SPANDANA SPHOORTY FINANCIAL (NSE: SPANDANA) Q4 2025 Earnings Call dated May. 30, 2025
Corporate Participants:
Ashish Damani — Interim Chief Executive Officer, President and Chief Financial Officer
Analysts:
Maruk Adajania — Analyst
Shreepal Doshi — Analyst
Viral Shah — Analyst
Rajiv Mehta — Analyst
Ashlesh Sonjay — Analyst
Abhishek M — Analyst
Patanjali — Analyst
Abhijit Tebrewal — Analyst
Presentation:
Operator
Ladies afternoon, ladies and gentlemen. Good evening, and welcome to Spandana Financial Limited Q4 and FY ’25 Earnings Conference Call. This conference call may contain certain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on-date of this call. These statements are not the guarantee of future performance and involve risks and uncertainties That are difficult to predict. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touchstone phone. I now hand the conference over to Mr Ashish Dawani, Interim CEO, President and CFO. Thank you, and over to you, sir.
Ashish Damani — Interim Chief Executive Officer, President and Chief Financial Officer
Thank you. Thank you,. Good evening, everyone and thank you for taking time-out to join on this call. Sincere, apologies for the delay. I believe most of you have got some chance to go through the Q4 FY ’25 results and even the full-year results, which have been uploaded on stock exchange sometime back. Before discussing the results, I would like to clarify on three issues. First of all, just want to explain that every NBFC MFI will undergo routine audit by the RBI every year. And in the process, they do suggest areas of improvement as their observations. As always, we have been complying with all the suggestions made. The company also conducts a review request has been initiated if you large cancer this request, please rest comment in a routine course of business. So that is something that we’ve been doing. I would like to reiterate that there has been no audit on the company whatsoever.
MFI customers you know tend to make their repayments through cash only. Therefore this industry is susceptible to operational risk of misappropriation, theft and robbery. Every proven vendor, including Spandana has control mechanisms in-place to control, manage such risk in the business. However, in the recent past, industry has seen higher stress and attrition, which has led to increase in such incidents across the industry. During the — during the second, 3rd-quarter of the financial year. However, we are continuously working to reinforce control mechanisms through measures such as increased headcount on branch quality managers, increasing internal audit frequencies and coverage, et-cetera, we have seen improvements in this in terms of reduction in the overall challenges in past couple of quarters. Whilst Spandana adopted credit rules confirming to the Guardrail 2 and even going beyond in January of 2025, the deferment of Guardrail II implementation by SRO to 1st of April 2025 prompted us to rationalize our disbursements in Q4.
During the period, company was focused on improving its collections and its processes by way of increasing engagement with the customers on-the-ground. Now I move on to one more important update. Our equity raise plans are pretty much on-track. We have received the shareholder approval for capital raise during March for up to INR750 crores. Our Board Committee has been formed to oversee this capital raise, including a possible rights issue in Q2 FY ’26. This rights issue will be done with the promoter participation. We will make all the necessary announcements in due course once all approvals are in-place. Like we have been reiterating on the fact that FY ’25 has been the most challenging period for the microfinance industry in the recent times, multiple external and structural headwinds in increasing borrower leverage, weakening of GLG model deterioration in borrower discipline and sociopolitical influences had adverse impact on the microfinance industry. Our short and long-term response to these industry headwinds have been bucketed into three broad domains, operations, credit underwriting and liquidity and capital position.
During the year, we remained agile and introduced few changes in the way we operate. Among many, let me highlight a few important ones. First, introduction of control and quality check layer at the branches, which we call branch quality managers. The core function of this role is to be a checker at the branches and ensure that all due processes and quality checks are diligently followed. We have increased the number of loan officers during the year at the — at the branches to manage the workload as they had to make multiple rounds of borrowers and house visits for collections. The increased stress resulted in elevated attrition at the field-level and taking cognizance of these issues we have increased the bench strength which had impacted the efficiencies in the interim. We have put in-place dedicated team of collections loan officers for the buckets which are 90 plus DPD borrowers. This team is focused on following-up with the borrowers in the 90 plus and the write-off pools for the recoveries. We currently have about 700 in this team, 700 loan officers in this team and we plan to intensify efforts in recoveries during the FY ’26.
Increasing engagement with the field staff through various initiatives is something that we have been taking up so that the attrition levels can get controlled, tele calling the borrowers to encourage them to make timely payments of installments, explaining them about the new guardrails and encouraging them to follow the discipline of making timely payments. As a team, we keep looking for means to make our processes more efficient and improving our operations. We have always maintained that as an organization, we continue to believe in core microfinance that is short tenors, low ticket sizes and geographical diversification. Supplementing this, we introduced credit checks in January 2025, which go beyond that rails. Our credit rules are more conservative as we have set a DPD threshold of 30 days for the existing borrowers and we have gone down to one day for any new borrower that we will onboard. In addition, we also are checking the DPD status of the household to ensure that the household is not in any kind of financial stress. To increase the ropusness of our KYC checks, we have entered into an agreement with MPCI for Adhar based EKYC. With these initiatives in-place, we believe that we can now restart the new to credit borrowers gradually. This is something that we have taken as a conscious call to stop onboarding the new to credit in July last year. To manage our liabilities better in such testing times, we have been maintaining sufficient liquidity on-balance sheet.
This liquidity provides us sufficient headroom to be able to meet all short and medium-term requirements. Our liquidity position at the end of March 2025 were over INR2,000 crores, which is about 24% of our assets on our balance sheet. Scandana had witnessed improvement in key lead indicators in March and our ex-bucket collection efficiency at the end of March 2025 improved to 98.9% if I exclude Karnataka out of it. Including Karnataka, it would be 98%, 98.6%, sorry. And December was 98% when we look at the same metric. We have been consistently seeing an improving trend in the lender overlap as well. About 23% of our borrowers had exposure to four or more lenders, including Spandana in February 2025, which has now reduced to about 20%. Similarly, intense field efforts have also translated into higher recoveries from the GNPA or 90 plus buckets, including write-off pool, which stood at about INR52 crores in 4th-quarter of FY ’25 versus INR44 crores, which we would have recovered across the 3/4 in the financial year. Overall, we were able to recover INR96 crores during the FY ’25. As a management team, we had set ourselves few priorities.
While we made progress on all of these, the challenges in FY ’25 have resulted in altered timelines. Let me enumerate our way forward on each of these priorities. Customer acquisition-led growth. We have always communicated that our growth will be fueled by customer acquisition and we will be very Careful in terms of onboarding the new customers that we are that we get. Our stricter credit rules are a step-in that direction. Well distributed geography spread. I’m sure you would have noticed that our geography trends — geography exposures have been well distributed. We have improved our geography spread over the past three years. North India now contributes about 22% of the AUM as against 13% in FY ’22. We continue to maintain our spread going-forward, weekly model. We have rolled-out many branches under the weekly only model and over last two years and these more — these branches today give us an collection efficiencies of 99.3% in March compared to the overall 98.9% across the — across the business. So our belief in this weekly business is reinforced and we will continue to see how we improve on the overall contribution from the weekly branches. Growing our AUM, our long-term goal of AUM growth remains intact, albeit with altered timelines. We will be cautious in lending and growing in new markets, improving efficiencies. Our target in current financial year will be to improve borrowers to LO loan LO count to about 340 borrowers from the current 228 number. We are working very hard to turn-around things at the earliest and deliver on a quality growth that we desire for. To deliver on quality growth, we are reimagining our customer journeys by integrating multiple layers of technology, enable checks, balances — checks and balances including using tools like geofencing, face match, liveliness checks, digital questionnaries, etc. While some of these initiatives have already been rolled-out, many others will be integrated during the course of the year. All these we believe will help us improve our credit underwriting and filter in quality customers. We have also been closely looking at our borrower base and identifying the borrowers that would — that we would like to prioritize in terms of servicing. So of our existing borrower base at the end of March 2025, about 51% of the borrowers qualify for new loan under the stricter credit rules that we have adopted internally. About 20% of the borrowers have 30 plus DPD with some other lenders, 10% have three or more lender relationships and about 4% have over INR2 lakh loan amount outstanding in the MFI or unsecured retail, or some other form of negative CB track-record. However, 96% of these borrowers, which is all the put together 34% are current with Spandana. We believe that these two cohorts 51% and the 34% together would provide us with sufficient — sufficiently large pool of customers to focus our efforts during the course of the year. We also have a large pool of dormant borrowers who qualify for loans as per our internal guidelines and we would reach-out to these borrowers as well. We. We will run a regular analytics on our borrower data to identify early volume while also look for opportunities to deepen our relationship with good borrowers without compromising on quality. As I mentioned sometime while — some while back, we have been working on improving efficiencies which have touched upon on our presentation in Slide 13. Based on our portfolio behavior, we have identified a set of states where we would like to grow but cautiously. We have also identified key states where we would maintain our position and few states where we would prefer to scale back operations. We would conduct graded reassessments of our branches in terms of portfolio quality and growth opportunities. We would like to increase productivity and efficiencies at branches and expect to improve our loan officer productivity to about INR1.1 crores per loan officer by end of FY ’26 from the current 0.6 crores at end of FY ’25. We continue to believe that loan officer productivity of about INR1.3 crores to INR1.5 crores is pretty appropriate. Let me now just move to the results and business updates, regular business updates. The key business drivers, during the year, company adopted a cautious approach to lending and implemented guardrails into our credit rule engine. Hence, our disbursement were calibrated for the year and were muted at INR5,6005 crores on a year-on-year basis, a decline of about 48%. AUM at the end-of-the year was at INR6,819 crores, registering in a decline of 43% year-on-year. The AUM was the outcome of a lower disbursement. However, we are confident that we will be able to take it back-in the direction of growth during the current financial year. Our LAP and Nano loans business under the subsidiary Krish Financial Limited is growing steadily. T He AUM under these products crossed INR200 crores for the first time and we closed the financial year with INR233 crores AUM under these product lines. The product quality under both these products continue to be strong with a net collection efficiency of 99.6% under the lap till March 2025. We continue to believe in this strong market and potential for these products. Portfolio quality, we continue to maintain provisionings at 80% PCR. The standalone GNPA at the end of FY ’25 was 4.85%, an increase of 3.4% over the FY ’24. Standalone NNPA was at 0.96%, an increase of 0.7% over the FY ’24. Liability and marginal cost of borrowings, including borrowing mix. During the year, we borrowed INR4,482 crores, the borrowings were calibrated keeping in view the disbursement and the organization’s liquidity requirements. Our managerial cost, marginal cost of borrowings for the quarter was at 11.9%, which was about 20 bps higher than Q4 — Q4 of FY ’24 and about 20 bps higher than Q3 FY ’25. Likewise, I look at the borrowing mix, we now have more healthy mix with banks contributing to our total borrowings at 57% at the end of Q4 FY ’25. FY ’25 financial performance, I’ll quickly take you through that. The net interest income for the year was at INR1,228 crores over INR1,289 crores reported for FY ’24. NII was lower by 5%. The PPOP for the year was at INR608 crores, down 35% year-on-year. Declining PPOP was largely on account of shrinking loan book, higher operating expenses and reversals in interest income due to flows in GNPA. The yield on the portfolio was down by 1.7% year-on-year to 22.5%. Yield declined by 41 bps over the previous quarter. NIM for the year was at 12.8%, down by 1.3% year-on-year. NIM declined as a result of decline in the yield and increase in cost of borrowings. Marginal. We are consistently working towards improving our cost of borrowings. The higher — the company reported a net loss of INR1,035 crores for the year-on account of higher provisions. Given the challenges, we will continue to maintain cautious stand. We are optimistic that the situation should normalize by the second-quarter of this financial year. All our efforts are directed towards identifying opportunities for improvements and implement corrective steps where necessary. We also closely monitoring outcomes thereof. We continue to be prudent in our approach to lending, ensuring that our portfolio is well-diversified while staying conservative on ticket sizes and customer indebtedness. We are comfortably placed In terms of capital adequacy at 37% and close to INR2,000 crores in liquidity. Our gearing at 2.1 times is also accommodative of future growth. Despite the rapid global policy shifts, India remains largely positive growth story. The early arrival of monsoon and expected of above-normal monsoon bodes well for the microfinance industry where most of our borrowers are rural — placed in rural India and are dependent on agriculture as a primary source of income. This we believe will be a factor that will drive the revival of the sector along with the SRO guardrails that have been put in-place. Thank you once again for taking time-out to join us on this call. The entire management team of Spandana is thankful for consistent feedback that we have been receiving from all of you. We look-forward to your continued support. And now I can ask the moderator to open the floor for questions.
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 then 1 on your touchdown phone. If you wish to remove yourself from the question queue, you may press R then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Again, to register for the question, please press star then 1 our first question comes from the line of Maruk Adajania from Nuvama Wealth. Please go-ahead.
Maruk Adajania
Good evening. So I have a couple of questions. Firstly, on Slide 17, you’ve given some projections for FY ’26 and it seems to be reverting back to FY ’24, whereas FY ’25 is a big blip. So how do you plan to cover so much ground? What gives you the confidence, especially because most MFIs are seeing that better part of the recovery, including growth will come in the second-half. So what gives you that confidence of covering so much ground? That’s my first question. And secondly, just in terms of credit cost forward-flows and slippages, you have given some data till April, how does early May look like and where do you think — where do you think will you see a meaningful or when do you think you will see a meaningful decline in credit cost? And some rollbacks as well. So that’s my second question. And my third question is any size of the equity issue? So these are my questions.
Ashish Damani
Hi, Mahruk, this is Ashish. So I believe we are talking about Slide 12, where we have given the disbursement trends, which we had in FY ’23 and ’24. Is
Maruk Adajania
Talking about the projection, right? You’ve given projections and in terms of loans for LO versus for. You’ve given projections, you know for March ’26, that’s what I’m talking about.
Ashish Damani
Okay. So the — these projections are for productivity matrices at a loan officer level, which will be a combination of increasing the customer-base, base doing the disbursements as well as there is attrition that is likely to happen in the branches wherever we would have taken higher number of loan officers. So idea is to keep our looking at that productivity of 340 by the end of this financial year in terms of number of customers per loan officer. So this — I’m not sure if that has answered your question, but that is what we are trying to explain here on this slide. If I can move to your second question in terms of how the current trends are shaping up, how is May looking like and when there will be a meaningful decline. So yes, March was pretty, pretty solid at 99% in terms of collection efficiency. However, April and May, there has been a slight blip. We are presently trending at you know about 97% and thereabouts.
You know on the current collection, current bucket or X bucket. Last question was about the size of the transaction. I think we have taken approval from the shareholders at about INR750 crores. However, we are looking at presently doing maybe a rights issue of our — it will obviously be a lower number, but we will have to calibrate the number in due course.
Maruk Adajania
Okay. Thank you. I’ll come back for more later. Thank you.
Ashish Damani
Thank you. Sure.
Operator
Thank you. Our next question comes from the line of Shreepal Doshi from Equirus. Please go-ahead.
Shreepal Doshi
Hi, sir. Thanks for giving me the opportunity. And I think your earlier commentary was very to understand a lot of aspects. But just had a question on our business model per se. So are we looking to, say, decouple the sourcing and the, let’s say, operations and the credit at the ground level, which would also be a learning in this cycle per se or are we continuing to just go-ahead with as a model and continue to have the LO or the loan officer managing both the functions at the ground level?
Ashish Damani
No, so we — weekly will continue in the branches where we have the weekly model. We have about 14% of our business in weekly branches and we would obviously like to grow that — grow that portfolio, given the — given the portfolio quality is definitely better than what we see in monthly branches. On the monthly branches side, I don’t think so. We are making any changes. It’s only about increasing the engagement with the customers by the loan officers.
Shreepal Doshi
So sir, are we looking at, let’s say, having a credit officer at branch level of who will look at, let’s say, underwriting and we are shifting towards a model which when we will be underwriting individual customers while maintaining the JLG model from the operations point-of-view.
Ashish Damani
Definitely, there will have to be a little bit more of credit appraisal that needs to be done at a borrower level over and above the joint liability that you have on-the-ground. We are having a branch quality manager, like I have said earlier at the branches who is doing a further checks in terms of understanding the borrowers which are getting onboarded. We have used — like I’ve mentioned earlier, we are using technology to improve our understanding of the borrower at the ground by doing geofencing, by doing liveliness check, making sure that the KYC that we are getting is a more robust and more foolproof. This is what we are doing in terms of additional checks.
Shreepal Doshi
Got it. Sir, second question was pertaining to something that you also alluded in your earlier commentary, which was on Adhahar based other meeting either of the customer for the new customer onboarding. So I think there was a lot of duplication of accounts at system-level. And so how are we — so have you got approval from the RBI to use as a — as a medium to onboard the customer and to do even credit zero check accordingly?
Ashish Damani
This is nothing. So, Sheepal, we are presently following this EKYC process where eSign is the format that we use where becomes the aspect that you use through OTP-based you know OTP-based verification. So there is — we have — we still don’t have the license in terms of. So what we are using is, the next-stage we will move to is, you know we are working with the NPCI and others for the piece where we will be able to do this much, much more smoothly. It’s a — it will be based customer identification, where there will be other than the OTP, there will also be a phase recognition That we will use.
Shreepal Doshi
Got it, got it. Got it. Thank you so much for answering my questions. I’ll come in the queue for more questions.
Operator
Thank. Before we take the next question, a reminder to all the participants. If you wish to register for a question, please press star then 1 now. Our next question comes from the line of Viral Shah from IIFL Capital. Please go-ahead.
Viral Shah
Yeah. Hi, Ashish. Two questions. One is you mentioned that the current collection efficiency trends are trending closer to 97%. This is excluding Karnataka or this is at an overall level basis this is overall if you exclude Karnataka it would be about 97.5 97.8 okay. Okay. And another question I have is, if you look at, say, the deferred tax asset that we have recognized in this year and also this quarter, do you think that is an aggressive estimate given if you look at another peer of yours who has also suffered a couple of quarters of losses — heavy losses, they have chosen not to say recognize that as a deferred tax effect at least as of now until there is a visibility or one delivers profits. Do you think that was an aggressive I would say practice that you took in this quarter?
Ashish Damani
Viral, I can talk for ourselves. I think what we look at in the deferred tax recognition is how our business plan will shape up in the next five years. In fact, the authorities allow you to, you know, look at the next eight years and we were sufficiently covered.
Viral Shah
Got it. That’s it from my side. Thank you, Ashish.
Operator
Thank you. Our next question comes from the line of Parth Kotak from Plus 91. Sorry. Our next question comes from the line of Rajiv Mehta from YES Securities. Please go-ahead.
Rajiv Mehta
Hi, Ashish. Just on this borrowing side, this fundraise in the quarter of INR473 crore. Can you tell us from which sources was raised? And what percentage of lenders or bank loans would be under COVID reaches? And how does the coal business go away? And besides capital, can there be profitability constraints or high EPD constraints for, you know, for funding the growth that we are planning to have? Sorry, Rajiv, your, your last question, can you repeat?
Ashish Damani
No, I’m talking about your if you are having any for the borrowings that we have. And you know when does it go away and whether you know, besides the capital that we are planning planning to raise can profitability you know also act as a constraint for the to remain. Sure, sure. So the covenant breaches are — yes, there have been certain covenant breaches due to both the portfolio quality numbers as well as profitability. The number stacks up presently at INR438 crores in total, where INR260 crores is from the capital markets and about INR178 crores from the term lending side. I see this number to start going down in near-future. We have got the necessary waivers and comfort from the lenders. They continue to support us and we don’t see this acting as you know, any kind of a constraint on you know future growth plans and just you know, on
Rajiv Mehta
The disbursement, you know activity being low at this point in time and now when you also follow the guard rules of your own self which are tighter than the industry. And then you also given us the cut of the — your customer-base and that 51% of the borrower base currency is only eligible for incremental disbursements as per the current rules that you’re following. When does it really change the run-rate change for us? Because I think if you are trying to tell us that like a normal year, first-half will be slightly weakish in second-half will pick-up. But when you look at the eligible customer currently at the start of the year that seems low. So how would — I mean, if you can just quantify if — I mean, would there be any way you can quantify what kind of growth or how do you see the year playing out to yourselves in terms of the book by the end-of-the year?
Ashish Damani
Yeah. So I think the industry is slated to grow, let’s say, between 10% to 15% with the kind of customer-base we have and the numbers that we have kind of put up on the slide, both in terms of existing borrowers and the number of borrowers that we would want to bring on-board. I think we can look at about 20% kind of growth from the current pace. That’s the number that will work-out.
Rajiv Mehta
So yeah, that’s it. Thank you and best.
Operator
Thank you. Our next question comes from the line of Ashlesh Sonjay from Kotak Securities. Please go-ahead.
Ashlesh Sonjay
Hey, hi, Ashish. Good evening. Sir, first question is on the employee base. Firstly, do you think you’re adequately staffed right now? And secondly, you indicated a few employee-related issues in the beginning. Can you broadly quantify what is the amount of money which is currently outstanding from your employees or any of any magnitude which you can share of the employee-related issue.
Ashish Damani
Hi, Ashlesh. So there is nothing outstanding from the employees or anything which has not been disclosed or which has not been accounted for. Yes, there have been attritions many at — I mean the percentage terms, it was very-high for the previous financial year, 56%. And what we have done is we have — we have let go, you know, I mean we have not backfilled some of the geographies wherever the borrower to loan officer count was much lower than the national average to let it adjust on a normal-course you know the productivity matrices and that will that is something that continue to do as we go-forward.
Ashlesh Sonjay
Okay and in terms of geographies, where do you see higher collection efficiencies and lower collection efficiencies? So our challenging markets have been in the recent times have been, you know, Andhra Pradesh, Pradesh Karnataka have been the challenging geographies for us.
Ashish Damani
Rest of the states I think while April was a bit lower May you know things are picking-up and we are confident that you know June will be even better given the monsoon.
Ashlesh Sonjay
Okay, understood. And just one last clarification. If I go to Slide number nine on your PPT where you shared the lender level overlap. This is as a proportion of borrowers or as a proportion of the loan book? This is at borrower level. Okay.
Ashish Damani
In our case, then even that the average ticket sizes and average loan amount outstanding is relatively uniform. I think both should be more or less in-line.
Ashlesh Sonjay
Understood. Thanks a lot, Ashish. Those were all the questions sir.
Operator
Thank you. Thank you. Our next question comes from the line of Abhishek M from HSBC. Please go-ahead.
Abhishek M
Yeah, hello. Hello, am I audible?
Operator
Yes, yes, sir. You’re audible.
Ashish Damani
Hi, Abhishek.
Abhishek M
Hi, hi, Ash so this 20% growth target you are seeing that is our premium or disbursement between AUM and that’s right. So for that, how much disbursements? Yeah. So on an absolute level, how much disbursements would be your plan for this year?
Ashish Damani
I think the disbursement number will also be in-line with roughly about the size only given that most of the disbursement happened towards the second-half of the financial Year, which is what we have tried to explain in the PPT on Slide 12. So more or less equal amount of disbursement is what we’ll have to do.
Abhishek M
Okay. Wouldn’t it not to be higher given you’re defocusing on some space, there are obviously a lot of customers who would have, you know who are ineligible to be given a repeat loan so considering all of that don’t you think disbursements have to do much higher than just 20%?
Ashish Damani
No, I think we’ve done our math and what we need to do is get that 53% of the existing borrowers to be serviced from the — from the overall bucket. And obviously, there will be new customer onboarding that we are starting. So there will be disbursement from there as well.
Abhishek M
Okay. And in terms of productivity, the 340 per loan officer, is this a sort of new normal which we are targeting because ’24 you were there and when things went south, you know you had to increase a lot of people to ease the pressure of collection. Again, you know, don’t you think you have to see slight excess capacity to be to prepare for a rainy day or do you think 340 builds in it enough excess capacity that can be handled if something goes wrong in any state or any local union
Ashish Damani
So FY ’25 was a relatively challenging year and one would not Call-IT as a BAU in any stretch of imagination. I think with the guardrails which have been put in-place, we strongly believe that the — the discipline in the borrowers will improve from here on and that will definitely ease out the challenges which are being faced by the loan officers on-the-ground. The fact that the borrower is not going to get a fresh loan if they are not paying to all the lenders will definitely help. And with that ease of — easing of pressure, I think we should be able to improve on this borrower to loan count number as we go on. Moreover, the tightening on the credit rule that we have done also gives us the confidence that the book that we will build from here on should relatively be easier for the loan officers to manage. So that number also should help us improve the productivity. And we are also strengthening the center you know penetration that should also help the loan officers to improve the productivity.
Abhishek M
So — and how are you thinking about yields from here? Would you be in any position? I think one of the banks who does MFI, they took a little bit of an increase in yields, but would you be in a position to increase yield or this is BAU and from here whatever NIM benefit has to come — has to come from basically cost of funds.
Ashish Damani
So I think our pricing to the borrowers is pretty fine. The challenge has been primarily on account of the quality, which has led to reversals on the interest income and impact on the top-line. So I don’t see a need or a reason right now to look at the pricing at the borrower level.
Abhishek M
Understood. Okay. Got it. Thank you so much and all the best.
Operator
Thank you. Your next question comes from the line of Patanjali from Nuvama Crossover Fund. Please go-ahead.
Patanjali
Hi, can you hear me?
Ashish Damani
Yes, hi. Ranjali, we can hear you.
Patanjali
Hi. Yeah. So one question. So I understand this is difficult, but just want to understand when can we see some kind of profitability of profitability in which quarter, say, Q3, Q4 and any kind of guidance that you can give for FY ’23, if I understand, but still.
Ashish Damani
So I think you pretty correct when you say that it is a difficult one. I think the right way to look at it is our focus would be to improve on the discipline on-the-ground, improve on the ex-buckets, if you see are trending fine. We have to just make sure that it starts stacking up above 99%. And as we start improving in terms of our credit rule and making the new portfolio at a better efficiency, then I think 99% should be pretty, pretty straightforward and that should help the profitability also as we go-forward. Giving any number or any guidance at this point in time will be getting ahead of ourselves. So probably I think the right way to look at it is by the end of this financial year, I think the 3rd-quarter onwards, things should start looking up much better.
Operator
Thank you. Our next question comes from the line of Abhijit Tebrewal from Motilal Oswal. Please go-ahead.
Abhijit Tebrewal
Yeah. Good evening, Ashish, sir. Thank you for taking my question. Sir, first thing, just trying to understand, you spoke about the rights issue, planning to do it in 2Q. And if you could just help us understand from what we know until now of Kedara, which is a promoter, they have already taken a one-year extension and they have to now exit by September 2026. So does that still hold or under such extraordinary circumstances we can get a further extension from that fund? And B, when we say the promoter is looking to participate in the rights issue, I mean, even if there are rights which are denounced by the existing shareholders are the keen to pick that up?
Ashish Damani
So what we presently understand is they have confirmed their participation, the denouncing and picking-up of the other shareholders is something that we will have to, you know, look at it when we get closer to the transaction. In terms of their existing front and in terms of this, what I understand is they do have time for 1.5 years from now. And what I understand is that they don’t have pressure to you know, take, do any action on that on that holding of theirs as of as of now and the extension part is something that I believe can be done, if need be okay. But at least when we say that the promoters are looking to participatera is looking to participate in the right.,
Abhijit Tebrewal
The other thing that I wanted to understand is, I mean, recall recently when Bharak Financial also reported there were lot of discretencies which were identified, right, in terms of processes, accounting, reporting, given that you spoke about the regular audits which are done by RBI in the normal-course,
Ashish Damani
Have we until now identified anything like that in terms of maybe accounting lapses or some reporting lapses between what needs to be classified and the interest income or what needs to be classified in the fee income, anything of that sort. No, RBI has not identified anything of that sort. Yes, there has been a discussion with the regulator on how we look at the ARC transactions that we have done, but nothing other than that.
Abhijit Tebrewal
Got it. And then lastly, I mean, you kind of spelt out that we will be looking at 20% kind of AUM growth this year. There are other questions already that people were trying to ask you when can we get to profitability difficult indeed. But good, I mean, when we speak to I mean NSI industry experts today, all of them say that roughly anywhere around 20% to 22% kind of loan losses should be there at the industry level because of whatever we went through in the last one year. Last year, our credit costs were roughly around 23% 24% on the average AUM. Just trying to understand from here to next year now, what could transpire into credit costs? One is the current GNPA pool that we have. The other thing could be the flows that we are seeing, which is where we are reporting ex-bucket collection efficiencies Of around 98.9% thereabouts. And in addition to that, some BAU credit costs which are there in the normal-course of business. So how should we look at credit cost then in FY ’26?
Ashish Damani
I think on the credit cost bit, the right way to look at it is when do you get into BAU and that in my mind should be Q3 or Q4 of this financial year. That is when probably we should start seeing the stabilization of the quality in the book. There are some — I’m sure you would have looked at our numbers and we do have the Stage 2 bucket which is there and there would obviously be some flows from there. So the percentages in first-half may be elevated in terms of the credit cost. However, in second-half of the financial year, we are positive that these numbers should start normalizing.
Abhijit Tebrewal
Got it. And just one related question, the last question. At least in terms of — my total disbursements are very low, but at least in terms of the disbursements that we have done in the last maybe six months, there is the portfolio quality holding up well, very low delinquencies or I mean, we continue to see flows from the newer disbursements as the ones done in the last six months?
Ashish Damani
So I would say you know, last six months again, there will be two pieces to it the guardrails implementation and and you know the free reaching, so to say so may not be exact comparable kind of a thing. Having said that, I think the last quarter’s disbursement definitely was showing us better — better portfolio quality compared to the — what we have seen through the year.
Abhijit Tebrewal
Got it. And sir, lastly, I mean, when designed and we hosted a call, there were obviously questions around what is the way forward. Any discussions in the Board meeting today on how we are kind of looking to put together the leadership team again. So if the question is about the leadership team, yes, it was unfortunate to see going, but the rest of the team is intact.
Ashish Damani
However on the EEO bet I think I think the board will do what is what is in the best interest of the organization and they will definitely follow a approach which is which is comprehensive, probably evaluate you know both internal and external candidates to see who fits, you know the need and idea is to identify a leader who will best align with the long-term strategic priorities of the organization.
Abhijit Tebrewal
Got it. Got it. Thank you so much for patiently answering all my questions. I wish you and your team the very best.
Operator
Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to Mr Ashish Tamani for closing comments.
Ashish Damani
Thank you. Thank you once again, you know, for joining us, although it’s very late. I thank you for all the support. We expect you to continue to give us all the feedback. And if there are questions, we will be available subsequently for you to no rejo. Thank you very much. Good night.
Operator
Thank you. On behalf of Spandana Financial Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines. Thank you.