Piramal Enterprises Ltd (NSE: PEL) Q3 2025 Earnings Call dated Jan. 27, 2025
Corporate Participants:
Ajay Piramal — Chairman
Jairam Sridharan — Managing Director, Piramal Capital & Housing Finance Limited (PCHFL)
Upma Goel — Chief Financial Officer
Unidentified Speaker
Analysts:
Avinash Singh — Analyst
Shubhranshu Mishra — Analyst
Kunal Shah — Analyst
Abhijit Tibrewal — Analyst
Rohit Jain — Analyst
Rishabh Bajaj — Analyst
Unidentified Participant
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Earnings Conference Call for Q3 FY 2025 hosted by Piramal Enterprises 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 zero on your touchstone phone the results material has been uploaded on the company’s website and you may like to download and refer to them during the discussion. The discussion today may include some forward-looking statements based on the management’s expectations that are subject to uncertainty and changes. These must be viewed in conjunction with the risks that the business face. On the call today, we have with us Mr Ajay Piramal, the Chairman; Mr Anand Piramal, Director; Mr Javeri, Group President; Mr Jairam Sridaran, CEO, Retail Lending and MD, PCHFL; Ms Ukna Goyal, CFO; and Mr Ravi Singh, Head of Investor Relations, Strategy and Sustainability. I now hand the conference over to the Chairman, Mr Ajay Piramal, for his comments. Thank you and over to you, sir.
Ajay Piramal — Chairman
Thank you all for joining us today for the Pyramal Enterprises earnings call. Before we get into the quarterly results, I would like to highlight the macro backdrop as we see for our businesses. India’s economy has been facing headwinds. Moderating investment growth, tightening liquidity and expensive long-term capital are slowing India’s economic activity. FY ’25 GDP growth is expected to be at 6.4% compared to 8.2% in the last year. However, I am certain that these short-term challenges will ease reasonably soon aided by policy support.
We expect domestic demand to gain strength and a revival in public capex on infrastructure as we look-back at our own performance in the 3rd-quarter of the current year, some key trends stand-out. The business mix continues to steadily shift in favor of growth business, which comprises retail and wholesale 2.0. Growth AUM now accounts for 87% of our total AUM versus 34% in March 2022. With this changing mix, the consolidated AUM growth and margins are getting stronger.
In the Q3 FY ’25, our total AUM grew by 16% year-on-year versus the 15% growth guidance for FY ’25 and consolidated business NIM also improved 60 basis-points Q-on-Q with this mix change. The legacy discontinued book rundown is on-track with AIF recoveries coming in on expected lines. The legacy AUM was down by INR1,713 crores quarter-on-quarter to INR10,353 crores. These are now 13% of total AUM versus 21% at the start of the year. We reconfirm bringing this book down to less than 10% of total AUM by March 2025. In this quarter, we recovered INR551 crores of the AIF book, leading to a gain of INR376 crores. This puts the nine-month gain of AIF at INR557 crores. We have used these gains to build buffer and provide for legacy AUM rundown in Q3 and the rundown expected over coming quarters.
We expect further significant AIF recoveries in the last quarter of FY ’25 and in ’26. Amid a worsening asset quality environment for the sector, we are encouraged by our portfolio’s performance. Delinquency trends for the overall retail portfolio have been stable in a narrow range during last three years. Secured products form 78% of our retail AUR. Wholesale 2.0 has maintained its 100% collection efficiency. The credit cost for growth businesses was at 1.9% versus 1.6% in Q2 of FY ’25. Retail’s operating performance continues to strengthen. AUM yield is stable and fee income has expanded over the last 3/4. More importantly, OpEx to AUM is down 200 basis-points in seven quarters to 4.5% pro-forma, the PBT ROA of growth businesses was at 1.4%. This is a similar level as in the first-half of FY ’25. The capital and liquidity position of the company continues to be strong. Our capital adequacy stands at 23.7% and we have cash and liquidity of more than INR8,000 crores.
As a further boast to our balance sheet, we announced earlier in the month that PEL through its subsidiary will become eligible to receive an estimated amount of US dollars or $140 million, subject to final closing adjustments expected to receive in the financial year 2026. This is in connection with deferred consideration from the sale of imaging. The company may also receive further amounts in subsequent years from any eligible profits and future earn-outs relating to the Imaging Group, subject to a maximum of $200 million, inclusive of the above $140 million. Moving on to the proposed merger of PEL into PCHFL with reference to application of PCHFL conversion into the NBFC ICC, RBI has directed us to submit the COI with a new name, namely Piramal Finance Limited and revised MOA altering the main object clause in-line with the intended business of NBFC ICC. The application for reservation of name chain change is being filed with ROC. Another application for issuance of NOC for merger of PEL into PCHFL is under review with RBI. We expect to complete the merger process, including the NCLT approval by September 2025.
To conclude, while the external growth environment and asset quality climate have indeed moderated in FY ’25, we are encouraged that we are on-track to meet or do better than the targets we set for ourselves at the start of the year-on business growth, business mix and operating performance of the growth business. Our focus will stay on sustaining the superior business growth, while keeping a tight control on portfolio quality and expanding the profitability through margins, fee and OpEx ratios.
With this, I now hand over to Jaram and Ukma to discuss our business and financial performance.
Jairam Sridharan — Managing Director, Piramal Capital & Housing Finance Limited (PCHFL)
Thank you, Chairman, sir. Let me start with a discussion on our retail lending business. In the 3rd-quarter of FY ’25.
Ajay Piramal — Chairman
Are we? Are you clear? You’re not clear to me,. I don’t know if the voice is clear to others.,
Jairam Sridharan — Managing Director, Piramal Capital & Housing Finance Limited (PCHFL)
Are you able to hear clearly?
Ajay Piramal — Chairman
There’s lot of noise.
Operator
Your line is coming up clearly, sir.
Ajay Piramal — Chairman
Okay.
Jairam Sridharan — Managing Director, Piramal Capital & Housing Finance Limited (PCHFL)
Okay, thanks. So in 3rd-quarter FY ’25, our retail AUM grew by 37% year-on-year and reached a total of INR59,093 crores. Disbursements for the quarter stood at INR8,362 crores, up 9% year-on-year. Disbursements in unsecured products were slowed down and were down 12% Y-o-Y versus 24% Y-o-Y growth for the secured products. Our flagship mortgage businesses comprising home loans and lab grew by 35% year-on-year to an AUM of INR40,027 crores and now account for 68% of retail AUM. Our mortgage book has exhibited robust asset quality in the last two years and at present, the 90 plus delinquency ratio is 0.5% in-housing loans and 0.4% in loan against property. Other retail products also demonstrated robust AUM growth with used-car loans up 119% year-on-year, salaried personal loans up 111% year-on-year and business loans up 37% year-on-year.
In business loans, the microfinance AUM was roughly flat with a 10% AUM growth Y-o-Y and the unsecured business loans AUM was up 49% Y-o-Y. Digital loans, which we had put some brakes on about a year-ago saw AUM and disbursements both down with AUM down 25% and Q-o-Q and 49% Y-o-Y on that metric. The asset quality side, the retail portfolio remains healthy and stable, 90 plus delinquency at 0.8% is slightly up, but is within the narrow range we have maintained over the last three years. We believe that our diversified multi-product portfolio lends this stability even as different products undergo their own cycles.
In our presentation, if you look at slides number 19 and 20, these slides show the 90 days past-due trends over the last three years and they also show that these — the vintage risk trends for those tranches that have been booked over the last three years. Within unsecured, you will notice that microfinance, which we report as part of the business loan segment has seen sharp deterioration in the last four quarters. Microfinance 90 days past-due delinquency is at 5.5% versus virtually nothing five quarters ago. Microfinance is about 2% of our retail AUM. The rest of the products continue to witness benign delinquency trends. Credit card costs in the lending business remain largely unchanged. Within unsecured products, credit cost was a tad higher in Q3 versus Q2, but with a lower gradient than in the first-half. And whatever delta is there is largely driven by microfinance.
In our unsecured portfolio, overall, we have been making over the last few quarters four key shifts in our customer selection strategy. Number-one, we are moving towards more branch-based origination versus digital origination. Number two, we are moving more towards salaried versus business customers. Number three, we are moving more towards cross-sell and away from new originations. And finally, number four, we are emphasizing a little bit of a mix-shift towards lower-risk return, higher-ticket cases than what we used to do in the past. Our data show that these choices are making a meaningful favorable impact on the portfolio and you will see some reference to this on Slide number 20. Overall, we expect retail credit cost to remain range-bound in-line with the longer-term guidance that we have offered in the past.
On Slide 14, which is our slide on customer franchise and cross-sell, you will see that our customer franchise grew by 24% year-on-year to $4.5 million. We have been able to capture a sizable portion of our customer originations for future cross-sell opportunities. In the 3rd-quarter, the share of cross-sell rose meaningfully in unsecured disbursements in-line with the four strategic shifts that I mentioned before. This, we believe will also aid in reduction of delinquencies and credit costs in the unsecured business in the future. From a distribution strategy standpoint, we now have a network of 514 branches, establishing a strong presence across 607 districts in 26 states. As highlighted in the previous quarter, the pace of branch opening has been moderated to five to 10 branches per quarter versus 20 to 30 branches per quarter that we were opening earlier.
On Slide 15 and 16, we have shown the improvement in our productivity metrics. You can see clearly that productivity on a per branch basis and a per employee basis continue to improve across our network. Our branch vintage mix is also maturing and we are widening the product reach across the network, making sure that more-and-more products are available from every branch that we have open.
If you look at Slide 21, you will see the trend of our opex ratio. This is a very important operating metric for our — for our return portfolio, return profile. And you will see that over the last several quarters, we have consistently reduced the OpEx to AUM, which now stands at 4.5% at the end of 3rd-quarter FY ’25, down from 4.7% in the previous quarter and from 6.5% in the 4th-quarter of FY ’23. We aim to continue this trend in-line with our long-term guidance of 3.5% to 4%. On the same slide, on the left-hand side, you will also see that the AUM yields have been very stable in retail after a mild dip in the first-quarter due to the accounting policy change on processing fee. Now that accounting policy change has been absorbed and slowly the retail fee is expanding to catch-up with the — with a new steady-state. Underlying cash fee collection has remained unchanged or improved in this period and the reporting fee is now just catching-up. Slide number 12 talks a little bit about our emerging new strategies on the liability side and a little bit on the asset side.
To touch on the liabilities ones here, we have made a strong start in the direct assignment and co-lending programs, a big part of our liability strategy now. We now have 12 DA part DA and co-lending partners, including the largest DSU bank in the country and two of the top three private sector banks. The momentum of new partnerships in DA, co-lending and new channels such as CSEs and digital has sustained. Most recently, we announced partnerships with RBL Bank and. We have a meaningful number of similar tie-ups in the pipeline as we speak as well. The retail AUM is now almost at INR60,000 crores and we expect scale-up of our multi-product retail strategy to continue at a healthy pace even as portfolio quality remains a very big area of focus. Simultaneously, operating leverage will continue to improve, expanding our profitability profile.
With this, I want to move to the wholesale lending bit. My colleague Yash has been kept away due to pressing personal commitments, unfortunately. So I’m going to channel Yash’s thoughts and share with you the state of our wholesale lending business. During the quarter, we disbursed INR2,075 crores in Wholesale 2.0, a Y-o-Y increase of 24%. We continue to see faster-than-expected repayments in this portfolio. And so AUM grew by 60% Y-o-Y to INR8,916 crores and 13% Q-o-Q.
Prepayments are happening across both the CMML and the real-estate lending businesses. This indicates better-than-expected performance of the book, which continues to benefit from economic tailwinds across corporate and real-estate sectors. Since the inception of the new wholesale lending business, we have had 100% collection efficiency and have not experienced any delinquency in the portfolio. The portfolio has an average ticket size of INR77 crores and an effective interest-rate of 14.4%, showing a well-balanced asset duration and diversification. Encouraged by this performance and by market tailwinds, we will continue to build a granular high-quality, profitable portfolio in a calibrated manner.
On the legacy side, the legacy AUM reduced by INR1,713 crores quarter-on-quarter to INR10,353 crores. Thus, in the nine months of FY ’25, we have achieved a reduction of INR4,219 crores in this book. In this process, over this nine-month period, we have taken a haircut of around 24%. This proportion is similar to the haircut proportion that we have taken while reducing the book from INR43,000 crores to INR14,500 crores between FY ’22 and ’24. In other words, our haircut ratios continue to remain steady at around the 24% 25% kind of mark. We continue to work on pairing down the portfolio through a combination of organic cash flows, refinancing, asset sales and accelerated repayments.
Based on all the work-in progress on some of the larger legacy asset rundowns, we feel confident that we will meet our target of bringing the legacy AUM to less than 10% of total AUM by March 2025. In the 3rd-quarter, we recovered INR551 crores in the AIF book with P&L gains of INR376 crores. We expect further significant gains from this AIF book in the 4th-quarter and in FY ’26.
With that, I hand over the call to to walk us through the financial performance.
Upma Goel — Chief Financial Officer
Thank you,. Now moving to our financial performance. In Q3 FY ’25, we reported a consolidated net profit of INR39 crores. Profit before-tax, including AIF gains and associate income stood at INR91 crores. INR100 crores quarter-on-quarter reduction in profit before-tax was primarily on account of two elements. First one is reduction in our non-core income in Q3, that’s INR42 crores gain on-sale of property and INR20 crores dividend income. Another area is INR30 crores lower profits from our funds and the insurance JV business.
In comparison to Q2, book taxes increased by INR25 crores from INR27 crore to INR52 crores in Q3. This is primarily on account of higher profits at PEL standalone. The book taxes are expected to be the NCLT order for merger in case the order is received or before the tax filing date for FY ’25. Our pro-forma PBT for good business stood at INR212 crores, which translates to PBT RO AUM of 1.4%. In this quarter, while calculating pro-forma financial ratios for individual businesses, we further simplified the business-wise cost of fund methodology. We now use same cost of funds for all the assets, which is same as the company cost of funds. This change has no impact on consolidated ratios. For growth business, this has led to 50 basis-points reduction in the cost of funds, including equity, which currently stands at 7.1%. Had we used similar method in first two quarters of FY ’25, the cost of funds in Q1 and Q2 would have been lower by 50 basis-points versus the reported pro-forma numbers.
Our total GNPA and NNPA ratio stands at 2.8% and 1.5% respectively. Our net-worth stood at INR26,924 crores with a capital adequacy at 23.7% on consolidated balance sheet basis. Our cost of borrowings stood at 9.2%, marginally higher by-10 basis-points versus quarter two. We are actively diversifying our borrowing mix and our securitization and international borrowing share has now increased to 23% from 6% in December ’23. Our fixed-to-floating rate debt mix has improved to 42% to 58%. The fixed floating gap between assets and liabilities has now been mostly neutralized to align the balance sheet better with the declining debt environment.
With these remarks, I would now like to open the floor for questions. Thank you.
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 1 on their touchstone phone. If you wish to remove yourself from the question queue, you may press 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. Our first question comes from Avinash Singh from Emkay Global Financial Services Limited. Please go-ahead.
Avinash Singh
Yeah, hi. Thanks for the opportunity. A couple of questions. First one, if I — yeah, I mean again I’m going to legacy book. So on legacy book, if I see quarter has seen close to INR1,700 crore kind of a runoff. And if I look at your credit cost overall and adjust for the INR287 crores of credit cost in retail and then also look at how the provision in this legacy book has moved. It suggests that, I mean on this INR1,700 crore rundown, the total provision coming closer to INR700 odd crores. So that broadly translates to kind of a 40-odd percent. And the remaining, I mean that is close to INR10,000 crore that’s left.
Of course, we have provided 18%, but typically this will be kind of a bit difficult accounts than whatever we have sold over the last couple of years, almost INR43,000 to IN 10,000 now. So I mean, am I coming — your calculation rate or like in this INR1,700 crore whatever run-off has happened, the no reasoning had been lower if at all. I mean, if you can help me this math on this part? And second, just more kind of understanding the accounting, if I see that the detail time for that disclosure, the XL that’s available or that the DA income of INR100 crores for the quarter has been kind of added into that or is added into the income piece or interest income piece has given the same format and then of course, INR100 crore has been adjusted toward the cost of our provisioning cost.
So how does this account work? I mean, in the P&L, where does this INR100 crore appears because typically there also it should be part of that some income. Okay. Thank you.
Jairam Sridharan
Okay. I’ll let answer the second part of your question. Let me take the first part, Avinash. Thanks for your question. So the legacy provisioning math is the INR1,713 crores is the reduction in the legacy book. We mentioned that the — in the nine months, the haircut overall has been about 24%. Actually, if you just look at the quarter, the haircut is close to 30%, right? So roughly 30% haircut on a INR1,700 crore reduction. So Mota INR450 crores is the in that range is kind of the haircut that we have that we have taken in the legacy book, of which INR150 crores has been funded from pre-existing provisions. So if you just look at the provisioning pool last quarter to this quarter on the legacy asset, you will see that it has reduced by INR150 crores. So essentially, we’ve used INR150 crores from legacy assets and another INR300 crores new provisions we have created. So that’s kind of the math and the rest of it is coming from the growth book.
So you see about INR600 crore and change of that, about INR300 and change comes from the legacy book and about INR300 crore comes from the from the growth book. And the legacy book kind of 300 odd is if Muta Moti just getting netted off by the 300 odd increase in the AIF that you see below the lag. That’s kind of the very conceptual math on provisions for you know-how the legacy book comes out. So legacy book, quarter three, about a 30% of haircut total for nine months, about a 24% haircut. That’s kind of the situation. And the two years before that also 24% haircut. That’s kind of the math of our last quarter, legacy book haircut was quite low. So that’s why nine months is only coming to 24%, but — but that’s how it is. Nine-month cut total is 24% haircut, the same as what it was the prior two years.
So I hope I was able to address that question, the second question?
Upma Goel
Yeah. On the second question of DA income of INR100 crores, which is being added into the interest income, that’s part of the — as per the IR disclosure. In the SEBI page, this is coming under net loss on derecognition of financial instruments. Reason being the moment we’ll sell the book, the book exits from our books and that’s how it is clubbed under the net loss on derecognition of financial instruments.
Jairam Sridharan
So it shows a negative item there.
Upma Goel
Yeah.
Avinash Singh
Thanks. Yeah. Thanks. That’s very clear. Garam, on the first — your question part, I mean, because where I’m kind of losing track that there has been a utilization of INR200 odd crores from your management overlay as well. So the credit cost, I mean that is coming in the P&L is closer to this INR548 odd crores because INR100 crore of post is the adjustment for this BAP that I believe INR548 crore kind of is coming from, you know this thing, the. No, there is no change.
Jairam Sridharan
Management — management overlays here. What has happened is there was a class of provisions that was created where there were a few assets against which of that pool of provisions was created. But whose pool may? Baki asset Bando. So asset. So the pool here just against your provision activity. Pool is asset right here. [Foreign Speech] this quarter when we made provisions, we essentially used that provision as well, right, into that into that category. So the no — like there is no general overlay for management that was there, which has — which has gotten used up. It essentially because the pool only had one asset, it was effectively a specific asset provisioning that was there. But when we show the specific asset provisioning for Stage II, we were not counting that. So that’s probably the math that you’re talking about.
Avinash Singh
Yeah. I mean, so basically you are saying that your INR150 crore provision has reduced in legacy book that — and that is in addition, you have used this INR200 crore that now is part of somewhere here. So INR350 so that that’s where I’m kind of losing a bit of a track.
Jairam Sridharan
Correct, correct. No, no, your math so-far is correct. Your math so-far is correct. The specific asset provisions, sorry, maybe I should — maybe what I said is not clear. There are specific asset provisions of about INR2,000 crores that were there against the legacy assets, right that INR2,000 crores is now down to some 1,050 crores or something like that, right. So those specific assets, INR150 crores car consumption is there. Then there was this other thing which is not — we were not counting as part of the INR2,000, right, where — but that pool of provisions, that pool of provisions only had one asset against it remaining, right?
And that was a legacy book provisions only, but it was not getting counted. So only one asset was left. So when we were making provisions against that one asset this time, we ended-up using — or converting that to a specific asset provision. So nothing has really changed. We just changed the normal of that from general provision to specific provision.
Avinash Singh
Yeah so then you are consuming INR200 plus 150 cross INR350 and then INR300 P&L. So that’s what I’m saying. There is a INR650 crores are you that.
Jairam Sridharan
Yes, correct. Correct, though one of — but it’s my pre-existing, it was just a non-gator change, it was not new like though it was not new consumption.
Avinash Singh
So basically if I were to see that INR1,700 crore — at INR13 crore reduction you’re seeing, correctly sort of [Speech Overlap] so now at one value, I mean including cash on that 30% is now down to about INR50 crores.
Jairam Sridharan
It’s about INR500 crores. It’s a little under, it’s on the INR500 crores. It is not — it’s not INR650 crores, if that’s the question you’re asking.
Avinash Singh
Yeah.
Jairam Sridharan
INR500 crores.
Avinash Singh
Right. Thanks.
Operator
Thank you. A reminder to all the participants, if you wish to register for a question, please press star and one on your touchstone phone. Our next question comes from the line of Subranshu Mishra from PhillipCapital. Please go-ahead.
Shubhranshu Mishra
Hi, just one question. Why do we have so many subsidiaries and joint-ventures? The share number of subsidiaries when I look at the notes to count is almost account — the count is close to 20 and the joint-ventures, again, we’ve got like five or six. This creates a whole host of network of so many subsidiaries, one Holdcope whereas when we look at the core business, it’s limited — largely limited to lending. So why do we — my question here is that when someone looks at from an accounting perspective, this does look seem right. So just wanted some clarity on so many subsidiaries and joint-ventures and associates. Thanks.
Jairam Sridharan
Yeah. No, thanks for your question. See this — some of this or a lot of this is — is an artifact of what our history is. We are a very, very old company, have been around for decades. Only the last few years have been as a standalone financial services company. For decades, we have existed as a conglomerate with businesses in lots of different areas. So over-time, a lot of those subsidiaries have been — have been accumulated. But ever since we became a financial services specialist company, we have been simplifying and if you look at our subsidiaries — number of subsidiaries today versus what they were, let’s say, three years ago, you will see a pretty drastic reduction.
And the same will continue happening as we as we now merge the merge Pyrammal Enterprises with Pyramal Capital and Housing Finance and create this new company, Pyramal Finance, even more simplification will happen. So we are committed to actually continue to simplify the corporate structure and we have already done a lot of that over the last couple of years and you should expect to continue to see that going-forward. Your point is absolutely right that it is not common for financial services companies to have this many subsidiaries. But please recall that we are a — we are a many decade-old company, which has been in financial services only somewhat recently. So that’s the legacy that you’re seeing there, but it will all get cleaned up.
Shubhranshu Mishra
Right. If I have to push this question just one-step forward, is there a deadline to which we can see a clear simplification of this assumption?
Jairam Sridharan
See, we are working with the regulator on this and the regulator has their own kind of view of what we need to do and some of the subsidiaries because they are in other jurisdictions outside of India and they have their own sort of regulatory architecture, it is not possible for me as management to just give a deadline on this. We are working hard towards simplifying it and working with all the various jurisdictional authorities to simplify. Having said this, from a — from a materiality standpoint, there as PCHFL and PEL merge, the only real kind of associate that you really need to care about probably is Primerica and the joint-ventures on the — on the — with Bain on the — on the alternative side. That’s about it. The rest of the stuff is not is not at all material.
Shubhranshu Mishra
Thanks. Look forward to our simplification of the structure.
Jairam Sridharan
And thank you for the push. Appreciate it. Thanks.
Operator
Thank you. The next question comes from Kunal Shah from Citigroup. Please go-ahead.
Kunal Shah
Yeah. Hi. So firstly, again, getting on to the provisioning on the wholesale. So when we look at the rundown, which has been there on a quarter-on-quarter basis, it seems like the larger proportion is still like almost INR600 odd crores out of that is SRs, okay. So would it be fair to assume that maybe the NOK which is being there of almost like, say, closer to INR500 odd crores, that’s because of the composition wherein SRs itself are coming off because earlier you have been indicating that 20% should be the good quantum with respect to the haircut and we have seen a slightly higher proportion. And now maybe when we look at it in the next three months, we are again expecting closer to like INR2,800 odd crores of a rundown because it would be at the accelerated pace. Then should we — should we be worried about the more provisioning out there?
Jairam Sridharan
Yeah. Right. So if you look at the roughly INR1,700 crores of reduction this time, Kunal. INR600 crores of reduction is from SRs, INR600 crore reduction is from Stage 1 and Stage 2 assets. INR200 crore reduction is in Stage 3 and about INR150 crores each in-land and AIF. That’s Mota Moti, the INR1,700 crores, right? Yes. SRs is roughly a third of what has happened. Your point is right that the haircut percentage in SR has been a little bit higher than in the other categories. That point is correct. But product mix every quarter the mix will be a little bit different. See, we have now brought the book down from INR43,000 crores to INR10,000 crores and our — our haircut through this entire process has been 24% 25%. We have been showing the haircut percentage to you all for a few quarters and you know that FY ’23 and FY ’24, cumulatively, our haircut percentage was about 25%. This year, so-far in the nine months so-far, our haircut percentage is 24%.
Now quarter-on-quarter it can be a little bit volatile, but Mota Moti, it has been about 25%. The haircut has been about 25%. Now we have INR10,000 crores remaining of the book. You can apply your assessment on if, let us say INR10,000 crores is eventually going to finish over the next, let’s say, year or so at about INR0,000 or INR3,000 crores, which is the residual book, let us say, the good-quality book which we will live with. Then Jovi, Delta Linai, Usmek Kitana Extra provision La Gega, Say, you can do some sensitivity analysis on that. We have INR1,800 crores of provisions on the book. Whatever is Delta over and above that will need to be funded through some of the other pockets of value that we have mentioned in the past. That’s probably the best way to kind of look at it.
Kunal Shah
Yeah. So again, when we look at it, this time it’s getting offset from AIF recoveries, okay. So that’s primarily offsetting. So whatever has been the gain on the AFF that’s offsetting the provisioning on the wholesale. And I think that’s what you have been indicating as well that maybe the AIF recoveries or maybe any stake sale gain that would be utilized more towards this kind of unhaircut. And at least in P&L, there will not be any further impact. So would that be the right assumption again?
Jairam Sridharan
That is the right assumption. Yes. Yeah.
Unidentified Speaker
[Indecipherable]
Kunal Shah
Sorry?
Jairam Sridharan
That’s a fair assumption. What you’re saying is fair. And this is the way we have — that’s the way we have played it the last few quarters as well is that over the last four, five quarters, you’ve seen us do this that we have not allowed net-worth to get impaired. So net-worth has been protected and has continued to increase. We saw our capital adequacy actually improved by-40 basis-points during the course of this quarter even though the book has grown by 16% Y-o-Y. So you saw capital adequacy improve. That’s because of this angle that we are protecting the net-worth by making sure that any incremental kind of haircuts that are coming in are getting offset by any other sort of one-time gains that we have.
Kunal Shah
Sure. And then getting on to the growth businesses, so again, the credit cost has risen by almost like 30 odd basis-points that primarily seems to be MFI. But again, when I look at it, maybe at least there has been uptick on the salaried PL as well as digital loans. Digital loans you have in terms of the disbursements as well, digital loans are up. So you have been indicating that you are — you would be getting more comfortable and start to do this business. But the overall operating environment, I think most of the lenders are still suggesting that there is some worry on this segment.
And even on the business loans, okay, this is again unsecured. So we would have seen some part of it on the microfinance side wherein we are taking the knock. But again, now these three segments continue to grow. So would there be more worry in terms of overall and the overall growth businesses, credit cost also inching up. And where would you see the steady-state level in this kind of an environment?
Jairam Sridharan
See, we have — we have stated in the past as well that the business that we are building is — is kind of roughly a 2% credit cost business, nothing much has changed there. Nothing that has happened in the last few quarters has changed our — changed our mind on that. This quarter you saw the growth book credit cost go up from 1.6% to 1.9%, not a big delta. The businesses that you mentioned, you’re absolutely right, like we will not — we will — we will not be — we will not be — we will try not to be pro-cyclical with respect to these businesses. It is our job to take a call on where we see risk. At this point, I feel comfortable with the profile of risk that we are able to book in the digital side.
So we are starting to get a little bit comfortable. I think you and I spoke about this a few months ago where I said that we might start doing more on digital. You see a little bit of that in the 3rd-quarter. We saw a tiny bit of increase in that. Business loans, we are not quite there yet. So you saw a big steep fall in business loans in Q3 versus Q2. They’re not quite there to where I can assert with any confidence that we are there. So business loans might still take a little bit of time. But salaried personal loans, I continue to feel pretty good. I think the business is holding up very well and both horizontally and vertically, the risks are holding on quite nicely.
If you see our — our charts on Page 20 at ’19 and 20, both of them show one shows vertical and one shows horizontal risk. And you can see kind of the — how we are feeling about the various products and salaried personal loans, for example, you can see the very low levels and continuing to stay down and Q3 was actually even better than Q2 in terms of horizontal risk in salaried personal loans. So I continue to feel-good about both salaried PL and digital. Business loans and microfinance, not so much. We are — we are still — we are still in a pretty tough territory there.
Kunal Shah
Okay, okay. And even excluding MFI, the business loan disbursements would have been down. So what we are seeing from say 1155 to 736
Jairam Sridharan
Yeah, yeah. So 11 that Delta of — because of [Speech Overlap]
Kunal Shah
Because of MFL is almost
Jairam Sridharan
Probably INR150 crores. The rest of the delta is all business loan cardelta. The total delta is about INR400 crores, of which about INR150 is MFI and bucket 250 is business loan.
Kunal Shah
Okay. Okay. Yeah. Thanks and all the best.
Jairam Sridharan
Thank you,.
Operator
Thank you. Before we take the next question, a reminder to all the participants, please press star and one to join the question queue. Our next question comes from the line of Abhijit Tebrawal from Motilal Oswal. Please go-ahead.
Abhijit Tibrewal
Yeah. Hi, just one question. Hi, just one question I had is in terms of all the product segments that we have secured or unsecured, I think I mean sometime last quarter there were conversations happening with regards to spillovers from microfinance in secured segments. So have we seen any such spillovers in our secured segments or is it like large part of the spillovers that are being seen from microfinance are restricted to only the unsecured segments.
Jairam Sridharan
Yeah. So I have been, I must say positively surprised we have — we have not seen spillovers yet. So I don’t want to jinx it, but but so-far not really. The secured side seems to be holding very steady. So housing, lab, you know, everything is just holding up — holding up pretty steady and actually Q3 was pretty decent as well. December in particular was quite strong. And as we speak, January is looking pretty good as well. So not looking like a spillover thing yet. So no, that is so-far not so much. It seems pretty contained at least right now.
Abhijit Tibrewal
Got it. And just one last — sorry, just one last question that I had was, while we spoke about some hidden pockets of value, we’ve been utilizing that I mean basically the AIF recoveries to ensure that the network is not impaired while we are running down the legacy AUM. The other pockets of opportunity that you have spoken about in the past, right, are there any updates on that? I mean, maybe not necessarily a direct update, but directionally, how are we thinking about it?
Jairam Sridharan
Yeah. So AIF we already spoke about and we continue to make progress on that. We’ll continue to see more AIF recoveries in Q4 and in FY ’26 as well. And then we have got the stakes in the two Sriram insurance companies, Life and General where again, we have been — we have been open about our intent to see them as financial investments and exit them at the appropriate time. As these are unlisted entities, it’s a little bit more complex and you need to do some structured transactions to actually get-out. There have been some organization or corporate-level restructurings in those entities, which has helped make things a little bit easier. However, there is no specific update for me to share with you right now. There’s no specific deal or conversation that is sort of on the table.
But our old guidance on this stands, which is that you should continue to expect us to be to be available as a as a potential seller to exit this in — at the moment the right opportunity presents itself, you know, likely in FY ’26, but we are not setting a particular — a particular timeline on that. So there is of course the incremental sort of item that we had shared recently, which is the $140 million of deferred consideration that’s available to us in FY ’26. That’s a new pocket of value that has emerged in — that has emerged in recent weeks. Again, all these are very different from AIF type stuff, which we have talked about in the past as potential offsets for legacy asset side issues. These — some of these items are more direct value-creation items. So we will — so we have that as well.
So between that and the stakes in the life insurance entities and of course, our tax shield that is available to us from the past, those are the pockets of value that continue to remain available to us.
Abhijit Tibrewal
Got it. And while you gave a very good color on this, just wanted to understand in terms of growth on the retail side, are we still thinking just organic growth?
Jairam Sridharan
Yeah. See, you know the Group has been — has had kind of M&A in its DNA. So we are always happy to consider M&A transactions as and when they present themselves and our areas of interest are where we’d like to see or like to seek M&A transactions also remain the same, which is MFI Small Business Gold and there is no deal conversation that’s going on right now and which we can offer any update on. But yes, we continue to remain interested in those in those areas. But as of now, the bulk of our strategy is going to remain organic with us opportunistically looking at inorganic transactions if and when something interesting presents itself.
Abhijit Tibrewal
Got it. This is useful here,. Thank you so much and wish you and your team the very best.
Jairam Sridharan
Thank you, Abhiji.
Operator
Thank you. The next question comes from Rohit Jain from Tara Capital Partners. Please go-ahead.
Rohit Jain
Good evening. I have a question on the borrowing mix. I see that the percentage of ECB has gone up quite recently over the last few quarters. Now given an environment where INR is depreciating, can you help us understand the dynamic of this avenue of borrowing? I mean what is the hedge cost and how does it change given the INR depreciation and is it still better than borrowing in the domestic market?
Jairam Sridharan
So right now, Rohit, we are fully hedged. So — and we hedge it at the point when we do the transaction. We don’t keep naked exposures. So we hedge it at that point. And when we did these transactions, our hedging costs were about 2.5% and we enter into the hedge. So the depreciation rupee has zero impact on us right now. And of course, the — as rupee depreciates, the hedge cost itself might change over-time, if we were to do a new transaction and enter into a new hedging deal, then the story will be a little bit different. But our old borrowings that we did during the earlier part of this year, nothing changes about them in terms of their impact to us.
Rohit Jain
So I mean, let’s say, as and when they mature, if hypothetically you were to replace them with domestic borrowings in case this becomes slightly more, let’s say, expensive, then would it net-net be at the thing if we think about that dynamic?
Jairam Sridharan
Yeah. No. So basically, the way we hedge it is we have hedged for the — for the duration of the loan. So effectively, as far as I am concerned, it is a rupee borrowing effectively. So it doesn’t matter to us what happens to the USD-INR. At this point for those loans, of course, if you want to do a new borrowing transaction, then it does matter. But for those old borrowings, nothing changes, like they are locked-in at rupee rates.
Rohit Jain
No, I get that. I mean, I’m just trying to understand what’s the duration of these tenure of some of these borrowings?
Jairam Sridharan
Three years.
Rohit Jain
Three years. And so the ones that were borrowed, let’s say, in FY ’24 or something, they still have a, let’s say, decent couple of years before that becomes an issue for you.
Jairam Sridharan
Yeah, that’s right. Our first significant borrowing was in June of this year. So we have a ways to go. So June 27 is when they will come up or July 27 is when they’ll come up.
Rohit Jain
Got it. Thank you. Helpful. Thank you. Thanks a lot.
Jairam Sridharan
Thank you, Rohit.
Operator
Thank you. Participants, you may press star and one to ask a question. Thank you thank you. The next question comes from the line of Vikas Kasturi from Focus Capital. I’m sorry. The next question comes from the line of Rishab Pajaj from 361 Wealth. Please go-ahead.
Rishabh Bajaj
Yeah, hi, good evening, everyone. I just wanted to ask, how do you see the credit environment going-forward? Like do you see incremental steps or do you feel that it’s possible that we could see a peak out in credit risk.
Jairam Sridharan
Right now, I’m leaning a little bit towards the latter of what you said very cautiously, I would say that it looks like Q4 is going to look somewhat similar to Q3. So Q4, you’re not going to see a reduction. You’re going to see Q4 kind of similar to Q3, but it’s not increasing. And even if you see within the quarter, the December trends were actually a lot better than October and November. So if you look at things on a three-month moving average basis and by the way, January is coming in at similar levels to December or even better. So on a three-month moving average basis, it looks like the — things have peaked. But these things tend to shift.
So I don’t want to draw too much from it just now, but I mentioned to an earlier caller that we’re not seeing spillover effects into other product lines and resolution rates seem to be improving within the product lines that addressed. So putting these two together, it looks like Q4 kind of somewhat similar to Q3, maybe even tad higher maybe, but kind of looks more or less the same and if that ends up being the case, you know, you know, maybe it is — it’s looking a little bit more like — more like the peak than not. But I wouldn’t — I wouldn’t assert it with a lot of confidence yet. Let a month or two more go, then we will feel a lot more confident about it. I can just say that December was pretty decent and January is turning out to be pretty decent.
Rishabh Bajaj
Okay. And in terms of the long-term ROA guidance, are we on-track to meet that? And.
Jairam Sridharan
Our growth book, you saw the pro-forma PBD ROA was 1.4% as the legacy book keeps running down and becomes irrelevant over the course of the next few quarters, the growth book — the PBT profile will start becoming more-and-more front-page. And you will see that. You can see that our yields are holding steady and consol basis yields are even increasing and you can see that our cost of borrowing has peaked, fee income is starting to rise, OpEx continues to come down on a regular basis. And if credit costs sort of peak out at around these levels or kind of in Q4, then pretty much secularly, you see that all the metrics are favorably aligned. So we feel — we feel confident about the medium-term guidance that we have offered and nothing changes on that front.
Rishabh Bajaj
Okay. Thank you so much.
Jairam Sridharan
Thank you,.
Operator
Thank you. We’ll take the last question from the line of Vikas Kastori [Phonetic] from Focus Capital. Please go-ahead.
Unidentified Participant
Thank you. Moderator, am I audible?
Jairam Sridharan
Yes. Yes, Vikash, we can hear you.
Unidentified Participant
Okay. Thank you, sir. Sir, I have a couple of questions. So first is our Primerica holdings, what is the strategy there is a long-term strategy? Is it to grow the insurance book aggressively and then maybe lift it separately or exit that business? Because I’m sure even the regulator will ask you this question. So some broad guidance on that — on that strategy?
Jairam Sridharan
Yeah. See, on Primerica, we are 50% owners and listed as promoters. And for IRDA guidelines, promoters need to remain for a five-year period. We are — we have been there for three years now. Your question is a valid one about what — in the long-term, do we see ourselves as strategic owners or not? We continue to have internal conversations on it. It’s not — it’s — we are not — we are not asserting long-term strategy at this point on this, all options are open. Having said that, right now, our job is to actually get that — get that company to a certain level of scale and launch the right products, have certain segments in which there is — there is some dominant position, so that value is created. How we monetize that value, we will see.
But right now, the job is pretty simple and cut out, which is to — which is to focus on value generation in that entity. It will remain very small and somewhat irrelevant in the larger scheme of things for us for a little while. And but once a little bit of value gets created, then we will figure out the right kind of strategic path for it.
Unidentified Participant
My second question is on your branch strategy, sir. You would mention in one of the slides that the rate of addition is kind of slowing down. And so my question for you would be that, sir, given that branches tend to be the engines of growth so why would you want to slow it down? You would rather want to have more branches and because over-time, they will mature and help you grow faster. So that is my question, sir.
Jairam Sridharan
Yeah. So thanks for that question, Rishab. See, these things — I mean, you should think of this as sort of a little bit of a caterpillar movement. Sometimes you will see a lot of branch expansion and sometimes you’ll see that slowing down. And it tends to happen based on what your primary criterion is. For the next year and a half, our focus is going to continue to remain on operating leverage and making sure that we are able to deliver returns from the 200, 250-odd branches that we have opened in the last couple of years, just making sure that they come up to the right productivity levels that we are able to actually show the returns on that from our continued reduction in opex ratios, et-cetera.
If we are able to deliver that, we will come back to branch growth as well. But right now is I think the time is for us to actually demonstrate productivity improvements and opex improvements on the investments that we have already made rather than continue to make any more investments. But this is a — this is the strategy for the next few quarters, we will see that will continue to evolve. Thank you for your question.
Unidentified Participant
And final question, sir. Sir, on your retail to wholesale ratio, which you’ve given as a sort of a long-term guidance of, 75% 25% and given that retail is growing very fast and wholesale you are shrinking your legacy book, so we might actually end-up with something like maybe 85%, 15% or something, sir, given this kind of growth rate. So would you still want to get it back to 75-25? Is that kind of — my question is, is that kind of set-in stone or is it just like moving target kind of thing?
Jairam Sridharan
I’d say that, I mean, nothing business is set-in stone, but I would say that our desire is for retail proportion to be 75% to 80%. It’s unlikely that we would want it to be a lot more than that. So yes, it is possible that in the short-term because of continued wind-down of the legacy book, in the short-term, it is possible that we overshoot the 75% 25%. But even the sort of medium-term, you should expect us to come back to somewhere retail being somewhere between 75 and 80%, it’s unlikely that we will be too different from that ratio.
Unidentified Participant
So you might even slow-down the retail spend.
Jairam Sridharan
We don’t. I don’t think we’ll need to slow anything down. I think we — organically the numbers will take care of themselves. I think we know what the size of the opportunity is in wholesale for somebody like us with our rating and we know what the opportunity size is in retail and we believe that an optimal mix of, 75, 25 or 80-20 will kind of work-out.
Unidentified Participant
Okay. Thank you, sir. Thank you for all your answers. I look-forward to speaking with you again next quarter.
Jairam Sridharan
Thank you. And on this last point, since the — since the caller asked about growth, I want to reiterate that you’ve seen the consol level growth of increase quarter-on-quarter over the last multiple quarters. This quarter we delivered our — if I’m not mistaken, it must be like three-year high of growth at 16% Y-o-Y, and we continue to feel optimistic about delivering strong growth even in an environment in which growth has been relatively slow for the market and to be able to do that in a way that is fairly protected and you should continue to expect to see a fairly contained risk outcomes on the growth book even as we deliver this these growth levels. Thank you for — thank you for all those questions.
Operator
Thank you. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to Mr Jayram Shreedaran for his closing comments.
Jairam Sridharan
Yeah. Thank you everybody for listening. I’ve had one or two questions on messaging platforms. Somebody has asked the question about 24%, the haircut, sorry, let me just take 30 seconds to clarify that 24% haircut that we have — that we have mentioned for this year, the nine months is without netting off the AIF impacts. Just to be clear that the gross level impact and then we have net off the — or we have set that off against AIF gains that we have — that we have — that we have done. So this is a gross number, not a net number, just because one or two people wrote about this on messaging platform, just clarifying that. Thank you everybody for listening — listening to the call patiently. And for any further questions, do reach-out to Ravi and team in our Investor Relations organization. Thank you and have a great evening.
Operator
Thank you. On behalf of Paramal Enterprises Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.