Poonawalla Fincorp Ltd (NSE: POONAWALLA) Q3 2025 Earnings Call dated Jan. 31, 2025
Corporate Participants:
Arvind Kapil — Managing Director and Chief Executive Officer
Shriram Viswanathan Iyer — Chief Credit & Analytics Officer
Sunil Samdani — Executive Director
Sanjay Miranka — Chief Financial Officer
Analysts:
Umang Shah — Analyst
Pranay Mehta — Analyst
Nischint Chawathe — Analyst
Abhijit Tibrewal — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Poonawalla Fincorp Limited Q3 FY ’24-’25 Earnings Conference Call. We have with us today on the call, Mr Arvind Kapel, Managing Director and Chief Executive Officer; Mr Sunil Sandhani, Executive Director; Mr Shriram, Chief Credit and Analytics Officer; and other senior management Officials. 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 and zero on the touchstone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr Arvind Kapil, Managing Director and Chief Executive Officer of Poona Vala FinCorp Limited. Thank you and over to you, sir. Thank you.
Arvind Kapil — Managing Director and Chief Executive Officer
Thank you. A very good evening to all of you. I wish all of you and your loved ones a very Happy New Year. Let me begin by giving you a brief update on our business last quarter. It’s been seven months into the role. With me and my management, management team fully in-place, let me begin by sharing that as we look-ahead, we the confidence of me and my management team that is a notch above upbeat. Thank you. We are quite excited about the phase of the building blocks and increase of businesses over the next four quarters. We have invested significantly over the last few months on rolling out multiple scalable lending businesses across secured, unsecured and digital businesses. These businesses are built and will be built person-by-person, process by process and risk management and technology-led delivery pipelines across chosen markets, revenue and profit pools as priority.
These investments may have a four-quarter, one year gestation, that’s why you see the cost. However, robust profitability, risk-adjusted return and a truly institutional scale is the visualization and we have the domain talent pool and execution ability to make it happen. Our guidance, which we had given for the AUM growth two quarters ago to 30% 35% for the financial year and 30% to 40% thereafter. We remain firmly on-track to achieve this. The AUM is already on a positive trajectory. Our AUM grew by 41% year-on-year and a 9% quarter-on-quarter to INR30,984 crores as on 31st December.
Let me briefly take you through the growth and quality drivers of our business. Total disbursements of INR7149 crores were up by 13% quarter-on-quarter. Core retail disbursements have approximately doubled compared to the same quarter last year. Approximately INR4705 crores this quarter versus the INR2491 crores same quarter last year. Just to give you guys a ground level feel of the momentum. Our businesses have seen healthy and yes, they are completely credit calibrated growth. Let me cover a few businesses which are existing to give you a sense. Lab for example is now at INR6,795 crores book having grown 86% year-on-year and 27% quarter-on-quarter. Incremental growth has come in at a healthy LTV of 51%. This is also showing the strength that the new management team comes in with the distribution vintage of having done couple of these businesses and that strength is getting attached here. Similarly, business loan has grown at 42% year-on-year and they are well calibrated and 13% quarter-on-quarter from INR5,003 crores. The profiles that we have led to our vintage businesses with healthy, robust cash flows.
On the retail side, having credit calibrated our book, we are turning the corner on risk-adjusted performance. For example, you’re well aware that we scaled down our STPL book last quarter and we worked on recalibrating the policy and made the processes robust. Plugged-in account aggregators, other cash-flow estimates and the multiple checks we’ve incorporated. Through our interesting findings, the bounce curves observed in the new book that we are creating, which is very small right now, are in-line with our credit calibrations and we are now ready to gradually step it up in a very controlled manner.
Similarly, we have fundamentally shifted the nature and profile of used vehicle portfolio of the last two quarters. Two quarters ago itself, we biased towards better risk control product mix on this business. We’ve done this business in the past as a management team. We understand the risk associated with it and the product is poised to deliver a growth of around 20% on this particular one. The idea of sharing you these products was to give you a sense of how we are working on the existing businesses.
Overall, the philosophy is to keep the mix of our secured and unsecured book prudent and equally weighted. The above gives you a flavor of our growth performance of existing businesses this quarter. The engine has started firing according to me and at a fairly robust level. Let me now give you an execution update on the strategic building blocks I laid out in my last call. There is a fair amount of work that’s happened at the ground. First building block is obviously the most important of people itself. In the last quarter, I had reported to you that 95% of our senior leadership has been onboarded. I’m happy to report back to you that our entire senior management team is on-board.
This completes the leadership foundation of organization, the journey I had set-out on an immediate plea post joining. Getting the right management depth along with the incremental team for our businesses is moving at great momentum. Across organization, we are bringing in scalability and consistency in our people practices. Let me take a minute or two on that. We are aware that the strength of organization is also its distribution team. We’ve created an industry-first AI experience in managing our recruitment and onboarding process. 90% of our hiring agents benefit from AI-based screening and parsing solutions that has dramatically brought down average time to offer. How does it help us?
Our speed-to-market increases dramatically. Similar to ensure consistent experience to our workforce, we will also launch an led support interface to our employees. By the quarter one of financial year ’25-’26, I have been a firm believer in creating a culture of passion. I thought I’d probably give you a little visibility on what we are striving our culture to be creating a culture of passion that encourages innovation, a culture of customer-first, governance first, risk priority, AI first with a strong orientation to growth performance, with all vectors orchestrating in harmony, we want our culture to have quality of work at the heart of the organization. That is very important to us.
We aspire as a team and organization to be recognized as an agile and very smart organization. So agile and very smart will hold very dear to every level of the organization, management team and every employee of Navala Fincorp. We’ll have to live by it, breathe by it. Let’s move on to my second building block is our products and distribution. We’ve laid out our vision to become a multi-product lender that serves the aspiration of Bharat holistically, which means expanding from a product portfolio approximately four, existing to around 10 and phase-wise launch of 400 new branches is planned beginning quarter one financial year ’25-’26. We remain on-track to launch the six new product classes and new locations.
Let me take you through some of the highlights and the work done to give you a sense of what’s happening on the six businesses. Prime PL, we had launched this business in August ’24 and has now ramped-up to the levels of approximately INR120 crores a monthly run-rate, heading for probably INR150 crores as we end today in Jan. This business will augment our presence in the middle-income segment across the country and complement our play in the consumer durable and education loans. 75% of our customers are from Category A companies, net take-home salary of over 75,000, 65% of this book and the bureau score of 750 plus. Just to give you guys a sense.
We are also ready to launch and I think this is important, an industry-first 24 hours by seven digital prime personal loans in-quarter four financial year ’24-’25. We believe that we have pioneers and industry-first. With this launch, what we’re really doing, we’re trying to redefine personal lending by making it truly instant, fully digital, accessible 24 hours by seven for prime salaried professionals working for top corporates. Our goal is to provide a frictionless borrowing experience for those who need a quick financial solutions without the hassle of traditional loan processes. This could be an industry-first as far as India is concerned and we will gradually build it. This is going to be the Phase-1 that we’ll launch in the next 15 days, and this is going to be gradually step-by-step.
We’ll build-on it quarter-by-quarter. This will also give a great boost to our website acquisition strategy. Let’s take on the second product gold loan. The 400 new branches committed will serve gold loan and support cross-sell of our other retail and commercial products. We have identified and secured to give you a sense, 263 new branch locations already across four states, out-of-the 400 committed with 75% of leadership already hired. So that’s the sense of agility that we seem to be working on right now, and that is what you will soon see in terms of the AUMs. The four remaining new products will operate Pan-India. I’m confident given the depth of our management team we’ve hired with these specific businesses that they will hit their time-to-market goal in-quarter one of financial year ’25-’26.
Consumer durable. We’re planning 104 locations have been identified for Phase-1 of launch, specifically based on the synergies between our existing businesses and the micro-market potential that we understand. Leadership team is already onboarded. They are already in-office. Consumer durable will be a play across Tier-2, Tier-3 cities for us that will cater to both salary and even self-employed use commercial vehicles, we’ve identified 63 locations in Phase-1 with 85% of leadership in-place.
Shopkeeper loans, which we announced, we’ve identified 100 locations in Phase-1 and leadership along with 50% of the sales force has been hired. Education loans, we’ve hired an experienced management team across product and sales and we have the opportunity to play a large growing education and specialized market and the rest of the team is still to be hired. All these products will launch in-quarter one, ’25, ’26 at-scale across multiple locations of Phase-1 of these products. What is important at this junction is also to probably mention is that we will do a tenacity test at-scale, we rigorously assess our products to match customer needs in a robust manner and make sure that they are aligned to the customer needs. At this junction, let me pause for a second and also bring your attention to an important product that we’ve considered to launch. In addition to these six, please note, we are launching a new product that will support the needs of our SME and commercial segment. This is going to be equipment leasing. This is a growing opportunity for us. Given the capex needs of the economy, especially across capital-intensive industries such as manufacturing, healthcare and construction.
We will go-live with the product in the first-quarter of the coming financial year. So this will get added to the six products that I’ve already announced our third building block is to disrupt our way of working via analytics and AI. The next two blocks I’m going to cover are AI strategy and the work that’s being done at the ground level and the tech strategy. Given the talent bench and the new techniques we have at our disposal, we are attempting to be AI first-in many of our business models and that’s going to be a dynamic ongoing hard work. We’ve already moved substantially from AI in concept stage in-quarter two for financial year ’24-’25 to delivering value in-quarter three financial year ’24, ’25 and beyond.
Last-time, I had given you an adequate visibility on our risk analytics and talent. We have now fleshed out a detailed AI and technology strategy and use-case roadmap. I would like to credit our analytics and data science teams who have collaborated with IID Mumbai Technology as we shared last-time with you. Our vision is to sharpen our customer experience, productivity and risk efficiency via deployment of sharp AI use cases across the enterprise. The plan is to go-live with use cases, rather targeted use cases across credit and risk management, across collections, we’ve identified digital marketing, compliance, audit and HR. By quarter-four financial year, customer-facing journeys and sales processes use cases will go-live in subsequent quarters of financial year ’25 and ’26.
Let me take another few minutes to take you through some of the targeted use cases that we’re working on because it’s very specific work that we’re doing. In HR, for example, as I mentioned before, we’ve already rolled-out an industry-first Gen AI solution that has helped bring down time to offer. That’s time-to-market. We’re in the process of building an agentic-based employee conversational agent that also we’ve shared with you. Across credit and rest, we continue to sharpen our existing decisioning and scorecast via AI techniques and Gen AI processes Phase-1 of deployment completing in March ’25. Intent is to reduce default rates, time to approval and over-time reduce cost of processing applications.
Overall time reduction. We believe that even if we get 5% to 10% of our volumes starting on this one, these are those that’s going to open up great innovation, those and will keep expanding our experience of getting sharper and sharper on these areas. And that’s how we see the future that there will be a — a — it will be a fusion of AI and human interface. Across collections, our agents and managers are enabled via AI models for optimizing their planning and customers are guided analytically by digital nudges based on their past behavior. Across quarter one,, we will enable Gen AI solutions to improve efficacy across our telecolners and field agents and virtual — using virtual assistance.
Across our website and apps, we are using AI to hyper personalize our targeting and experience. Objective here is to improve our cost of acquisition across paid, organic and partner channels, improving customer engagement and cross-sell rates, delivering multiple month — multiplicative benefits on our P&L. To do this, we are working across multiple dimensions. To give you guys a sense of the work that is happening where we will launch our revamp website that supports advanced personalization and design. We are sharpening our STP journeys across STPL, Pro NPL and AI nudges with AI nudges rather, deploying AI platforms across customer targeting SaaS AI solutions, augmenting our digital and content agencies via Gen AI platforms. Deploying multi vernicular chat box for customer interactions.
Finally, across audit and compliance, our idea is to enable AI driven risk triggers and reviews to ensure that there is early identification and migration across risk. Yes, I must confess, we are deeply mindful that AI is not without interest. And in parallel, we’re putting across a clear governance and monitoring around it along with the sound technology infrastructure, which brings me to the fourth building block, the tech strategy. As the organization scales, we will leverage industry ready SaaS applications in the near-term, while pursuing long-term roadmap for transforming IT to a product life cycle-based modularization framework.
Our approach will enable readiness for future common tech stack unified across product life cycles, like one CRM, collection management, you can Call-IT LMS and customer onboarding. To ensure we can scale our customer franchise without linearly increasing acquisition costs, we are also building best-in-class capabilities across marketing technology. This will enable us to effectively deploy propensity models and power our website and app with personalized insights. Journeys have been built-in an omnichannel fashion to ensure we are able to effectively service the multiple product needs of our customers consistently. And we are revamping our app along with these lines to provide an ecosystem of products and services to our customers.
This will enable our engagement rates to move-up by two to three times. Is being rearchitected on domain-based approach. So along with the implementation of a customer data platform, we will enable data-driven decisions making across the organization, including risk, operations and sales. From a resiliency perspective, we will work towards a hybrid cloud strategy that will balance performance, cost and regulatory needs. We will be able to effectively enable AI while distributing workloads and enable appropriate recovery time objectives and recovery point objectives. Across board, there is an equal emphasis on resilience, cyber security and ensuring compliance to the fast approaching DPDP norms PFL will also deploy next-generation security techniques to stay ahead of any evolving threats, extending our zero touch architecture principle across our digital ecosystem finally, our 5th building block, our risk management approach.
Let me at this junction take a pause and ask our chief credit Officer to give you further color on our risk management approach and the work done so-far to give you conviction of how important risk-first policy is for us. Thank you.
Shriram Viswanathan Iyer — Chief Credit & Analytics Officer
Thank you, Arvind. Good evening, ladies and gentlemen. Let me take this opportunity to appraise you all the substantial amount of work that we have done in the last seven months and progressed on the vectors in the areas of credit and risk, collections and analytics that align our vision in sustainable profitability.
The risk management culture for PFL 2.0 focuses on three specific areas: people, design and process, making it the foundation towards success. On the people side, I’m pleased to announce that we have successfully onboarded key people on the second and third level across credit and risk, analytics and debt management, supporting both existing and new product launches. People are the strength and driving force behind an organization’s growth, sharing its vision and mission. I am grateful to everyone who has shown their trust and enthusiasm in joining us on this exciting journey of PFL 2.0. Our team brings a wealth of diverse knowledge and expertise across product suits and functions with specific skill-sets in-line with our product launches. From a design standpoint that from a credit risk perspective, we are implementing risk frameworks for new product launches that leverage granular customer segmentation and custom algorithms. Our data-driven framework powered by traditional credit bureau data and alternative data sources enable more precise risk segmentation of borrowers.
Talking specifically for the upcoming product launch, which will be entirely digital, we are ready with the custom algorithms at the cohort level to address various credit swim lanes based on our customer profiles and exposure demands the dynamic recalibration in our STPL book has helped improve through the door quality and has helped us to see substantial improvement in early delinquency by 50%. For exposures operating in a physical mode and digital mode, credit risk models with the help of analytics are deployed to automate specific decisions to enhance the credit process.
As the MD spoke about, we are using account aggregator addressing the recency of information via banking and the ability of patent mining complemented with the knowledge of what impacts credit behavior. This gives us an edge in our credit decisioning models, using micro-segmentation approach to monitor the portfolio has marked a movement in the product’s performance. Incremental exposures across personal loans, business loans, mortgages and pre-owned cars are acquired with refined risk calibration and we are satisfied with risk calibration of the incremental book what we are building. I would also like to state what the MD spoke about that the team has built an industry-first digital lending solution to provide 24×7 personal loans to employees for top corporates, and this is completely going to be zero touch.
The credit and analytics teams have brought together the best risk management practices augmented with models supporting multiple decisions in the journey. Coming to the debt management side, we have successfully implemented automated no-contact collections with digital-only approach, exceeding expectations and continuously improving each quarter. Cohort level analytical solutions are the feeders to the strategic and automated division layers targeting efficiency at-scale. And we are seeing that we are looking at that as a scale buildup, this is extremely important for us.
To give a glimpse on the granularity of frameworks put in-place, we have product product-specific predue design supporting collection interventions planning between digital channels and intensity. Early bucket allocation and planning optimization is driven based on propensity to pay design. To summarize, genuine design across the stages of collection life-cycle from predue to recovery has been already deployed. The debt management models initially driven by traditional techniques are now augmented with machine-learning solutions to manage the increasing complexity of information. Please note that we are strengthening collections strength by strength quarter-by-quarter, both physically and digitally, and this will be an important strategy KRA for the team.
On the process side, we are reengineering credit and collection process to bring in standardization across products and geographies. Looking ahead, I’m excited about our collaboration with IIT to drive innovation. This is being done by leveraging vast unstructured data and cutting-edge technology to gain unparalleled customer insights across multiple work streams. I would like to highlight two areas to provide you with a glimpse of this engagement. The first one being, we are trying to strengthen our physical credit underwriting framework by enhancing risk management capabilities with technology at its fulground.
Using AI and Gen AI layers for predictive risk modeling, teams are already working towards creating a humanoid and AI credit assistant. This KI credit Assistant will be modeled to perform credit processing and credit checks for retail consumer lending loans. This is envisaged to support a reduction in operating cost of credit, bringing in standardization and creating different swim lanes for assisting credit decisioning based on consumer risk. Secondly, we will be the first large-scale NBFC to deploy an automated campaign and collection workforce platform, enabling sophisticated micro strategies tailored by time, user personnel, loan type, communication channel and content.
Over the next two quarters, various solutions driven by AI and foundation models will be incorporated in the decision framework, augmenting the debt management practices, focusing on governance and efficiency. Decisions to support differential treatments, persona-based nudges, channel analytics and reinforcement learning will be a few of the next deep-dive areas of to augment the debt management strategies. Our team is excited to explore and accelerate on the path of AI and journey of 2025. We aim to achieve industry-leading structural efficiencies, maximizing output and profitability, while creating an unprecedented user experience for both our internal staff and our valued customers.
Our initiatives underscore our dedication to excellence and innovation, driving us towards a future of sustained growth and success. Thank you.
Arvind Kapil — Managing Director and Chief Executive Officer
Thanks,. I think before I hand over to Sunil and for the financials and a detailed update, let me offer my concluding thoughts. In my assessment, we remain firmly on-track to deliver our guidance given our progress so-far and quality of my team. Our confidence is clearly on a high. We are heading to create a solid, profitable and sustainable business as promised. As a direction, we will remain singularly focused on our building blocks of 10 to 11 businesses that I just shared and distribution building, leading to, in my view, an assessment, a fairly strong, very strong rather AUM growth over the next four quarters.
Our AUM growth is likely to be a much higher than our guidance which I gave for this year and the next my suggestion would be measure us with the AUM growth and the consistency we created. This strong growth engine that we are confident of and that we are creating should lead to a very robust, sustainable profit trajectory, financial year ’26, ’27 onwards and thereafter. Over to you,.
Sunil Samdani — Executive Director
Thank you, Arvind, and good evening, everyone. Let me take you through the quarterly financial highlights. The assets under management stood at INR30,984 crores, reflecting a growth of 41% year-on-year and 9% quarter-on-quarter. This is led by the right product mix despite our STBL book being down 9% quarter-on-quarter. In terms of AUM mix, MSME Finance contribution was 36%, followed by personal and Consumer finance at 24%, loan against property and pre-owned cards at 22% and 14% respectively. Our secured to unsecured on-book mix improved to 54age to 46. Our net interest income, including fees and other income was INR672 crores for Q3 of FY ’25, up 22% year-on-year. This is despite the increase in share of secured loans in the overall lending book. The pre-provisioning operating profit of the PPOP as we say during the quarter was INR373 crores as against INR279 crores previous quarter, INR350 crores same quarter last year. Operating profit has shown healthy growth even after adjusting for exceptional items in the previous quarter. This is even with the higher secured mix, recalibration of STPL and ongoing investments for building the new businesses. OpEx to the AUM ratio was stable at 4.2% for the quarter. The gross NPA reduced by 25 basis-points quarter-on-quarter to 1.85%. Net NPA stands at 0.81%. Our provisioning coverage ratio is at 56.79%.
Our cost of borrowing was lower by-4 basis-points quarter-on-quarter at 8.06%. This is despite the tight liquidity conditions and the elevated interest-rate environment. The debt-to-equity ratio was 2.65 times. Total borrowings at the end-of-the quarter was INR21,338 crores with approximately 65% of them on a variable-rate. Also, we have further diversified our funding mix with a maiden ECB of INR1,477 crores, that is INR175 million, which is of course on a fully hedged basis. Our capital adequacy continues to be well-above the regulatory requirement with CRAR standing at 25.89%, of which the Tier-1 capital is 24.46% 0.46%. Our liquidity coverage ratio stands at 113%.
On the liquidity side, we remain comfortable with positive cumulative mismatch across all buckets and a surplus liquidity of INR4,808 crores as of December 31, 2024. Thank you. And I would now like to open the floor for question-and-answer session. Thank you.
Questions and Answers:
Operator
Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets and even to restrict their questions to one per participant. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Umang Shah from Kotak Mutual Fund. Please go-ahead.
Umang Shah
Yeah, hi. Good evening and thanks for taking my question. Firstly, congratulations,, on a good quarter on the operating front and thanks for sharing a fairly detailed update on the progress that the company has made. I’m sorry, I’ll have a couple of questions. First, to begin with, like we had discussed in the earlier call, I mean, all the recalibration that we had taken on the HPL book and the resultant provisions were already made, if you could just throw some light as to the provisions which have been made this quarter are pertaining to which particular product category and what would be the write-off for the quarter?
Arvind Kapil
Yeah, sure. I think — thanks,., you want to give a quick chance.
Sanjay Miranka
So out-of-the total INR348 crore charge, about INR200 crore is towards STPL and all the STPL and the rest is spread across other products?
Umang Shah
Okay. And what would be the hike-off for the quarter?
Sanjay Miranka
Yeah, the total write-off is INR676 crores for the quarter. And this is looks spread across okay, various products.
Umang Shah
Okay, understood. Thanks for that. The other thing which I wanted to understand is that now we kind of understand that the book is sort of evolving and clearly a lot more new products will come into the fold. But how should we look at our provisioning policy or let’s say simplistically put how should we look at our steady-state credit cost? Now I understand that it might be difficult to put a number to it, but typically how should be the provision covered where should it stabilize? And typically the credit cost corridor if you can highlight that would be really helpful.
Sanjay Miranka
So on percentage terms, we are confident that the credit cost will keep coming down quarter-over-quarter. On the broad guidance, I think we’ll wait for the Q4 and then we’ll give you for the next year.
Arvind Kapil
So I think, Uman, I think the way we are seeing it is incremental business, we are very well calibrated as growing at a very fast rate. We are — our collection teams also — let me give you a sense. I think that will give you the confidence. The collection team continues its relentless focus to recover the amounts outstanding through strategic and focus efforts of the STPL portfolio. So there is already an improvement of 380 basis-points in the boundary resolution quarter three to quarter two, quarter three over quarter two.
And as this quarter spans out, I think our — the whole aim was that it’s predominantly if we can continuing our financial discipline in-line with our established policy and governance framework, we’ve written-off outstanding exposures in STPL portfolio based on the collection feedback. So this is basically so that the whole idea is that how effectively this quarter as well, we can move forward because our collection teams are exuding a fair amount of positive confidence the way I shared with you that have already improved by 380 basis-points and the whole team is on-board. So we are — as a matter of fact, we are on an optimistic scale. Some of these bulk of I think these write-offs in Viranka shared with you is STPL — old STPL related books.
Umang Shah
Yeah. Okay. Okay. Fair point. And the last question from my end, Arvind, is let’s say, if one was to look beyond these few quarters that we are talking about, how should we — I mean on growth, you already alluded to the fact that growth will probably be at your guided range or even better. But on profitability, how should we look at the ROA trajectory as the book builds up over FY ’26 and ’27? Yeah, that would be helpful.
Arvind Kapil
See, I think I’m — I’m probably this time, I’ve given a very clear guidance that we are — we have at least we see a very, very robust four AUM quarters leading up to, I’ve used the word a very robust profit, 26 27 that means we will this year — I mean this we expect that the ROEs will be probably in the range of around 3.5 by the time the third year end. So that clarity will be much easier to give you. I think it’s more important that we first build the building blocks because we are going after almost 11 products a month. Those 11 products, our confidence level is very-high to build it across distribution. We are already — if you look at the manpower hiring, we already up by 30%. We are — not only the management team, I didn’t cover the actual feet on-street is on-board on — I’ve given you micro details and the work being done.
So I’m expecting the building blocks to read to fairly robust profits and those robust profits will continue thereafter. So ROAs, I think get built once your businesses go into steady because there is a fair amount of investments being made in these businesses. And you’re well aware that you make new businesses, ROAs take work most effective by the time they reach third year, especially the new businesses. So existing businesses are also productivities are going up and which is why if you carefully see operating cost as a percentage to AUM, we are pretty much in the industry range because you find the AUMs are moving very fast because this is a management team that’s not experimenting with things. We are playing within an area that we know what we’re doing. So specifically the guidance we have given right now that we expect a very robust profit starting that here.
So the idea is how do you create a sustainable business? How do you create sustainable profits? What is sustainable profits? Sustainable profits means profits will start getting — they will sustain for years to come. So how do you build it? You’ve got to build it with investments around 10, 11 businesses, these then will create a massive AUM. That will be like a tidal wave and I expect that to turn into very robust profits and thereafter, that’s the way I see the trajectory moving.
Umang Shah
Perfect. I mean, I mean that sounds perfect. And just a clarification, when you said earlier, you were referring to financial year ending March 27, right? Is that understanding correct so that we are on the same page.
Arvind Kapil
I couldn’t hear you. Can you repeat it?
Umang Shah
Yeah, I’m sorry, I said that when you say third year, you are referring to year ending March 27. Just to clarify so that we are on the same page
Arvind Kapil
I think, ’26, ’27 is going to be a very robust year. We are optimistic on the ROAs. I don’t want to put a guidance number to it among. I think the year-after that, ROAs will start kicking-in for the better every year. Because the business calibration and the plan of these seven businesses, all ROAs. Let me give you another sense actually that might give you a better sense. All these six businesses that I had planned and the one I have announced today, all-in my plan is an ROA of 3 to 4.5%. So I think you guys are the best judge to figure out what my final mix ROAs will be, because in my plan, I’m touching all businesses which are 3% to 4.5%. So that should give you a sense of what ROAs are in my head. And these are going to be seven businesses that we are confident of pulling off..
Umang Shah
Understood. Understood. Perfect. Thank you. Thank you so much for patiently answering all my questions and wish you good luck. Thank you.
Arvind Kapil
Thank you.
Operator
Thank you. Participants are requested to kindly restrict their questions to one per participant. The next question is from the line of Pranay Mehta from Investec. Please go-ahead.
Pranay Mehta
Hi,, sir, congratulations on a good set of numbers and thanks for taking my question. I wanted to ask about provisioning and write-offs on the old book. Wanted to just clarify that what you said before, would that hold true going-forward as well? Are we expecting anything there?
Arvind Kapil
So you’ll have repeat the question, Prade is not very clear. Could you — if I can request you?
Pranay Mehta
Sure, sure. So I wanted to check, would you have any provisions on the old book? Any write-offs that we expect further on the old book or is that all completely done and clear.
Arvind Kapil
Yeah. So I think gave a sense. Yeah.
Sanjay Miranka
So the write-off on old book was okay to the tune of INR520 crores. Yeah. So the majority of write-off was on old book.
Pranay Mehta
And so what would be the guidance for that? Sure. What would be the guidance for that going-forward? Are we expecting coming or are we done?
Arvind Kapil
So Pradesh, what happens is that these are — when you put in these provisionings for write-off in the subsequent times, the preparation happens on those cohorts of customers. So as and when those cohorts get into that situation, that’s when they’ve been estimated to use the write-offs.
Sanjay Miranka
So and sufficient provision.
Pranay Mehta
So thanks. That was helpful. Thank you.
Operator
Thank you. The next question is from the line of Nishan from Kotak Institutional Equities. Please go-ahead.
Nischint Chawathe
Hi, thanks for taking my question. I think it’s again on similar lines. If I look at the credit cost of INR350 odd crores for the quarter, more from a modeling point-of-view, how should we sort of expect it to trend? Is there a way we can kind of collaborate it with your loan book mix and sort of say that what more could be required to provision the older book, et-cetera. If there is something that you can some pointers in the presentation that you can guide us to, which will help us to model this number going-forward for the next, let’s say, four to six quarters.
Sanjay Miranka
Yeah. So, see, we expect a sequential decline in terms of percentage credit cost, yeah. So quarter-on-quarter. Obviously, it will be okay, difficult to kind of put a number on the future credit cost. And like we said, I think as the businesses get built and which is a good mix of secured, unsecured and across product lines which Arvin spoke about. And so I think the ROA sensitivity which provide it should as talk about the overall, if you say about the overall only credit cost here.
Arvind Kapil
Yeah, I think overall credit cost, the new book, I think that the new book, we are very, very confident. I think whether it’s 30 60, 90, it’s extremely well calibrated. All the AUM growth that I’m talking about is going to — I mean, we took it when it was 25,000. We’re talking about a substantial book by in probably the next four quarters. So we are expecting things with every quarter moving rapidly substantially better. It’s just that I had advised from an investor’s point-of-view that please measure us in AUM because I want to create sustainable profits. If it’s only profit, it’s much easier to create.
If I have to create sustainable profits, we’ve got to just invest in that number of products, which gives me different distribution and it creates a very different kind of title effect, which adds immense value to the whole construct. So credit cost, I mean, I am very optimistic on the kind of calibration we are doing. As a matter of fact, even the one-product that for which we provision one-time, STPL, we have managed to crack — crack the solution to such an extent that the bounce ratios, I think is around 50% down, right?
Yeah. So it’s something we’re planning to even look at it in a controlled manner to gradually step it up because it’s — we are well in control of that and we’ll further calibrate it will step it up. So I think between the mix of all the businesses that we are talking between ROAs and credit quality, I think we — our bias is fairly strong on the risk side. First, when I say it is a stated objective. So our credit cost should quarter-on-quarter starts trending in the direction of the strategic stuff that we are building because the AUM is all controlled by how we are calibrating the businesses.
Nischint Chawathe
So a fair point, but given the fact that we are fairly well-capitalized, would you want to take one large hit clear up the book? And if there is any reversal that comes in the later periods, I think that’s well and code. So that we’ll be able to kind of track these matrices in a more linear manner, because with this, it’s a little difficult to kind of figure out as to where — how long it takes for the legacy book to be cleared.
Sanjay Miranka
Yeah, see, we had taken one-time additional provision in Q2. And as Arvind alluded to, the collection experience is pretty good.
Arvind Kapil
Okay, we have seen a significant bond — significant improvement in bounce reservation from Q2 to Q3. In fact, in Q3 also, Q3 average to December bounce rate has further improved, bounce reservation. So with that, I, I think we are hopeful that, okay, the collection should keep pace and we have to assess it okay quarter-on-quarter. So we don’t see — I think bulk of the problem in my view should be, although I don’t think — I think we’re mostly trending towards a much more robust building blocks from here on.
Even on the old STPL book, both the best effort that can be put is on — see, you’ve got to as a financial discipline to one-time provisioning with a sense of ability for collecting. You can’t just go and provide for everything and then not make any effort on collection. So the approach of a business has to be to collect. We are confident I had mentioned to you last-time that by Jan, our collections will shoot up. As a matter of fact, by December itself, our collection figures are looking very promising. But there is a steep improvement between — even in that quarter, if you see, there is a steep improvement between November, December. So that is the point I wanted to make.
So I think we look fairly in control and I would like — I don’t think old STBL book should hoke our discussion anymore. In my view, we are well calibrated even on the now. And I think we are confident enough to produce the business lines from here on, which will — AUM is nothing but interest income increasing every quarter. It’s just that when you financially issue profits, it becomes averages. So that’s the reason I’ve advised ’26-27 to be a very robust year.
Nischint Chawathe
That’s fair. Thank you very much and all the best.
Arvind Kapil
Thank you.
Operator
Thank you. Thank you. Participants who wishes to ask the question may press star and one. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go-ahead.
Abhijit Tibrewal
Yeah, good evening, everyone. Thank you for taking my question. So a lot of discussion has already happened on credit costs. I just wanted to just ask the same question again a little differently to see if I can get a different answer. So until now, from what I understood, we are guiding that credit costs will keep coming down sequentially, which is fair. We did say that we have taken one-time credit costs in HTPL last quarter, which is fair. We also said that, I mean, STPL is now well calibrated and we are confident of growing that book again. So I’m just kind of referring to, I mean, if I just go back while the whole management team itself has changed, we have a new management team in-place. If I just go back maybe three, four quarters back and go through transcripts and audio recording. I mean, we used to hear that the new book is very good. Our GLPAs are as low as 0.1.2%. My one simple question for you, Arvind, sir, is out-of-the INR27,000 crores of AUM that you inherited, what is the credit cost that we expect on the inherited AUM?
Arvind Kapil
Credit cost as we go along? INR10,000 crores of inherited book that you. What are the figures? So what is the cost estimated going-forward on that book? And I’m going to give you a sense. I think fundamentally our — we — if you hear my first earning call through which I stand credible, within 40 days of my earning calls, I gave you guys a sense that is INR16,000 crore book, which I sense a problem. And I said we will build-on the businesses.
Second earnings call, I gave you a list of the products, which I’m going to do. Third earnings call, I’ve given you the progress of that and I have given you the credit calibrated. Shriram has joined in first time on this earnings call, where he has given you a feel on the fact that we are on the verge and confidence of launching credit products, which the industry has not launched. Now for us to have that confidence while we’ve announced six, seven products, I think it can give you a sense of what quality of credit we’re moving from here. Essentially, initially we saw the problem, we did provisioning one-time we are continuing the financial discipline and policy. We are improving the collections. We have written-off outstanding exposures, but that’s an approach we are taking.
Abhijit Tibrewal
Yeah. Got it, sir. So basically all that I was trying to understand is that, I mean, while you said in your first earnings call that INR6,000 crores worth of book versus the extent of the problem. What was the quantum of the problem? All I was trying to understand is what was the extent of the problem in that INR6,000 crore book? Essentially, I mean, out of that INR6,000 crores, how much do you expect to be eventually written?
Arvind Kapil
Out-of-the 6,000, how much to be written-off? I think our aim is that you see if you ask me, I hope we probably — problem is behind us, but I think it’s better to be conservative and say that every quarter, we’ll keep a close eye on it. The multiple efforts being made on this and our progress is looking visibly successful over the last 60 days, a little sharper success in the last 60 days of this portfolio because collection also took time to beef up. And this very precise stuff I had shared with you in the second earnings call. So exact number is difficult to say in this 6,000, but remember one thing, we’ve taken a one-time provision, there’s write-offs done, we have provided — we seem to be fairly adequately provided on it. I think I’m very optimistic that I think the framework is more in our favor from here on.
Abhijit Tibrewal
Got it, got it. This is useful. That’s all I wanted to confirm. I think, I mean we are very clearly moving in the right direction. So happy to see that and I wish you and your team the very best.
Arvind Kapil
Yeah. So while I can give you a very precise answer, I’d like to be a little conservative, let me be honest.
Abhijit Tibrewal
Sure, sir. I appreciate that. Thank you so much.
Arvind Kapil
Thank you. Thanks. Thank you. I appreciate your question. Thanks.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. With that, we conclude today’s conference call. On behalf of Poonawala FinCorp Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.