Piramal Enterprises Ltd (NSE: PEL) Q4 2025 Earnings Call dated May. 06, 2025
Corporate Participants:
Unidentified Speaker
Ajay Piramal — Chairman and Executive Director
Jairam Sridharan — Chief Executive Officer of Retail Financing Business
Upma Goel — Chief Financial Officer
Yeshwant Ramchandra Nadkarni — Chief Executive officer, Wholesale Lending
Analysts:
Unidentified Participant
Shreya Shivani — Analyst
Vivek Ramakrishnan — Analyst
Kunal Shah — Analyst
Kishan Rungta — Analyst
Vinod Jain — Analyst
Sarvesh Gupta — Analyst
Mohit Jain — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the Q4FY 2025 earnings conference call of 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 Start then 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.
This must be viewed in conjunction with the risk that the business face. On the call today we have with us Mr. Ajay Piramal, the Chairman, Mr. Anand Piramal, Director, Mr. Rupen Zaveri, Group President, Mr. Jayaram Sridharan, CEO Retail Lending and MD Piramal Finance. Mr. Yash Nadkarni, CEO Wholesale Lending Ms. Upma Goel CFO and Mr. Ravi Singh, Head of Investor Relations and Strategy. I now hand the conference over to the chairman Mr. Ajay Paraman for his comments. Thank you. And over to you sir.
Ajay Piramal — Chairman and Executive Director
Good day everyone and thank you for joining us today on this call. With the Q4F25 results. We take a stock of our full year performance versus the goals we set for ourselves at the start of the year. It is also an opportunity to look back on how far we have progressed in our transformation journey in the last three years. I am happy to report that we met all the stated objectives for FY25. We said we will get our legacy AUM from rupees 14,500 crores at the start of the year to below 7,000 crores. And we ended the year with 6920 crores of legacy AUM.
This is 9% of our total AUM. We also spoke about expected gains of 1700 from AIF recoveries over two years. In the current year we were able to recover AIF book of 1600 crores with gains of 926 crores. We expected the AUM growth for FY25 at about 15% year on year. Net of legacy AUM rundown and the growth AUM scale up and our total AUM of 80,000 crores. We delivered an AUM growth of 17% to a total AUM of 80,689 crores at the end of March. Please. We wanted to move our retail wholesale mix from 7030 at the beginning of the year to 7525 by the end of the year.
We have ended this year with the retail wholesale mix of 80:20. We also put a target of getting our OPEX to AUM of the growth business a key driver of our Profitability down from 4.9% in the last quarter FFY24 to 4.6% in the last quarter FY25 we did significantly better with an OpEx to AUM of 4% for the growth business in the quarter 4 of FY25 if we take a longer term view. Also, the last three years have been transformational for the company. Our growth AUM consisting of Retail and Wholesale 2.0 have grown at a 50% CAGR in the three years from about 22,000 crores to about 74,000 crores now.
The share of growth AUM in total aum increased from 34% to 91% in the same period. Our legacy AUM is down from 43,000 crores to 6,900 crores in these three years. We believe a reduction of the scale in the wholesale book in such a short time period is perhaps unprecedented in industry. While running down the legacy book and investing in new businesses, we were able to protect our net worth. Except for dividends and a share buyback, our net worth has remained broadly unchanged at about 27,000 crores in these three years. We have also greatly simplified our corporate structure.
We demerged pharma in September 22nd. Currently we are at final stages of merging Piramal Enterprises with our subsidiary Piramal Finance. We also monetize about 6,300 crores from our non core investment in the last three years. There is still significant embedded value in our balance sheet where we have visibility of crystallizing it for the next one to two years. With the merger of PEL and Pyramid Finance, a tax shield of 14,500 crores in assessed carry forward losses will be available. This would make our PBT equal to PAT for several years in the future. There are further monetization and recovery opportunities from our Sriram General Insurance and life insurance investments and the AIF books.
We also expect to receive deferred consideration of about US120 million in FY26 for the sale of the pyraml imaging business in 2018 with change in the business mix, consolidated AUM growth and NIMS have constantly been increasing over the last six to eight quarters. Similarly, our consolidated net profit has become more stable in the last five years versus a volatile phase we underwent between two and three years ago. We just reported a consolidated net profit of 485 crores versus a loss of 1685 crores in FY24. Our growth business made a PB8 in FY20. Both our retail and wholesale businesses had a strong FY25 meeting their respective plans and we are now well positioned to build upon the platform and leverage the investments that have been made.
As we come to the end of our transition journey of the last three years. We are excited about the opportunity ahead of us to cement our position as an at scale financial services company with consistent and superior earnings growth in FY26. We expect to deliver an AUM growth of about 25% year on year taking our total AUM to more than 1 lakh crores. This will be driven by our growth AUM which grew at 36% year on year in FY26 and should grow at about 30% year on year in FY26. Retail should form 80 to 85% of our total AUM in FY26.
The legacy AUM should further decline to 3000 to 3500 crores in FY26 and be negligible in the context of our overall balance sheet size. The increase in our growth business profits and realization of the embedded value in our balance sheet would drive strong earnings growth in FY26. We currently expect the FY26 consolidated patch of more than 1300 crores versus a profit of 485 crores we reported in FY25. Once again I thank all the investors and analysts for their support and useful feedback from the years. Admits dynamically evolving markets, customer expectations, economic, global technology and regulatory landscapes.
We are focused on execution and delivering on our plans. The journey of the last three years have given us everyone confidence in our capabilities. With this optimism, I hand over to Jaira Yashan UPMA to share more details on our performance and plans. Over to you Jaira.
Jairam Sridharan — Chief Executive Officer of Retail Financing Business
Thank you Chairman Sir. Good evening everybody. It has been a strong quarter and a strong year for our retail lending business. At the end of March 2025, the AUM of our retail business stood at 64,660. A growth of 35% year on year. In the fourth quarter of FY25, our disbursements at 9,754 crores were up 9% year on year. Disbursements in unsecured products were slowed down further and were down 1% yoy compared to secure products which were up 22%. Y o yes. Our flagship mortgage business comprising housing loans and Loan against Property grew by 34% year on year to 43,850 crores.
Mortgages account for 54% of the total AUM of the company and 68% of retail AUM. Our mortgage book has exhibited robust asset quality in the last three years which with a stable 90 plus delinquency ratio of around 0.5%. Slide number 15 on our investor presentation shows that amongst the specialist affordable housing finance companies where data is available publicly, we are not only amongst the largest lenders but we are also able to grow much faster than the peer set. We believe this has been made possible by our distribution efficiency and our high tech plus high touch business model which marries on ground presence with our tech and AIML capabilities.
In other retail products, used car loans aum were up 91% year on year and salaried personal loans AUM were up 93% year on year. We continue to go at slow on disbursements and business loans and digital loans AUM for business loans were still up 22% year on year while digital loans AUM were down 24% year on year. Overall Retail Asset Quality remains healthy if you flip over to slide 24 in the investor presentation you will see that the 90 plus days past due delinquency rate of our business at 0.8% remains within the narrow range that we have maintained consistently over the last three years.
The next page slide 25 in the presentation shows vintage risk strength across various products. We have received multiple requests on this chart in the past and we have incorporated that feedback this time. So this time you will see that we are showing vintage risk using 90 plus days past due at the 12 month mark as opposed to the 30 plus days past due at 3 month mark which we used to show till last quarter. You will notice that the trends on improving asset quality of new tranches continue to remain the same. Our diversified multi product portfolio approach provides us the flexibility to actively navigate any product specific cycles while keeping overall asset quality healthy within unsecured businesses.
Microfinance which we classify within our business loans segment witnessed the sharpest deterioration in the last six quarters. 90 plus days past due in microfinance remains at 6.9% on a much reduced AUM size. Microfinance is now about 1.5% of retail’s AUM. Rest of the products continue to witness benign delinquency trends. Slide 26 in the presentation shows how our credit scorecards have been effective in managing credit risk. Customers rejected by Piramal who end up getting loans elsewhere are seen to have risk which is 2.8 times that of the customers that are models approved. In the last four months of FY25 we have seen noticeable improvement in operating parameters of asset quality.
Credit costs in Q4FY25 stabilized at levels very similar to Q3FY25. This is in spite of some upward adjustments we made in ECL rates during the quarter. Asset quality metrics and unsecured ex microfinance appear to have peaked in Q3. Microfinance likely saw its peak in Q4 including the impact of upward ECL adjustment. Secured lending products continue to remain largely stable as shown on slide 19, our customer franchise grew by 24% year on year to 4.7 million customers. We have been able to capture a significant portion of our customer originations for future cross sell opportunities. During FY25 we were able to significantly increase the share of cross sell disbursements in our unsecured lending disbursements to about 30%.
From a distribution standpoint, we now have a network of 517 branches across 428 cities in 26 states. In FY25 we opened 27 branches versus about 90 branches per year that we used to open in the prior two years. Our focus this year has been on raising productivity of existing branches and increasing the number of products offered per Branch. Slides 20, 21 and 22 in the presentation show these dynamics and the resultant improvement in our branch productivity and employee productivity which leads me to OPEX ratios. We have continued to see strong outcome in our OPEX to AUM ratio.
If you flip over to slide 23 you will see that over the last eight quarters we have consistently reduced our retail OPEX to aum ratio from 6.5% in Q4FY23 to to 4.3% in Q4FY25. We aim to continue this trend in line with our medium term guidance of 3.5 to 4%. Our performance in lowering the retail OPEX to AUM ratio consistently has been slightly better than what we expected and what we guided at the beginning of the year. This is thanks to the investments that we have made in technology, both traditional and generative AI, making significant headway across risk management, operating leverage, productivity and the controls infrastructure among other areas on slides 28, 29 and 30.
In the presentation we have highlighted some of the successful use cases that we have been able to execute on traditional and generative AI in our businesses. Also, as you see on slide 23, an accounting policy change at the earliest part of the year in Q1 on processing fees impacted the reported retail fees in this year on a like for like basis. Underlying cash fee collected but not yet booked stand at 0.6% of AUM adjusted for the stage which should normalize over the coming years. AUM yield in retail has been broadly stable. We have undertaken multiple new innovation initiatives in FY25 which you will find displayed on slides 31, 32 and 33.
These include the launch of a micro lab business, major progress on our direct assignment and co lending program, and rising customer engagement, particularly through digital channels. Over the last three years Iran has built the foundation of a strong retail lending business. We have refined our execution rigors. We have successfully navigated a tricky credit risk environment. We are confident about the continued steady scale up of our multi product retail lending business with consistent improvement in operating leverage and stable asset quality through the cycle. With this I hand over the call to Yash to talk about the wholesale business.
Yeshwant Ramchandra Nadkarni — Chief Executive officer, Wholesale Lending
Thanks Jayram and Good afternoon everyone. FY25 has been a very active year for the wholesale business too. As Chairman alluded to earlier, we were able to reduce our legacy by 53% year on year to 60 which now occupies a much smaller part of our balance sheet at 9% and will therefore be a small contributor smaller contributor rather to PNL going forward. During this year we saw recoveries of some of our lumpy loan assets and are glad to note that the credit costs associated with these complex asset recoveries were adequately covered by the EIS recovery gains which were broadly in line with the IF recovery guidelines we had provided towards the beginning of FY25.
Going forward we will continue to pare down this book. We expect this book to reduce to three to three and a half thousand crore by March 2026. We also had a productive FY25 for wholesale 2.0 business or a new business on the wholesale side. During the year we disbursed 7192.2crore in new wholesale book across real estate and mid market lending strategies. This was an increase of 22% year on year in origination. Origination per loan was 60 crore during the year while disbursed amount per loan was 47 crore thereby signifying the granularity with which we are building this business.
There. The portfolio has an average ticket size of 70 crores and an effective interest rate of 14.4 crore featuring 14.4%. Sorry, thanks for that. Featuring a well balanced asset duration and diversification, we continue to see strong tailwinds across real estate and CMML segments and will grow this book in a calibrated manner through FY26 wholesale 2.0 EM was 9117 crore as of March20 which is a year on year growth of 44%. While this is a strong year on year growth, it nevertheless was tempered due to significant prepayment pressures faced by both real estate and CMMA segments.
Repayments were almost 45% of amounts disbursed during the year signifying better than expected performance of the book which continues to benefit from strong sectoral performance and quality partner and assets in exchange. Since the inception of the new wholesale lending business about two and a half years ago, we have not experienced any delinquency in the portfolio. With this I’ll hand over to Margati through the financial performance.
Upma Goel — Chief Financial Officer
Thank you Yash Good evening everyone. Moving to our financial performance in queue for FY25 we reported consolidated net profit of 102 crores versus 39 crores in quarter three FY25. FY25 net profit stood at 485 crores versus loss of 1684 crores in FY24. In Q4 FY25 perform a profit before tax for growth business stood at 306 crore versus 212 crore in quarter three FY25. This translates to PBTRO AUM of 1.8% in Q4FY25 for full year FY25 performer PBT for growth business was 896 crores versus 1044 crores in FY24. In FY25 growth AGM grew by 36% year on year to 73,777 crore.
Operating profit grew by 34% worldwide to 1,889 crore in FY25. Gross business credit cost was at 1.6% versus 0.8% in FY24. Credit cost exe recoveries and other gains was 1.9% versus 1.4% in FY24. Our total GNPA and NNPA ratios stand at 2.8% and 1.9% respectively. Our net worth stood at 27,096 crore with a capital adequacy ratio of 23.6% on consolidated balance sheet basis. In Q4FY25 our cost of borrowing moderated by 10 basis points quarter on quarter to 9.1%. We are also actively diversifying our borrowing mix and securitization and international borrowing share stands at 19% from 6% in March 24 our fixed to floating rate debt mix has improved to 43 to 57.
The fixed floating gap between assets and liabilities has now been mostly neutralized to align the balance sheet better with the declining rate 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 one on the Touchstone telephone. If you wish to remove yourself from the question queue, you may Press Star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We’ll take our first question from the line of Shreya Shivani from clsa. Please go ahead.
Shreya Shivani
Yeah, hi. Thank you for the opportunity. I have three questions. First is on the legacy book. Congratulations on bringing down the book as had been stated earlier. Now one of the things that I can see is that the major reduction in the book has come from stage two and stage one and the S security receipts. You’ve set a target of another. Now bring it down, bringing it down to 3000 to 3500 crores. So if you can help us understand what will remain in that 3 to 3500 crores will your majority of that would be lands and receivables and you’ll try to remove as much of the stage one and two and SRS as possible.
That is my first question. My second question is on the wholesale 2.0 book. You had mentioned that the prepayment rate I wanted to understand is it that the payment rate was elevated or we’ve seen more of refinancing and borrowers exiting to other lenders. If you can help us understand and from which segment specifically. And my third question, you’ve given a target pact for next year of 1300 or 1500 crores or something like that for FY26. You had also mentioned about the pyraml imaging, the one time consideration coming through Paramil imaging. How much money would come in what could be the timeline and is that included in this pat or some color on that would be useful.
Thank you.
Ajay Piramal
That’s a lot of questions. I’ll try and answer the first two. My short answer to your first question is we expect the recovery to be broad based across different categories across sort of loan book security receipts. Obviously AIF and the non performing part of the book probably slightly delayed on the land side but the effort would be actually to bring reduction across the book and that’s how the trajectory will be as we expect. To answer your second question, the prepayments have been again broad based. Most of the prepayments have occurred because the underlying projects have performed much ahead of the underwriting and therefore the cash generated by the project has been used to prepay the principal.
It’s been broad based across the portfolio as opposed to certain loans getting refined and therefore being lobby. Same is true for CMML book as well.
Jairam Sridharan
Yeah, even CMML book as well. Like you are not. See this is not a refinance story Shreya. This is actually clients cash flow which is actually paying us back. And some of it I must admit is also coming from capital markets. Because the equity capital markets have done so well. A lot of the promoters are able to raise money, raise primary equity and use that to repay a bunch of debt. That’s a phenomenon we’ve seen a lot in the last year in the corporate book. On your third question on profit guidance, yes we have guided to a profit of 1300-1500 crores in the coming year.
This is on a console basis Shreya. So there are lots of puts and takes here. The gains from the emerging transaction that you mentioned is one of them. There are potential haircuts from some of the reduction of the legacy book. There are a lot of these one offs all of which is included in that 1300 to recoveries from our old books. There’s a lot of stuff that leaked in there. There are a lot of moving pieces in the PNL here and that’s why we wanted to offer a sense of stability in terms of a central anchor around where we believe on a console basis the company’s profitability is going to lag.
We ended this year at about 485 crores and we expect next year to deliver between 1300 and 1500 crores.
Shreya Shivani
Okay, wonderful. That answers all of my questions. Thank you so much and all the best.
Jairam Sridharan
Thank you sir.
operator
Thank you. We’ll take our next question from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Vivek Ramakrishnan
Congratulations. So here are my questions and even I have a lot of questions. So in terms of you manage to switch on and switch off various products and grow your retail business data. I just wanted to know what is the secret stuff there. And Microlab is looking like a bit of the flavor of the month. Everybody’s increasing Microlab. So does your credit model show any danger signals or segments that you would avoid in Microlab? That’s question number one. And the second question is A follow up to the previous question only in terms of profits because increasingly your roe from your core business is going to become more and more important.
So if there are excess profits from let’s say imaging or other recoveries and set offs which are there, will this 1300 crores the way you’ve baked in the core profits or would it be profits which include the other stuff also because you could very well use the profit, I mean be tempted to use the profit to write off the balance 3500 crores also which you see will be left over the end of the year. Those are my questions. Thank you.
Jairam Sridharan
Yeah. So Vivek, thank you for your, for your comments and for your good wishes. I think yes, we have had, we’ve had some success in accelerating and decelerating products appropriately to keep our overall delinquency and credit costs fairly stable. In retail in general, if you see the business loans environment overall it has not been the greatest. Q4 was actually good compared to Q2 and Q3. So Q4 things got better. So ended the year kind of a lot better than what it was looking like in the middle overs. So the flogovers were actually pretty good as far as this business is concerned.
Let’s see whether that continues on into Q4 Q1 or not. It’s a space to watch. Microlap is a very small business. It will remain a small business for us for a while. We do want to invest in the space. Building new businesses is a three to five year journey. So we are in no hurry to build this business. So we are absolutely not trying to ride a wave here. This is a space where you will see us make investments and slow and steady grow it. You know, if you see us get to like a thousand crore or 1500 crore AUM by the end of next year that would be probably a really big thing.
So we are not going to go berserk on this stuff much at all. So we will see how the market, you know, how the market plays out. On your other question on profitability, I want to reiterate the 1300-1500 is all in everything, all the positive one off, the negative one off everything put together at a console basis from Pel, you should expect 1300-1500 crore. Now if the positive one offs are a lot more, that gives us an opportunity to accelerate further some of the rundowns that we are thinking about. We will probably do that. Right.
We have told you in the past and we have shown some of the metrics and shared some of it in this forum that historically we have had between 25 to 30% haircut in reducing the legacy book. So if you are going to reduce the Legacy book from 7,000 to 3,000 or even further, there is something implied there. So all inclusive, we do believe that 1300-1500 we will deliver. I don’t want to get into the components of each of that just yet because there are too many moving pieces and many of them will play out differently.
And our strength over the last year and a half has been that we have been able to navigate ups and downs appropriately and we have been able to play the delivery that’s bold to us. And so we will see what deliveries we face in the course of the year and we will play it accordingly. What we are guiding is that from an outcome standpoint we will deliver an outcome of 1300-1500.
Vivek Ramakrishnan
Those were my questions. Thank you very much and wish you all the best.
Jairam Sridharan
Thank you Vivet.
operator
Thank you. We’ll take our next question from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah, sorry, so few questions. Firstly, again touching upon the guidance just within this 1300-1500 crores, what is the growth businesses contribution that we are looking at? Maybe obviously you have indicated there could be one offs in terms of the sale plus the haircut. But broadly when you are giving this specific number, what are you putting it for growth businesses
Jairam Sridharan
we delivered about 900. Crores of profits, I think 895 crores of profits from growth business. This year. Growth business is expected to grow at about 30% from AUM standpoint, give or take. That’s what we applied it. So you should broadly expect that from an earnings growth as well on growth business side.
Kunal Shah
Okay, so you are saying broadly roas remaining stable in the growth business. So if I have to look at PBT ROA, um, at say 1.4, 1.5 which was there in FY25, you are saying broadly that might continue.
Jairam Sridharan
We are guiding very specifically on that. So we will see as the year goes. You saw that we ended the year at 1.8, so of course it was a very strong end of the year. So I don’t want to make that the benchmark. But you do see that we’ve had some really strong quarters as well in there. So depending on kind of what the strength of the year looks like on the growth side, we will appropriately use one off for legacy adjustment.
Kunal Shah
Yeah, but broadly, even on 900 if we take like 30, 40 odd percent growth, that itself could be like still Closer to like one point. Almost like 1200 crores contributed from businesses.
Jairam Sridharan
Correct.
Kunal Shah
Okay, got it, got it. Perfect. And secondly, in terms of the wholesale credit cost, if we have to look at this particular quarter, would it be fair to assume that it was like 300 crores was the growth businesses credit cost and 220 or, or maybe to 20 odd crores to be the wholesale credit cost in this 222 30. Would that be the fair assumption on the 530 crores of loan loss provisions?
Jairam Sridharan
Most of the growth, the growth business has had about 300 crores of credit cost. The rest of it is all in the legacy side. In the legacy side you’ve also seen recoveries from the aif, et cetera. So all that has also gotten netted offset.
Kunal Shah
Yeah, yeah. So after this recoveries, in fact there would have been like 230 odd crores of wholesale credit cost which would have been booked in this. Got it, got it. And lastly, in terms of this entire associated income of 90 odd crores which is broadly driving this entire thing, how should we look at this? Maybe, maybe going up quite significantly out there. So what is this and is it like one time or this is gonna continue just because out of 102 odd crores, 90 crores is associated income.
Jairam Sridharan
Yeah. Tend to be a little bit higher in Q4. So there’s a little bit of that that’s going on. We had a better quarter in insurance in our insurance subsidiary than what we thought our alternatives business has done. Well, so that’s what you’re saying. This is a, there is a little bit, there is a little bit of quarterly seasonality that’s embedded in there. Please don’t annualize it, you know, please don’t annualize what you.
Kunal Shah
The only, only thing was out of 102 crores, like 90 crores coming in from insurance subsidiary and alternate businesses, then eventually if you had to look at it, maybe the growth plus the wholesale that has hardly contributed 10 odd crores for the quarter.
Jairam Sridharan
Yeah. So Kunal, that’s the way we have managed the quarters. Right. We have shown you the full growth profitability for the full year, about 900 crores. And we have used as and where possible, we have used any gains that we had over and above what we thought were kind of core requirements. We have used to actually bring down the legacy book. And that’s, that’s the story and the trajectory that we will, that we will, that you will see continuing in, in, in the times to come as well.
Kunal Shah
Okay, okay, got it. Yeah, thanks. Thanks. And all the best. Yeah.
Jairam Sridharan
Thank you.
operator
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now.
Jairam Sridharan
Guys, while we are waiting for the next caller to come, I want to clarify a small errata that we just noticed. We will try and correct it and this kind of connects with Kunal’s question as well. On the Associate income in page 46 in the investor presentation, it shows Q4 profit from Pramerica Life as 82 crores and from alternatives as 8 crores. Those numbers are swapped. So you should assume that those numbers are swapped. We will create the errata soon. Apologies for this error, but we just noticed it. Thank you Kunal for asking the question because it pointed us in that direction.
operator
We’ll take our next question from the line of Kishan Drungta from MK Global. Please go ahead.
Kishan Rungta
Thank you for the opportunity. So wanted to understand like how do we see the cost of fund trajectory going forward? Because we have seen 10 bits moderation this quarter and during the rate cycle, RBA rate cut cycle. How do we see our cost of fund shipping going forward?
Jairam Sridharan
Yeah, so I’ll break this into two parts. One is the trajectory of cost of borrowing and the second is a trajectory of cost of funds cost of borrowing. We expect slight moderation through the course of this year. There’s a certain amount of our borrowing which is directly linked to market rates where we have already seen some benefits come in. Even by the end of April we have started seeing some moderation in those rates. But a lot of our other borrowing is linked to bank NCLRs, etc. Which haven’t yet changed. And I expect those changes to come around June, July, August time frame which is when we will start seeing some of the benefits onto our P and L.
So my expectation is that it’s only in the later part of the third quarter and in the fourth quarter that we will see all our bank borrowing rates actually be benefited from the rate cycle. But through the rest of the year the market linked borrowings should indeed give us some benefit. Given all of that situation and kind of slight delays in transmission of rates at the bank’s end, I expect cost of borrowing to moderate through the course of the year, anywhere between 10 and 20 basis points. However, the cost of funds for us will remain roughly flat to where we are right now because our leverage will also continue to increase in this period because we are a very low leverage company right now and we expect the leverage to increase quarter on quarter.
I think these two effects will largely net each other off and hence COP will probably remain flat. Even a COP will continue to come down.
Kishan Rungta
Fair enough sir. So basically since we have home loan and WAP because some of the benefit has to be passed on, so what would be the net impact on the NIMS on the margin front?
Jairam Sridharan
We do expect our margins to expand slightly in general. First of all, only 50% of our of our lending is variable rate and even within that a lot of them we have some leeway in terms of reset dates etc. And we are moving by the way more and more of our assets to fixed rate as we speak. Our customers are slightly less sensitive to fixed versus variable in some buckets. So you will see us make that move. In general. NBFC customer bases tend to see margin expansion in declining rate cycles. I don’t want to speak too much about our specific strategies here, but I don’t think that dynamic is going to go to change in this cycle.
Kishan Rungta
Thank you.
Jairam Sridharan
Thank you very much.
operator
Thank you. Take our next question from the line of Vinod Jain from WF Advisors. Please go ahead.
Vinod Jain
Thank you. First of all, congratulations on the working My only question is related to the view on Primatica insurance business and related mutual fund business. How are you going forward on these two businesses please?
operator
Your audio is not very clear.
Jairam Sridharan
Yeah, I think I heard his question. Vinodji, I think if you are asking us about Primerica and what our strategic view is on that business. Firstly thank you for your kind words on the performance of the company on pramerica. We have 5050 joint venture partners in this business with Prudential UK and India is a strong market and an underpenetrated market for life insurance. We do believe in the long run there’s a lot of value here. However we also have a lot of other users for capital which are competing and they are very strong users that we have.
As you heard they’re expecting a 25% growth in our in our AUN next year. So our lending business is growing quite strongly as well. So we need to keep all options on the table in terms of trying to figure out what the best use of capital is. So working closely with our joint venture partner we will, you know, we will discuss what the right right opportunities are and as shareholders we promise you that we will be good stewards of the long term value of your capital and will do whatever is in the long term interest of the firm.
Vinod Jain
What about the related mutual fund business? Is that also to be viewed as. Would you focus on the growth of that business Also?
Jairam Sridharan
We don’t have Any stake in a mutual fund business. Right now it’s an interesting business for financial services in India and penetration is increasing. However, it’s not a business of immediate interest to us right now.
Vinod Jain
Very well, thank you.
operator
Thank you. We’ll take our next question from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Sarvesh Gupta
First question is on the credit cost. So this year we have seen a sharp jump on the same. So you know that picture is not being adequately displayed by you know when you see the days part due data and the origination data. So were there any one offs in this credit cost for this year or are there some specific segments which led to this sort of a 3x jump in the overall growth business credit cost?
Jairam Sridharan
So go to the chart. So Sarvesh, if you see page number nine please page number nine. If you look at the bottom left chart you will see our credit cost data. You can see three lines there. The top post line which is the core credit cost of the growth business, which is X of some of the gains that we made from the old demand bad book, the so called POCI book or the post C book X of that. If you see that orange line, that line has been relatively stable. It used to be 1.9%, then it went down to 1.6.
It’s back at 1.9. Nothing much has happened there. The dotted line which is the net net credit cost of the growth business has indeed gone up. But that’s more because the foresee book, everything that needed to be recovered largely got unrecovered and hence its proportion and contribution to the book has actually declined. From a credit cost perspective, we’ve had a very stable year in financial year 25. We have not had any jerky movements. We have not had any significant dramatic deltas in credit costs
Sarvesh Gupta
going forward. Also we would expect this 2% sort of a credit cost trajectory.
Jairam Sridharan
You have not guided specifically on that, but that’s a good assumption.
Sarvesh Gupta
Okay. And secondly on the wholesale 2.0 model, so what is the sort of aspiration? Because it’s a small book right now, but going forward, how much, at what pace do we want to grow that book?
Yeshwant Ramchandra Nadkarni
See, we have been building this book up now for last two and a half, three years as I mentioned earlier. Right. We believe that there is a market gap and we believe that therefore we can actually build a business in a calibrated manner which will contribute significantly at go forward from here to the full scale. I think our objective is that the right mix for wholesale retail would be in the range of 2018 and that’s where we would want to be as we optimize this business going forward.
Jairam Sridharan
You will also note that it has been a remarkable performance of the Wholesale2 business from a credit perspective over the last two years. And that’s the advantage of having mixed portfolio is that you can accelerate and decelerate different pockets of the business based on where credit is doing well. Right now wholesale credit is doing extraordinarily well. It might or might not continue, so let’s not jinx it. But right now it’s a good environment and we have been able to demonstrate good growth there. However, we will keep keep our ears very close to the ground and play it as per the market conditions.
Sarvesh Gupta
Lastly, how do you look at the overall leverage in the balance sheet? Because right now we are at 75,000 crore loan and we are already at a net worth of 27,000 crore. Now there are some one offs and transactions etc. For which the money is due to come. So it might make your net worth even more bloated in the coming years, thereby reducing the overall ROE etc. As we look into the company. So is there any plan to give back the money or reduce the capital at the company level? Or can the business adequately sort of leverage itself to get you a meaningful roe?
Jairam Sridharan
I’ll point your attention to page 42 in the presentation and the top right chart on page 42 show shows how the leverage ratio on a gross and net basis has moved in the company over the last one year. You will see that over the last year our debt to equity has gone from 2x to 2.4x. We have said in the past as well that we would, you know, we would probably never go past 4x. So there is still a way to go for this metric to keep to keep rising. Now can we return capital to shareholders? Returning capital to shareholders in financial services companies in India is relatively complicated.
There are only two ways of returning capital. One is dividend and the other is a buyback. Buybacks are largely not feasible for financial services companies because our debt equity is greater than two and semi norms don’t allow it. But on dividend. You did hear our dividend announcement today. We have announced a dividend of rupees eleven per share and a payout ratio of 50%. So we are going to the max level that we can in terms of paying dividends because that’s a way for us to return capital to shareholders. Your point is absolutely right that we are a little bit overcapitalized and we should strive to return some capital to shareholders.
But regulatory, our options are somewhat limited and we are using to the fullest the one option that we have, which is dividend by paying 50% payout ratio, which is the max we can this.
Sarvesh Gupta
Sort of a payout will continue, is it?
Jairam Sridharan
No, let’s see. We’ll have to play year by year. See, the leverage ratio is one thing that you want to, that you want to monitor. You also want to monitor, you know, where, where our capital adequacy norms are, where the growth opportunities are and whether the money is better utilized internally. 50% is the highest we are regulatorly allowed to play and it is obviously the highest that we have ever paid in terms of payout ratio in our history. Typically we have been more in the 30, 35% range. Let’s see what happens next year.
Sarvesh Gupta
Thank you.
Jairam Sridharan
Thank you.
operator
Thank you. Before we take the next question, would like to remind participants to press star and one to ask a question. Next question is from the line of Mohit Jain from Tara Capital Partners. Please go ahead.
Mohit Jain
Hi, can you hear me, sir?
Jairam Sridharan
Yes, yes, Mohit, we can hear you.
Mohit Jain
So how should we look at the growth rate for the unsecured business going forward? I believe you said the credit cost in microfinance is almost peaked in this quarter. So going forward, both in terms of disbursement as well as how should we.
Jairam Sridharan
Look at unsecured books, I think FY26 will be higher than FY25 in terms of growth rate and unsecured. I think we have had some severe challenges in at least I would say two and a half quarters out of four in this year. And if you look at slide 17, for example, you will see how both in digital and business loans, we have had to go super slow in this year, digital at least our confidence has increased a little bit. And so you might see us accelerate a tad on that front on business loans. Probably not yet, maybe another quarter of watching it before we get going.
But in general, my expectation is that growth in unsecured will be higher in FY26 compared to 24, both in disbursement terms and in AUM.
Mohit Jain
How do you think that is going to affect the NIMS going forward? Because I believe you also touched upon NIMS once. But if you can just put your views concerning the fact, you know the growth in the unsecured is going to be at the faster pace and obviously we’ll have the headwinds of the rate. So how do you look at the.
Jairam Sridharan
NIM projections for the nims I mean the increase in unsecured in the coming year is not going to affect NIMS this year. It will affect NIMS in the future, but in the immediate year it doesn’t make a difference, you know, because it will not change proportion of Au1 in general. We would like to be about, I want to say 4 to 5 percentage points higher on unsecured in our contribution to AUM compared to where we are today over the next couple of years. I don’t know how conducive the next coming year is going to be on this, but generally we would want to be 4 to 5 percentage points higher than where we are.
And that is obviously NIM accretive in the future. But make no mistake, it is not going to affect NIMS this year at all. These things only impact the year after.
Mohit Jain
And so just one final follow up on housing loans that we have been hearing. It’s getting very competitive obviously in the prime segment in which we don’t operate. But as a, you know, just as an extension of that, the other segments are also going to get more competitive. So do you think there can be a situation in which, you know, we may end up focusing more on the, on the, let’s say margin part as compared to the growth or which is going to be more important.
Jairam Sridharan
If you look at page 16 where we have shown the data on housing, you will notice that on a year, on year basis, our disbursements actually haven’t grown in housing. We are in the 11.6% segment. So our disbursement deal is 11 and a half. And you will notice if you go back to the last two or three quarterly presentations that we have consistently been around 11 and a half. So we have not budged on the rate just to gain some growth. So we have stuck to the disbursement yields that we need. And if that means disbursement growth is not there, so be it.
Right? And so far it has been okay because last we have been able to grow reasonably well. And so on an overall basis in mortgages we have been able to deliver 12 plus percent from an overall yield perspective. And it’s something that I’m reasonably comfortable with. Yes, housing, particularly this less than 25 lakh rupee housing loans are going through a little bit of a challenge from a growth rate standpoint. But these things are cyclical. I’m sure it will come back. Especially if Pradhanatri AWA Yojana takes off. I’m sure it will come back. But last year wasn’t it let’s see whether this coming year it does any better.
Mohit Jain
Thanks a lot. Thanks so much.
Mohit Jain
Thank you.
operator
Thank you. Ladies and gentlemen, to ask a question question please press star n1 on your phone now. I now hand the conference over to Mr. Jayaram Sridharan for his closing comments over to you sir.
Jairam Sridharan
Thank you very much Aisha. Thank you very much to all the participants for participating actively in this call for all your great questions. We have had a great year as a company and a strong quarter in somewhat turbulent times as we have guided for the coming year. We are looking forward to a strong year in terms of both growth and profitability as well as resolution of some of our historical legacy assets. Looking forward to your continuous engagement at the fork in the course of the coming year. Have a great evening everyone and thanks for participating.
operator
Thank you on behalf of Piramal Enterprises Ltd. That concludes this conference. Thank you for joining us. You may now disconnect your lines.