Shriram Finance Limited (NSE: SHRIRAMFIN) Q3 2025 Earnings Call dated Jan. 24, 2025
Corporate Participants:
Umesh G. Revankar — Executive Vice Chairman
Y.S. Chakravarti — Managing Director and Chief Executive Officer
Parag Sharma — Managing Director and Chief Financial Officer
S. Sunder — Joint Managing Director
Analysts:
Chintan Joshi — Analyst
Raghav Garg — Analyst
Bhumin Shah — Analyst
Aditi Naval — Analyst
Kunal Shah — Analyst
Saurabh Kumar — Analyst
Rajiv Mehta — Analyst
Abhishek Jain — Analyst
Preeti RS — Analyst
Suraj Das — Analyst
Sharat Dua — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Shriram Finance Limited Q3 FY ’25 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. If you need assistance during the conference call, please signal an operator by pressing star then zero on your touchstone phone.
I now hand the conference over to Mr. Umesh G. Revankar, Executive Vice-Chairman, Shriram Finance Limited. Thank you, and over to you, sir.
Umesh G. Revankar — Executive Vice Chairman
Yeah. Thank you. Good evening, friends from India and Asia, and a warm welcome to all of you. Greetings also to those who joined from Western part of the world.
To present our Q3 FY ’25 earnings call today, I have with me our Managing Director and CEO, Mr. Y.S. Chakravarti; Managing Director and CFO, Mr. Parag Sharma; Mr. Sunder, Joint Managing Director; and Mr. Sanjay, our Investor Relations Head.
It has been good 3rd-quarter of the year for Shriram Finance under current circumstances. Let us look at the broad economic indicators that has direct or indirect impact on our business. The Indian GDP expanded little slowly to 5.4% from previous year in the — in the quarter of September ’24 from 6.7% and much below the market expectation of around 6.5%. On inflation, India’s inflation eased to 5.22 in December from 5.48 in November, whereas the wholesale price index has surged to 2.37 in December compared to 1.89 in November, indicating likely long-term pressure on the wholesale prices.
As far as the RBI policy is concerned, it has remained unchanged for 11th consecutive time. And however, the RBI cut the cash reserve ratio by 50 basis-point to 4% to improve the liquidity in the system. The good rainfall monsoon and the Kharif and Rabi crop is giving some positive indicator for the rural market. And we do see good credit demand coming from the rural and also overall economy improving in the rural market for us.
On GST collection, it has been growing at 7.3% year-on-year to INR1.77 lakh crore in the — for the month of December. This reflect little slowdown and also it has some impact on government spend is what we believe. However, we expect as the — the budget session is coming, government has already started announcing new projects and implementation of the existing projects. So I believe that it should give some boost.
Now coming to the auto industry, overall market looked flat as far as M&HCV is concerned. There was a small decline in the heavy vehicle to 1.3% up from INR90.2% to 92% as against 91.91,440 units. LCD sales recorded a marginal increase of 2.7% in Q3 ’25, the — which stands at 1.48 against 1.44 units. The passenger vehicle recorded a good growth of 4.5% in Q3 with 10.5 lakh units against 10.12 lakh units. Two-wheelers again recorded a good growth of 3% or with sales of INR48.75 lakhs against 47.31. Three-wheeler continued to grow decently. However, the numbers remained flat for the quarter of the — with 1.89 against 1.88. Tractors recorded a robust growth of 20.15 with 2.44 lakh units against 2.03 lakh unit in Q3 FY ’24.
Construction equipment again showed a positive growth with 8% increase or with 35,768 units against 3 121 units. With the continuing good results, the Board has declared interim dividend of 125%, that is 2.5 per share. The record date for the entitlement thereof has been fixed as January 31, 2025.
I shall now ask my colleague, Mr. Chakravarti, to take through the operational performance.
Y.S. Chakravarti — Managing Director and Chief Executive Officer
Thank you. I welcome all of you to our Q3 FY ’25 earnings call. And I hope you had the opportunity to have a look at the investor presentation, which has been posted on the website and of the stock exchanges. We have registered disbursement growth of 15.82% year-on-year. Our disbursements in Q3 FY ’25 this year aggregated to INR43,766 odd crores versus INR37,787 crores in Q3 FY ’24.
Our AUM as on 31st December 2024 registered a growth of 18.78% over Q3 FY ’24 and a 4.7% sequentially. Our AUM stood at INR2,54,469.69 crores as against 21,000 — sorry, INR24,23.47 crores a year-ago and INR2,43,42.55 crores in Q2 FY ’25. Our net interest income in Q3 FY ’25 registered a growth of 14.31% year-on-year. We have earned a net interest income of INR5,822.69 crores in Q3 FY ’25 this year as compared to INR5,093.93 crore in Q3 FY ’24. Our NIMs was 8.48% as against 8.99% in Q3 FY ’24 and 8.74% in Q2 FY ’25.
Our PAT grew by 96.32% in Q3 FY ’25, including one-time gain of INR1,489.39 crores net of tax for-sale of our stake in subsidiary, Sriram Housing Finance Limited and Sriram Housing Finance Limited. It stands at INR3,569.76 crores as against INR1,818.33 crores recorded in the same-period as the previous year. However, excluding one-time gain of INR1,489.39 crores, which is net of tax for-sale of our stake in the subsidiary, the profit-after-tax increased by 14.41% and stands at INR2,080.37 crores as against INR1,818.33 crores in the same-period as the previous year.
Our earnings per share for the quarter stood at INR18.99, including one-time gain as against INR9.68 in Q3 FY ’24 and 11.02 in Q2 FY ’25. Including one-time gain, the earnings per share increased by 43.36% and stands at 11.07 as against 9.68% recorded in the same-period of the previous year. On our asset quality, gross Stage 3 in Q3 FY ’25 stood at 5.38% and net Stage 3 at 2.68% as against 5.66% gross and 2.72% net in Q3 FY ’24 and 5.32% gross and 2.64% in Q2 FY ’25. Our credit cost for Q3 FY ’25 stood at 1.85% as against 2.15% for Q3 FY ’24 and 1.84% for Q2 FY ’25. Our cost-to-income ratio was 28.59% in the Q3 FY ’25 as against 27.04% recorded in Q3 FY ’24. Our cost-to-income ratio in Q2 FY ’25 was 27.95%.
I shall now request our Managing Director and CFO, Mr. Parag Sharma to inform you about our resource raising activities.
Parag Sharma — Managing Director and Chief Financial Officer
Hello, everyone. The — on the liability side, total debt outstanding as of December was INR2,23, up from INR27,000 in the September quarter. The liabilities are broken into several sources equally spread almost with retail deposit being at 24%, the bank borrowing at around 21%, the offshore borrowing, both loan and bond at around 19% and this has increased substantially because of the large loan transaction what we have done in the current quarter, which was fund INR2 billion. And the securitization is at 17% and the capital market is around 17%. This is more or less a similar to the previous quarter, but for the ECB slightly being up and banks being slightly lower.
The cost of liability is at 8.95%, which is marginally down from the previous quarter, which was 8.97%. The incremental cost of fund continues to be at around 8.9 versus a similar number in the previous quarter. The leverage ratio is at 4.06, up from 3.99% in the previous quarter. The LCR is at 265, up from 234 in the previous quarter. Because of the last transaction of ECB, the liquidity has shot up from INR17,000 crores to INR27,000 crores, which is almost equivalent to our next six months liability. This excess liquidity will be moderated over next two quarters and we’ll go back to our earlier policy of three months of liability to be in liquid assets.
The ALM buckets have been positive and up to six months, the cumulative surplus is in excess of INR65,000 crore. Overall, fund mobilization continues to be strong and we have been able to maintain or slightly reduce the cost of fund for us.
I keep the forum open for Q&A, you can ask your 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 their touchstone phone. 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 our first question comes from the line of Chintan Joshi from Autonomous. Please go-ahead.
Chintan Joshi
Hi, can you hear me?
Y.S. Chakravarti
Yeah, please.
Chintan Joshi
Yeah. Hi, good evening. Can I start with a few questions on NII? NIMs have come down this quarter. I can see that you’ve had an increase in ECD loans and borrowings and there is an increase in cash balance. Could you give us some sense of yields on these so that we can kind of think about how much of this might reverse in the next quarter as you deploy that cash?
And then also if I could understand on securitization, which was up 14% quarter-on-quarter, what are the P&L effects of this? It will depress your NII but increase the other income. Just trying to understand what the impact of that securitization is. Thank you.
S. Sunder
As regards the NIMs, it has been mainly because of the negative carry that has happened because we are carrying excess liquidity. So once, as Mr Parav was mentioning in the previous thing, once it normalizes back to the earlier levels of INR17,000 crore INR18,000 crores, so it should come back to normalcy. And when it comes to the income booked on securitization, in NBOC, since we follow the India’s norms, even though we securitize, we tree defer the income over a period of time and only the assignment income is booked upfront and that is a small component.
Chintan Joshi
Okay. So on the NIM, how much of the NIM fall is due to excess liquidity or how much should we expect it to recover next quarter?
S. Sunder
Roughly around 20 basis-points is on account of fall in the — because of the negative carry that we had to bear. And marginally it should improve depending upon the liquidity question as on the current quarter.
Chintan Joshi
So that would still imply like a 6 basis-point underlying NIM deterioration in the quarter. So what is driving kind of that incremental — apart from the excess liquidity, are there other drivers of the NIM deterioration or is that grounding error and we should expect that much volatility?
Parag Sharma
It also depends upon asset mix because normally in the 4th-quarter, we do have demand for new vehicle alone and new vehicle loan will be at a lower yield. So that also has a bearing. So it all depends upon how much we end-up with a new vehicle to used vehicle ratio. So we cannot really predict, but as Sunder rightly put it, the liquidity will be used, the excess liquidity will be used so that there will be some improvement in the — or is what we call net interest margin.
Chintan Joshi
Okay, excellent. And then I have one other area to ask about on kind of asset quality. So we’ve seen values of vehicles, commercial vehicles, passenger vehicles, generally vehicles valuations have gone up in the last few years. Does that mean that for you or the industry that LTVs have gone up or there have been higher disbursals against the higher valuations? Or do you kind of look at it on historical valuations? I just want to understand your practices, industry back to practices given that we’ve had this increase in valuations?
Y.S. Chakravarti
No, I’m not able to get it fully. Can you phrase it?
Chintan Joshi
So we have seen an increase in the prices of CVs, passenger vehicles. Generally all vehicle prices have gone up post COVID. Are you dispersing more loans against that higher valuation?
Y.S. Chakravarti
Yes, see, what is happening is on overall commercial vehicle, if you look at the overall sales, especially on second-hand vehicle transactions have been little flattish. So number of transactions, number of loan wise, it has not gone up, but ticket size has gone up, but we have increased the passenger vehicle. Passenger vehicle is where we have added a lot of new numbers and we are growing both in numbers and in volume as far as the passenger vehicle is concerned. Similarly with the construction equipment is concerned, we are able to grow there. So the other segments, we are adding new customers.
Chintan Joshi
But the LTV thresholds have not been increased because of the increasing valuations. We are basically keeping LTV constant.
Y.S. Chakravarti
The LTV has remained same, but price has gone up. The average increase in the price of vehicle is around 30% over the last three years. So that has gone up, but LTV has not gone up. LTV remains 70% on used vehicle.
Chintan Joshi
Thank you.
Operator
Thank you. The next question comes from the line of Raghav Garg from Ambit Capital. Please go-ahead.
Raghav Garg
Sir, hi, good evening and thanks for the opportunity. Just to harp on this again, so what levels would you bring back the liquidity? So when I look at the cash and investments share percentage of assets, it’s been increasing for last couple of quarters and it seems more in-line with historical trends that you’ve had. So if you can guide to a number as to how much can it come down? Will it be a significant number?
Parag Sharma
No, so I think two things there. One is, we always maintain three months of future liabilities into liquid assets and when the size goes up, overall cash and bank balance will go up. This quarter because of this one-off large mobilization, the overall liquidity is high. When it will come down, I think largely we will moderate our borrowing in this quarter and next quarter. So to go back to three months of liquidity, I think it will take us one or two quarters and this quarter onwards, there will be some improvement here. The liquidity will be down.
Raghav Garg
Understood. My next question is with respect to asset quality. So what has seen in commercial vehicle segment is that the quarter-on-quarter increase in stage-3 assets has been significant, it’s about 5%, 5%, 6% compared to the run-rate that you had in previous quarters about 1% to 2%. Why is it that the increase has been so sharp in this quarter? Any specific reasons that you can point to?
Parag Sharma
No, see, normally we focus on credit cost. If you look at the credit cost, it has remained at 1.85%. So gross take three or net small improvement — increase or less, it’s basically because the — how the economy functions. So we are happy to maintain credit cost less than 2% at any point of time. And I believe our overall asset quality is reasonably strong and continue to remain strong. And normally 4th-quarter, there will be some month back. Whatever the cash-flow mismatches of the customers, they’ll pay-off.
Raghav Garg
Understood. Sir, another question with respect to asset quality only, especially in the MSME piece, there also when I look at the quarter-on-quarter increase in Stage 2 or say the Stage 3 assets, that’s about 10% to 12% and it’s been fairly high — it was fairly high even in last quarter, whereas the incremental addition to the overall portfolio seems to be coming down. I’m talking about the MSME portfolio. Again, what is happening? Why are we seeing such high forward-flows in the MSME book?
Parag Sharma
See, once again, no, in this segment or which we are in, we are into small-ticket MSME lending, where there are some cash-flow mismatches temporary for the customers, but it normally gets improved. So as I was telling you, normally 4th-quarter everyone tries to improve. So I believe whatever small aberration has there, that gets corrected in the 4th-quarter. But I don’t really see a structural, what call, decline in the asset quality. I feel it is temporary, mainly because of seasonal and cash-flow mismatches.
Raghav Garg
Sir, do I have time for one more question, one last question please?
Parag Sharma
Yeah.
Raghav Garg
Sir, if you can just comment, we’ve been hearing from a lot of other lenders that have reported Q3 earnings so-far that there is some pain in the commercial vehicle segment. Some have cited that probably there is some lesser spending on infra by the government, something that you also alluded to, FMCG companies have stated that fleet consumption continues to moderate. So in light of these two trends, how do you see the operator profitability or fleet utilization? I know you’ve put out some data in your monthly bulletin, but just some qualitative commentary from your side in terms of how you know the operator profitability is doing right now will really help. Thanks, and that’s all from my side.
Y.S. Chakravarti
Yeah. See, basically, what happens is when the large number of new entrant come into the business and when the economy slows down and that’s the time there is a less demand for vehicle utilization and the revenue comes down. And this time around, if you see, the new entrant into vehicle ownership is much slower. And therefore there is sufficient demand for existing owners. So I don’t really see the what call of the idling of a vehicle in any part of the country. There is a full utilization. And also because of the other measures like good roads and GST, toll fee, all the operating economics of vehicles have improved significantly in the last two years. That continues to be advantage and less number of new entrant being there in the business because vehicle price has gone up and also the — what I Call-IT say, used vehicle prices are very strong.
So overall, I feel that is a very positive for the existing owners and that will remain positive maybe for another couple of years unless the lot of new players come and the revenue generation comes down or economy slows down significantly impacting them. So I don’t really see both a possibility. Neither a lot of new players will come in nor there is a slowdown in the economy. So I think the vehicle operators do enjoy good operational economics and the repayment have been reasonably good all-the-time without much of a fluctuation in the last 3/4 or four quarters.
Raghav Garg
Okay. And sir, one last question. How much — how much of your business, say, would be coming from or how many of your customers would have deployed vehicles in Karnataka mines what would be your exposure to…
Y.S. Chakravarti
Mine is now negligible maybe if you had asked me in 2008, it will have — it was quite a significant number. But from then, when they have — all this mining issue came, most of the customers have exited from that activity and we also reduced our lending to mining to very, very minimum possible. So I can tell you that Karnata, we have barely any exposure in mining activity.
Raghav Garg
Understood. Thanks a lot, sir. Thank you.
Operator
Thank you. The next question comes from Bhumin Shah from Sameeksha Capital. Please go-ahead.
Bhumin Shah
Hi, sir. Good evening. Congratulations on good set of numbers. So my question is on gold loan. So sequentially, AUM has declined and asset quality has also done in this portfolio. So can you give some color on this portfolio?
Y.S. Chakravarti
Yeah. So this is here. Basically, there was a sequential two quarters of de-growth in the AUM, but we should see an uptick in the next — this quarter, I mean the 4th-quarter and also going-forward the next financial year. As far as who — okay, asset quality is concerned, gold is really — the Stage 3 has been more or less flat, I would say in terms of amount, which is the Q2 number, it was INR118 crores and now in fact, it has come down to INR112 crores. Since the denominator has come down, it is looking slightly presentation is going up. But for that nothing. And anyway, the portfolio is so small, we need not be unduly concerned. Again, as far as gold is concerned, see, NPA is not a concern because it’s basically credit cost is the credit cost is virtually zero there. As far as AUM is concerned, we should see some — we should start seeing growth from this quarter onwards.
Bhumin Shah
So can we expect double-digit growth from this quarter or we are — we will go slow on this product?
Y.S. Chakravarti
No, we are pushing. We are pushing. We would ideally like to grow, double-digit only we want to grow. We are pushing.
Bhumin Shah
Okay. Okay. And sir, another question was on opex. So sequentially also it has increased. So what — what can be the range where we will operate in the — going-forward or will it remain elevated also?
Parag Sharma
See this — see, we had added around 1,614 employees in the current — 41 numbers in the current quarter and the staff cost has increased by around INR64 crores and there were other overheads, which has gone up by INR62 crores, totaling to INR126 crores of opex increase. And no doubt, yeah, compared to the previous quarter, there has been some increase in the cost-to-income ratio, which we are confident that in the quarters to come, it should come around 28%.
Bhumin Shah
Okay, okay. Thank you so much. That’s it from my side.
Operator
Thank you. The next question comes from Keyur G. Desai from. Please go-ahead not audible MR. Your line is unmuted. Please proceed with your question. As there is no response from the line of current participant, we’ll move on to the next question. The next question comes from the line of Aditi Naval from RSPN Ventures. Please go-ahead.
Aditi Naval
Yeah, hi, sir. Thanks for taking my question. So I have two questions. One is if — one is more of a datakeeping question. Is it — have you called out the yield in the cost of borrowings for the quarter? And second, I’ll ask once you answer the first question.
Parag Sharma
Yeah. So we did mention about incremental cost of borrowing being at around 8.9% only and the overall cost of liabilities at 8.95%.
Aditi Naval
And yield would be?
Parag Sharma
In the same range as the previous quarter.
Aditi Naval
Okay. And secondly, sir, I just wanted to understand, so from June quarter to until now nine months, the borrowings have actually sharply increased. Again, I understand that it’s borrowings that you’ve done. So any reason why are we going so sharply on increasing our borrowings? Again, just correlating it with the fact that our opex has also increased. So is it something like we are trying to get into some new product or new territories and also the fact that HFC is now being sold, so is it something to read into or it?
Parag Sharma
No. Exactly other sources of fund, the domestic sources of fund being in be it deposits, term-loan, securitization, that can be done on a monthly basis. But when it comes to offshore borrowing, this will be once in six months and larger quantum. That is the only reason this quarter suddenly looks that there has been an increase in overall funds borrowed and the liabilities and liquidity. But that will be once in six months event, which is not a monthly event. The regular sources for us will continue to be the domestic borrowing, which be it term-loan securitization or FD, which will not be very significantly higher quarter-on-quarter. ECBs, whenever we do, it will be slightly bulky, but that will be once or twice a year.
Aditi Naval
Got it. But any new product that we are trying to enter into or anything that we are sort of going to go aggressively in terms of the product?
Y.S. Chakravarti
No new product. However, we have announced a EV lending vertical, that is green financing. So focus is trying to build a separate vertical and focus on building the business there so that there is a focus and also there is separate what supervision and credit policy for that. So that is something which you are trying, but it will be gradual growth. We don’t intend to grow very quickly there.
Aditi Naval
So any — what is the outstanding book of the screen financing or this?
Y.S. Chakravarti
Well, it just started December 20th, we announced. So it is this quarter will be the first-quarter for that particular vertical. However, we have been doing some EV financing as normal-course of business, but this vertical will create separate what we call credit policy and supervision.
Aditi Naval
That will be help from my end, sir. Thank you so much.
Operator
Thank you. The next question comes from the line of Kunal Shah from Citigroup. Please go-ahead.
Kunal Shah
Yeah. Thanks and congratulations. So firstly, maybe quite a contradictory remark coming in from the industry participants with respect to the fleet utilization and the cash-flow. So no doubt you alluded to the fact that maybe it’s sustaining, but even when we look at your ability over past couple of months, it’s clearly indicating that fleet utilization has remained subdued. In fact, even in some of the major routes, truck rentals rise have not been that high and not much of an increase year-to-date. So how is this entire operators cash-flow getting managed and maybe at least in terms of the delinquency levels, we are seeing it holding up pretty well.
Umesh G. Revankar
So Kunal, that particular statement was given by one of the association head and that has been just no represented there. So it has nothing to do with the general utilization of vehicles. So when we look at individual operator and the operation economics across the country, it has been quite good. Utilization levels are very good and there is not much of complaints. There may be some temporary in certain geography that should not become that the all-India numbers as far as the utilization is concerned.
And as I was telling you, since there are less entrants, the existing players have a good play. In the sense their economics are better, operational economics are better and they have good demand. You would not see probably you just travel on-highway, you will never see idling of a vehicle anywhere. In the past, whenever economy slowdown was there, you could see hundreds of vehicle being parked, waiting for something and that kind of a scenario. But today you will never see any of the highway, busy highway you travel, you will never see. So I’m happy to take you to some of these busy highways so that you can watch by yourself.
Kunal Shah
Yeah, absolutely. But any segment wherein you would be worried about in terms of either where the operations are or maybe particularly with respect to our customer segment, any segments, be it in terms of first-time users, small fleet operators or even in terms of with respect to utilization on construction side, anything that would worry you?
Umesh G. Revankar
So I would say right now when you — when I look at some of what we call-in the August or September when there were heavy rains, the infrastructure activity and mining activity came to some kind of a slowdown. And that is a every year phenomenon. It’s not that it happens only in this year. Every year when there are heavy rails or extended heavy rails, there is a slowdown. And that time, if you ask anyone, they’ll say, I have no business because that particular sector or segment is — always behaves that way. So — but if you ask now, November or December, you will see that utilization levels are very-high and mining today is getting a renewed what you call demand. Many of the larger conglomerates like JSW or Tata, everyone are in the full swing. If you see the mining and both iron, aluminum and coal. So I don’t really see anywhere that kind of a situation where less utilization or less payment and everywhere things are becoming much better. And also after Supreme Court giving a verdict on the state government’s stake in the lease — leasing of mines, even state government has also become active now. In the past, they were dormant because the — since it is the court, they were not really taking a lot of interest. Today, the — both central and state are working on activating the mines. So I think they are going ahead things will become much better.
Kunal Shah
And you would be confident on the overall credit cost guidance.
Umesh G. Revankar
Yes, yes, credit cost has been all-time best, Kunal. We are less than 2% consistently for two quarters. Sure. And lastly, in terms of MSME, so on a growing book, again, I think last-time also the Chakarvati sir highlighted that obviously it’s being rolled-out across most of the branches and that is leading to the growth. And most of the deployment is also towards the service and the trading industry. So that’s not posing a lot of worry. But when we still look at it on a growing book of more than 50-odd percent GS2 plus GS3 is almost 12%. So if we look at the lag book, then it seems to be slightly higher. So any concerns out there on the MSME side or maybe the unsecured business side.
Y.S. Chakravarti
See, basically here in MSME, it is I — we’ve been seeing it for the last 15, 20 years that the same pattern there. What happens is your Stage 2, Stage 1 and 2, there should be — it will be higher slippages, but when it comes to Stage 3, it gets correct — gets corrected. So I mean, it’s — I think it’s par for the cost. There is nothing extraordinary that is moved this quarter or this year. So not really a big worry there, Kunal. Because if you look at the gross Stage 3, it’s almost — normally — normally it’s typically under control, not much of a movement there. So, and this is how do you put this? I think it’s the segment that we operate in, the segment that we lend to, the slippages from Stage 1, Stage 2 is normal. At the Stage 3 level is where I think our team becomes active and the customer also becomes active in trying to no payback. Yeah. So that’s not a — we have come to accept this as normal or over the years.
Kunal Shah
Sure. Okay. Okay. And lastly, just data points on PD LGD and disbursement breakup
S. Sunder
Yeah the Stage 1 PD was 9.05 as against 9.06 in the previous quarter. Stage-2 PD was 20.74 as against 20.98 and the LGD was 38.75 as against 38.59% and the disbursements you can be in touch with Sanjay, he will help you out.
Kunal Shah
Okay. Sure. Okay. Thank you.
Operator
Thank you. The next question comes from the line of Saurab Kumar from JPMorgan. Please go-ahead.
Saurabh Kumar
Sir, just one question. On your opex, should we assume this level of cost to asset to remain or is there scope for operating leverage in the next year? Thank you.
Umesh G. Revankar
We expect it to moderate going-forward.
Saurabh Kumar
Like just in terms of like Y-o-Y, should it be higher than AUM growth or lower?
Umesh G. Revankar
No, we would see, we will be able to maintain at around 28% because always have given a forward guidance between 27% to 28%. So maybe this year it will be around 28%. Going-forward, it will moderate further.
Saurabh Kumar
So this cost-income, basically, if there is a rate cut you could basically benefit a bit from NII on your margins. So I just want to know just in terms of absolute cost growth, how should we think about it? Is it since it’s linked to how your assets grow or should it be slightly lower?
S. Sunder
Like that’s the question. It will be slightly lower than the other growth.
Saurabh Kumar
Okay. All right. Thank you.
Operator
Thank you. The next question comes from Rajeev Mehta from YES Securities. Please go-ahead.
Rajiv Mehta
Yeah, hi, good evening. Sir, this degrowth in gold loan book, while you had explained something before, but is it also related to any change of practices on-the-ground in the business? I mean, because in the very same quarter, the regulator had also highlighted a few things for the industry which warranted correction. So is this de-growth related to any operational adjustment being done in the model or in the practices?
Y.S. Chakravarti
Nothing to do with the operational thing. Basically, our traditionally major lot of our portfolio is also you know referral business and our customers so and festival season typically we have — it’s — it happens in our — particularly our portfolio, festival season, people redeem and then come back and pledge it later. So we think we’ll see this pickup. That’s why I said we’ll see it picking-up in the 4th-quarter. Okay. And sir, operationally there is nothing, no changes.
Rajiv Mehta
Got it, got it. And sir, on the personal loans, we were — the book was degrowing in the preceding 3/4 and in this quarter again there is some growth while also in this quarter you have seen some material increase in Stage 2 also. So is there any change of growth approach here and what is making us comfortable to grow it again?
Y.S. Chakravarti
See, as I said initially itself that our — the delinquencies have nothing to do with this slowing down. We are okay with the — I mean, it’s improving over a period of time. So 1/4 plus — 10 15 basis-points plus or minus is not something that really worries us. The reason why we want — I mean, since the lot of noise in the market, we went slow, again, as I also explained earlier also last call also that 95% of this book is from our customers. So we — our existing customers, we have — and we continue to grow it. It’s just that there is so much of noise, we slowed down the business for a couple of quarters. But then there is also a lot of demand and we found that we also realized that when we are not giving the money, the customer is going somewhere else and taking the money and we are losing the we again initiated this exercise of reaching out to the customer, we will continue to grow this book.
Rajiv Mehta
Okay. Okay. And just one clarification. When I look at the employee cost growth, it is growing much higher than the employee count. So you have a large business team. So is it because of — because of good AUM growth, higher amount of variables and incentives are being distributed or is there any underlying change in the incentive structure, which has been raised and which is why the actual employee cost is going way ahead of employee number.
Y.S. Chakravarti
The disbursement also higher compared to last quarter to this quarter, right. So obviously the variable pay also goes up. Plus we added about 1,600 people plus basically incentives also a lot of incentives were the reason why it has gone up.
Rajiv Mehta
Understood, understood. Thank you and that’s thank you.
Operator
The next question comes from Abhishek Jain from AlfAccurate. Please go-ahead.
Abhishek Jain
Thanks for the opportunity and congrats for a strong set of numbers. Sir, as you mentioned that freight utilization is high, whose vehicle prices are also firm, which is for the new CV demand, but MSCV demand remains sluggish in past nine months. So how do you see recovery in the 4th-quarter and FY ’26.
Umesh G. Revankar
See, M&SV number, it has been more flattish. You’re right, it’s mainly because as I was explaining you, the infra spent by the government had slowed down. One is because of the election, then there’s heavy rainfall. And again there were the state-level election in the month of October, November. This together had slowed down overall the government spend. But if you look at December and November, December, it has picked-up. There are new projects have been activated. And I believe the last quarter now is going to be a bigger quarter and there’ll be demand coming back. So basically all these infra projects consume a lot of new vehicle because of steel and cement movement and also the earth work that goes on. So I think this quarter you can see a good demand for heavy vehicle and that should continue if the government spend continue over the period.
Abhishek Jain
So any benefit do you see due to the scrappage policy that will be implemented by the government in the coming quarter?
Umesh G. Revankar
No scrappage policy. Government has already announced a policy, which is voluntary scrappage, not compulsory scrappage. So there will not be any change in the policy. I don’t think that has anything to do with the sales of vehicles.
Abhishek Jain
Okay, sir. And my last question on the passenger vehicle side that in this quarter, we have seen a very strong numbers in the retail side and that’s why inventory has come down. So how do you see growth in the passenger vehicle in the coming — upcoming quarter or in FY ’26?
Umesh G. Revankar
The passenger vehicle will continue to grow. There is a unmet demand, I should say, mainly because the government spend, especially state government said undertaking spend on the public transportation is coming down. Last six to seven years, you are not — you would not have noticed any new buzzes in the — on the road. So that is really creating the demand by the private players. So private players, both for their personal mobility and also for public transportation is going up. Especially the demand is coming from the market and also slowly moving into rural markets. So I feel the passenger vehicle growth will continue to be there for next maybe three to four years because of the same.
Abhishek Jain
And what is your strategy to gain the market-share in the passenger vehicle financing taggling?
Umesh G. Revankar
See, we are gaining the market-share. We are a very small player when it comes to passenger vehicle financing and the market is very, very large. So I think we’ll continue to grow. We are growing the year-on-year by more than 20% and that will continue to remain for a long-time.
Abhishek Jain
Thank you, sir. That’s all my side.
Operator
Thank you. The next question comes from Preeti RS from UTI AMC. Please go-ahead.
Preeti RS
Hi, good evening. So can you explain the difference in trends that you’re observing in used vehicles, commercial vehicles and new CV and what could be the possible reasons? One on asset quality and two on-demand.
Umesh G. Revankar
Say the used vehicle numbers have not really gone up mainly because there are not enough supply of used vehicle in the transaction in the market. The number of vehicles sold were less from 2020 onwards and one year prior to COVID, then COVID came. So there are enough — not enough vehicles in the market. And therefore, the market is very tight and retail prices are very-high. So number of transactions are limited. Therefore, actually, our growth is mainly because of higher-ticket size and that has helped us to grow. But going-forward, as last two years vehicle sales have been good, I believe next four, five years, there will be a much higher transaction on used vehicle, that will help us to keep growing. So I believe next three to five years will be very good for us in used vehicle financing because number of transaction will go up significantly. And with addition, the new vehicle sales also will go up if the market — if the GDP growth continues to remain robust.
Preeti RS
Got it. And on the asset quality trend, sir?
Umesh G. Revankar
Asset quality has been all-time good as mainly because values being very strong. We don’t really have much loss on-sale of any repossessed asset and therefore, it has been good. So I think that will continue to remain strong. We are below 2% that has been the long-term average for us for more than 10 years and I think that is a good signal for us.
Preeti RS
So my question was in the short-to-medium term, are you seeing stress in used vehicles lower than that of new vehicles. What that used vehicle?
Umesh G. Revankar
No, no. See that I don’t sell lesser more. It all depends on the application. New used vehicles are mostly used for secondary application, last mile reach and new vehicles are used for long-distance transportation. Both are linked to each other. There may not be a big difference between two.
Preeti RS
Understood. Thank you both. Thank you.
Operator
Thank you. The next question comes from Suraj Das from Sundaram Mutual Fund. Please go-ahead.
Suraj Das
Yeah, hi, sir. Thanks for the opportunity. I have joined a bit late, so I don’t know if the question has been asked already or not, so pardon me for that thing. Sir, the question is on the two-wheeler side. So the growth has been pretty robust and even this quarter on a Q-o-Q basis, the growth has been very strong at 18%. So I mean, what is the outlook here? Because if I see, let us say, the bank are the two-wheeler segments citing asset quality problems and all that thing, but your growth has been very robust, while there has been some slight uptick in the Q2 numbers in terms of asset quality also. But how do you see that this growth, let us say, shaping up in FY ’26 over the next two to 3/4? So that would be my first question. And then I have a follow-up.
Y.S. Chakravarti
So on the two-wheelers, we target is if the market is growing at 5%, typically what we target is double the market growth plus 2% minimum. So if it’s growing at 5%, we look at 12% growth because typically what happens is it is still — the finance versus cash is still a 50-50. Maybe in a couple of states, it is 70-30 which is basically 70% finance and 30% cash, but rest of the country it is 50-50. So the scope is there because the cash customers can become your customers. So we actually aspire for double-digit growth one.
So as far as the asset is concerned, see, it’s the typical festival season may the small blips are we are used to the small blips and then they become normal in the following quarters. So that is not really a concern. As for other players coming in, going out, if you look at the evolution of two-wheeler finance in this country, there are a lot of players who have come, started business, went out, again trying to come back after a few years. It’s quite normal in the two-wheeler business. The players who come in and gone out.
And when people see other point is low — I mean, the small-ticket businesses are basically it is a collection business and not a lending business. So unless you have your strategies, a very strong collection mechanism and teams in-place, it is difficult over a period of long period of time to sustain. I think what we have been able to do is get it, I think got it right. So that’s the reason why I think we are there for the last 25 years in this business and continue to be in the business and lead the business.
Suraj Das
Sure, sir. Got it. And sir, I mean, is this already, I know our repeat customer whom we are lending to and hence probably we are more comfortable or these are customers, let us say new to company type of customer which we are acquiring in this segment.
Y.S. Chakravarti
Typical two-wheeler replacement is five years, minimum. I mean particularly, we fund most of the most of our bikes are commuter bikes and what we fund too is basically a lot of small businessmen, self-employed people so repeat customers would not much, probably about 5% would be repeat customers.
Suraj Das
Okay. So rest of the 95% customers have new customers, new to CRAM customers.
Y.S. Chakravarti
New to CRAM.
Suraj Das
Okay. And sir, I mean, what kind of civil score they would typically have?
Y.S. Chakravarti
See, typically I’ll put it this way. Civil score, I’m not a big fan of score but so we start at 550 minimum. Most of the minimum. And we start at 550 to just give you an indication, 60% of my customers have minus — I mean this is no longer there, but earlier it used to be minus 1, which means they do not have adequate credit history. That is basically new to credit.
Suraj Das
Okay. Okay. Okay, sure. Got it. And the last question, sir, would be on the, let’s say, overall provisioning side, so while, I mean there has been slight uptick, but still we are maintaining something like 2%, 2% type of credit cost. But if I see the overall coverage, ECL coverage on Stage 1, 2, 3, that is as a percentage is still increasing. So do you think this number will continue to inch up and asset quality performance will be overall stable or at some point of time, maybe you would rationalize this number to, let us say, earlier levels because some of your Stage 1 and 2 and 3 coverage ratios are probably would be highest in the last many quarters.
S. Sunder
Okay. Yeah. On the Stage 3 processing, it will be more or less in the similar line. And coming to the Stage 1 and 2, in a yearly, we run that last five years data. So the current year’s data gets added up. Based on that, whatever is the PD LGD, then we start applying next quarter or not. So we need to wait-and-see.
Suraj Das
Sure. And this is PDLG reset, I mean when does it happen, I mean every quarter or…
S. Sunder
Once in a year? In March quarter, we do that.
Suraj Das
Okay, sure. Understood. Thank you, sir for answering all my questions.
Operator
Thank you. The next question comes from Sharat Dua from Amundi. Please go-ahead.
Sharat Dua
Thank you for the time. Can I just ask you back to the NIM, the net interest margin and just clarify that you — given the seasonality, you would expect that NIM to still be weaker in Q4 than we’ve seen in the 3rd-quarter, even if you use up some of the liquidity.
Umesh G. Revankar
No, see, as we said, the higher liquidity which is built-up will get utilized. So NIM will improve.
Sharat Dua
Even with the seasonality of new vehicle sales being greater in the 4th-quarter.
Umesh G. Revankar
Yeah, there will be more new vehicle and therefore, there will be some mix. But how that mix will turn out, we are not very clear in the beginning of the quarter because new vehicle demand comes only in the March. So that will have some impact, but it will not have — it will have more impact in the first-quarter of next year, not in the 4th-quarter because most of these new vehicles get booked in the end-of-quarter. So it should not have major impact on the 4th-quarter — in the 4th-quarter.
Sharat Dua
Okay. And just on the big-picture, I mean, obviously, you’ve gone into some detail about what you’re seeing in different product lines and asset quality-wise. A lot of other players in the financial space are obviously slowing down given the cycle that they are seeing and the experiences they’re getting right now. So the message is that you will not be doing that. Is that clear? You expect to continue to grow at sort of mid-teen level the next financial year at least?
Umesh G. Revankar
Yes, currently, you am quite positive on the same, because there is still expectation that Indian GDP on an average will grow more than 6.5%. If that is the case, definitely will be growing at mid-teen level.
Sharat Dua
Okay, great. Thank you. And last one maybe just on the staff numbers. So you mentioned you’ve hired like 5,000 or so this year so-far. So will we still be seeing significant increases in employee numbers?
Umesh G. Revankar
No, we are trying to have some freeze on this. We’ll be reworking the productivity levels and trying to focus on productivity. And also our digital app is helping us to some extent in giving some of the customer services across digital platform. As and when more adoption of digital platform by the customers, we should be able to really slow-down on a hiring okay.
Sharat Dua
Thank you. Thank you.
Operator
Thank you. Ladies and gentlemen, we would take that as a last question for today. I now hand the conference over to the management for closing comments.
Umesh G. Revankar
Thank you all. It is a good set of our numbers and results, I believe under the current circumstances. And we look-forward for the busiest quarter in the next quarter typically in India, this last quarter being again to March is a large quarter and typically all the numbers improve. So we would like to meet you again with good set of numbers next quarter. Thank you very much. Thank you. Thank you.
Operator
Thank you. On behalf of Shriram Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.