SBFC Finance Ltd (NSE: SBFC) Q1 2026 Earnings Call dated Jul. 26, 2025
Corporate Participants:
Unidentified Speaker
Aseem Dhru — Managing Director and Chief Executive Officer
Narayan Barasia — Chief Finance Officer
Analysts:
Unidentified Participant
Renish Bhuva — Analyst
Raghav Garg — Analyst
Nidhesh Jain — Analyst
Shubhranshu Mishra — Analyst
Nischint Chawathe — Analyst
Mayank Mistry — Analyst
Presentation:
operator
Gentlemen, good day and welcome to the SBFC Finance Limited Q1FY26 earnings conference call. As a reminder, all participant lines will be in the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call please signal an operator by pressing Star. Since we are on your touchdown telephone please note that this conference is being recorded. I now hand the conference over to Mr. Renish from ICCA Securities. Thank you. And over to you sir.
Renish Bhuva — Analyst
Thank you Shruti. Good afternoon everyone and welcome to XDFC. Finance Q1FY26 earnings call. On behalf of ICICI Securities I would like to thank SBFC management team for. Giving us the opportunity to host this call. Today we have with us the entire. Top management team of SBFC represented by. Mr. Asindhru, Managing Director and CEO Mr. Miles Dayani IV Director, Mr. Narayan Barcia. CFO Mr. Sanket Agrawal, Chief Strategy Officer and Mr. Rajiv Thakkar, Chief Officer. I will now hand over the call to Mr. Singh for his opening remarks. And then we’ll open the floor for Q and A. Over to you sir.
Aseem Dhru — Managing Director and Chief Executive Officer
Thank you Ranesh. So good afternoon ladies and gentlemen and thank you for taking the time out to be on our earnings call. For those listening to this call is just a number. 101 crores of profit after tax this quarter. But for all of us on this side of the call it is the validation of a dream coming true. A number that sat on our Excel sheets as we submitted our projections to investors banks. As you know, every number is achievable on Excel. But to see it actually on a quarterly P and L. Our heart is filled with gratitude.
It is a culmination of human effort. The trust of our investors and lenders and divine grace. I still remember how it felt to see hundred crores of profit in a year. Then in half an year and now in a quarter on a long journey to infinity. It’s reassuring to see milestones go by. At least you know you are well on your path and headed in the right direction. If you look at the economy right now it tells us that there are four good things that have been enablers to what tailwinds we are seeing. One is that there’s been extremely good monsoons.
So this is. I mean if you see the last almost two to three years in been a continuous good cycle of both Rabi and Karif. And even this time the Karif sowing has been very good. It’s Been a slightly early onset of monsoons. So we have had good monsoons. No income tax on income up to 12 lakhs, reduction in borrowing rates and falling inflation. These are enablers which are increasing disposable income. On the other side there are headwinds of stagnating income, job creation falling. Both are leading to weak urban consumption banks IT services. The large employers are in a cost of mode and educated unemployment is a concerning trend.
And it is not just that this is a trend only in India. Across the world educated unemployment is a huge trend. Reasons are different. Somewhere it is because of AI, Somewhere it is because of a slowing economy. Somewhere it is because of uncertainty on tariffs. Reasons are different. But everywhere this is a trend that one sees. So we have a situation that while rural consumption is showing growth, the urban ones are accelerating. I would venture to say that India is growing outside of its metros. In the last quarter I was on the road through states of Karnatak, Andhra, Telangana, Maharashtra, Uttar Pradesh, Bihar and can validate that semi urban and rural does seem to be doing better than urban.
That’s where the government focus was and it should come as no surprise. But due to low purchasing power of these customers compared to the urban ones, the growth in sales of all discretionary consumption companies has been anemic. So now if you look at it, weak consumption plus poor private investment plus maxed out government investment and spends plus the rising imports plus uncertainty on exports with the current drama on tariff is a drag on our GDP growth. If you look at the current GDP growth number at 7.4%. The last print that we saw, there’s been a slowdown in private consumption by 2% over last quarter.
And private consumption is about 60% of our GDP. So there is a slowdown about 2% over last quarter. Exports are down by 4% but investments are sharply up 9%. So government seems to be have done a lot of spending in the last quarter. Global growth and shifting winds thanks to AI is casting a long shadow on our services export, especially in tech. The monetary policy that was tightened by RBI by 250 basis points increase plus liquidity was kept tight. The objective of such a policy is to slow down growth. I mean that is exactly what this policy is aim to do.
Because to slow down inflation you want to slow down growth. And both have been achieved. Now we are in an easing cycle sales. I mean if you look at the economy on a narrow basis, sales on online e commerce websites plus D2C websites, quick commerce, food and medicine delivery apps organized Retail stores from groceries, electronics, clothes, spectacles, medicine, jewellery are taking business away from the neighborhood. Solanki chemist, CRM general provision store, Kantabai vegetable vendor, Ashantaram fruit vendors, some Kohli fish stall, an Avon chicken center street fast food retail shops, Mahalakshmi jewelers and their ilk. So Wall street and Dalal street are eating real street’s lunch in urban markets.
We could see this coming when we are setting up sbfc we could see the trend coming and we decided in the start to focus on small businesses in small towns and stay away from metros because this was the concern. It is playing out what we had envisaged. The taps of credit were turned in a risk on mode fueling the bottom of the pyramid growth until RBI rightly saw a bubble forming and pricked unsecured and microfinanced lending. As lenders recoiled in a cautious mode readjusting their risk models, the velocity of money dropped and this always has unintended consequences impinging on other borrowers who are getting their money from these.
We saw political risk play out in Karnatak where the ordinance which had nothing to do with us brought our collection numbers down sharply in the last quarter of the last fiscal and while damage takes a quarter, its repair takes away the other four. NBSCs have moved from a go go demand and restrained supply of money with rising rates till FY24 to the supply taps opening up and cost dropping. But a more restrained demand, the need for finance has gone up but the demand defined as need plus ability to pay the EMI has reduced a mixture of tightening credit that we did in February 24th and a stretched borrower on the ground has increased our rejection rates by 10%.
We are building an institution and any financial institution needs three things governance and profitability at scale. Storms and earthquakes will come. It is our job to build the firm antifragile we had signalled last April and if you see all my calls since last April we were seeing incipient stress due to over leverage of individual balance sheets. Lending near the bottom of the pyramid has always had this pattern that for a long time things hold and then an event like the one we saw in Karnatak in quarter four of last fiscal kind of shakes the tree.
These customers, once they move forward it takes four quarters to repair the damage of one quarter. We are cognizant that rewards of a high yield do not come without attendant risks and to that extent we must fortify our balance sheet over profit and loss account. So we are at all points of time and that has been our strategy from day one that the balance sheet has to be protected. Profit and loss account can wait. If you recollect the last the first quarter since our listing two years ago, we have stopped accruing interest on NPS and we have been raising our PCR to the double of regulatory minimum.
As recently as last quarter we increased our PCR to the higher end of the mid-40s. We also sit in almost 2x more liquidity than the regulatory minimum. These are price we will happily pay for a good night’s sleep. Considering the current environment, we will be increasing provisioning which will increase our credit costs going forward. There are four tailwinds and one headwinds where we stand. Cost of credit is a headwind we will battle, but the tailwinds we have are 1 the regulatory risks have moderated 2 liquidity flow is ample 3 the cost of incremental funding is dropping much faster while the transmission to MCLR usually takes its time to find its way down to us, but the incremental funding is certainly dropping and 4 cost of operations will likely continue its downward trajectory around our guided path.
This will enable us to be on a continued path of profitability and on track to deliver the ROE we had built SBFC for. Right now at a debt equity of just 1.87 times and a cost to income ratio of 39% we have delivered an ROE of 13.5%. We are targeting business as usual growth of our aum by a 5 to 7% quarter. On quarter growth we are on track for a 50 basis point reduction in cost of operations down the year. Our cost of credit that may inch up by about 15 to 20 basis points from here.
On growth, profitability and ROE we are on our guided path. We thank each one of you for the faith that you repose in us. We are very happy now how far we have come, but as Dhirubhya Ambani once said, our dreams have to be bigger, our ambitions higher, our commitment deeper and our efforts greater. With that I hand over the call to Narayan to take us through a little bit more about the company numbers.
Narayan Barasia — Chief Finance Officer
Thank you Aseem. Good evening investors. So our aum as of June 25 is 9351 crore with a growth of 30% on a YY basis, on a QQ basis and with our books secured by properties and gold. During the quarter we added 10 branches with a total branch at 215 as of June 25th. In terms of yield, spreads and opex, the yields and spreads both saw Marginal rise during the quarter. The yields improved by 11bps over the quarter. The cost of borrowing came down by 3bps over the quarter. The thereby increasing the spread by 14bps during the quarter.
The yield as of now for the quarter is 17.99% with a spread of 8.67% for the quarter. Our borrowing cost also reduced by 3bps during the quarter which is at 9.32% for the quarter. Our opex also reduced by 3bps during the Quarter in spite of increments etc. And is at 4.59% for the quarter. Opex improvement is 25bps from Q1 of the previous financial year due to operating leverage. This is in spite of our consistent increase in branch network which we are doing over the period of time. In terms of asset quality, our GNPA is range bound during the quarter to 2.78% with PCR at 44.4%.
Our credit cost is 1.11% for the quarter which is in line with our guidance. In terms of capital and return ratios, our capital adequacy remains strong at 34.3% with a tangible net worth of 3,039 crore. As of June 25, our return on average AUM for the quarter is 4.5% with return on average tangible equity improving to 13.53%. The pad for the quarter reported is 101 crore with a YY growth of 28% and QoQ growth of 7%. With this we open the floor for further questions and answers.
Aseem Dhru — Managing Director and Chief Executive Officer
Yes, we open the floor for questions and answers. Please.
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 their 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. The first question is from the line of Raghav from Ambit Capital. Please proceed. Raghav. In case you are speaking, we don’t hear you. Mr. Raghav.
Raghav Garg
Sorry, my bad. Can you hear me now?
Narayan Barasia
Yes, we can hear you. Please go ahead.
Raghav Garg
Okay, thank you. Good evening and thanks for giving me the opportunity. I have a few questions. One is when I look at the business per branch or per employee that’s been increasing consistently for last 3, 4 quarters. Yet when I look at the OPEX to asset side that’s down only 6 bits. YOY and I think that’s mainly because of the other OPEX line item which is going up. So what is driving that? Where will this other OPEX line item settle and when should you start seeing meaningful scale economies? Yeah, so that’s my first question. Should I ask my other questions also or should we take one?
Aseem Dhru
No, I think we’ll answer your questions. So I think you’ve rightly pointed out that yes, the productivity at a branch or at an employee level is gradually inching up. But what’s also happening is that we’ve been consistently adding these branches. So if you look at our entire distribution network, you’ll always find close to around 15 to 20 odd percent of our branches which are less than 12 months. And what we’d like to do is that we’d like to front load a lot of these new branches in the first half of the year. So what we’ve been guiding is that you might see probably an elevated cost upfronting in the initial quarter, but on an annualized basis, we feel that the overall cost reduction is going to be 50 basis points for the full year.
This is what we had guided last year and that’s what we had achieved. And our guidance remains unchanged for the current year as well.
Raghav Garg
Understood. And one more question. You give your volume number right for the MSME bit and then when I look at that, when I divide that by employees, I’m able to, you know, get a file productivity number that’s inching close to where you were before you called out stress, I think in April 2024. And then you said you’ve titled your underwriting rejection rates are 10% higher. So what I want to understand is despite the rejection rates still being 10% higher, you’re getting back to, you know, older levels of productivity levels. Is that the right way to understand this?
Narayan Barasia
That’s one right way to understand. The other point that I’d just like to add is that the volume number that you see is largely related to the ME business. It does not include gold. Whereas you are taking the total employees which are mentioned probably in the second or the third executive summary slide. So if you were to add both, probably you will have a much favorable outcome than what you’re currently getting.
Raghav Garg
Understood. Third question is what has led to this higher yield on a quarter on quarter basis? Why has that happened?
Narayan Barasia
So I think our gold business, as we are beginning to add new branches, most of these branches are having gold and the increase in yields are largely on account of gold. The ME business has largely remained stable. So most of the increases that you see in the yields are on account of gold.
Raghav Garg
But see when I look at Q1Q AUM accretion rate, it’s pretty similar in both in the sense that the MA business around 7% and then even the gold business is up 7% quarter on quarter.
Narayan Barasia
So let me put it the other way. So you have gold which is contributing close to around 1314 basis 1314 percent on your total portfolio. And if the yield variance is close to around say 3 to 4% between me and gold, that’s where the majority of the variance.
Raghav Garg
Understood? Sure, sure. Oh, fair enough. Understood. Do I have time for one more question?
Narayan Barasia
Just go on please.
Raghav Garg
Sure. So see, you partly alluded to this thing that you know, the ability to repay EMIs has reduced a bit. I think if I heard it correctly when I look at your OnePlus DPDs, they’ve been inching up, collection efficiency has dropped. One of the larger NBFCs also recently indicated some pain in MSMEs. What are your thoughts on this bit? You said you will increase the credit cost by 1520 bps this year. But you know, just very qualitatively what are the challenges that you are seeing? Why are these MSMEs not able to repay? Just some granular color qualitatively on that will really help.
Aseem Dhru
See. I did try to cover that in the opening statement. If you had caught that there is a political risk that has emerged this year which is not a normal thing that happens for the industry. I mean microfinance has faced political risk before but for the rest of the industry it is a new normal that we saw this time. And there are phases. Money is linked, money is not. You cannot segment money into products. So ultimately if the velocity of money drops, if lenders pull their hands away from unsecured lending, from micro finance lending, ultimately somebody’s expense is somebody’s income.
So if somebody is cutting down something, ultimately that same fellow will go to a small grocery shop and buy something. And if his income has gone down or his ability to get cash has gone down, then consumption also is going to get affected. And that consumption is somebody’s income. So it is linked. We have seen an increase in oneplus and that flow and that has built a pressure. These are cycles that come that one has to navigate. And it’s very clear that it is linked to ticket sizes more than anything else. So it is not about geography so much.
It is not about a particular kind of borrower. It is more about ticket sizes. What it is telling you is that the prime credit Indians are doing extremely well. They are pulling it away. But as we go down the ticket sizes there is a stagnation of income and a pressure on ability to pay. So that is broadly what’s happening.
Raghav Garg
That’s very helpful. Thank you.
operator
Thank you. The next question is from the line of Nitesh Jain from investech. Please proceed.
Nidhesh Jain
Thanks for the opportunity. So one question is that in the current environment where we are seeing stress over leverage, OnePlus DPD inching up. So what is giving us confidence to grow and to disburse showing 30% plus disbursement growth and what are the changes in the underwriting filters that we have done which is giving us confidence to grow.
Narayan Barasia
So as Asim pointed out, what we are beginning to see is that there is some bit of stress in some pockets of the country. The stress is more towards the smaller ticket sizes and we have seen a deterioration in their bureau scores. So that leads us to tighten our credit filters further for a particular category of borrowers till the time we see the environment stabilizing or even our buckets stabilizing. So you would probably see us see the ticket sizes marginally moving up because we would get get a little cautious on some of the ticket sizes in some of the geographies.
But having said that, our distribution is so large and we’ve got 215 odd branches and even if we were to say contribute out of that, 80% of the branches contribute and there are some small tickets that we move that away, that’s not going to actually take the wind away from the dispersals. Just to put numbers in perspective, we did close to around 800 crores this quarter. Even if we were to assume that we maintain the current momentum, that takes us to 3,200 odd crores against 2,600 crores last year. And that’s roughly around a 20% growth in disbursal translating to 25% in terms of the AUM growth.
This is after we introduce fresh filters on underwriting, going slow on the smaller ticket sizes and really focusing on the sectors and the customers who are demonstrating proper track in terms of repayments or where we feel confident with respect to the credit outcomes.
Nidhesh Jain
Sure. So then secondly the can you share what percentage of customers will have, let’s say more than three loans etc. Because what we understand is that is one big driver of the stress. There are customers who are having higher number of loans. Those customers, the stress levels are much higher versus customers who are unique or have only one or two loans.
Narayan Barasia
So the ME customers would not have significant loans outside sbsc. So there are hardly one or two unsecured personal loans that we see from the bureau watch. The gold customer will have more unsecured borrowing outside sbfc.
Narayan Barasia
And we track the customers based on the bureau score wherein our bulk of the customers which is 87 odd percent. Is above cutoff of 700.
Nidhesh Jain
Sure. And last question is on credit cost guidance. So this quarter we have done around 1.1% credit cost. And in the opening comment you mentioned grade cost will be 15 basis. 1015 basis points higher. So should we build 1.25 to 1.3% credit cost for the full year or 1.1% is the right number?
Aseem Dhru
No. So see you can’t see the full 18 hole golf course. You play it all at a time. So at the moment what we are seeing in our one moving forward, it appears that 15 to 20 basis point is what should be penciled in. That’s what we are penciling in. We’ll of course try to do a better job than this. But that is what it appears looking at the numbers right now. Because even if you look at the Sibyl data, what it tells you is very clear that if you look at MSME loans across the industry between March 24 and March 25 you will see that above 50 lakhs from 50 lakhs to 50 crore all buckets have seen an improvement.
A reduction in NPAs, all buckets from 10 lakhs to 50 lakhs. There is a slight 10 basis point deterioration in NBAs. But in less than 10 lakhs the deterioration has been 70 basis points. So from 5.1% the industry has gone to 5.8%. So there is a linkage of what is happening at the bottom of the pyramid. And we will be fine tuning our business in light of this data.
Nidhesh Jain
Sure. So the base credit cost is Q1 credit cost on that we should expect higher cost for the full year.
Aseem Dhru
That’s right. That’s right.
Nidhesh Jain
Okay, thank you. That’s it for my side. Thank you.
operator
Thank you. The next question is from the line of Shabran Shu Mishra from Philip Capital. Please proceed.
Shubhranshu Mishra
Right. Hi, good afternoon. So do we do any industry analysis of our MSME exposure? If so, what would be these industries which have these specific issues of stress? And what does the curing rate for 0 to 30 dpd today versus say a year ago? And in terms of understanding the hand loans of the MSME customers, the civil bureau score would possibly give the credit lines which they have from other lenders but during our PDs, do we get a understanding of the hand loans that these customers have? Are they honest enough to speak about it or is our process cute enough to understand what is the hand loans that these customers might have? The second question is around gold loans.
How we’re looking looking at gold loan growth, how do we select a branch? Do we have specialized branches for gold loans or we have branches which are merged with the MSME branches? And what is our outlook on gold loan branch expansion? Are we going to do it standalone or it will be for cost benefits? We will have both products together in locations. Thanks.
Aseem Dhru
So let me. I guess there were just too many questions under the wrapper one, but probably we’ll try and answer one by one. You’re answering your gold question on gold. So out of 215 odd branches, 175 branches do gold. Whenever you select a location, you have data available with respect to what is the market size available in that particular market. The intent is obviously if there is an opportunity for both the businesses to do in that particular location. So the first preference and the first choice is to have both the businesses together. Because obviously economies of scale and the cost come in our plan for gold.
Clearly it’s a high opex business so we are a little watchful. So if you look at our overall gold in terms of the AUM per branch and the moment your aum per branch is more than 7.5 to 8 odd crores, it is a highly profitable product for us to pursue. So you will see increase in our branches on a consistent basis and the increase in gold branches will continue to do because they obviously are a yield enhancer for us on an overall portfolio. And obviously the credit cost related to that product is also to the bare minimum.
Narayan Barasia
On the hand loans which you are asking see during the PD the credit. So one is that we do 100% personal discussions for all the transactions. And whenever the credit manager visits the customer, he or she tries to understand that whatever assets he has created, whatever working capital he has invested in the business, what is the source, what is the end use of the loans which he has borrowed. So based on the PD he is able to gauge whether there are any hand loans or not. Because these are intricacies wherein you meet the customer and understand.
So if there are any hand loans through the personal discussion is something which the paid manager understands.
Aseem Dhru
And you know, answering your question with respect to the industry analysis. So you know, average ticket size of 10 lakhs. These are your mom and pop stores in your neighborhood. So typically your industry analysis is more on cluster driven businesses which have slightly higher ticket sizes. So where you can probably derive the trend as to how the trends are moving, how the receivables are aging or how the inventory is aging. These are largely cash denominated businesses which you deal in. What you can actually build is the kind of businesses that you have if it’s a grocery store or a salon or what size and what scale of those businesses, at what PIN codes and what is the range of ticket sizes which typically are borrowed by these businesses.
That’s a relative range that comes in. But obviously you triangulate that further with your personal discussion with the customer and the other financial covenants that come along with it.
Shubhranshu Mishra
Right. So can we split this into say trading and manufacturing if that makes sense, yes.
Aseem Dhru
So the entire book largely is on the services side. So you have very little manufacturing where the ticket sizes are sub 40, 50 odd lakhs except largely the converters. But you won’t have really pure manufacturers in this particular category of segment because clearly the investment in plant machinery is going to be significantly higher for them to fall into our category.
Shubhranshu Mishra
Right. And what percentage of our MSME customers have a hand loan? Do we have data on that?
Narayan Barasia
No, we would not know how many hand loans they would have. But what happens is generally when our collection team goes to collect some bit of flavor, we get that they also had a separate loan which was not there in the record. So we would not get the entire hand loans at a portfolio level, how many customers would have?
Shubhranshu Mishra
So it’s fair to say that that’s possibly a gray area for the entire industry if I have to pan out for the entire. The hand loan part of it.
Aseem Dhru
Yeah. So absolutely.
Shubhranshu Mishra
Right, sure. Thank you. This is very helpful.
operator
Thank you. The next question is from the line of Nishit from Kotak. Please proceed.
Nischint Chawathe
Hi, thanks for taking my question. You know, just curious, where do we. See. Ourselves or probably sector in the cycle while DPD has gone up and kind of gone up quite meaningfully? I would guess a part of it may be seasoned, but again you have kind of raised your credit guidance as well. So is it something that you probably see the share delinquencies or flow outs increasing further? Or is it something that whatever has flown up is something that probably you need to provide for?
Aseem Dhru
See, obviously when you see a flow there are two things that happens. One is that you provide for the worst outcome, but you bat for the best. So obviously you would want that these flows be pushed back and that is the attempt that we would be making. But when you are giving a guidance, obviously you want to ensure that in the end of the. Because at this moment it has just flown. So we also don’t have a full answer to what’s happening. See, you have to realize that while you may think that the operator who is doing the business is fully in control and is always aware of everything, the reality of a business is that you are also responding to an economy that is at play.
Our customers are across geography, they are across ticket sizes, they are across businesses, et cetera. And you see a certain thing happen. And it is very typical for a small ticket business to behave this way that for a long time things are steady and then one quarter, something shakes it. This time it was karnatak something shakes it, and then when it shakes it, our customers do not have an ability to pay multiple EMIs. So when a customer moves forward to bring the customer stabilization is a little easier. Rollback is where the challenge comes. So that’s the challenge that we have braced for.
We will pull it. But since you want to model in your cost, which is helping you with an outcome.
Nischint Chawathe
The reason why I was asking this is because you’re probably one of the first or maybe the first, you know, BFSI to kind of tighten screens, you know, around 15 months back, if I recollect rightly. And I think you have done it twice or thrice, you know, in the 15 months. But, you know, but we have seen this increase. So is it something that kind of, you know, has happened suddenly and it was like, you know, there’s some trends that we could not read, or is it something that there has still been a gradual flow despite the tightening.
Aseem Dhru
So I think Nishant, obviously when we were tightening the screens, we were tightening the screens across for certain PIN codes, certain states. Some developments which probably happened in the last quarter was obviously outside the radar. And that obviously has some multiplier effect. And that’s reflected in most of the results as well. So you wouldn’t want to pencil in. But then what you can do is you can probably stay away from certain PIN codes and bring down the exposure till the time the tide settles. What we only trying to say is that while the flows have happened and these flows will stabilize, it will take us a quarter or so to stabilize before we nurse it back.
But we aren’t really too alarmed with the situation because certain pockets where the flows have happened, we have a limited exposure in some of these areas. So clearly there’s nothing to be too worried or we need to pencil in any more costs than what we’ve already stated.
Nischint Chawathe
But you don’t seem to be calling it transitionary either. You would say that you’re probably just trying to trade it a little more cautiously. Or do you think it’s transitional?
Aseem Dhru
You have been in the industry long enough. The second half will be better and transitory. Are hopeful. We do not deal in hope. We deal with reality as we face it. So we are, as I said, we are prepared for the worst on batting for the best. So that’s all we can do. But who knows, I mean, what is happening on the economy, on the ground, across the country, who is in a position to command and say for sure that this is transitionary, this will pass in the long run, everything is transitionary, you know, so if you take a very long view, everything is transitionary. But reality is that you have to bat for the ball you are getting.
And right now the ball that’s coming onto the pitch is bouncing uneven.
Nischint Chawathe
Sure. Just one, maybe two tiny questions. One was on the co lending, sorry, co originated aum, which kind of has probably grown very marginally this quarter. Is there anything to read in it or is it just that these things probably even out over quarters?
Aseem Dhru
No. So these even out in a quarter. So even last year in this quarter the numbers were lower in the core origination. Second quarter probably going to be significantly better. But that’s been the trend and that’s been the cycle.
Nischint Chawathe
And just one final one, if you could give some sense or schedule or guidance in terms of how do you see credit cost coming off maybe over next two, three quarters? I’m sorry, how do you see the cost of borrowing coming off over the next two, three quarters? My bad.
Narayan Barasia
Yes. So Nishant. So there are two very positive things which is happening. One is the repo has already slided by 100 basis point. And also there’s ample liquidity in the system. So both are positive. Our cost of borrowing has also started inching down and so obviously over the quarter on quarter, the cost of borrowing numbers will look obviously much better. It is very hard to put a number to it. But you know what happens is the transmission from repo to Msila takes a little bit of time. And so as the transmission happens, obviously we’ll get the benefit of the transmission.
Aseem Dhru
See if you want to see it differently, look at what I said in my opening comments that there is going to be a 1520 basis point increase in credit cost but our entire earnings remain the same. So you will be able to work backwards to see what we are saying. Because see also we don’t want to. Pencil in all the good news. Let it come. So I mean there is good news on cost of borrowing side. So let it come. At the moment we are penciling in a flat cost of borrowing as our worst case scenario. Let the good news come because we are quick to take in good news into Excel but the bad news always comes from where you can’t see it.
Nischint Chawathe
Okay, that’s very conservative. Thank you very much and all the best.
Narayan Barasia
Thank you.
Aseem Dhru
Thanks.
operator
Thank you. The next question is from the line of Mayank Misty from JM Financial. Please proceed.
Mayank Mistry
Yeah, hi sir. Thanks for the opportunity. Sir, my question is mainly on the mix as you have already guided that 15%. You will try to manage around 15% in gold loans. But given the current scenario where the stress is firing up in a lab book and also considering that even, even RBI is giving us the little relaxation in terms of ITV in gold loans. So isn’t this the right time to you know, maybe shift our mix slightly more towards gold loans? I mean given the current scenario and probably, you know, get it back once the situation calms down.
And my second question is on the PCR given that in this quarter we had 1.1% of credit costs despite this also our PCR has also declined. So I mean if, if, or even if we make we do 15, 20 more of credit cost, how do we see the PCR? I mean at what levels do you plan to, you know, keep the PCR ratio also on the overall cover on our book? Those are my two questions.
Unidentified Speaker
On the PCR front, OnePlus is usually not always going to 90 plus. It’s sitting in the bucket one and two as well. So PCR is calculated on the NP books. That has marginally come down. It is in that range of 44, 45%. So nothing too deep to look into it.
Narayan Barasia
So on the PCR also note that if you look at June 24th and you look at June 25th, you will see an increase in PCR. Isn’t it? So quarter on quarter, some movements may happen here and there. But if you see gradually we have taken the PCR up over the period of time.
Mayank Mistry
Okay sir. And, and on the mix.
Aseem Dhru
Yeah, so I think on the mix side probably if you look at our entire last 12 months and even on a quarter on quarter basis you’ll see our gold moving up by almost 40 odd percent. This quarter is also closer to 8 odd percent year on year should be close to around 37, 38 odd percent. We’ve been conscious enough and we’ve been investing in these branches in states where we are comfortable. I think gold, there is no underwriting or there is no credit risk. I think the largest risk is the operating risk. So it’s not that you open 100 branches and 200 branches and you feel that the gold price is favorable and you can actually derive those particular results.
I think the way we approach it is slightly different if we are comfortable about a particular state or a geography where our returns and the operating metrics is in line with our expectations that we wouldn’t mind going ahead and expanding. So to answer your question, we will remain invested in incremental branches coming through and most of the branches are going to have gold with it. And coming to the MSME business, I guess all of us@SBFC have spent probably more than two decades in this particular business. We’ve seen enough cycles going up, going down. And I think the entire approach is that how do you address those particular cycles? There’s a particular method to the madness in which you address them.
You would want to probably go a little slow in terms of dispersals in some pockets. You might want to accelerate your momentum in some category and some pockets. But you will have to balance. You just can’t vacate a particular geography or you can’t completely vacate a particular segment because of an event which has happened in a month or in a particular quarter. If you are there for a long haul, what we are looking at it is probably a temporary pace for which we have taken proactive actions in the last quarter. You will see some mix and color changing from this quarter onwards as we speak.
But this is largely for the long haul. And that’s what we keep committed to the fact saying that irrespective of the seasons and the color changing, our guidance of 5 to 7% in terms of growth momentum is going to remain unchanged.
Mayank Mistry
Sure, sir. And also the mix. Right. Because I think that current with a branch expansion going, you know, faster in gold as compared to MSME automatically or gold mix will start moving up. That’s my actually question.
Aseem Dhru
Yeah, mix is largely going to remain the same.
Mayank Mistry
Okay. So you know, and just can you give some light on the ROA trees or maybe if you can give us segmentally, I mean what is the ROE differential in both the businesses?
Narayan Barasia
So see, we are very profit and ROE focused organization. The difference in the two business are fundamentally very different because the gold comes with a higher opex. The secured MSME come with a low Yield and low Opex. Right. So in a way the ROEs are the similar numbers and we steer to look at a 15% ROE over the period of time. So ROE today is about 13.5. If you look at the ROE every quarter it has been moving up. Last year, quarter one of 2024 we were at 12.3 and now it is at 13.5. So over the period of time I think we will see volatility.
Sometimes the delinquencies are high, sometimes the gold business takes a knock. But I think both the businesses we are steering towards a 15% roe.
Mayank Mistry
Okay, thank you. Thank you. And all the best, sir.
Narayan Barasia
Thank you.
operator
Thank you. The next question is from the line of Shubhanshu Mishra from Philip Capital. Please proceed.
Shubhranshu Mishra
Hi, there was one question which was unanswered. What is the zero to this quarter versus say a year ago?
Aseem Dhru
So we don’t call out on that particular number and you know, largely all I can tell you is that the trend is not going to be very different. Although you know, we’ve seen the one plus moving up. But that’s again for this particular quarter. But in terms of curing, stabbing and stabilizing the percentages, we’ve not seen that. Very, very different.
Shubhranshu Mishra
Largely it’s similar and that is largely to do with our collection efforts. The curing remains similar on a YY basis because what you alluded to is that the customer segment in certain ticket size is coming off. So it’s more to do with our collection efforts. In that case
Aseem Dhru
it’s not to do. With the collection effort. So in terms of our collection infrastructure, I think what we’ve done is we’ve invested in the collection infrastructure. We’ve got more than 550 odd people across our 215 odd branches. I think the distribution is reasonably set. Answering your question in respect to curing, now, curing has two parts. One you either stabilize or or you roll back. So my answer was that as long as you are able to stabilize first and then you can cure for it in terms of rollback. So as far as the stabilization are concerned, the percentages are largely similar.
Shubhranshu Mishra
Sure. And if you can give up the number of loans that we do in MSME on a quarterly basis or a. Monthly run rate,
Aseem Dhru
we do close to. Around 27 to 2800 odd loans on a monthly basis.
Shubhranshu Mishra
Right. This run rate remains similar in the upcoming quarters as well.
Aseem Dhru
Yeah.
Shubhranshu Mishra
Right. Thank you.
operator
Thank you. The next question is from the line of Rahel from Town Capital. Please proceed.
Unidentified Participant
Good evening. Just one question. Any outlook or guidance on the return on assets.
Narayan Barasia
So we have been stable roas since last couple of years. I think even when the leverage has gone up, we have managed to have our ROAS in the range of 4.5 to 4.6. As we lever up, there might be slight compression and we may, over a period of next two years may go down to 4.2 to 4.25, at which time your leverage from 3 will go up to 4. So this ROA along with the leverage will end up giving you the desired roe of around 15%.
Unidentified Participant
Okay, so ROAS will see some pressure for over time.
Narayan Barasia
Yes.
Unidentified Participant
So by when do you feel they can go back to current levels and more
Narayan Barasia
so Rahel. So see, the way it works is as the leverage improves, the roas tend to go down. Right. It’s only a function of leverage, isn’t it? We are at a low leverage today and the leverage should improve from here. The good thing is, and the most important thing is to see Roe, which whether the ROEs are improving or not. So whatever happens to ROE basis leverage, we should see the ROEs improving. So if you see the ROEs have been constantly improving quarter by quarter, it has been at 12.3, quarter one of last financial year, it is at 13.5. Now the question is whether the ROEs will move to 15% as we go on. And that’s what we are aiming at with increasing leverage.
ROEs generally tend to slightly come off over the period of time. But what we are looking for is obviously a good spread as we go along, as we guided the OPEX should as a percentage of coming down. The only thing is the leverage which will improve, which is good from a ROE point of view.
Unidentified Participant
Okay. Okay. Thank you sir. All the best to you.
Narayan Barasia
Thank you.
operator
Thank you. Participants who wish to ask a question, you press star at this start and one at the start. Participants who wish to ask a question may press star and one at this time. As there are no further questions, I now like to hand the conference over to the management for the closing comments.
Narayan Barasia
Thank you so much. Thank you so much for joining the call. Since we have done the call on the same day of the results, if there are any further questions, please do reach out to me. Thank you so much.
operator
Thank you. On behalf of ICICI Security limited that concludes this conference. Thank you for joining us. And you may now disconnect your line.