our ability to originate large amount of retail credit. Our ability to process large quantum of retail credit. Our ability to run hybrid technology for the credit to flow from originators to investors. Our ability to sell that credit to institutional investors. We’ve demonstrated that for the last 15 years. Our ability to sell that to the retail investors through our bonds platform. Our ability to invest in that credit from our fund management business specific to right side of if the fund has a right set of thematic opportunity for investment.
Our ability to support it from a balance sheet and have the ability to manage and collect I think That’s a very powerful business and that business started to generate more than three plus return on assets a function of how strong the fee franchise runs. And that’s why to what we said on a forward looking basis as you combine all of these pieces, we will get to where we want to get to. Obviously we dealt with the situation in the rural finance business which is cyclical in nature where we saw what the issues were. We were very proactive in bringing down our exposure and managing that risk.
We’ve also now introduced, tested our own back tested our own scorecards where we see what kind of outcomes will we get in case such 1 in 10 year risk events occur. And I think we are pretty confident building it as we build forward but we will be cautious as we go about doing it.
Digant Haria
Thanks. So you know, so specifically rc, you know the question is more for these two pieces of our business, the direct to consumer, you know, lap small lab business and the microfinance business. Because I think the microfinance has obviously. Given us a lot of pain. So between the two like how do. We take it forward and then you. Know, are we thinking of any
Ashish Mehrotra
basis to what I said both all these businesses, whether it’s consumer lending, whether it’s MSME lending, whether it’s rural finance pay will be all in the range bound if not better, theoretically better ideally better than what we said as an outlook for the business and they are barring the rural finance at a product level none of them are negative today. And we do hard cost allocation through going down to direct cost support, cost management cost. We don’t do incremental revenue to incremental revenue. So we take a very hard look when we look at allocation of our resources and capital.
Digant Haria
Okay, Okay. I hope you know we see those divisions also delivering because you know it’s taken a lot of capital and opex. So all the best for that Ashish. Thank you.
Ashish Mehrotra
Thanks.
operator
Thank you. The next question is from the line of Adarsh Parasrampuria. Please go ahead.
Adarsh Parasrampuria
Hi Ashishan team. Congratulations. Question on SME and consumer finance in context of 1 some commentary is coming from peers on some problems on SME that they’re facing little more to do with SME. So qualitative comments from your side and on consumer finance last well 18 months where little disruptive models change. DLG came in then there are some withdrawals happening as well. So just wanted to understand is things stabilized now? What’s your outlook on these asset quality comments on these two businesses?
Ashish Mehrotra
So I will give you not specifically to our balance sheet. But also given that we move sideways amount of assets from securitization and given the multiple. So I’ll take a broader industry view as we talk about it. You know, if you actually look at it in the consumer finance space, three things have happened over a period of last two years. One, the shift away from the small ticket personal loan, buy now, pay later. That is a mix in the consumer finance space is come down. The second is the short term high APR loans. Given the RBI intervention last time on transparency and pricing, that as a mix at an industry level we’ve seen the reduction.
And third is more prudent given the consumer finance business or the personal loan business saw a little bit of higher ended credit cost. But as we look at it, it’s broadly stabilized today. As long as you’re able to price for this, that risk, I think we’re able to get right set of outcomes in our own business. We price for it by leveraging both the FADT and the pricing mechanism to ensure we’re targeting the right set of customer cohorts which will give us a decent risk. Adjusted net margin of risk, adjusted yield of about 15%, 14 to 16%.
I think that’s the one part in the unsecured SME loans we are seeing higher elevated flow rates as a consequence of that higher credit cost. And I think there is some amount of tightening which we have seen our peers doing it. In our case we don’t have high concentration of unsecured business loan in our balance sheet. So we are in that way protected. But on consumer I think we’ll be seeing stabilization because you are also targeting a better set of customers. Earlier when you were lending at 18, 30% and you’re lending at a short term, you had a very different target customer profile.
And as you start lending for longer term, you’re targeting better. So I think that we should see stabilized, that we’ve seen stabilization. Unsecured business loan goes through the cycle. There is a period we’ve seen that across industry. And I think part of that spillover of that effect coming from MFI should also get washed out by this quarter. I mean by H2 you should start seeing improvement in those numbers.
Adarsh Parasrampuria
Thanks, Ashish. And the other question is slide number 34 on the ROA ReWalk. Our margins move from 10 to 8.9%. Yields were down 89. Part of it possibly may be a reduction in the MFI book. But just wanted to understand, because.
Ashish Mehrotra
You picked it up right, two things. One is the reduction in the MFI book You saw what this book was, it’s now down and we are rebuilding this book and the second is we’ve conscious exited last year some of the segment what I alluded to earlier. So as a consequence as we rebalance the book I think we will our nims will come back to where they were and they’ll continue to expand with the change in the mix with our direct customer heading towards quarter on quarter inching towards 70% what is the targeted aim?
Adarsh Parasrampuria
Perfect. And my last question Ashish is on credit cost we are at 3% with some one offs on DLG. You did mention sometime 2.5 to 2.7. Is that the exit credit cost or the average that you expect for the year?
Ashish Mehrotra
You know I think our outlook is that we should. While we’ve seen the elevated part of the residual impact from 25 coming into this quarter coming into Q1 there is some small piece but I think by end of the year we should be able to end on an aggregate basis credit cost of below 3% anywhere between 2.8 to 2.9 and that’s the outlook we will work towards. We’re working very sharply to ensure our target client model remains true to get the right set of outcomes.
Adarsh Parasrampuria
Perfect decision team, thanks for answering the question.
operator
Thank you, thank you. The next question is from the line of Avinash Singh from Emkay Global Financial Services . Please go ahead.
Avinash Singh
Thanks for the opportunity. Again continuing on the you know asset quality and event cost outlook. So broadly if we were to sort of you know hear the commentary from various lenders I mean there has been concerns around of course MFI likely bottoming out MSME unsecured piece particularly some concerns then microlab is concerns, I mean are kind of increased concerns. Additionally if we look at the kind of the CV segment is also where CV or I mean use and new both is where there is kind of a sub layer hinting at increase in stress and all in your in your scheme of things that of course that vehicle piece is relatively smaller but.
And that was also intimidated but from whatever you are gathering because of course you will be seeing what kind of a trend you are seeing as far as the you know stress buildup is concerned in the vehicle segment. So that’s question one and second I mean when you are sort of a kind of a hint, I mean giving this guidance that okay credit cost for the year should improve from here onwards which are the segment I mean that is giving you sort of a more and more confidence that I mean you will be able to kind of do better from here Because I mean here, I mean if we look at different players, there are noise around most of the segments where you are.
We have a question. Thanks.
Ashish Mehrotra
Hey Avinash, very insightful as you connected all the dots, given some of the early conversations you would have had. And I think it’s fair to say MFI is a good leading indicator to how credit is being performing. It’s also very different operating model, but it’s more grouped than JLG in today’s context. If one just steps aside and reflects on it and you’ve seen as the over leveraging happened there, you saw impact of that flowing into unsecured personal loans, unsecured business loans and so on and so forth. You’ve seen some of the results where it then transcended into small businesses, into commercial vehicles and so on, so forth.
Our sense is as the new guard waves come into play and to what I said that we’re seeing an improvement in power zero accretion. This means the flow rates, the forward flow has significantly reduced and we are broadly in line to where we were in early 2024. That means we should start seeing some amount of improvement not only in MFI but also across as it flows forward. Further to protect, we’ve done two things. We’ve also recalibrated our scorecards for our own piece because we’ve been doing that and to ensure that we get better set of outcomes.
It might have resulted in a reduction in the approval rates but that’s I think fair to do during this time because we want to build a better quality high annuity income. And the second, we then also said, listen, we also taken CGFMU cover incrementally for all assets coming on board from March onward. So I think overall as we see improvement in the par 0 income in MFI and see part of that impact flowing into some of the other unsecured pieces over the next three quarters, you know, two to three, four quarters, we’ll see that. And you know MFI is actually the first one to call out in that segment that there is a trouble if you are a monoline, if you’re a single product pony and you’re having a challenge in that product, you have no choice but to highlight that there is a challenge.
You’ll be. I think that’s, that’s my, that’s my thing. That’s what we are seeing. Yeah, that’s exactly what we are seeing.
Avinash Singh
Okay, thank you.
operator
Thank you. The next question is from the line of Deepak Gupta from JM Financial. Please go ahead.
Deepak Gupta
Hi. Good Evening team. My question, first question was on credit cost guidance. I just wanted to understand it a bit better given the fact that you reported through credit cost for the first quarter and you’re guiding that at the end of the year you’ll be at 2.8 to 2.9% despite the fact that this quarter had DLG which may not be there in the coming quarters. Are we expecting credit cost to go up in the next few quarters? Is that what the guidance is?
Ashish Mehrotra
No. While I ask for the group Rajsh to talk about it in detail.
Pardhasaradhi Rallabandi
No, not really. The way to look at it is whatever is the credit stress that is there in the system Continuing from FY25 is something that should play out. By. September quarter in H1 of this year and H2 should be reasonably better and in line with what we have been doing. All these files have been reasonably conservative and building up the provision base that we have both for good book and for such assets on the balance sheet with reasonable amount of conservative design, we are talking about 2.7 to 2.9% being the full year credit cost. But having said that, it’s not that we are expecting more stress, higher or elevated stress than pay than what we have seen in 25. In 26 that’s not the case.
Obviously there will be balance sheet growth and there are certain segments of the business where we would plan for higher credit cost. The growth can happen in those segments because of which we might see the ultimate credit cost landing between 2.7 to 2.9%. But if you look at it as a stress on the portfolio, I think 25 was a year and one whatever is the residual of that that we are carrying in H1 we’re continuing but we don’t really think that 26 on an average would be higher stressful than what we have seen in Q1 and what we have seen in 25.
But having said that, it’s good to be a little cautious, a little bit conservative and the guidance is something that we should be reasonably conservative about.
Deepak Gupta
Okay. The question was coming from the fact that your stage two and stage three loans are showing 50 basis increase. So I was just wondering that you’re expecting further slippages to happen from stage one to two or three in the coming quarters.
Pardhasaradhi Rallabandi
Stage two, obviously stage three is not really issue because that’s already in par 90 and we have provided adequately as per the policy and there is a phase 2 increment of 1.8 to 2.1% which is pretty much in line with where we should Reasonably expect the numbers to be in the environment. 96.7% stage one and 2.1 that is 98.8% stage one into SF is a comfortable position to be in.
Deepak Gupta
Sure. And my second and last question is when you’re looking, when you’re targeting a return on asset of 3.7 to 4% in the next few years, what kind of credit cost are you envisaging and in terms of what kind of nims are you looking at? Given the fact that microfinance is under due risk but you all plan to continue with that segment in the coming quarters and years.
Pardhasaradhi Rallabandi
Three years is obviously a long time and we should budget for 5 things etc. Etc. The way to look at it is we would plan the way the business mixes. We would plan for the credit cost to be contained in the range between 2.5 to 3 and that is how. And that with the, with the expansion of the NIM and the. And the leverage going up and obviously we have a scope for balance sheet growth growth at the current capital level. With all this put together we should have reasonable RE levels. Always return on asset levels and return on equity levels.
operator
Sure. Thank you. Thank you. The next question is from the line of Pratik Sen from Dexter Capital Advisors. Please go ahead.
Prateek Sen
Thank you for the opportunity. What’s the split of sourcing of our loans for D2C book? I mean how much is it from our own branches and from the subnet? Can you hear me?
Ashish Mehrotra
Sorry. Yeah. Okay, let me. So the. If you look at the D2C and split in two parts, one is the digital sourcing, second is the branch based sourcing. Branch based sourcing is 100% between MFI and Ms. Secured MSME lending is directly through a branch network. Both 360 plus branches originate digital lending happens through our digital partners and we probably run the most sophisticated high quality lending platform. We spoke about it multiple times on that platform we underwrite anywhere between seen 18 to 20,000 loans a day. It runs. It is a very customer centric product agnostic platform.
And you know, so it has. That’s how the split is.
Prateek Sen
Okay. And what’s the blended yield on this loan and like how is it shared with the partners?
Ashish Mehrotra
You know we said in the consumer finance we make risk adjusted yield of anywhere between 15 to 16 and a half percent. On our secured SME lending business we make a yield of about 18.5 to 19.5% rural finance book which is pretty low. We make about 24%.
Prateek Sen
Okay, okay. And all those partners which have FLDG in place, right?
Ashish Mehrotra
Yeah. All digital. What we do we have. We leverage the FLDG construction.
Prateek Sen
Understood. Okay. And on the monetization of our tech stack and platforms Nimbus NPOS nuscore what’s the yearly revenue that they are clocking from these like if you can share that.
Ashish Mehrotra
So we’re seeing early traction. We’re now live with two institutions in the NPOs. We are working with one large non bank finance company company and three other banks to take live. We demonstrated in bank we are live with to do across products from an SME loan to a secured gold loan. Nobody has the capability to do so many products through a single platform and scorecards are now being used by two or three institutions. We are expanding that we’re making. That’s why when I spoke about credit system solution as a unique business. There are very few businesses which have full capability to originate across the retail assets or their retail lending platform to do all what is required to be done.
One is to originate large quantum of credit between 360 +NBFCs whom we work with to take that retail credit to underwrite the risk of that retail credit credit place that risk and process that through our own technology platform which is Nimbus make it available to institutional investors. 90% of people who invest in these assets have been buying these assets from us for over three years to make that available to retail investor through our own bonds platform called Altifi AI. Please do download the app and use it. It’s good way to allocate some of your wealth into high yield bonds then is to take it invest from a funds business which has done really well.
We run 11 funds so far six of them have closed. Their average yield over the nine years on the performing credit is upward of 14% or then supported from balance sheet and service across across the asset classes. So I think that’s a unique capability we have and we continue to expand fee franchise leveraging all of that to support what we do. More importantly it gives us access to inordinate amount of information and ensure that the northern north becomes a great learning organization as we see the flow of all of these loans and the performance performances of these loans.
So we have over 45 million time series of loan performance data. So you know we broadly look at it differently.
Prateek Sen
And a follow up question on the yield Is the blended yield figure same as the average borrowing rate for the borrower or is it the numbers you put it? Is it post commission?
Ashish Mehrotra
You must not take that.
Atul Tibrewal
So the field that we show you know, as part of our investor deck is the one that we charge to the end borrower. But for our digital lending business it will be the net of the fees that we pay to our partners. So for the other businesses it is the charge, it is the interest that we charge directly to the end customer. But for the digital lending business which is largely the consumer business, it is the net yield, basically the yield adjusted. With the service fees.
Prateek Sen
Okay, understood. Thank you. I’ll get back into.
operator
Thank you. The next question is from the line of Pawan from llwys. Please go ahead.
Pawan
Thank you for the opportunity. So my question is mainly on the personal loans. The quarter on quarter growth in personal loans is down to 3.3%. Is it more of a seasonal aspect or more related to calibration of scorecards you mentioned? And on the corollary, how will the growth rates look going forward related to this earlier you mentioned that you’re moving higher in the credit quality in personal loans. So what will happen to the yields in this segment? Yeah.
Ashish Mehrotra
Hello, good evening. I spoke about it earlier. Yes, we did moderate some part of consumer that’s essentially on three things. One, sensitivity in line with the fair lending code. The second is consciously exiting the short term personal loan which we all saw the issue it was creating and that’s the second part. And the third part was was also building towards a better quality customer cohort which is a longer term rather than running on a treadmill. I think those three were very conscious decisions we made. We believe that the yield what you’re seeing compression is largely led more by the reduction in the rural finance as a mix of our overall business and as we recalibrate the business we believe the yield will come back quarter on quarter to where we were.
And actually as the mix improves on a quarter on quarter basis to more retail, you will see expansion in the yield and in the nim both on account of the change in the mix of the balance sheet and also on expansion of the fee franchise.
Pawan
And how will the growth rate look?
Ashish Mehrotra
Growth is about 28%. Just to correct on the consumer finance, if you refer to the slide 13 you will see that quarter 4, quarter 4 tends to be a better quarter.
Pawan
Any guidance on the growth rates going forward for personal loans and the msme?
Ashish Mehrotra
Sorry, the voice is not clear.
Pawan
Any guidance on the growth rates for personal loans and MSME going forward?
Ashish Mehrotra
Broadly said. We said in broadly in line with the overall guidance we’ve given and we also said specifically how we want to play in these three segments which is MSME Consumer and Rural. Thanks. Thank you all.
operator
Thank you. The next question is from the line of Abhas Varma from East Green Advices. Please go ahead. Hello.
Aabhas Verma
Hi, can you hear me?
Ashish Mehrotra
Yes we can.
operator
Yes Mr. Abbas, please go ahead.
Aabhas Verma
Yeah I have a question on you on your branch network strategy. So in one of your earlier con calls you know you had mentioned that branch expansion.
Ashish Mehrotra
Hello, we can’t hear. Hello? Hello?
operator
Hello. The participant has left the queue. I would like to take the next question from Chetan sir, Please go ahead sir.
Chintan Shah
Yeah thank you for the opportunity. Also sir, just one thing on our incremental cost of funds. So I think incremental cost of funds have seen a quite a sharp decline to 8.7 percentage versus 9.3% QoQ and this is almost equal now to FY22 level and also I think liquidity has kind of quite ends up improved in this quarter. So as such means what changes? I understand that it could be partly to reporate but what kind of cost of borrowing could we expect? And could you just throw some more light on the cost of funds and the liquidity front? Yeah.
Ashish Mehrotra
All the great jobs he’s done, great liability franchise.
Chintan Shah
Yeah sure.
Atul Tibrewal
Thanks Ashish. So Chintan, as you know the incremental cost has come down definitely but what we actually now need is to bring down the overall cost of my book. The good thing is that 75% as you know is variable and unfortunately the repo rate transmission has not yet started happening by the banks. But definitely we this is something that we will now see and my on the books cost of fund which is currently at 8.9% though that has come down from 9% level. That should come down even further as we get more and more benefit of the NCLR cuts by the banks.
Secondly around 25% of the book is linked to repo. I think that benefit has already come to us. But what we will definitely look forward to is the reduction in the NCLR by the banks and most of the proposals in the banks it gets renewed in the second quarter of the year. Once the financial results are out. So I think going forward we should look at a 20 to 25 basis points reduction in the overall and the incremental cost should even come down further. Add to that we will also be doing more offshore. You know offshore comes at a significant lower cost. We have good sanctions in our hand and I think that is something that we should capitalize on in the next. Couple of months should reflect in our. So that would definitely add to the NIMS NIM expansion coupled with the better yield from year on.
Chintan Shah
So that’s quite in detail. So and also one thing on the guidance front. So as such means. So considering the credit cost we have guided for 270 to 290bps in this year. But so what kind of credit cost do we expect in FY20? So your the credit cost should be on a downward trend because can it settle on two and a half or like how should we look at it from a steady state perspective?
Atul Tibrewal
Yeah. So as you know our mix would be changing the mix in favor of direct to retail. And definitely direct to retail will have a higher amount of credit cost. So we will, we will be in the range of 2.7 to 2.8% in FY27. But 28 on I think we should see a slight reduction to around 2.5 to 2.6%. That is how we have given guidance in the past as well and we. Stick to that guidance.
Pardhasaradhi Rallabandi
Just to add to that, obviously with the mix change there will be expansion in as well and that sufficiently covers the improving credit cost.
Ashish Mehrotra
Yeah, sure.
Chintan Shah
So from an ROA standpoint. So in FY27 can we be looking at around three and a half percent ROA or. Yeah. How is it?
Atul Tibrewal
Yeah, we should be looking at those numbers and that is how we should reach to close to 4% by FY28.
Chintan Shah
Sure. That is very helpful. Yeah. I’ll join back in the video. Thank you and all the best.
operator
Thank you. That was the last question for today. I now hand the conference over to the management for closing comments.
Ashish Mehrotra
Thank you all very much. Thanks Chintan. Thank you moderator for really managing it well. Thank you all for joining late on Tuesday evening. Really appreciate for your support and very insightful questions. Have a great day and a great year ahead. Thank you.
operator
On behalf of ICICI Securities Ltd. That concludes this conference. Thank you for joining us and you may now disconnect your lines.
Ashish Mehrotra
Thank you.