Shriram Finance Limited (NSE: SHRIRAMFIN) Q4 2025 Earnings Call dated Apr. 25, 2025
Corporate Participants:
Umesh Govind Revankar — Executive Vice Chairman
Y S Chakravarti — Managing Director and Chief Financial Officer
Parag Sharma — Managing Director & Chief Financial Officer
S. Sunder — Joint Managing Director
Analysts:
Chintan Joshi — Analyst
Raghav Garg — Analyst
Zhixuan Gao — Analyst
Rajiv Mehta — Analyst
Piran Engineer — Analyst
Shweta Daptardar — Analyst
Shreepal Doshi — Analyst
Nidhesh Jain — Analyst
Kunal Shah — Analyst
Shailesh Kanani — Analyst
Unidentified Participant
Harshit Toshniwal — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Shriram Finance Limited Q4 FY ’25 Earnings Conference Call. [Operator Instructions]
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 Govind Revankar — Executive Vice Chairman
Yeah, thank you. Good evening, friends from India and Asia, and warm welcome to all of you. Greetings to those who have joined the call from the western part of the world. To present our Q4 FY ’25 earning call today, I have with me Managing Director and CEO, Mr. Chakravarti; Managing Director and CFO, Parag Sharma; S Sunder, Joint Managing Director; Mr. Sanjay Kumar Mundra, our Investor Relations Head.
It has been a good fourth quarter for the Shriram Finance under the current circumstances. Let me first go through the broad economic indicators that impact our business directly or indirectly. India’s GDP growth grew by 6.2% in October, December quarter. This mass improvement from the previous quarter, which was at 5.6%. The government has revised its forecast for the full fiscal year ’25 to 6.5%.
On inflation, the inflation has been declining marginally. In the month of March, it was 3.34%. It has come down from 3.61% in February. India’s annual wholesale inflation slowed to 2.05% in March, down from 2.38%, giving a broad indication or indicators for the inflation. And coupled with that, RBI policy has been positive. The RBI slashed the repo rate by 25 basis point to 6% on April 9, 2025, with this Monetary Policy Committee voting anonymously to reduce the policy rate in the bid to support the growth. This is the second time in a row MPC has cut the repo rate. We believe that this will help in reducing the borrowing cost over the period and the transmission should happen in three to six months.
The rural economy in monsoon, our constituency is mostly in the rural area and despite the global economic challenge and fluctuation in the industrial growth, India’s agricultural sector emerged as a key driver of stability in ’24-’25. According to the advanced estimate of GDP for 2025, agriculture and allied activities recorded a 3.8% growth in real gross value added, a notable improvement from 1.4% in the previous year, ’23-’24. This augurs well for us going forward also because the IMD prediction and Skymet prediction for the monsoon have been above average for this in the crop year and hopefully that will help the credit demand from the rural area to go up further and also help us in the credit quality. The GST collection has been growing at 7.3% year-on-year at INR1.77 lakh crore. Hopefully, we should see revival in government spend on the infrastructure activities.
Coming to the overall auto industry and OEM sales side: Commercial vehicle, the M&HCV, have grown last year at 3.9% for Q4, which stands at 1.15 lakh unit against 1.11 unit in Q4 ’24. And for the full year, it remained flat at 3.74% against the same unit in the last financial year. LCV recorded a flat sale for the Q4, which stands at 1.58 lakh unit versus same number in the previous year and, for the full year, it declined by 2% to 5.83 lakh unit against 5.95 lakh unit sold in the year ’23-’24. The total CV sales has declined for the full year by 1.2%, which stands at 9.57 lakh unit against 9.6 lakh unit sold in the ’23-’24.
Passenger vehicle has recorded a growth of 2.4%, which stands at 11.63 lakh unit against 11.36 lakh unit in Q4 ’24. And for the full year, it increased by 2% to 43.02 lakhs against 42.19 lakh unit sold in the previous year. Two wheeler has recorded a growth of 1.4% for the quarter with 45.68 lakh unit in Q4 ’25 against 45.04 lakh unit sold in the previous quarter and for the full year it has increased by 9.1% to 196.07 lakh unit against 179.74 lakh unit sold in the previous year. Three-wheeler has recorded a growth of 7.7% with 1.7 lakh unit against 1.66. And for the full year, it increased by 6.7% to 7.41 lakh unit against 6.95. Tractors recorded a decline in the quarter with 2.33 lakh unit against 2.44 lakh unit in the Q4 and for the full year it declined marginally by 1%, 8.83 lakh unit against 8.91 lakh unit. Construction equipment recorded a decline of 8.4% with 34,876 units against 38,079 units sold in Q4 ’24 and for the full year it remained flat with 1.24 lakh unit against 1.23 lakh unit sold the previous year.
The Board of Directors have recommended a final dividend of INR3 per equity share of nominal face value of INR2 each fully paid up, 150%, for the financial year ’24-’25. With this, total dividend for the financial year ’24-’25 will be INR9.9 per share of INR2 each after adjusting for the split.
Now, I shall ask my colleague, Mr. Chakravarti, to take you through operational performance. Mr. Chakravarti.
Y S Chakravarti — Managing Director and Chief Financial Officer
Thank you. Good evening, ladies and gentlemen. I welcome you all to our Q4 FY ’25 earnings call. And I hope that you have perused the results and the related investor presentation, which is posted on the website of the stock exchanges. We have registered disbursement growth of 14.04% year-on-year. Our disbursements for the quarter aggregated to INR44,847.93 crores versus INR39,326.86 crores in Q4 FY ’24.
Our AUM has registered a growth of 17.05% over Q4 FY ’24 and of 3.43% sequentially. Our AUM stood at INR263,190.27 crores as against INR224,861.98 crores a year ago and INR254,469.69 crores in Q3 FY ’25. Our net interest income for the quarter registered a growth of 13.4% year-on-year. We earned a net interest income of INR6,051.19 crores in Q4 FY ’25 this year as compared to INR5,336.06 crores in Q4 FY ’24. Our net interest margin was 8.25% as against 9.02% in Q4 FY ’24 and 8.48% in Q3 FY ’25. The decline in the NIM is mainly attributed to the excess liquidity maintained on the balance sheet, which will get rectified in the coming quarters.
Our profit after tax increased by 9.95% and stands at INR2,139.39 crores as against INR1,945.87 crores in the same period of the previous year. Our earnings per share increased by 9.85% and stands at INR11.38 as against INR10.36 recorded in the same period of the previous year. Our asset quality, gross stage 3 in Q4 FY ’25 stood at 4.55% and net stage 3 at 2.64%, as against 5.45% gross and 2.7% net in Q4 FY ’24 and 5.38% gross and 2.68% net in Q3 FY ’25. The reduction in GNPA is primarily on account of technical write-off of INR2,345.10 crore assets, which were fully provided for earlier. Our credit cost for Q4 FY ’25 stood at 2.07% as against 2.06% for Q4 FY ’24 and 1.85% for Q3 FY ’25. Our cost-to-income ratio was 27.65% in Q4 FY ’25 as against 26.61% recorded in Q4 FY ’24. Our cost-to-income ratio in Q3 FY ’25 was 28.59%.
I shall now request our Managing Director and CFO, Mr. Parag Sharma, to inform you about our resource raising activities, after which our Joint Managing Director, Mr. Sunder, will brief you about accounting and regulatory aspects. Thank you.
Parag Sharma — Managing Director & Chief Financial Officer
Hello, everyone. On the liability side, total debt outstanding as of March ’25 was INR234,459 crores, which was up from INR185,845 crores as of March ’24. This liabilities are broken into securitization, which is close to 16% at INR38,000 crores. The domestic capital market at 17%, which is close to INR40,800 crores. Retail deposit, which is close to 23% at INR56,000 crores. The term loans from bank and institution stands at 21%. And the external commercial borrowing, which is in bond format at 6.77% and loan at 14%. We also have off-balance sheet DA transaction of INR3,200 crores. The DA transaction number was almost similar in the previous year.
The cost of liability as of March is 8.95%, which is almost similar to the previous quarter. As of March ’24, it was 9.01%, marginal reduction, but what we are seeing is the incremental cost of borrowing is coming down. For the December quarter, it was 8.92% and, for the March quarter, it is 8.86%. So that will translate into some cost reduction.
As mentioned earlier, there is sufficient excess liquidity what we are carrying as of March. This was the case as of December also, where we had close to around INR27,000 crores of liquidity, which is now close to around INR31,000 crore, largely on account of two large transactions of external commercial borrowing, one we did in December end, which was INR1.28 billion, and INR800 million what we did in the March quarter.
These are long-term facilities what we have taken from development institution, one and other one is from export credit agency. So this transaction happens once in a while, not a regular feature. And that has resulted in excess liquidity. The quantum in rupee terms what we have borrowed in March quarter is INR7,716 crores. That is the reason why the liquidity continues to be slightly higher. We always guide around three months of liability repayment to be in our liquid assets, but it is now close to around six months. We do expect this will come down in next two quarters to the earlier level of three months of liability repayment.
The overall leverage stands at 4.16, which was as of March ’24 at 3.83. So not — a marginal increase, but not very significant. And the ALM buckets, all buckets continue to be positive with up to six months, we will be a surplus of close to around INR48,000 crores, which was a case in December quarter also. And total fund mobilized for this quarter, March quarter, other than the ECBs, is slightly lower compared to December quarter because of excess liquidity what we are carrying.
With this, I hand it over to Sunder for…
S. Sunder — Joint Managing Director
Thank you, Parag. As you are aware that on the stage 3 provisioning, we have been carrying a coverage of more than 50% for the past five, six years. The company deliberated on this at length and we decided to technically write off cases which were having a provision of 100%. The written-off amount, amounting to INR2,345 crores, was already provided in the books of account and even after this write-off, there is no impact on the P&L per se.
But there is a reduction in the gross NPA, gross stage 3, which was 5.38% in the previous quarter. It has come down to 4.55% in the current quarter. And the net stage 3, which was around 2.68% in the previous quarter, it is now currently at 2.64%. This does not have any impact on the P&L but the gross NPA is brought down correspondingly. And as far as the stage 1 PD is concerned for March quarter, it is 8.79% as against December number of 9.05% and stage 2 PD was 20.69% as on March as against 20.74% in the December quarter. The LGD was 39.05% as on March as against 38.75% in the previous quarter.
Giving a breakup of the disbursements done product-wise, Mr. Chakravarti anyway spoke about the total disbursement during the quarter of INR44,847 crores. The product wise breakup is commercial vehicles contributed to INR16,777 crores, passenger vehicles INR8,256 crores, construction equipment INR2,180 crores, farm equipment INR1,060 crores, MSME INR7,660 crores, two wheeler INR2,919 crores, gold INR3,105 crores and personal loan INR2,890 crores, totaling to INR44,848 crores.
I would request the moderator to open the lines for — we’ll be happy to take the questions. Thank you.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question comes from the line of Chintan Joshi from Autonomous. Please go ahead.
Chintan Joshi
Hi. Thank you. Can I start with your provisioning cost this quarter, slightly higher than consensus was expecting? Could you tell us how do you see the asset quality trends playing out over the next year? And what kind of seasonal patterns do you expect next year? If you could give us some comprehensive comments on that asset quality, that would be helpful. And then I’ve got one more.
Umesh Govind Revankar
Yeah, thank you. See, basically, Chintan, the last two quarters, you would have seen or you would have heard that Indian economy is slowing down a little and had certain pockets of stress building up. Even though for us, most of our loans are secured assets. We did not have any of such impact. There were certain geographies, remote areas, where it had built up. So that’s a temporary one. And I believe it is picked out by this time and we don’t really see because the rural economy is doing well. And back-to-back, if you have observed that, even the IMD prediction for this in half year — this year also, rains are likely to be above normal. So we expect the rural of stress whatever building will get addressed because of a better economic situation in the rural area.
Urban areas have slowed down a little because government spend on infrastructure has slowed down and therefore not creating enough opportunity for credit growth in the urban. So overall, we feel that the credit cost of, what, 2.07% in the last quarter and the overall for the full year, it is 1.91% is reasonably good and well-managed. I don’t really see any further increased stress or increased freight cost for the next financial year because the rural is playing out well. And we expect the infra spend by government to come back and even the urban credit demand and the overall credit situation to improve further.
Chintan Joshi
Okay. And if the economic slowdown continues to be — if economic activity continues to be weak, do you think there could be some impact on your operations? Or are you making this assumption that the rural economy being better will buffer you against any urban slowdown?
Umesh Govind Revankar
Yeah, rural economy will definitely buffer because most of our operations is in the rural. If you look at our branch network, nearly 85% of our branch network is in semi-urban and rural, which has some kind of what you call linking to the rural and agricultural economy. So we are very confident that we should not have broader challenges.
Chintan Joshi
Okay. And my second question then is on the NII. Could you help us understand how do you take the financial decision between direct assignment and keeping the loans on balance sheet? If I think from an investor point of view, they obviously value the NII stream better than the trading income from direct assignment, even though you show it in the NII in the management presentations. From an investor perspective, the NII is more valuable. So I was wondering if you could kind of this — this quarter you did a lot more direct assignment. What was the financial rationale for doing that? If you could help us understand that.
Parag Sharma
No, no, we have not done any large direct assignment transaction. The outstanding I was mentioning as of March ’24 was INR3,200 crores and that is a similar number as of this March ’25 also. So no large transaction of DA done during the year itself.
Chintan Joshi
Okay. I mean, this quarter you have a meaningfully better higher income, INR1,694 million. So I was just wondering how you take these decisions. What is the thought process behind it?
S. Sunder
No, no, the rationale behind doing securitization or direct assignment is nothing to do with the NII. It is more of a mobilization plan that we carry forward. As regards to your question of that INR1,690 million, whatever number you mentioned, so that I would suggest we provide a reconciliation to you maybe through Mr. Mundra after this call.
Chintan Joshi
Okay. Thank you.
Operator
Thank you. The next question comes from the line of Raghav Garg from Ambit Capital. Please go ahead.
Raghav Garg
Hi, good evening, and thanks for the opportunity. My first question is on the CV portfolio growth, which has come down to about 10% to 11%. In previous few quarters, it was around 13%, 14%. What is the reason for that?
Umesh Govind Revankar
If you look at the CV sales, you will see that there is — the sale has been flat year-on-year this year. So overall expansion of the CV segment was not there this year because infra spend by the government was much lesser than we anticipated. That’s one reason. And second, there are not enough transactions in the used vehicle market because number of vehicles available for transactions are less, as last four years the sales have been much lower, right? From 2019 to ’21, the CV sales have been less.
So what we anticipate is, since the sales have improved from ’22 onwards, the number of used vehicle transaction will go up in the subsequent year, that is ’26, ’27, ’28. So our focus being used vehicle financing, we expect that to grow much faster. Whatever the growth what you are seeing now is because of the ticket size being higher as the retail values of each of the asset class have gone up. So we expect the growth to come in the subsequent year, next three years. But right now, we feel that 10% growth is quite good considering the lack of transactions or lesser number of transactions, as number of vehicles in the market is much lower.
Raghav Garg
Sir, for FY ’26, would you say that this number will be around 10%, 10.5% or it could be higher, say 12%, 13%, or maybe 14%?
Umesh Govind Revankar
We are looking at 12% to 15% growth in the next financial year.
Raghav Garg
And on the MSME piece, what kind of growth do you expect that this one piece which has grown pretty strongly for you last few quarters, even this time? Do you expect that this growth rate would continue and grow at 30% by FY ’25?
Y S Chakravarti
No, no, we are looking — my guidance would be — sorry, this is Chakravarti here. I think our guidance on MSME would be between 18% 20% of growth for the financial year.
Umesh Govind Revankar
See, this 30% growth was mainly due to lower base. And also, we have activated more number of branches post-merger for MSME. So it has given a growth of around 30% in the last year. For next financial year, it will be moderated to around 20% plus.
Raghav Garg
And sir, last question, I understand there have been slippages in this quarter, even the gross stage 2 number has increased by about 20 basis points. But I know you partly answered that this is where the credit cost is likely to peak, but any expectation that the credit cost at this level could remain at this level or do you think that it can come down substantially?
Umesh Govind Revankar
We are working for credit cost to come down because we feel that the rural economy doing well should help us to bring down the credit cost. So we always give a guidance that we will try to maintain around 2% and hopefully, we should be able to bring it below 2% of credit cost.
Raghav Garg
Okay. And just sorry, last question, you are still expecting other guidance on growth would still be about 15%, right? 15% or higher for ’26?
Umesh Govind Revankar
Yeah.
Raghav Garg
Okay. Thanks.
Operator
Thank you. The next question comes from the line of Zhixuan Gao from Schonfeld. Please go ahead.
Zhixuan Gao
Thank you for the opportunity. Can I have the total write-off number for the fourth quarter and the third quarter as well, please, including your list [Phonetic] of the total write-off this quarter — fourth quarter and the third quarter?
Y S Chakravarti
Hold on for a second. Yeah, we’ll just give you the number.
S. Sunder
Yeah, the write-off for the current quarter is INR501 crore — sorry, INR3,162 crores and the write-back of the provision was INR1,603 crores. The total provisions in credit cost — credit cost number is INR1,559 crores for the current quarter. For the previous quarter, the write-off number was INR501 crores and the provision was INR825 crores, total — totaling to INR1,326 crores hit to the P&L.
Zhixuan Gao
Got it. So the fourth quarter write-off was INR3,164 crores? You were saying, sorry…
S. Sunder
INR3,162 crores.
Zhixuan Gao
INR3,162 crores. Okay. And it seems that the net slippages were increasing quarter-on-quarter, right? So do you mind sharing with us what segment is largely causing this net slippage increase?
S. Sunder
Okay, so what I would suggest is we will give these numbers to Mr. Mundra. He will be in touch with you. We will provide the numbers.
Zhixuan Gao
Which segment is driving the Q-on-Q increase in the slippages?
S. Sunder
We have the numbers. So Mr. Sanjay will send across to you, reach out to you and then provide the numbers.
Zhixuan Gao
Got it. Thank you.
S. Sunder
Thank you.
Operator
Thank you. The next question comes from the line of Rajiv Mehta from YES Securities. Please go ahead.
Rajiv Mehta
Yeah, Hi. Good evening. Thank you for taking my questions. Firstly, what triggered this technical write-off division of INR24 billion? Is it in some way related to your PD and LGD reset annually, which you do in March quarter? And also, can you help us with the composition of this writeoff so that we can look at the growth at the product level in the right context?
S. Sunder
This is INR2,345 crores was nothing to do with the PD and LGD which we have assessed for the current quarter. It is mainly a decision taken based on the coverage being continued for the last five to six years just before the COVID we started having a coverage of more than 50%. And we used to continue with that. To achieve that, we used to maintain 100% provision on certain assets and those assets we technically wrote off in the current quarter after deliberation at the board and that was the basis on the background for technically writing off those assets. In the investor update itself, the breakup of INR2,345 crores product-wise has been given.
Rajiv Mehta
Okay. Now, see, we have also seen some increase or I would say a material increase in the stage 2 for passenger vehicles and MSME segments in 4Q. But you also spoke about the stress peaking now. But how do you contain the forward flow of these accounts because see Q1 is typically weak in terms of collections and even recoveries of NPA. Hence, can we see an increase in NPA in Q1 or will we be able to contain the flow of these accounts which are mistakes too?
Y S Chakravarti
We are very certain that you will not see much of a forward flow in the Q1 of these accounts into stage 3. See the kind of a segment of customers that we deal with we have been seeing this for a period of last few years that they keep moving between stage 1 and stage 2. We do not see any stress points as of today.
Rajiv Mehta
Okay. And just last two…
Y S Chakravarti
The stress point is basically, the worry would be will they slip into stage 3, but that I will be assure that the feedback that we got from the ground is that, that will not happen. Most of this — some of this flow back or stay where they are.
Rajiv Mehta
Okay. And this gold loan portfolio has been continuously shrinking. I mean, Q4 had a benefit of much higher gold prices as well. I mean, previous quarter, I think we spoke about higher pledge releases, but in Q4, we have seen further shrinkage in the portfolio despite much higher gold prices and tailwinds from it. So can you explain what is happening in the gold loan portfolio despite the fact that we are adding distribution there as well?
Y S Chakravarti
Not only distribution, in fact disbursements also were up Q-on-Q, quarter-on-quarter, but the redemptions have outpaced the disbursement. So that is the reason why you see a drop in the AUM. But we think we are on a growing curve in terms of disbursement and this year you will see an addition to the AUM. To be honest with you, there is nothing specific. It’s more of a pressure on redemption.
Rajiv Mehta
Okay. And on the business team count number, it has been flattish or it has been growing very slowly in the last two, three quarters. So, I mean, is it the productivity coming through or are there some challenges related to attrition?
Y S Chakravarti
No. Attrition has been steady. It is the same. It has not increased or I would say it has also not decreased. It is basically a reason of better productivity.
Rajiv Mehta
Thank you and best of luck, sir.
Y S Chakravarti
Thank you.
Operator
Thank you. The next question comes from the line of Piran Engineer from CLSA. Please go ahead. Piran, if you can please unmute yourself and ask your question.
Piran Engineer
Am I audible, operator?
Operator
Yes.
Piran Engineer
Hello. Yeah, okay. Yeah, thanks for taking my question and congrats on the quarter. Firstly, just a clarification on one of the previous questions. You had mentioned 12% to 15% growth for some segment. Was that used commercial vehicles? Like 12% to 15% growth outlook?
Umesh Govind Revankar
Yes, it is overall for CV, commercial vehicles. Passenger vehicle, we are growing at 20% and we are confident of growing at 20%. Commercial vehicle will be between 12% to 15%. MSME will be around 20%, or 20% plus, I can say. And other segments also will be growing at around 20%. The CV will be growing gradually.
Piran Engineer
But sir, my question here then is, if the new CV sales are weak, will that impact used CV sales because typically people exchange their trucks? So they will buy a new truck and they will sell that old truck. But if they are not going to buy a new truck, they will not sell their old truck. So how does that work? Let’s assume a new CV sales don’t grow. This is just an assumption. How will that play out?
Umesh Govind Revankar
Basically, what happens is you are right in the sense the new vehicle sales is also dependent on used vehicle transaction. But the number of new vehicle sold between ’19 to ’21 was very low. So there is not enough supply of used vehicle in the market. The used vehicle market did not grow in the last year and maybe previous last year, which is expected to grow because supply will come into the market. So there is — one is replacement of a vehicle and second one is additional growth because of the economic activity.
What I am saying to say is, replacement demand will continue to remain. When there is a flat sales, replacement demand will come. The extra vehicle that is required for higher economic growth, that will not happen.
Piran Engineer
Okay. Fair enough. And sir, just on personal loans, are we getting confidence back now to start growing? Because we were degrowing for few quarters. Now, last one or two quarters, we pushed the pedal on growth. Just wanted to get a sense of what we are seeing outside to get this confidence?
Y S Chakravarti
No, to be honest with you, I think last two calls — last two investor calls also, I made it very clear that the slowing down is not because we are worried about the quality. It is also because the regulator was expressing concern on the personal loan growth in the industry and we thought it is better to be on the safe side so we slowed it down. And the reason why we are back on the pedal now is we have not seen any reason to be concerned in the last two quarters, number one. Number two, the industry as a whole, I think, looks like that the delinquencies also peaked. And primarily, we did not find any reason to be worried and so we are pushing it back.
Piran Engineer
Okay, okay.
Umesh Govind Revankar
And adding to that, we are not really looking for personal loan growth from the market or outsourcing. It is existing customer, mostly two wheeler customer who have repaid us back. There we are offering the personal loan. So most of the customer whom we will be giving personal loan will be our existing customers. So we are not really exposing ourselves to the market. And as Chakravarti rightly said, we had slowed down because there was a concern and we had tightened the credit requirement which we have now feel more comfortable in lending.
Piran Engineer
Understood. And sir, just last thing, maybe an accounting thing, but our employee cost is down quite meaningfully by about INR70 crores quarter-on-quarter. Was there a one-off last quarter or is there some sort of provision reversal this quarter?
S. Sunder
The last quarter was on the higher side because during the festival scheme for two wheelers and other retail products, we were running some incentive schemes for the employees which got accrued and paid in the previous quarter itself and that component is not there in the current quarter and hence compared to the previous quarter it is on the lower side.
Piran Engineer
Okay, fair enough. Because usually we don’t see that between 3Q and 4Q. Like if I look at the past few years, this was like a one-off scheme, is it?
S. Sunder
Yeah, one-off scheme.
Piran Engineer
Got it, got it. Okay, this is useful. Thank you so much and wish you all the best.
S. Sunder
Thank you.
Operator
Thank you. The next question comes from the line of Shweta from Elara Capital. Please go ahead.
Shweta Daptardar
Thank you sir. So a couple of questions. So on the passenger vehicles front, the stage 2 continues to spike pretty materially. Now that you’ve mentioned that there is this movement keeps happening between stage 2 and stage 3. But in this quarter in particular, we also saw write off amounts for passenger vehicles slightly on the higher side. Of course the stage 3 improvement could be attributed to that, but what could be the reason for a continued spike in — material spike in passenger vehicles stage 2?
Umesh Govind Revankar
See, basically most of the passenger vehicle which we are financing has been in the rural segment and certain rural segment had some impact because of the slowdown in the economy and that too in the central part of India. Now that things are back to the normal, I don’t really see any further deterioration. When I say central part of India, it is basically around Chhattisgarh, MP and some part of Bihar. So, now things are much better. I don’t really see any scope for increase.
Shweta Daptardar
Sure. That’s helpful. Secondly, how has been the repossession activity panning out for this quarter in particular?
Umesh Govind Revankar
See, the repossession has not really increased because what has happened is the customer’s repayment has been good in the sense they have been bouncing back and paying. So we don’t really see a higher repossession anywhere in the industry for that matter. So most of the vehicular segment, the repossession has been at very low.
Shweta Daptardar
Sure. And just one last clarification on growth. So are we now guiding 15% kind of the growth because we were pretty confident on 18%. We have also been building a strong liability profile despite margins — putting margins on the pressure. So why — I mean, did I get it right? Why grow that 15% only?
Umesh Govind Revankar
We have been giving a 15% growth as a medium-term growth. And the last two years also, we had given 15%, but if the economy is growing well and if it can absorb and there is better demand, then it will grow faster. So as of now, I feel 15% growth at current projection of the government where the government itself is talking about 6.5% GDP growth and the other economists are talking about 6% GDP growth. 15% is a fair growth we are expecting but if the growth is faster and the credit growth is better, then we will grow faster.
Shweta Daptardar
Sure. And sir, just bookkeeping question. Sorry for this. What are the IRRs for two-wheeler loans?
Y S Chakravarti
Sorry?
Umesh Govind Revankar
IRR.
Y S Chakravarti
IRR?
Shweta Daptardar
Yeah.
Y S Chakravarti
IRRs range from — between 16% to 22%.
Shweta Daptardar
Okay. That’s very helpful, sir. Best of luck. Thank you.
Operator
Thank you. The next question comes from the line of Shreepal Doshi from Equirus Securities. Please go ahead.
Shreepal Doshi
Hi, sir. Thank you for giving me the opportunity. My question is on margin side. So you highlighted in the earlier comment that because of high liquidity on balance sheet that they impacted our margins. So what is the normalized liquidity as a percentage in balance sheet that we want to maintain going ahead and what basis point of impact was there in margin for this quarter because of liquidity — high liquidity?
Y S Chakravarti
Yes, the liquidity what we used to always tell was that three months of future liabilities to be maintained as liquid assets and the number-wise it used to be close to around INR19,000 crores. That number is now around INR31,000 crores. That is up from INR19,000 crores to INR31,000 crores. This is close to around six months of our future liabilities that has to normalize to three months over a period of next two quarters. An impact on NIM is because of higher liquidity.
Parag Sharma
The current quarter will be around 20 basis points, 25 basis points.
Shreepal Doshi
So basically, going ahead in the next couple of quarters, this 20 basis point, 25 basis point will flow in and the benefit of the repo rate cut will also sort of flow in. So what is the kind of NIM that we are looking at for exit of 1H FY ’26?
Y S Chakravarti
See, we are guiding for an 8.45%, 8.5%, 8.6% kind of a NIM. Again, obviously if I get a rate benefit, some of it I would like to pass it on to my customer also. We would like to peg our NIM at about 8.5%, 8.6%.
Shreepal Doshi
Got it. Got it, sir. Got it. That’s it. That is helpful. Thank you, sir.
Y S Chakravarti
Thank you.
Operator
Thank you. The next question comes from the line of Nidhesh from Investec. Please go ahead.
Nidhesh Jain
Thanks, sir. My question is on MSME. Can you give some color on MSME, what percentage of the book is secured and what is the nature of security, what is the average ticket size and what is the average yield that we are earning on that portfolio?
Y S Chakravarti
The book is secured — majority of the book is secured. More than — I think it will be between 70% to 80% of the book is secured. As far as security is concerned, most of the time — I mean most of the security would be either a house property or a commercial property, either a shop or something like that. So it is basically, most of it is immobile assets. And sorry, your follow-up was the — you wanted to know the IRR?
Nidhesh Jain
Yeah, sir, IRR and the average ticket size of this book.
Y S Chakravarti
Average ticket size is about INR7 lakhs — sorry it will be between INR5 lakhs to INR6 lakhs and IRRs range anywhere between again 16% to 24%.
Nidhesh Jain
Okay. So in this book also we have seen quite sharp increase in stage 2 over last quarter. Till Q2, stage 2 was consistently improving. Suddenly in last two quarters, we have seen a sharp increase in stage 2. And that too on a base when the book is growing at 40%. So on a let’s say one-year or two-year lag basis, the increase in stage 2 is quite sharp. So any comment on that and how do we see this panning out?
Y S Chakravarti
If you look at it on a year-on-year basis, I think the gross stage 2 has gone up by about, what, 98 basis points — sorry, it is at 7.43 basis points to 7.5 basis points, 7 basis points. So on a quarter-on-quarter, there will be a fluctuation because, as I was saying, the kind of segment of customers that we work with, it’s natural that they move between stage 1 and stage 2. They keep moving.
Nidhesh Jain
Have you seen any differences in terms geography in terms of stage 2 and stage 3 movement?
Y S Chakravarti
See, it is basically nothing specific. I mean, it is not specific to a particular geography, but to certain extent I would say it is borders of UP, Bihar, MP. The border villages got affected. The border areas got affected.
Parag Sharma
And if you compare between the previous quarter, the stage 2 in fact, even though percentage terms it has gone up, the movement has come from the stage 3 to stage 2, not from stage 1 to stage 2. The previous quarter, stage 3 was 4.75%, which is now 4.08%. So obviously that differential has moved up to either stage 2 or stage 1.
Nidhesh Jain
Thank you, sir. Thank you.
Operator
Thank you. The next question comes from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah, a couple of questions. So firstly, on the overall post the write-offs, now coverage is almost 43-odd percent. So how we would like to maintain — maybe we would like to maintain it around these levels or would there be any plan to take it any further? How we would look at it on a statutory basis? And related question is on the tax benefit. Has there been the tax benefit? Has it entirely accrued in this quarter or we will see tax benefit in the coming quarter?
Umesh Govind Revankar
See, basically, we had a provisioning cover of around 51% that has come down to 43% because of the numerator impact. If you look at our provisioning prior to COVID, it used to be around 36% to 40%. And during the COVID, we increased the provisioning. Then we were guided to maintain at 50% because the COVID impact or post-COVID impact was unknown. Now, since the business is as usual and economy is doing good, we feel that we can manage with the current provision coverage and I don’t really see any reason to increase the provisioning from here. And the overall tax benefit is one-time.
Kunal Shah
It has already come through in this quarter?
Umesh Govind Revankar
Yeah, it has come through in this quarter.
Kunal Shah
Okay, okay. And secondly, when we look at it in terms of the interest expenses over last couple of quarters, no doubt we indicated that pressure on margins has been due to excess liquidity, but interest expense somehow has been rising quite significantly. Is there any one-off some cost related to raising of the forex which is getting booked over there or maybe hedging cost which is getting involved on this forex borrowing which is leading to higher interest expenses?
Parag Sharma
Nothing of one-off. As I mentioned, overall cost of labor, it remains the same. It is only the overall quantum of debt which has gone up because — and that has translated to higher liquidity also over quantum of debt which has gone up which is leading to higher interest costs.
Kunal Shah
Yeah. No, the only thing was like it is up like 10%, 11% quarter-on-quarter. Last quarter also, it was up like 8%, 9%. If you look at the movement on the debt — on the borrowing side, that has been relatively low. So here we get to know that at least in terms of the overall cost of funds, it is remaining stable at 8.95%, 8.97%, not much up movement, but still like interest expenses are growing at a pace faster than the borrowing growth. So just wanted to check on that, yeah. Because that is also another element which is leading to some pressure on margins.
Parag Sharma
No, it is only because of higher debt and higher liquidity, because of which there is higher debt only because of which there is a higher interest expense. Nothing of…
Kunal Shah
There is no interest or maybe no cost of raising the money or any hedging cost or something which is getting booked?
Parag Sharma
No.
Kunal Shah
Yeah. Okay. And this would be 100% hedged, the entire borrowing which has been raised?
Parag Sharma
Correct, correct. Everything hedged for both principal interest for full duration.
Kunal Shah
Okay, okay. Thank you. Thanks and all the best. Yeah.
Operator
Thank you. The next question comes from the line of Shailesh Kanani from Centrum Broking. Please go ahead.
Shailesh Kanani
Good evening and thanks for the opportunity. Other questions have been answered. Just one question. With respect to fee and commission income, there is a quarter-on-quarter spike. Anything one-off over there?
S. Sunder
Yeah. So we have done certain assignment deals in the past.
Umesh Govind Revankar
Fee income — fee income only.
S. Sunder
Okay, we will ask Mr. Mundra to connect with you offline and then give this number.
Shailesh Kanani
Okay, and can you just repeat the disbursement product-wise number, just repeat of the same?
S. Sunder
Yeah. Segment-wise, you are wanting?
Shailesh Kanani
Yeah, yeha. Product-wise, yeah.
S. Sunder
CV is INR16,777 crore; passenger vehicles INR8,256 crore; construction equipment INR2,180 crore; farm equipment INR1,061 crore; MSME INR7,660 crore; two wheelers INR2,919 crore; gold loan INR3,105 crore; person loan INR2,890 crore totaling to INR44,848.
Shailesh Kanani
Thanks a lot, sir. Thanks a lot.
S. Sunder
Yeah. Thank you.
Shailesh Kanani
Thank you.
Operator
Thank you. The next question comes from the line of Renish from ICICI. Please go ahead.
Unidentified Participant
Yeah. Hi, sir. Just one question again. Sorry for the subtle impact to the credit cost part. But as you highlighted that the write-off in this quarter was 100% provided and, hence, there was no penal impact. But when we look at the credit cost for this quarter sort of moving up to 2.4%, much higher than our guidance range. Obviously, this must be due to higher stage 2 or higher power close. So what has actually led to this kind of a higher provision in Q4 specifically? And what sort of lead indicators you see that confidence that in Q1, Q2, credit costs will not be elevated and we will be able to retrospect to our guidance?
S. Sunder
Okay. In the current quarter, okay, even though the impact of the INR2,345 crore one-time technical write-off which was anyway provided, there is no impact in the P&L. But having said that, compared to the previous quarter, there has been an increase in the debit to the P&L to the extent of — one second — to the extent of INR233 crores. This primarily has occurred because of there has been some increase in the stage 3 even though when you compare between the previous quarter, 5.38% to 4.55%, there is no increase. But if you remove this one-time write-off, had we followed the earlier quarter same policy, it would have been 5.41%, so there has been an increase of 3 basis point in stage 3. And obviously, on that increased portfolio, we need to maintain that provision. And in stage 1 and stage 2 also, there has been an increase in asset size contributing to higher provisioning requirement. This total cost is comparatively, when you compare with Q3, it is higher but not materially higher.
Unidentified Participant
No, sir — yeah, sir, got it. So my question is what has led to an increase in stage 3? Obviously, there has to be higher outflows, which has resulted in this kind of credit cost. But is there any particular product which is going through a stress, and if that is the case, then what are the lead indicators which gives you that confidence that, okay Q1, Q2 will be able to recover that?
Umesh Govind Revankar
No, it is not particular — I think we answered it already, it is not a particular segment. Particular geographies had issues because of the slower economy and also because of the local economy there not really doing well. We had told you that central part of India, that border of MP, Bihar, Chhattisgarh, there has been little slower growth in the economy and that had impacted the cash flow of the local business people and the transporters and that’s the main reason, but now the rural economy has picked up to some extent because Rabi crop has been bumper and we believe that Rabi crop cash flow will help the customers to bounce back and this year again the monsoon prediction has been above normal. And back-to-back above-normal monsoons should help the rural economy and even the central India’s geography to bounce back and we are confident that things will improve. There is nothing very unusual which has happened or nothing really pertaining to certain segments.
Unidentified Participant
Okay, got it. And sir, just a clarification. So your answer to Kunal about PCR. So is it fair to assume that going ahead, we will sort of maintain PCR rate 40%, 42% and there is sort of no intention at least in near term to increase to 50%?
Umesh Govind Revankar
No, there’s nothing because, see, we are all doing asset-backed lending and asset values have remained firm. There is no reason for us to increase it beyond this level. And in fact, I was telling you that prior to COVID, most of these assets, we were providing between 30% to 40%, 36% to 40%.
Unidentified Participant
Got it. And hence will be a sticking to our credit cost guidance of 2%?
Umesh Govind Revankar
Yes.
Unidentified Participant
Okay. Thank you so much, sir. And best of luck.
Operator
Thank you. The next question comes from the line of Adarsh from Enam Asset Management Company. Please go ahead.
Unidentified Participant
Hello. Hi, sir. So quick question is on the recoverability since these are all fixed — these are all proper assets that you would have written off. Just understanding the recoverability of the technically written-off accounts and how old are these accounts? Like have you been carrying these for many years or these are like fresh, like very old which you can’t recover or?
S. Sunder
No, it is a combination of old as well as maybe around a couple of years old assets also. So it’s not very old assets. And if you see our bad assets recovery quarter-on-quarter, it has been in the range of INR100 crores, INR150 crores in few quarters. And the current quarter, in fact, it is INR209 crores. So out of this, there will be — definitely some recoverability will definitely happen.
Unidentified Participant
Is it fair to think that since you have written-off a lot more, the chances you will recover more is not there, is it because ideally [Indecipherable]
S. Sunder
Yeah, that is what. See, the entire amount may not be recovered, but there will be some component of recovery. The industry will be getting back to the customers and then also there will be a legal recovery. All those options are always open, but it is a long-run process.
Unidentified Participant
Understood. Okay, this is good, thanks.
S. Sunder
Thank you.
Operator
Thank you. The next question comes from the line of Harshit from Premji Invest. Please go ahead.
Harshit Toshniwal
Hello. Hi, sir. Am I audible?
Y S Chakravarti
Yeah.
S. Sunder
Yes.
Harshit Toshniwal
Yeah. Sir, actually, just to one of the previous questions itself, that if we look at our calculated cost of funds, that number comes up 25 basis points, 30 basis points higher than last quarter. I get that there might be some difference in the average borrowing…
S. Sunder
Yeah, that is primarily because of the average. The INR1.2 billion worth is borrowing which happened in the last week of December. Even though it was — if you calculate that closing balances, it reduces the cost of funds for the particular quarter. But for the entire quarter, we had to provide for that interest. And hence, if you compare…
Harshit Toshniwal
I am just wondering that if you have borrowed it at the last week, shouldn’t it lead to a lower calculated cost of funds?
S. Sunder
Last week of December. And hence, December, the rates might have been, whatever calculation you might have applied, it might have been lower. And if you take that into consideration and apply the same thing in the current quarter, you may find that around 20 basis point, 25 basis point. It’s higher than the December. But in actual, there is no — as Parag was mentioning, the average cost of borrowing on the book as on 31st December and as on 31st March continues to be the same. Not much of a decrease or increase.
Harshit Toshniwal
Sir, you said that incremental cost of funds is 8.96%?
Parag Sharma
No, I said incremental cost of fund is 8.86%.
Harshit Toshniwal
8.86%. And can you let me know that whatever is the on-book cost of funds? Because I don’t think we…
Parag Sharma
8.95%.
S. Sunder
It’s 8.95% in the current quarter and this number was same in the previous quarter also.
Harshit Toshniwal
Got it. And if I — sir, if you can just help us that given the rate cut possibilities, how should we build that reduction in the sense that what percent of your book will get repriced relatively or if you can help us with the guidance as to how should we look at the cost to fund trajectory?
Parag Sharma
Because roughly 30% of the book will mature, that is, will reprice this year. And this will have different components of bank borrowing, the retail borrowing, and also the capital market borrowing. The capital market will adjust much faster, which is close to around 20% of the liability. The bank will take some time. And the retail, we have announced reduction, but that is around 20 basis point, which will have a benefit over next 2 years, 2.5 years. So I will say gradually we will see the cost coming down one on the count of the borrowing cost itself and other is on the account of liquidity coming down. So I will say around overall for the year, we will target close to around 15 basis point to 20 basis point benefit in the cost.
Harshit Toshniwal
Okay, okay. Got it, got it. And on the — sir, I think, will there be — if I look at the CV versus non-CV mix, should we assume that a good part of this will be taken away because of the mix change towards non-CV segment? I think it will be similar yields. IRRs will be similar in both segments for us?
S. Sunder
Yeah, there may not be a significant mix going forward. It may be more or less in the similar pattern, there may be shift between maybe one product to the other, but not significant. And the rate benefit, some component will be passed on. So the NIM guided by Mr. Chakravarti, it will be in the range for the entire year between 8.5% to 8.6%.
Harshit Toshniwal
Okay, got it. Sure, sir. Thanks a lot.
Operator
Thank you. The next question we take from the line of Abhishek from HSBC. Please go ahead.
Unidentified Participant
Yeah. Hi. Good evening, sir. Most of my questions have been answered. Just one. I think last quarter or couple of quarters, you have been saying that cost to income would trend around 29%, 30% slightly elevated maybe because of the investments you are making. Do you see that coming off in the next year or so, three, four quarters, or it’s likely to trend at 30%, 31%, 29%, that range?
S. Sunder
Yes, it should be hovering around between 27% to 28%.
Unidentified Participant
From the current level, do you expect some improvement or basically a slowdown in your…
S. Sunder
Yeah, correct. Some improvement will be there.
Unidentified Participant
Okay. And this is over what time? One year, is it?
S. Sunder
Yeah, it is one year period.
Unidentified Participant
Understood. All right, so thank you. Rest of my questions have been answered. All the best. Thank you.
S. Sunder
Thank you.
Operator
Thank you. The next question comes from the line of Raghav Garg from Ambit Capital. Please go ahead.
Raghav Garg
Hi. Thanks for the opportunity again. Just one last question from my side. So I heard you say that repossessions have not happened, right? But when I look at Shriram Automall’s revenue for last two quarters, they have been up 12% and 27% YoY, 12% in this quarter, 27% in the third quarter, compared to a decline in the quarters preceding to that. This trend also coincides with the increasing stress in the CV loans across system. Can you please explain why the Automall revenues have been growing if repossessions are not happening?
Umesh Govind Revankar
See, Automall, the Shriram’s portfolio or Shriram’s repossessed asset in the Automall is not really significant. They have tie up with all the banks and all the NBFCs. So overall, if you look at the repossession rate, it is still at a lower rate. And in Shriram portfolio, it is much lower. So, Automall growth is also due to the direct customer putting the vehicle on the platform, not the 100% of the vehicle that is on the platform of the Automall is not repossessed. It is also direct customer putting their vehicle for exchange of vehicle. So, they are increasing their presence and as they add more number of Automall and increase their presence, their business volume will keep growing up.
S. Sunder
Hello?
Raghav Garg
Yeah. That is all from my side. Thank you.
Umesh Govind Revankar
Okay. Thanks.
Operator
Thank you. Ladies and gentlemen, we take that as the last question and we conclude the question and answer session. I now hand the conference over to Mr. Umesh G. Revankar for his closing comments.
Umesh Govind Revankar
Thank you for joining the call. As we said in the meeting, last quarter was not very high number quarter, but a good quarter for us. We had decent growth and good quality collection. But the indication of a better economy, especially in the rural economy, due to better monsoon prediction, we are expecting next couple of quarters to be good for us as far as the demand and the credit quality is concerned. And overall for the next financial year, we expect to grow as the guidance given of 15% with better credit quality. Thank you very much. Meet again.
Operator
[Operator Closing Remarks]