Northern ARC Capital Ltd (NSE: NORTHARC) Q3 2025 Earnings Call dated Feb. 14, 2025
Corporate Participants:
Ashish Mehrotra — Managing Director and Chief Executive Officer
Atul Tibrewal — Chief Financial Officer
Pardhasaradhi Rallabandi — Group Risk Officer and Governance Head
Analysts:
Chintan N. Shah — Analyst
Nidhesh Jain — Analyst
Renish Bhuva — Analyst
Paresh Jain — Analyst
Sumit Bhalotia — Analyst
Sushil Choksey — Analyst
Purushotham — Analyst
Balaji Kasal — Analyst
Presentation:
Operator
Good day, ladies and gentlemen. Welcome to the Northern ARC Capital Q3 FY25 earnings conference call, hosted by ICICI 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 this conference, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Chintan N. Shah from ICICI Securities. Thank you, and over to you, sir.
Chintan N. Shah — Analyst
Yeah. Thank you, Darwin. Good evening, everyone and welcome to the Q3 FY25 earnings conference call for Northern ARC Capital. We have with us from the management, Mr. Ashish Mehrotra, MD and CEO, and the senior management team. I would like to congratulate the management for steady set of numbers.
So, now, without further ado, I would like to hand over the floor to the management. Thank you, and over to you, Ashish sir.
Ashish Mehrotra — Managing Director and Chief Executive Officer
Thank you, Chintan. Thanks, Darwin, for putting this together for us. Good evening, everyone. Thank you for joining today evening. I know it’s a Valentine Day, but thank you taking the time out to join us today.
We’ll talk about the Northern ARC performance for the third quarter and that is for the first nine months of the FY25 fiscal year. Northern ARC has built a robust and a well established distribution network over the past 15 years which includes widespread presence in about 373 with about 373 branches, a customer base of about 1.9 million, partnerships with over 343 originators with over 1100 investors. The extensive network has enabled us to facilitate credit financing totaling to over 2 trillion INR and approximately impacting the lives of over 115 million individuals and businesses.
That being said, our asset under management on an AUM basis has grown by about 16% on a year on year basis reaching about 1200250 crores compared to the rather muted credit growth we witnessed in the industry. Our proactive strategy enabled us to anticipate and assess the stress emerging from the MFI space. As a result, our share of direct MFI exposure has decreased to about 9.6%, up from 14% in December 23.
Furthermore, our diversified business model provides us with the flexibility to adjust our sectoral exposure or the exposure to a select set of customer segments as needed, allowing us to efficiently scale up or scale down in response to the opportunity or challenges in the marketplace over the last the current trade cycle is not something we are unfamiliar with. We have been cautious with risk management at the core and emphasize focus on risk monitoring and collection both in terms of arresting flows and improving recoveries in case we deal with these threat situations.
Having said that, over the last 15 years we have weathered multiple cycles including the events such as demonetization, ILNFS Crisis, DHFL Crisis, COVID Pandemic 19 while remaining consistently profitable quarter on quarter. Our robust and diversified business model has enabled us to navigate these challenges while consistently developing the top quartile results on a quarterly basis. The increase in GNPA is primarily attributable to the stress in the MFI sector which as I mentioned earlier has been significantly scaled down. Further, as market condition evolves, we remain cautious and we expect that over a period of next few quarters the market will tend to reach towards normalization.
Apart from lending, we have a strong fee franchise which essentially constitute two parts of what we do. One is the placement solution and second is the fund management business which generates consistently sticky fee incomes and provide a kicker to a return on assets. Placement volume for the first nine months is over 8000 crores and compared to the same period, it’s largely flattish because of the challenges I spoke earlier in the unsecured and the MFI space.
As credit market stabilizes and the confidence return, we anticipate resurgence in demand for the placement services enabling us to regain the momentum and continue supporting the growth of flowing of credit to the underserved and the unserved sectors broadly around the credit markets. These are not risk taking. I just want to clarify placement we don’t take any risk on our balance sheet. This is purely the placement of structured finance solutions we provide on our performing credit funds. Our AUM is about 2,700 to 2,800 with an additional undrawn commitment of about 350 crores from our existing fund. Furthermore, we’ve launched the Climate Fund which we spoke about earlier based out of Gift City which targets about $125 million.
Today, we have a secured hard commitment of over $65 million from various foreign institutions. This commitment will provide us this commitment provides us with a robust pipeline to deploy approximately 1300 crores in the coming quarters. The key differentiator to our growth strategy and to our overall strategy are strong technology and data analytics capabilities. This call will be recorded we build strong proprietary tech platform like Nimbus, an origination system called NPOS which provides on lending and co lending solutions, new score and analytics platform, a proprietary scorecard platform and Altifi distribution platform designed to democratize the retail participation in the credit space. We expect to monetize these platforms in the coming quarters and years by collaborating with our originators and investors.
Our disciplined approach to the risk management and strategic expansion has driven and delivered about 22% growth on a year on year basis in our profit pools reaching to about 267 crores for the first nine months of the year with an ROA return on assets of about 2.9%. This period is reinforced and important insight that resilient business with a proven track record thrives in challenging environment. Our ability to navigate uncertainty while sustaining growth highlights a maturity, agility and commitment to the value creation. Looking ahead, we remain focused on delivering solid and sustainable performance of our business and to create a long term value for all the stakeholders in our ecosystem.
I’m going to request my colleague, Atul Tibrewal, our CFO, to walk us through the financials, and then we can open the call for taking the Q&A session. Thank you. Atul, over to you.
Atul Tibrewal — Chief Financial Officer
Thanks, Ashish. Good evening, everyone. Thank you for joining the Northern ARC earning call.
Let me take you through the financial performance of the company. The asset under management stood at 12,250 crores reflecting a strong growth of 16% year on year and remained flat in comparison to September 24. In terms of AUR mix, the MSLE finance contribution increased to 39% followed by consumer finance at 29% and MFI at 19%. Our direct to customer mix improved significantly to 52% of the AUM. Our net revenue including states and other income reached 289 crores in quarter three reflecting our 8% year on year growth.
The interest accruals on write off and state C loans amounting to 25 crores have been reversed in quarter three FY25. Fees and other income on a Dupont basis have remained rangebound at 0.7% of the average total assets. Cost of funds have increased marginally from 9.1% in H1 to 9.2% in nine months FY25 due to liquidity constraint and elevated interest rate environment in the market. Additionally, we have significantly progressed in strengthening our balance sheet with our debt equity ratio improving from 3.9x in March 24 to 2.5x as on December 24.
Our provisioning coverage ratio is at 60%. Our pre provisioning operating profit or PPoP as we call it for Q3 increased by 9% YoY to INR176 crores marking the set adjustment of interest reversal. PPoP has grown by 24% yoyo to INR201 crores. OPEC ratio was stable at 3.5% for the quarter. Recognizing the overall ongoing stress in the MFI industry, we have strategically moderated our direct microfinance business credit cost in quarter three. FY25 is INR81 crore which denotes a 2.5% of the average total assets. GNP and NNPA stood at 0.9 and 0.37% respectively.
On the liquidity front, we remain quite comfortable with positive cumulative mismatch across all time buckets. We had surplus liquidity of close to 600 crores as on 31st December and undrawn sanctions of over 1,200crores from various banks. Our total borrowings at the end stood, at the end of the quarter stood at around 8,600 crores with approximately 65% tied to variable interest rate. So this position will serve us favorably to benefit from the anticipated lower interest rate environment in the future. We have also diversified our funding mix significantly during the year with offshore fund rates of close to $115 million in the beginning of the year, which of course is on a fully hedged basis.
Capital adequacy continues to be strong, well above the regulatory requirement. With capital adequacy standing at 26.1%. This provides us enough headroom for us to grow our balance sheet for the next 2 to 3 years. Our tangible net worth as on 31st December was 3400 crores. We made a pack of 76 crores for the quarter for 9 months. FY25, the pack was 267 crores. Therefore reported a growth of 22% over the previous year.
Thank you so much. With this, I would now like to open the floor for questions and answers.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles.
The first question is from the line of Renish from ICICI. Please go ahead. Renish, your line has been unmuted. You may proceed with your question. As we’re not getting a response from the current participant, we will proceed to the next question, which will be from the line of Nidhesh Jain from Investec. Please go ahead.
Nidhesh Jain
Thanks for the opportunity. Can you break down the credit cost on the direct microfinance portfolio and rest of the portfolio?
Ashish Mehrotra
Sure. Happy. Pardhasaradhi, our CRO, will take this.
Pardhasaradhi Rallabandi
Hi. Out of the overall credit cost of 81.3 crore for the quarter, the microfinance portfolio credit cost is 21.5 crores.
Nidhesh Jain
This is the direct microfinance rate, direct microfinance portfolio cost constituted by fruits.
Pardhasaradhi Rallabandi
Correct.
Nidhesh Jain
Total microfinance. Secondly, how do you see the growth in the fund business let’s say over next couple of years?
Ashish Mehrotra
I think the fund business — sorry, the question is for the funds business growth.
Nidhesh Jain
Yes. What is the plans for fund business growth and how do you see the outlook over next two years?
Ashish Mehrotra
I think we are reasonably bullish on our funds business. We have demonstrated with 10 funds performance over the last nine years and we successfully delivered five or 10 up close we’ve successfully delivered better than promised return in each of our funds. That shows the resilience and performance of the fund. If I look at an aggregate basis of funds that delivered over 14.5% return over the last nine years on the fixed income platform, we are expanding our funds business. The first fund I spoke about climate which is 125 million green shoe dollar denominated funds getting launched.
We are finally on the verge of closing Emerging business fund where we deployed over thousand close to 1000 crores and then we are in the process of launching three more funds which all been in the pipeline both in regards to the India impact 2x essentially supporting businesses and the second version of the Emerging Business Fund closer to the private credit. Given the robust origination and the risk management factors, the fund’s business poised to grow significantly from where it stands. We remain deeply committed in building that franchise. Given the track record of 9 years of performance with over spread across over 10,000 crores of deployment in the funds.
Nidhesh Jain
Sure. And what is the status of AVM housing which I think you have exposure to? Is it still current or have we identified that as have you classified that as GS3?
Pardhasaradhi Rallabandi
Hi. We normally don’t comment on status of individual exposures and measures taken to address risk issues from the portfolio. We have a framework to identify the structure, taking mitigation actions to minimize the potential losses, recognizing the failings of asset as per accounting and often provide. Provisions for this quarter include all the assets which are under stress or potentially under stress and discussed with the statutory auditors and approved by the audit committee and the board of the company.
This is not the first time Northern ARC is seeing a credit stress environment and both in terms of retail and in terms of intermediate retail exposures, we have handled multiple stress situations on multiple cycles, whether it is demonetization or COVID or ILSS or any of these seconds. We have a mechanism to handle both retail and retail stresses and the process is continuing. I would not be able to confirm a specific asset staging or pursuing any call like this.
Nidhesh Jain
Sure. Okay. Thank you. That’s it from my side.
Operator
Thank you. The next question is from the line of Renish from ICICI. Please go ahead.
Renish Bhuva
Hello. Am I audible?
Ashish Mehrotra
Yeah.
Renish Bhuva
Yeah. Hi. Sir, first of all congrats on a good set of numbers, especially in the environment where you know most of the guys having MFI exposure reporting losses, it’s encouraging to know that we have maintained our profitability. So just two questions from my side. One on the borrowing side. So when we look at nine month FY25 cost of borrowing, you know, sort of remaining critical at 9.2, especially when we look at the bank’s MCLR rates, it’s, you know, it’s keep on increasing. So how are we managing our cost of funds in this quarter and what is the outlook? I mean given the rate cut has already started, how are we placed in a falling rate cycle?
Ashish Mehrotra
Atul, you want to take it?
Atul Tibrewal
Yeah, sure. Thanks, Renish. So, you correctly mentioned quarter two was a bit tight in terms of liquidity. We did see the short term rates go up. Few of the banks did increase their nclr. But the good thing we did ranit was that we raised sufficient amount of liquidity end of September and we also raised 500 crores of capital which actually took us through the entire last quarter and we were sitting on a good amount of liquidity. Considering growth was a bit muted. We actually are now seeing some of the rates now coming down both the short term and long term. We are also seeing banks also started, the bank rates also started stabilizing and going forward we will definitely see some improvement or some reduction in the cost of fund.
We continue to hold footlongs of liquidity. That gives us a good question. As I mentioned that 65% of our rates are variable and when we actually see the banks bringing down the rates post the repo rate cut, that will actually significantly help improve our cost of fund.
Renish Bhuva
Got it. So sir, let’s say the 64% of our borrowing, you know with banks, what percentage of this is linked to EBLR and let’s say one month, three month NCLR?
Atul Tibrewal
Yeah, most of will be linked to NCLR of the bank but close to 5% would be linked to repo rate. So there also, you know the change doesn’t happen overnight. The change will happen you know, end of quarter, beginning of next quarter. So — but yeah. That’s a very small amount of the total. The major part is named to NCLR.
Renish Bhuva
Got it, got it. And just my second question is on PAT.
Ashish Mehrotra
The structure, the way our liability profile is designed would be long term borrowing would be offshore and the amount of liquidity will probably get benefited significantly and more importantly, we always have positive. So probably among the NBFC peer groups, fair to say will have one of the strongest liability franchise.
Renish Bhuva
Got it. And sir, maybe just a follow up on that. So offshore funding, fully hedge cost is similar to 9.2 or slightly higher?
Atul Tibrewal
It will be lower. So we would have availed at the beginning of the year. So the rates were lower at that point of time and we have raised $115 million. So the all inclusive fully hedged cost was less than 9%.
Renish Bhuva
I see. Okay, okay. And so my second question is on the microfinance exposure. So it clearly mentioned that we have calibrated the growth in this segment and I think is the right strategy considering the current environment. But what, what is your internal assessment on the MFI? I mean, is it fair to assume that the asset quality has picked out and maybe from Q4 onwards we should start seeing the improvement or you feel otherwise?
Pardhasaradhi Rallabandi
Yeah, we have as all of as you have been seeing in the market and from all the disposals from various participants, credit stress in the sector is quite high. In terms of what we should expect as credit losses from this portfolio, the way we look at it, there are reports of some early improvement in frequencies, and…
Renish Bhuva
Sir, I’m not able to hear you, sir.
Pardhasaradhi Rallabandi
While we have heard reports and we have seen some numbers in some geographies of improvement in early budget delinquencies which might be seen as a turnaround after cycle, we believe it’s a bit too early to call that, particularly with actions happening in various geographies in the last few days. One needs to be cautious in this environment. And it’s a little too early to call taking out of the microfinance. We should expect some more, some one or some more months of stabilization, some of the stabilize and trade losses to stabilize.
Renish Bhuva
Got it, got it. And I mean, are you referring to the Karnataka Bill or is this something else?
Pardhasaradhi Rallabandi
Yes, that is what I meant. While the notification is not addressing, you’re not covering the regulated entities, regulated entities, whether it is banks or NBFCs, we have to see whether there will be any pillow or effects on the collection efficiency for our.
Renish Bhuva
Got it. I mean if so just a last follow up on that. So if, if one has to exclude the Karnataka, you know, both in terms of the event and the collection, then rest of the India has started showing improvement or it’s still, I mean, as you said we should wait for a couple of months?
Pardhasaradhi Rallabandi
If we are talking about the credit cost or the. We should definitely couple of months more. Collection efficiencies have shown very. Have shown little improvement particularly in the month of December. But again, one month, one month of collection efficiency improvement is not something that we would like to go by. We would want to see a couple of more months of stabilization to be confident of that.
Renish Bhuva
Got it. Got it. Okay sir, that’s it from my side sir, and best of luck.
Operator
Thank you. The next question is from the line of Paresh from Canara HSBC Life. Please go ahead.
Paresh Jain
Good evening sir. As I can see, your stage two and stage three has increased by 40 basis points each from September to December quarter. I just wanted to understand that the increase in this stress is largely from NFI or also there are some exposure to your NBFCs value length that have been recognized in this increase in phase two and phase three?
Pardhasaradhi Rallabandi
Yeah, this increase in stage two and stage three is coming both from our intermediate digital and direct retail portfolios.
Paresh Jain
Sorry, can you repeat sir?
Pardhasaradhi Rallabandi
The increase in stage two and stage three is coming from both our intermediate retail and direct retail portfolios and not just only from MFI.
Paresh Jain
Okay, so all right. And so your PCR has dropped quite sharply from September on stage three from September to December quarter. So I mean where do you see this number stabilizing? Would you want to increase your coverage on the stage three and how will the credit cost look ahead?
Pardhasaradhi Rallabandi
Yeah, obviously with the sort of diverse portfolio that we have, we have stage 3 PCR is a function of the mix of the assets. In stage three, if you have a secured asset, if you have a secured retail loan, say it moves into state three. Obviously because of the collateral value, your CCR requirement would be lower if it is unsecured. Obviously it will be higher. And in case unsecured day loads we do write off. So to that extent, depending there is no change in provision policy for three assets. It is just a function of mix.
Paresh Jain
Sir, if you have to give a breakup of your slippages in the quarter between the direct lending and your indirect lending, what will be the breakup roughly sir?
Pardhasaradhi Rallabandi
Close to — again, these are approximate numbers…
Operator
Sir, sorry to interrupt. You will need to come closer to the mic and speak sir.
Pardhasaradhi Rallabandi
Close to 25% of the credit cost in the quarter is from intermediate lending and the balance is from.
Paresh Jain
No, sir, I was asking with respect to slippages and not with respect to credit cost to increase whatever stress you have seen in this quarter. So if you have to break it up between direct and indirect, what, what, what will it be break up approximately?
Pardhasaradhi Rallabandi
It would be. It would be similar. It would be in a similar ratio. That’s how the credit cost also has come. But I would have to come back with a specific number on that.
Paresh Jain
Also, sir. So given that we are seeing a lot of stress in MFI and many most of the entities are reporting losses and we do a lot of lending to MFI institutions, how confident are we with respect to the asset quality with those exposure, given that most of them will have to raise funds because of the losses we are seeing and if you’re having any exposure to unlisted entities and will be very challenging for them to raise funds?
Pardhasaradhi Rallabandi
Our exposure to MFI intermediate retail is only 8% of overall balance sheet. The way we actually take these numbers, I mean, I think the process is there that we lend to a lot of MFI, which is true, we do. But in terms of the overall balance sheet size, our exposure to. Our overall exposure to microfinance sector is at 17% of which the direct fee is close to 6% and the balance is insufficient. There is a mechanism for us to evaluate the entities. There are internal ratings by the same entity. We are closely monitoring the risk. The way we look at it as of now, institutional space in intermediate retail, in the intermediate retail and micro finance, we have not yet seen any entity getting into stress to the extent that we should be concerned about.
We have a robust early alert and risk monitoring sort of mechanism which continues and does its job. But no intermediate retail specific exposures that we are particularly concerned with now. In fact you will be aware of the RBI action in the last quarter in terms of stopping, additional stopping new bookings of loans for a couple of MFI entities, both of which have actually come back to that extent in an intermediate space. The scenario actually has slightly improved obviously while the retail retail microfinance portfolio continues.
Paresh Jain
So my last question sir, so how are you looking at the credit cost in the next subsequent quarters? Like do you expect this number to increase materially from here or you’re expecting it to be in the similar level what you’ve seen in the first two quarter, second and third quarter?
Pardhasaradhi Rallabandi
We would not provide a specific guidance in terms of the numbers but we will predict the stress environment in microfinance and MSME sort of sectors is continuing and we should expect we should be cautious and expect elevated credit costs for some time to come. Obviously the earlier we are able to see the plateauing and improvement in credit cost the better it is. We are looking forward for that but it’s too early to call it top or to say that in one quarter it will come down. For two quarters, it will come down.
Paresh Jain
All right, thanks. Thank you.
Operator
Thank you. The next question is from the line of Sumit Bhalotia from MK Ventures. Please go ahead.
Sumit Bhalotia
Yeah, thanks for taking my question. So on this on the credit cost I just wanted to ask you have mentioned already but still wanted more clarification on a quarterly basis sequentially I see credit cost going up marginally only from 78 crore to 81 crores. And you’ve also mentioned that you’ve taken the hit of the affordable housing fraud that has happened. So can you just help us understand, you know QoQ MFI stress has gone up and we have also taken this housing stress and still are trade cost has not gone up. That is one.
Second is on the MFI stress you’ve mentioned — I understand you’ve mentioned multiple times but still direct to consumer direct boring that we do in MFI. If I look at the entire spectrum of other companies which have reported the credit cost is you know in the range of range of say 5% to 15%. So for us what is the provision that we have taken on the MFI book in the nine months and how do you see that panning out for the full year and next year if they can share some numbers?
And lastly, on your direct lending consumer segment wise break up on credit outlook. If you can give some insights into how the credit cost would be in different segments that would be helpful. Thank you.
Pardhasaradhi Rallabandi
In Q3 we have actually seen an increase in credit cost, as Atul has mentioned earlier in the call, we have actually written off the interest on the interest on the FAR90 across GMP loan which gave us some amount of cushion on the grade cost. Otherwise if we have not made that change in the way we write back the interest on FTA loans, the trade cost would have been higher by 24 crores to that extent.
Ashish Mehrotra
So the income be higher by 24 crores.
Pardhasaradhi Rallabandi
And obviously income also the income and trade cost would have been higher by 21 crores 24 crores if we have not made that change in the way we calculate. So to that extent trade cost has actually gone up during this quarter.
In terms of [Speech Overlap] microfinance you mentioned, on the retail, on the retail direct microfinance space, we have been invaded credit cost and on the institutional space as I mentioned again there is strong risk management and the risk monitoring mechanism that we have and how the entities through which we provide these intermediate retail loans are robust and there was no requirement to provide additional additional expedited trade clause provisions to the extent that was not really much of a concern.
And the third piece, in terms of where we see consumer finance credit losses continue to be in the same range as it used to be over the last nine months. In fact it has only slightly come down. Micro finance is something that we are busy watching and while there are some comments in terms of the tips being seen by November and December, that is something we are still monitoring. Particularly we would want to see for at least a couple of more months including pragmatic MSME. In fact MSME stress levels also are actually higher during the last six months, particularly the unsecured MSME basically what we call as unsecured business loans. But that is something that I think a lot of people have factored in in terms of the pricing of the assets to that extent that should not be a surprise, whereas the microfinance was probably not priced to this extent.
Atul Tibrewal
So, Sumit also to add to your question on the nine months PCR or credit cost for micro finance. So of the total 211 crore of credit cost around 25% would be from the direct microfinance business that we. So 25% of the credit cost would be out of the 211 crores.
Sumit Bhalotia
Okay, that’s helpful. Thank you.
Operator
Thank you. The next question is from the line of Sushil Choksey from Indus Equity Advisors. Please go ahead.
Sushil Choksey
First question is what is the total consumer base between microfinance and other products we service directly and indirectly?
Ashish Mehrotra
So we serve about 19 lakh customers Sushil, we serve about 19 lakh customers directly through our network of direct lending businesses.
Sushil Choksey
And if you take your partner?
Ashish Mehrotra
This includes where we lend in conjunction with with many of our lending partners.
Sushil Choksey
And historically, we would have served how many customers?
Ashish Mehrotra
We’ve historically impacted about close to 1.9 trillion lives there. So we’ve historically impacted large number. We have about 40 plus million time series of loan performance data, so some of us score cards and the work we do significantly to see the…
Sushil Choksey
Can you elaborate a bit on your scorecard? Can you elaborate a bit on your scorecard?
Ashish Mehrotra
So we run scorecards we run over 22 plus scorecards in our models including for securitization and all the pools we finance and for our direct lending across the segments of consumer small business loans, small business loans, consumer and all the loans we provide and these loans are these scorecards are built both looking at the leading data and the lagging data which helps us to essentially identify the better cohort of performing loans and give us better outcomes. These are what we see if we wouldn’t have rather underscore. So I think the scorecards is the strong performance we also begin to offer some of them to other partners.
Sushil Choksey
You’ve generated historically and today so many million customers other than marketing whether it’s a housing loan, MFI loan or any other product which you’re selling through your partners, direct consumer products which like any other banking partners, have we tied up with any product whether it’s mutual fund, insurance or distribution or any product which can be a big game changer in terms of fee income?
Ashish Mehrotra
Well, so three things we are doing One we also offer enforce the partner origination systems to the bank to help them to originate loans. We had a live with South Indian badging We now working through the go live with three other banks which is Karnataka public domain and BCB with this public present there’s one more most PSU signed up last week or in the process of signing up through the partner bank. The advantage the partner bank has that they can originate multiple types of loans secured, unsecured, personal loan, business loan, gold loans, vehicle finance, affordable housing loans, LAP loan amidst property. All these types of loans can be seamlessly processed using this platform. We use this platform for our own underwriting and origination. On any given day, we underwrite, connect, approve and disburse over 25,000 loans a day. Probably the most robust technology and database solution for you to do KYC you to do penny drop you to validate you to run scorecard and approval loan. So that’s the one piece that will add as we go forward. Like the comment I made in monetizing both the data and tech income.
The second we have a platform called Altifi where right now which is also an RFQ platform where we do currently which was created to democratize the securities we have on our platform and we’ve been down-selling. Now we are expanding that to offer other solutions including over a period of time mutual funds and other products. So I think that expansion will essentially neglect. We will be a high quality lending business coupled with a very unique feed franchise. The feed franchising coming from placement punch business and from Data-tech and RTC which is a pretty unique combination for any as a non bank that gives us a massive edge over a period of time. And today, even on a challenging time refranchising makes almost 7080 basis points of return on assets. And as we see it expanding and growing quarter and quarter we believe it should start providing the incremental kicker to middle assets together. Thank you, Sushil.
Sushil Choksey
The platform is integrated with three banks as on today live, that is South Indian, Karnataka and the third PSU bank?
Ashish Mehrotra
So, South Indian bank is live. They’ve underwritten what I think close to 500 crores of gold loans coming from a very high quality tax based partner and an off remainder partner. We are integrating several other partners there and this year Karnataka we are integrating right now. So hopefully it should go live by the end of this quarter.
Sushil Choksey
Do you retain any part of the portfolio in your books? It’s 100% retained.
Ashish Mehrotra
We make the last income on enhancing the flow of credit. The fee income is a component of two parts. For long term loans which are essentially more than 24 month loans we are unweld. This is the average metric payable for fee for short term loans which are less than 24 months of 10 and we charge on the value of loans getting disbursed using the platform. So it’s a pure fee income, no risk on our balance sheet.
Sushil Choksey
Why is that?
Ashish Mehrotra
Essentially, there are very few companies who can monetize their strength and assets and given they are a high impact credit business. We are beginning to do that.
Sushil Choksey
Have you attended on the same platform anything to do with LAP loans, MSME loans or anything else?
Ashish Mehrotra
You can do all of those products. We do originate lab, we do gold. So if the bank wants any of those asset classes or any other lender wants those asset classes, we can seamlessly connect APIs and flow and it is very agile. So you can decide to select. I only want people living in certain geographies and certain income categories and you can change that every three hours. That’s the agility of that platform.
Sushil Choksey
How many banks [Technical Issues]?
Ashish Mehrotra
Sorry sir?
Sushil Choksey
Right now you have said you have two private, small private sector banks from south one PSU bank. How many more banks will you tie up?
Ashish Mehrotra
One, hopefully we go live with the public sector banking then others. We continue to expand as we go about doing it.
Sushil Choksey
Is this platform directly competing with UBA and Knight Frank or it’s something different?
Ashish Mehrotra
I think you know there are platform providers and there are platforms who have five years of demonstrated result. I have underwritten 2530 million clones on this platform. This platform for us has gone through every change in regulation, every way that we account we accrue. So I don’t think there is anyone who has a platform as an oversized. Obviously yes we do compete with them but there is a tested class.
Sushil Choksey
Do you charge anything for the platform or only 3?
Ashish Mehrotra
We have 400 partners on these platforms so I can. Unlike the other tech businesses, we already have partners on this platform.
Sushil Choksey
Do you charge anything for the platform or it’s only a fee collection on the product generator?
Ashish Mehrotra
No, it’s essentially can be a tax or a fee business depending on how the economics work with the investors.
Sushil Choksey
By any design or product you can do insurance or any other financial products on this platform via these banks?
Ashish Mehrotra
Those capabilities the platform has the capability to offer embedded plot or we added some of that. But largely these are offered by the originators and not by the investors. So we can. It’s a pretty agile platform for us to adjust to.
Sushil Choksey
On this housing finance company. Whatever the. Maybe the outstanding. You don’t want to speak on numbers but can you tell us that what is the percentage of loan which is outstanding have you provided for specifically to that account? So we know the risk is only amount of that much outstanding. Rather we don’t want. I’m not taking names so you may is it 25, 50, whatever percentages?
Ashish Mehrotra
Sushil ji, While we don’t provide specific at an obligate level it will be unfair for us to comment. But unlike the conventional term loan lenders our approach is loan to originate so we have a specific charge on a specific portfolio which is broadly assigned to us and what we believe could potentially be beyond the fair market value. We would have provide over 65% of the fair market value.
Sushil Choksey
And the separately provided portfolio to you which is only assigned to you. How much is performing portfolio in that?
Ashish Mehrotra
That’s already, that’s already been. That’s already get built it into the fair market value. I don’t think I’ll be able to answer beyond this, because then I’ll give specific strategies at an account and an obligation level. All I can say I may be steps ahead. I may be many steps ahead of any of the…
Sushil Choksey
Can I — can I assume you are fairly ahead of the curve which is required?
Ashish Mehrotra
I think we are ahead of the curve but we still have to go through the process and it goes through. You know we are ahead of the curve but you know there is obviously NCLT and other processes we have to deal with but we are pretty prudent and we are very cautious and action we have taken.
Sushil Choksey
My last question, my last question — yeah, go ahead.
Ashish Mehrotra
No. Please go ahead to the question.
Sushil Choksey
Can I assume that your borrowing cost is peak?
Ashish Mehrotra
I think so. I. I think so. We did see a little bit of change in the quarter because of the way the liquidity costs but I see over as I look forward I see our power borrowing cost provide incremental relief for the spread expansion. We’ve also been pretty judicious so I think we are ahead of curve even on that. If you compare us to our peers with a similar rating curve and we will stay ahead on that.
Sushil Choksey
Good luck to the team and thank you for answering all my questions.
Ashish Mehrotra
Thank you sir.
Sushil Choksey
Thank you.
Operator
Thank you. The next question is from the line of Purushotham from Volkswagen [Phonetic]. Please go ahead.
Purushotham
Yeah, thank you for giving me the opportunity. So my first question is as mentioned in the commentary as well the next two quarters will be a big question for us. So what will be the guidance for financial year 25, 26 growth guidance?
Ashish Mehrotra
I think like I said we will remain cautiously optimistic in building the quality of the business. So idea is to chase the quality growth. And we’ll just start choosing at it. We fully cognizant of the current challenges in the environment. You know, I think we should end somewhere wherever we end. But it will be between 15 to 20% growth on an annualized basis. That’s where it should be.
Purushotham
Okay, thank you sir. And my second question is what is the given policy of Northern ARC?
Ashish Mehrotra
What is the — sorry, I didn’t get the word.
Purushotham
What is the dividend policy?
Ashish Mehrotra
I think that for debate in our board, that’s one of the important agenda items. We fully cognizant as a listed entity. We need to work on it. We are working this through and hopefully should be able to come back to you guys before we close before the next call.
Purushotham
Okay, thank you.
Ashish Mehrotra
Thank you.
Operator
Thank you. The next question is from the line of Balaji Kasal from Profocus Value. Please go ahead.
Balaji Kasal
Yeah, good evening sir. I have only one question regarding BTL MFI. You know as you see the data it’s, you know you are downsizing it. Also the CFO mentioned you know, you know, moderate the credit size of portfolio. I just want to know what is the plan in the near future? Downsize to zero or close down or sell off it completely or you want to be remaining the player that there?
Ashish Mehrotra
No, I think — thank you. I think a very interesting question. Like I said earlier, we are a diversified lending business. We focus on customer segments. We also have an ability to dial up and dial down depending on opportunities and challenges. If you see our numbers closely, you will see there is a growth in the MSME space, in the consumer lending space. MFI, we’ve been cautiously bringing it down over the last three, four quarters.
If you look at over the last three years, the numbers are very different and we will build back with our scorecards as we find the market stabilizes and the regulations market stabilizing over a couple of quarters. It’s a very interesting business. We stay deeply committed to ensuring the flow of credit to the underserved individuals. As both the self regulatory bodies in the MFI sector, Sadhan and MFI, we’re working very closely with them and I think as things begin to stabilize, we will continue to work stand committed.
But I think our strategy to answer your question very specifically is to ensure no sector barring MSME can be more than 30% of our balance sheet. MSME we can go up to 45, 50% which includes large portion of the secured and secured lending. So, sectorally we remain diversified because we over the last 15 years we’ve seen the businesses and customer segments tend to face challenge. And for you to be a resilient and a consistent performer you need to ensure that you are able to manage the risk more proactively. And that’s been our approach and reflects in our track record for over a decade and a half.
Balaji Kasal
Yeah, thank you. All the best to the team.
Ashish Mehrotra
Thank you.
Operator
Thank you. The next question is from the line of Chintan Shah from ICICI Securities. Please go ahead.
Chintan N. Shah
Yes, thank you for the opportunity. So, sir, firstly on the leverage fee. So now post the IPO, on our debt to equity is now a 2.8x roughly. So what is the level up to which we can again scale our debt to equity? So yeah, firstly on that.
Atul Tibrewal
So, Chintan, we are currently at around 2.5. You know the rating agency, the regulator, the lenders, they all are comfortable anywhere between 4 to 4.2 times. So this will give us enough headroom to grow our balance sheet for the next two to two and a half years. So we will not be required to raise any equity if we continue to grow at a cater offset close to 25 to 30% for the next two and a half years at least. So the next raise should happen in FY28.
Chintan N. Shah
Sure, sure. And ROI is probably — sorry.
Ashish Mehrotra
We are also provident business.
Atul Tibrewal
We were adding around 80 to 90 crores of profit every quarter. So that will also give us enough headroom. So, yeah, and we have reached this year.
Chintan N. Shah
Sure. So I was just trying to understand from the ROE perspective. So given how far can the ROE go considering the probably ROA of three to three and a half percentage. So what would be the ROE number? I was looking at that number.
Yeah, so and secondly sir, on the placement volume, the placement volume seems to be flat for on a 9m basis but there seems to be a dip in the fee. Income from 20 goes to 17 crores. So any change in the take rates here or how should we read this?
Ashish Mehrotra
I think you know it’s a function of the credit offtake. The basic business is a function of credit offtake. And not only us and I’m sure most of the people before us in the comment we would have given to you, they’ve been cautious and that’s one of the reasons. But I can also tell you we had it also provides an opportunity for us to provide more structured and credit solutions to the institutions as liquidity becomes tighter. I think that we are pretty bullish and not only this is an important quarter for that business, but also as we go forward among the product heft we have that will continue to be a meaningful contributor to our business as we go forward.
We actually did very interesting transaction when the consumer finance sector weightage went up and people are struggling to raise money. So we did some very, very interesting transaction by moving thousands of crores of money in a manner which provided great solutions to lots of people. So we continue to stay committed. I think as the credit demand increases there is a massive demand. But as the credit demand increases we see an increase in slightly.
Chintan N. Shah
Sure. And also, on the MFI fees, so what is the write off policy for the micro finance business currently?
Ashish Mehrotra
Our policy is clear. We write off all unsecured loans at 90 plus.
Chintan N. Shah
Sure. 90 plus. And so, on the stage three, which is still currently 110 crores. As a data keeping question, could you help us with the breakup of the stage three into the segmental. Segmental breakup for stage three? Yeah. And stage two as well if possible, yeah.
Pardhasaradhi Rallabandi
Out of the 110 crores of — 10 crores of the Stage 3 exposure that we have spoken about. The large pieces are in affordable housing around 25 crores and MSME DAP around 39 crores. And there is obviously microfinance. We do not have much because of the write off policy. But that turned and there are certain mid cost exposure. But the large numbers are MSME Lab.
Ashish Mehrotra
If you look at it on a year to date basis, fair to say between the consumer finance and the MSME are the two large constituents. MSI are the two largest constituents of pool, correct.
Chintan N. Shah
Sure. And on the collection efficiency, if you particularly for the microfinance fees, even if we exclude Karnataka, so could you give just some broad sense on how the trend has been so far? So we have seen for most of the lenders the collection efficiency have improved from November to December and they have also sustained kind of in January. So, how has been, I think we mentioned collection better in December. But how has been the trend in January and of February so far? Also, if you could share some thoughts there.
Pardhasaradhi Rallabandi
Yeah. Collection improved between November and December. January was flat or slightly lower. February is a little too early. The collection cycle itself last till 7th and 8th of the month and collections after that on a daily basis. So correctly for February it is a bit slowly to comment on. But between December and January the correction efficiency remained slightly lower.
Ashish Mehrotra
The way we look at it, 1.2 is a line of 3 is a trigger. We want to see a trajectory before we formally comment on the improvements.
Chintan N. Shah
Sure. So and sir, just one last question on the interest reversal part which we quickly mentioned in the commentary. So that was specifically for MFI, right? And so that was towards the accounts which we have written off for the quarter.
Atul Tibrewal
No, it was — Chintan, it was for all our loans which has been written off and also which, you know, they are, which was in stage three. So it was for all the portfolio not specific to NFI. And the amount was 24 crores.
Chintan N. Shah
Sorry, sorry. How much was 9?
Atul Tibrewal
54 crores.
Chintan N. Shah
54 crores. Sure. Interest reversal was 54 crores.
Pardhasaradhi Rallabandi
24.
Chintan N. Shah
24. Sure. Okay, that’s it from my side. Thank you. And all the best. Thank you.
Operator
Thank you. Ladies and gentlemen, we will take that as a last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Ashish Mehrotra
Thank you very much. Thank you for joining us today. I wish you all happy Valentine’s Day. I guess today is Valentine’s Day, so thank you for taking a time out and being with us. Thank you and have a great week. Thank you.
Operator
Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.