Utkarsh Small Finance Bank Limited (NSE: UTKARSHBNK) Q3 2025 Earnings Call dated Feb. 17, 2025
Corporate Participants:
Govind Singh — Managing Director and Chief Executive Officer
Unidentified Speaker
Puneet Maheshwari — Head of Finance
Analysts:
Renish Bhuva — Analyst
Deepak Poddar — Analyst
Kiran — Analyst
Ashlesh Sonje — Analyst
Unidentified Participant
Mohan Raj — Analyst
Vinay N — Analyst
Shailesh Kanani — Analyst
Purushotham — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Q3 FY ’25 Utkar Small Finance Bank Conference Call hosted by SAICI Securities. As a reminder, all participant lines will be in the listen-only mode and there’ll be an opportunity for you to ask questions after the presentation concludes. Should any decision during the conference call, please signal an operator by pressing star and then zero on your touchstone phone.
I now hand the conference over to Mr Renish Bhuva from ICICI Securities. Thank you, and over to you.
Renish Bhuva — Analyst
Yeah, hi. Thank you. Good afternoon, everyone, and welcome to Tarsh Small Finance Bank Q3 FY ’25 earnings call. On behalf of ICICI Securities, I would like to thank management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of, be presented by Mr Govin Singh, Managing Director and CEO; Mr Pramod Kumar Dube, Executive Director; Mr Kumar,, CFO; Mr Amit, Chief Risk Officer; Mr Alok Patak, Head of Science; Mr Vivek, Head, JLG Sales Micro Banking; and Mr Punit, Head, Strategy and IR.
I will now hand over the call to Mr for opening remarks at time, we’ll open the floor for Q&A. Over to you, sir.
Govind Singh — Managing Director and Chief Executive Officer
Thank you. Yeah, thank you very much, Renesh, and good evening to all of you. Thank you everyone for taking time — taking our time to attend our Q3 FY ’25 earnings call. As you are aware, operating environment remained challenging for microfinance sector in-quarter three FY ’25 on account of higher borrower level leverage and credit supply tightening for underlying borrowers following guardrail norms, while at the same time, we continue to see good traction on our franchise expansion, healthy growth in deposits as well in the secured loan portfolio. In terms of business performance, our deposits have grown by around 33% year-on-year, in-line with our plan to INR20,172 crore. Deposits growth was led by growth in retail term deposits, which grew by 41% year-on-year. Our CASA deposit ratio was 19.7% as on December ’24, largely at the same level of 19.6% as on September ’24 and CASA plus retail term deposit ratio improved from 68.4% as on September ’24 to 70.1% as on December ’24. As for outlook on growth, we expect deposit growth to remain higher than credit growth and expect consistent decline in our CD ratio.
As regards JLG book, we are seeing stabilization of collection efficiency in ex-bucket. Overall stress level is also peaking out and we expect environment to improve further in current quarter and first-quarter of next financial year. Overall assessment of JSG portfolio and operating environment is as follows. Collection efficiency is stabilizing in ex-bucket. It improved to 98% in December ’24 and in current month till February 20 — till February 15, it is closer to 99%. A trend in net increase in power level, it declining month-on-month and in current — current month till February 15, there is no increase in net power one. It was declined marginally from month-end January ’25. We expect power level to start declining firmly in next one to two months. On account, higher SMA buckets as on account of higher SMA buckets as on December ’24, fresh slippages could remain high in-quarter four FY ’25. However, as regular bucket collection efficiency is stabilizing, we expect SMA book to normalize in-quarter one FY ’26 and Fresh NPA generation would reduce meaningfully then. We are seeing improvement in collections from OD book, expect meaningful improvement in collections from OD buckets from quarter one FY ’26.
While we continue to focus on collections in current environment, we expect JLG disbursements to normalize by quarter two FY ’26. Micro banking individual loan comprised 8% of our microbanking loan book. It is focused on graduating better profile JLG customers with good repayment track-record. This portfolio is behaving much better on collection efficiency and asset quality. Disbursement in-quarter three FY ’25 were higher by 7% quarter-on-quarter and 9% year-on-year. Individual loan portfolio is expected to grow faster. As for quarter three FY ’25, microfund disbursement remained lower in-quarter three FY ’25 as we continue to focus on collections. And as a result, microbanking loan portfolio has declined by more than INR1,200 crores vis-a-vis March ’24. Growth in non-micro banking portfolio, which is primarily secured lending continues to remain healthy in-line with our expectation at 42% year-on-year. MSME loan portfolio has grown by 58% year-on-year to INR3,453 crores. Our disbursement yield has also improved by 130 basis-points over same quarter last year. Within this, we are also seeing traction in Microlab portfolio wherein disbursement yield is around 18%. We see good growth potential for this product in our geographies and given our strong franchise. Housing loan portfolio has grown by 36% year-on-year to INR855 crore. Disbursement yield has also improved by 50 basis-points over same quarter last year. See and CV loan book increased by 35% year-on-year to INR1134 crore.
Within this, we are focusing on increasing share of used vehicle, which has increased in disbursement from close to 5% earlier to 20% now. We are strengthening our presence in BBG lending. Entire portfolio is secured against immobile collateral. This book has grown by around 60% year-on-year to around INR800 crore. We also — we have also launched a secured credit card, which is progressively progressing very well. Overall, we are also seeing much better traction on cross-sell on both sides. Asset product that is MSME, housing and Microlab through our liability focused GB branches and deposit account for our asset customer essentially more products per customer. On account of decline in disbursement in JSG, overall gross loan book growth moderated to 16.2% year-on-year as on December ’24.
As for outlook on loan book growth, we expect JLG disbursement to normalize sometime around quarter two FY ’26. Expect good growth in MBBL portfolio that is individual loan, we are expecting healthy growth trend to continue for non-micro banking portfolio, which is largely secured loan portfolio in-quarter four FY ’25 as well as FY ’26. In-line with our strategy, share of secured loans in our portfolio has been increasing. It increased further from 34% as on March ’24 to 41% as on December ’24 and is likely to increase further. We continue to build our banking franchise and open 61 new branches in-quarter three FY ’25, overall 140 new branches in — in nine months of FY ’25, taking total branch network to 1028 branches as on December ’24. With current year expansion, we have significant large franchise, which is adequate for our growth target and hence, we may not need much expansion of our branch network in FY ’26. From asset quality perspective, key factors which impacted collection efficiency and asset quality in microbanking — microfinance segment currently includes over level of borrower, restricted credit supply in JLG lending segment and bandwidth issues on — on account of higher overdue buckets. We are strengthening our collection team as well as efforts and expect collections trends to improve.
We have added around 350 more people in our microbanking team in-quarter three FY ’25 and almost around 2,000 people in nine months of FY ’25. We’re reducing case load per staff as well as we have collection team of microbanking with more than 100 — more than 800 people. We are also focusing on improving critical processes like sentimenting discipline and other processes. Additionally, on an ongoing basis, we continue to split our large MD branches to maintain better control. As I mentioned earlier, we are seeing stabilization of collection efficiency for ex-bucket as well as improvement in net power accretion. This is likely to improve further in current quarter-and-quarter four and FY ’26. Overall, primarily on account of weakness in JLG book, our gross NPAs increased from 3.88% as on September 24 to 6.1% as on December ’24. In near-term, our primary focus — focus area include maintain ex-bucket collection efficiency at around 99%, net reduction in power level, activate maximum OD clients even if these clients remain in OD, but should remain paying customer, bring center meeting and other discipline back-in JLG lending and improve on our customer connect and overall improvement in collection efficiency and as such quality of JLG portfolio.
We have also registered with CGF MEU for credit guarantee for unsecured JLG portfolio, further optimization of disbursement yields and profitability in non-microbanking portfolio. We have set-up system processes and people and are well-placed for healthy growth in non-micro banking businesses as well, building a more granular liability franchise and further improve on CASA plus retail term deposits. Our profitability during the quarter was impacted by stress in JLG book because of which credit cost was high as well as there was higher interest income reversal. Profitability expect — is expected to remain under stress in-quarter four FY ’25, while we are seeing peaking of stress in microbanking. We are not giving any specific guidance on profitability and asset quality in current environment for quarter-four FY ’25. However, we will share our outlook as well as guidance on both for FY ’26 at the time of our quarter-four FY ’25 numbers. We are holding floating provision of INR190 crores as on December ’24, of which INR173 crore was created for unforeseen risk in JLG portfolio. We have requested Reserve Bank of India to allow using this provision in current stress time.
As on December 2031, 2024, we had surplus liquidity of more than INR2,500 crores, which is higher than our usual liquidity requirement. In-line with our strategy, we have been reducing our CD ratio, which declined to 92% as on December ’24 from 99% as on December ’23. And if we net of refinance borrowing from advances, CD ratio declines to 86%. We don’t have any short-term borrowing on our balance sheet. We expect our CD ratio to decline further. We are also undertaking a business transformation project to our — to make our technology, architecture and business processes future-ready for our growth plans. As far as reverse merger part is concerned, with the holding company with the bank. We are on the track.
With this we can move to now question-and-answer section. Thank you so would you like to begin the Q&A session?
Questions and Answers:
Operator
Yes, please. Ladies and gentlemen, we will now begin the question-and-answer session. Participants who wish to ask a question may press star and one on your Techstone telephone. If you wish to remove yourself from the question queue you may press star and 2. Participants are request you to use handsets while asking a question. Ladies and gentlemen we will wait for a moment while the question queue assembles participants who wish to ask a question may press star and 1 on your touchstone telephone we have the first question from the line of Deepak Poddar from Sapphire Capital. Please go-ahead.
Deepak Poddar
Yeah, am I audible, sir?
Govind Singh
Yes yes, we can hear you.
Deepak Poddar
Yeah, thank you very much, sir, for the opportunity. Sir, just wanted to understand first up, I mean you mentioned in your opening remarks that overall stress level has peaked out and we do expect even you are seeing some stabilization in collection efficiency in regular buckets as well as overall. So can one assume, I mean, in terms of your credit cost of provisioning, which we did about INR400 crores — INR420 crores this quarter, is that the peak and going-forward quarter-on-quarter one should see reduction in your provisioning?
Govind Singh
Yeah, it’s going to be around that. That’s what our presumption. It will not increase from here.
Deepak Poddar
Okay. So maybe 4th-quarter it will be around that, but from first-quarter, we expect some significant reduction.
Govind Singh
That is what is anticipated. That’s where all the efforts are going to see that this number obviously is on a downward trend.
Deepak Poddar
Okay. So from first-quarter onwards, we can expect some significant reduction. 4th-quarter were around same levels is what one can expect, right?
Govind Singh
Yeah. Yeah, it’s very difficult to give the exact numbers, but certainly, yes, it will start reduction from quarter-four itself because we are seeing good stabilization, but it may not be significant. And as you yourself mentioned that quarter one, we should see a much, much bigger, you know you can say decrease in this number, the way we have seen trends in last few months now.
Deepak Poddar
Understood, understood. And that’s helpful. And my second question on your growth. I mean, what sort of — I mean grade growth we are looking for this year? I mean, this is just the 4th-quarter left.
Govind Singh
So as you mentioned that we have — this time we are not even giving any specific guidance for a simple region that JLG growth is currently is not certain right now and we have seen that happening. We are seeing a good growth in the non-JLG business and we are — the way we have seen around 40% to 50% growth in the non-JLG. So that will remain on the same trajectory. But JLG growth is right now uncertain, so we are not able to give any specific guidance for quarter-four.
Deepak Poddar
Understood. And JLG forms, how much percentage of your MFI book?
Govind Singh
Yeah. So JLG will be close to about 51% of as far as the total portfolio, JLG is about 51% of our overall portfolio.
Deepak Poddar
Actually 51% of overall portfolio, not the MFI portfolio.
Govind Singh
Yeah.
Deepak Poddar
Okay. So majority would be JLG only, right, because your 60% of your portfolio is right now MFI only.
Govind Singh
So within MFI, about 92% is GLG and 8% is individual.
Deepak Poddar
Fair, fair. And are we focusing towards this shift towards more individual and reducing GLG?
Govind Singh
Yes, certainly yes. Certainly yes. In fact that we started this journey a few years back, obviously, because microfinance was there with us for a long-time. So individual within microfinance and the non-microfinance book, I think both are growing well and we have seen good growth during last few years. That trajectory will continue. So Brank will keep focusing on the non-JNG businesses and the other business segment as far as the lending part is concerned.
Deepak Poddar
Understood. Yeah, that’s very helpful, sir. I mean that would be it from my side. Thank you.
Govind Singh
Sure. Thank you.
Operator
Thank you. Participants who wish to ask a question may press star and one on your touchstone telephone. The participants wish to ask a question press star and one on your touchstone telephone. We have the next question from the line of Kiran [Phonetic] an individual investor. Please go-ahead.
Kiran
Good evening. So I’m an individual investor. So my question is now that we understand that people had over leverage under the microfinance business. So what are the precautions that we are taking to prevent this in the future? Because I’m sure a lot more number of small finance banks are coming up. So people now can get loans you know, with the mobile apps where they distribute the loans. How are we going to prevent this that has happened in the future? What has happened has happened, but I have been on the call for even the other small finance bank like Equitas and even every other small finance bank is facing the same problem. But I mean, what are the precautions is what I want.
Govind Singh
Yeah. So you must-have seen the biggest change that has happened during last few months is the — there are new guard rails given by the industry SRO. And as per that, currently, you can’t lend to more than four loans, four lenders can’t be — they’re running more than four lenders to any borrower. So that is the new guard guardless from the and in fact from 1st April, they are moving to three lenders overall. In past, though there was a — there was a guidance which says that you can’t lend more than this amount, but number of lenders was not restricted. So now there is — that restriction — that restriction in-place. It was put from 1st of August and you must-have seen the stress has built — started building from 1st of August because you can’t lend the way it was there. You can say over leverage is no more allowed. Everyone does through a credit bureau check and then sees that this is — this is not the situation.
And it is being monitored by the SROs. There are and, there are two SROs which normally all the people who are working for microfinance is sector, they adhere to. So such situation is not expected to happen in future. The way it has been, I can use the word regulator or the way it has been protected now. So such is not likely to be there in future. The — this level of you can say over leveraging part. And I must tell that I think all the players are following this and Saghn and are very closely monitoring this. Not on them, even the RBI, whenever they are talking to banks and NDFCs, they are also monitoring this closely.
Kiran
So I have a follow-up question,. So basically, do you have a setup where you know when you want to lend money to somebody under microfinance, do you have a, you know, setup where you can actually see how much has this person borrowed from how many banks, what is the amount? So is there any setup for doing coordinate with other small banks?
Govind Singh
No, certainly, certainly it is there. See, the current setup is that for any — any disbursement, you have to check the credit bureau record of the borrower. So as I mentioned earlier, people are not checking how many — how many people have given loan to this person that has been restricted and that is being checked by each and everyone. In fact, this is through a system check itself. There is no manual intervention and most of the players including us. So if the person has taken, say, four loans and he comes to us for fifth loan, the system itself rejects the — reject the borrower for an next loan. So that system is there and it is across in fact. I mean, when I across means all the people who are into microfinance lending space, they are adhering to that and they are submitting that data to the credit bureaus. So that system is there and it is being used by people. And now norms are also tightened so that these are — these are adhere to 100%.
Kiran
Thank you. So one more question is, I mean, there was a talk in the — in some of the previous calls, I don’t remember when exactly this was, but then there was talk that the Ukrash might apply for the universal banking cycle. Is there any progress on that or are we even pursuing becoming a universal bank?
Govind Singh
So in past also, we have mentioned that, yes, obviously investment bank makes — I can use our more sense because there are some benefits which are available to universal banks. Having said so, I think as a small finance bank, you can offer all type of products and services and you are — there is no difference per se for the — for the end-customer angle. So as and when we become eligible for this, I think we certainly would like to evaluate that for sure. But as of now, that is not on card right now. Okay. Thank you. Thank you, sir. All the best.
Kiran
Thank you. Thanks a lot.
Operator
Thank you. We have the next question from the line of Ashlesh Sonje from Kotak Securities. Please go-ahead.
Ashlesh Sonje
Hi, team, good afternoon. Sir, a datakeeping question first. Can you share the total percentage of your microfinance portfolio where the borrower has borrowed from more than four lenders in total and more than three lenders in total.
Govind Singh
So we had shared this last-time as well so in terms of borrowers roughly about 13% is 4 or 4 plus basically utkash plus 4 or more than 4 and Utkash plus 3 is close to about 12%.
Ashlesh Sonje
Okay, 13% and 25% by borrower count?
Govind Singh
Yeah. Yeah, yeah, yeah.
Ashlesh Sonje
Okay. But can you share the same as a proportion of portfolio?
Govind Singh
So proportion of portfolio is largely similar, Ashlesh. It is not materially different from, let’s say share in terms of count.
Ashlesh Sonje
Sir, on the qualitative question now, if I look at the slippages, especially in the last couple of quarters, they have been quite elevated. So when you go and try to collect from these borrowers, what exactly is preventing you? Are you firstly able to locate and meet these borrowers and yeah, what is preventing you from correcting.
Govind Singh
So normally what is happening in Ashlesh, because the numbers are large right now, so it is taking extra efforts. And generally, the design is for center meeting. The moment you have to go door-to-door, it takes much more efforts and much more time. So generally customers are available. I still feel that, look, I mean, in some cases, obviously you may not find the customer, but largely customers are available. It is, you can say inability of the players to reach-out to all these people in time, that was an issue. And gradually if the — if we start having one that center meeting become more regular, that is — that is easier that we have been making efforts to. It’s very difficult to say exact number, but at least 70% to 80% center meetings are happening regularly. So we are able to meet large number of customers at that place itself.
And gradually, we are seeing that more-and-more customers are starting paying. So 30%, 35%, 40% customers are paying regularly. Sometime it may not be full installment or full overdue. So I think they are also gradually becoming a regular in that sense, regular in payment may not be regular as far as their account is concerned. So gradually this number will come down and I think it will become more manageable to meet these customers on regular basis and do it.
I still want to mention that we don’t foresee much challenge that customers are not available. There may be a few some small percentage of customers who may not be available or who might have migrated, but this very, very small segment. I think large segments because of our own inability to reach these people in time was an issue, which has — which is getting addressed by a more-and-more discipline at the same time enhancing our own teams also. As I mentioned, now we have 800 plus team only for collections, which looks into 61 plus bucket. And also we have got close to 400 people as our general or normal center meeting people. So actually, our number of clients have come down, but our employee base has actually gone down by close to maybe 1,000 to 1,200 during this period.
Ashlesh Sonje
No, no. Understood, sir. Sir, few more data giving questions. If you can share the slippages for the quarter by segment? Secondly, if you can share what is the current PCR in the microfinance book and the provision policy in microfinance? That is the second one. And lastly, if you can share the trend of ex-bucket collection efficiency in 2Q, 3Q or December, January, February.
Govind Singh
So fresh NPA generation overall were about INR738 crore, out of which INR650 odd crore was micro-banking and balance is not micro-banking. In terms of provision cover, overall provision cover is — I mean we see for unsecured, it is about 46% and for secured, it is about 38%, I’m talking about excluding floating provision. Okay. And from a provisioning policy perspective, so we start for unsecured or let’s say for our microfinance portfolio, we start with a 40% provision cover and once account becomes NPA and then every quarter we increase it by 15%. So by the time an account remains in NPA for a year, we would have 100% provision cover.
Ashlesh Sonje
Understood. And the last one was bucket collection in 2Q, 3Q, December, January.
Govind Singh
Your voice is talk a little louder Ashlesh?
Ashlesh Sonje
Yeah, sorry, sir. I was saying if you can share the trend on ex-bucket collection efficiency in the September quarter, December quarter and the last few months yeah, go-ahead.
Unidentified Speaker
Yeah, yeah, just one second, Mr Shah. So if you see ex-bucket collection efficiency, I mean, as sir said, in month of February, we were close to about 99%. If we look at January, we were still more than 98.5%. December, we were close to about 98%. In September, October, November, we were close to — between a range of 96% to 97% 97.5%.
Ashlesh Sonje
Okay, perfect. Thanks. Those are all the questions. Thank you.
Govind Singh
Yeah. Thanks, Adesh.
Operator
Thank you. We have the next question from the line of [Indecipherable]. Please go-ahead.
Unidentified Participant
Yeah. Hi, good afternoon, sir. Sir, I have one question like we are seeing that continuous provisioning is happening from last two quarters. So is this going to continue in future o1r why can’t we do all the provision in 1/4 so that in future we like we must be ensure that we know we are not going to see that type of provision in future.
Govind Singh
As we mentioned that we are making a provision which is higher than the IRAC norms and we have a bucketing of provisioning norms both Board approved and which is, as I said, accelerated in any case. So we have to be in tandem with the slippages and the natural behavior. I think probably in a fairness point-of-view, well, you may seem to be sounding be conservative in prudent, but I think it is also appropriate to do that as it matches the reality. And there is always efforts to get the collection, to get the recoveries. So in any case to assure you one that we already have a grade of provisioning which is higher than the IREC norms.
Unidentified Participant
Okay, so we are moving from microfinance to non-microfinance. Definitely in future we are going to see like yield would not be that much because in in microfinance, we see lot of like company used to earn a lot by interest and everything. If we move everything from microfinance to that particular banking and secured part. So in future, like are you planning like if situation improves in future so are you planning to move again to microfinance or your future will be in the secured part only?
Govind Singh
Okay. No, there are two aspects. One, our microfinance will remain there. It’s not that we are completely moving out of. The share of microfinance will come down and you must-have seen during last four, five years also, each year the share of microfinance comes down by around 5%, 6%, 7% each year. And the share of the secured and the non-micro finance book has been increasing. And I think the way we have been talking, the same trend will continue because during last four, five years, we have got a new and number of new verticals as far as lending part is concerned. I do take your point that the yield for JLG is certainly higher than when you talk of a secured book. But at the same time, in terms of provision requirement, in terms of — in terms of my overall cost of funds will also come down by — there will be efficiency of overall operations of the bank also. So I think these will also play in the whole thing.
In fact, obviously, currently we are passing-through a very different type of situation. The entire industry is passing-through a different situation. Otherwise, there is no — there are not large dips in the NIMs and other ratios, while we could we could reduce our JLG pool share by around 6%, 7% on a year basis. So we don’t expect that much difference in that. In fact, we are also looking at some of the — some of the high-yielding products like Puneet mentioned about the micro lab where we are able to get around 18% and it’s a secure type of product. So we — so I think in mix-and-match plus our operational will go up, our cost of funds will go down. The difference may not be that large. Yes, certainly there may be some a decline in the NIM over a period of next two to three years time, but this will get offset by other positives, other operational efficiencies.
Unidentified Participant
Okay. Thank you, sir. Sir. This was from my side.
Govind Singh
Thank you.
Operator
Thank you. We have the next question from the line of Mohan Raj [Phonetic] an Individual Investor. Please go-ahead.
Mohan Raj
Two questions from my side one is like can you give me the situ I mean the state situation because there are news that in the South side, especially in Karnataka, like there is a new ordinance and which is impacting the customer sentiment to repay the loans and like so will there be any pilover effect on that on the portfolio like when we go into the next financial year? And the second question is, so you have mentioned like you have registered with this CGFMU. So can we expect the like most of your unsecured portfolio will be covered under that or yes. So what’s your plan there?
Govind Singh
Yeah. Yeah. As far as the first part is concerned, so we have seen Karnataka situation and you must-have seen the ordinance also, which excludes all the banks, all the REs the regulatory entries of of India have been excluded from that. And yes, there was some temporary challenge there, but it has been amicably or properly resolved. And we have not seen any after-effect or any such effect of that situation across the country. Incidentally, we are not in the Karnataka belt. We have a very small portfolith through our BC partner, but otherwise, we are not in South, largely in South right now, it is through our BC partners only. We are largely — we are the Northern and Central belt from the JLG perspective, but we have not seen any after-effect or any effect of what happened in Karnataka. So that is one part.
Secondly, yes, our large portfolio will be — will get covered under this guarantee scheme. We are just evaluating each and every unsecured book that we have got and which are covered under this scheme because we have registered recently only. And most of the book which is unsecured and which is eligible under this guarantee scheme will try to cover but I think we are in the process of doing that right now but most of this will get covered, sir.
Mohan Raj
Thank you so much.
Operator
Thank you. We have the next question from the line of Vinay N from Hathway Investments. Please go-ahead.
Vinay N
Yeah, good evening. A couple of questions. Can you hear me?
Govind Singh
Yes, we can hear you. Please go-ahead.
Vinay N
Couple of questions. One was, just to take the same point what the earlier question I had asked. Which are the — because you have nearly 70% lending in Bihar and Pradesh. Now are there certain districts there which are causing a problem or how — where-is this NPA suddenly hit us so badly in the last two quarters?
Govind Singh
Okay. Just to talk about this, I think Vivek can also add, but from the way we have seen, you know, whenever happens, it hits in some of the pockets. So we saw some of the pockets in our core geography got hit more than what it challenged in other places. So like in some of the pockets like Bhagalpur belt of Bihar, you can say where it was a bigger hit. Similarly in belt of Uttar Pradesh where we got a bigger hit. Similar to some pockets in and some pockets in also, where the hit was little higher than other places. So these four states are quite large states from our JLG portfolio angle. As a bank may not be that those large in terms of overall lending book, but from the JLG — from the macro book because historically we started from the geographies only, there the hit was little higher. And as I mentioned to counter that we have already put things in-place and we do expect that the way the normalization is happening, it should happen much faster and we don’t expect you know at least this to go beyond this now.
Vinay N
My second question is, what was the reason why there was such a large default? Was it something locally in those areas or was it just our collection efficiency that had dropped?
Govind Singh
No, this is largely as we all are aware that this happened from the beginning — in the first week of August when the new guard rails of MFIN got implemented where the people who are having more than four loans were not eligible for any further loans. So I think there is a scarcity of credit. I mean, people are not getting credit. I mean, as an industry level, there may be around 13% to 15% such customers were eligible and there is an impact of that. The impact was higher in some of the geographies and lower in some of the geographies. That does happen sometime. So that’s the only reason. I mean, you can say that’s a trigger.
Before that the heat wave has a big impact this time. And even in these states, especially Uttar Pradesh and Bihar, the elections also because election happen in seven stages, unlike in most of the states where it happens in one or two stages. In UP, as well in Bihar, it happened in seven stages. I think there is a prolonged period because of that. The field operations got a little disturbed during that period, then there is a heat wave and we had some flood situation also in some of the Bihar pockets. So that happened before 1st August and that got — we can say further triggered or further aggravated by the guard layers from the 1st of August 2024. I think these are the reasons and that’s why it has taken a little longer time.
We had since situation in past also, but that used to come back normal very quickly. This time there are series of reasons or series of things that happened. So it has taken a little longer time this time.
Vinay N
And you see these reasons now going away because the guardrail is further getting tightened from 1st April, but will that have a significant impact in the FY ’26 numbers for provisioning or you see some relief there because more than 25% of your portfolio is with plus re-lenders, is it?
Govind Singh
Yeah. So as, our CFO also mentioned that whatever is the — our currently, obviously will have an impact on quarter-four also because — because of the impact of that. But going-forward, that’s not the case. And second, the change of guardrail will not have major impact. There may minor plus/minus can be there, but not a major impact because see earlier what was the case? I mean, when we say four-plus, sometimes there are people with six, seven or eight lending also. In this case, the number is specific and people are aware and you must-have seen the disbursement have gone down significantly during last almost six months now from 1st August, I think every — all the players are experiencing a 40% to 50% disbursement rate than the earlier rates. In fact, everyone’s portfolio has degrown.
So I think these further tightening of guard base, whatever was to be done from 1st January that has already been done, you are aware of this that. So for example, voter card is mandatory for each and every borrower. So all those things have been implemented by the industry and by us also. The only change which will happen from April pan industry will be one of not more than three lenders. And we don’t foresee much, much impact — impact of that.
Vinay N
Yeah. My last question is basically now going-forward, as far as growing your revenues, yeah, while this stress will be there and I’m sure you have a team who will be focusing only on that, but would you also have a team which will be focusing on growing your revenues because your cost of funds has really come down quite nicely. If. If your yield of advance has also go up now, you would have a much better or cushion to bear these losses going-forward. So is there any attempt to increase that? And how is it that you’re planning? Is it geographically, are you wanting to expand in some other states where there is better credit quality or what is the strategic thinking for FY ’26 and beyond?
Govind Singh
So certainly, sir, and we’ll come back obviously, our guidance for ’26 in our next call. But the way you mentioned, we are also strengthened our various non-JLG verticals also. JLG, we don’t intend to expand too much. There have been a very moderated growth as far as JLG is concerned, but we have other verticals also. And there are some verticals where we are able to get good yields also. For example, we mentioned about the used vehicle. So used vehicle gives me much better yield and from 5% disbursement, we have already moved to around 20% disbursement last four, five months’ time. Is giving us 18% plus and this is a product app for our geography. When I say our geographies, our core area where we talk of UP and Bihar, and that build.
So I think we have also identified these products, which we are focusing upon and we expect these will — these — we will be able to expand and grow much faster in days ad. So book will be secured more — I mean this proportion of secured is much higher. The yield — the blended yield will be — obviously will be little lower than what we have been doing in last few years, but it will not be significantly lower than what we have done in past. And the credit cost or the credit quality is expected much better. And at the same time, our operating cost structure will also get — will also get much better. So I think overall, in next two to three years’ time, we should see a much, much better traction in trajectory.
Vinay N
One last thing. What about gold loans? Are you into that also?
Govind Singh
Yes, we have started gold loan and we intend to increase the disbursement in the book in next financial year.
Vinay N
How much would it be as a percentage in this results?
Govind Singh
Currently, it’s negligible. Maybe by next year we would like to make a book of INR100 crore-plus.
Vinay N
Thank you very much. Wish you all the best for future. Thank you.
Govind Singh
Thank you. Thanks a lot. Thank you.
Operator
Thank you. We have the next question from the line of Shailesh Kanani from Centrum Broking. Please go-ahead.
Shailesh Kanani
Good evening, everyone, and thanks for the opportunity. Sir, I just wanted to understand first on the collection efficiency front. You said the Feb number is 99%. So can you just define that collection efficiency and also reconcile the collection efficiency number what we have mentioned in the Slide 26 for the 3rd-quarter. That would be helpful to understand.
Govind Singh
Okay. So the collection efficiency number which we have given on the presentation, that is collection efficiency for entire book. So that is for ex-bucket, SMA as well as for NPA. So total collection during the month against the total demand. That is the collection efficiency, which we have put in the presentation. The close to 99% ex-bucket collection efficiency is basically, let’s say, accounts which were there at the end-of-the previous month, regular account. This is the ex-bucket collection efficiency for those accounts. So when we are saying, let’s say, till February 15, we had a 90 — close to 99% collection efficiency. This means that whatever accounts were regular at the end of 31st January, collection efficiency for those accounts is close to 99%.
Shailesh Kanani
But does that collection efficially includes any prepayment, the 99%?
Govind Singh
No, no, none of — none of the two includes prepayments. Basically it’s all regular or only collection.
Shailesh Kanani
Okay. So if one EMI is due, one EMI paid, so that is 99%, right? That understands you.
Govind Singh
Right.
Shailesh Kanani
Okay. Thanks. That’s helpful. Continuing on this collection front, we have seen certain players changing the collection methods from — they are going from monthly to work nightly or weekly. Any plans from side to do this as we have beefed up the collection team as well?
Govind Singh
So I can take this question. So you know we moved from weekly to long-time back based on you can see the efficiency — overall efficiency, operational efficiency as well as customer convenience. And you are aware that in JLG, we are largely a rural player. I mean, almost 80% of our portfolio comes from there. So our idea is to continue with this Fortnitely. This is a most balanced way of doing it. So we don’t have any plans of changing it from currently, which is almost 90%, 90%, 90%, 91% is Fortnitely. We intend to continue with Fortnitely only, not to move to monthly or to weekly.
Shailesh Kanani
Okay. And sir, in terms of a bookkeeping question, what are the current feels on the disbursement of the front and individual fund, if you can give that number?
Govind Singh
Sorry, I couldn’t hear properly.
Shailesh Kanani
Sir, I was asking what are the yields on disbursement for the JLG and individual book?
Govind Singh
Yeah, Puneet, you can take this.
Puneet Maheshwari
Yeah. Yeah. So for both mutual and JLG disbursement yield currently is 24%.
Shailesh Kanani
Okay. The last question from my side. Any timelines in terms of reverse merger? We have already had guided about first-half FY ’26.
Govind Singh
So we are on-track there to be — you know, the fact is that we already got an NOC from RBI. I think that’s a good development. We also have got almost green signal from the two exchanges who have been done send it to SEBI and we are just now waiting for them to give their. As far as the readiness to file the petition, I think everything is just you know on the table for a day or two or three at best after we receive say B. The way I look at it is that we are in fact in — on-track to do this before March. It could be even earlier before end of March. And therefore, our anticip anticipated date of completing the consumeration of the reverse merger process early Q3 FY ‘260s fair enough.
Shailesh Kanani
And sir, anything on the valuation, how will valuation work-out?
Govind Singh
Sorry, can you just repeat? We couldn’t hear.
Shailesh Kanani
From the reverse margin, how that valuation will work-out? Any numbers on that?
Govind Singh
We have already announced the valuation number. It is 6.99x actually is the valuation. It’s already in public domain now. Yes.
Shailesh Kanani
Okay. Okay. Thanks. Sir, just last one question. This current collection efficiency at 99% for the month of Feb, how is that stack-up, say, to Feb 2024 or is it in-line with what we were earlier before this before this current crisis just one second.
Govind Singh
Can you come again? Can you come again? Sorry, couldn’t hear you properly.
Shailesh Kanani
Yeah, yeah. So basically, the collection efficiency for the month of Feb is around 99%. How would that be, say, one year back of February 2024?
Govind Singh
So I don’t have the precise number for FY ’24, but it should be closer to this level, right?
Unidentified Speaker
It was closer to same level.
Unidentified Speaker
So 99.23, something like that.
Shailesh Kanani
Okay. So we are reaching a normal collection efficiency in steady-state of business. That is what I want to comment.
Govind Singh
Absolutely.
Shailesh Kanani
Okay. Okay. That’s quite helpful. Thanks a lot, sir, and best of luck.
Govind Singh
Thank you. Thanks a lot.
Operator
Thank you. We have the next question from the line of Purushotham [Phonetic] an individual Investor. Please go-ahead.
Purushotham
Sir, I am having only a small question this you are list though you are a private company for last so many years. Now the disting took place just two years. I think it is January ’23 so this visibility of huge NPA successive quarters provision and all that it was not anticipated during your IPA issue because most of the public investors are feeling like this NPA. Am I audible, sir?
Govind Singh
Yeah, yeah, we can hear you. Please go-ahead.
Purushotham
This visibility of getting saw too much impacted by NPA was not — are you not aware of at the time of IPO because many have taken share at the price of INR50 and above INR60 and all and thinking that your EPS posting and normal metrics, we — these are by this time share price would have shot up above 100. So now whereas it is covering around 23 25 now. So is it not a hedging game you are playing? No, I’m active minister in a way.
Govind Singh
No, no, no, absolutely, sir, absolutely. I mean, so I just want to clarify one that we are in public domain for a long-time, we may be listed company for recent time only and you must-have seen the track-record of and yes, there has been situation past also when the — when suddenly the credit cost goes up, we have seen in-demand time we saw in the COVID time also. And as we just mentioned on this call and if you see all the newspaper also all the players, it’s not specific to Uttkar, it is specific to the — it is for the general industry. In fact, all the people who are into unsecured or in micronast space, they are.
Purushotham
Sorry for the intervention. My question is this two quarters all this become this two quarters or it was an accumulated from so many years the people might have defaulted so many even like that beyond.
Govind Singh
So let me just complete this thing it.
Purushotham
So that visibility you may be having also that clarity and when we go for an IPO, you should have player in the book in a proper transparent way before IPO, say IPO, you are turned amount to something you are hiding your NPA, your asset quality is not 100%. Am I right?
Govind Singh
No, no, sir, that’s what I’m trying to tell you that there is nothing of that sort. This — what industry — entire industry is facing it is not only. If you look at all the people who are in the JLG or space, they are facing this issue and this got triggered from the 1st of August. So you’ll see that there is a decline in the asset quality from 1st of August because of the changes the way regulations or the SRO is brought in. Even if you look at our March ’24 numbers, our net NP was very close to zero actually.
Purushotham
And our — said that your deterioration of collection efficiency and all is a recent development of all these INR400 odd crore you off in the Q3 is not an accumulated thing right two, three years back on accumulated at all.
Govind Singh
In fact, if you are aware that our — our — even the — the overall tenure of our loans are — especially for the JLG, the loans are 14 months, 24 months. So there are actually short-term loans only, 24 months and 14 months. So the entire stress got built-up during last six months only and this is what is happening across. And we all are coming out of it. So there is no question of having any stress earlier, which was not disclosed with no question — there’s been no such question. And if you see our results for previous year and even March ’24 also, there are no stress. This has — this got caused from 1st of August because it changed the way the lending was changed and we are must be seeing in other players also that there has been little stress in the system for unsecured and microfance lending.
Purushotham
When some well the people to whom your lended is devaulting, is it you are just leaving them away and detaching the department and moving or you are making an effort to still maybe your asset reconstruction coming in or maybe auction that is one part. But why don’t our internal arrangement itself to can try to extract maximum before auctioning the asset reconstruction coming up and all. So our collection efficiency improvement, what action you are contemplating now?
Govind Singh
So you mentioned, sir that we have strengthened normally NIM JSG or C micro plant. People normally do not have collection team. So now people have also put their collection team in-place. We have also put a specific collection team in-place. Even the that has been sold to ARC, we have taken the collection responsibility for that and whatever are the benefits that will also accrue to us. So it’s not that the benefits will not accrue to us. So there has been a big focus on collections. And obviously, we are aware of this fact that wherever there have been delinquencies or wherever there have been stress in the portfolio, that remains our top priority and that’s why you must-have seen the growth rate has at least for the JLG has come down. And that is what we have been talking for some time that we are — now there is a significant improvement. Obviously, it is yet to normalize, it is taking little longer time and those are the efforts. And I think we all are mature of that and qualify again once again.
Purushotham
So the growth rate, de-growth rate is understandable due to some RB regime more than four lenders, what cannot take long. Those are all understandable. But the thing is the all of a sudden the NPA increase is successive quarters see what the general investors think that once you a massive NPA provisioning you make, so that means the. So then further two, three more two years, nothing will happen for that significant provisioning may not be there. That will be the general perception. But here successive is your maybe something is. That’s what I feel because this question I would not have asked had you been a listed company for so many years. So if you are listed with just two years back, so your asset quality should have been — you should have cleared your book and came for IPO. So the IPO is a point where yet anybody begins, right? So book you done, they start with IPO. So I think this is an accumulated asset much before the IPO happens. If that is the case, you kindly don’t leave the people say it’s not like a maybe small but still nowadays and everything that identity is a pro and collection efficiency you find out some mechanism and try to collectively because why it is painting, I’m holding 1.43 lakh shares within any 71 lakh actually 54 average I bought. Now again I have 29.4 to another 71, 72,000. I add it. Now I am having 1.43 at the average of so something like that. So it is really pain. I’m a small investor. That’s why I’m telling me.
Govind Singh
Sir, as I mentioned, this is not specific to Utkar, it is industry level problem and rest assured that we are top of it and the full focus is right on the collection and improving the collection efficiency.
Purushotham
So banks that should be a prime focus now because degrowth due to RPA, new regulation, this thing and all these understand. But leaving the people aside for non-payment and you are just leaving the compartment and the rest of the compartment finally we will be elected in the, okay.
Govind Singh
Sure on behalf of that we are it is recent pain and industry level pain and we all are working towards and you’ll see you can see that there are certain improvement and we’ll see further improvements in that.
Operator
Thank you. We have the next question from the line of Ashlesh Sanjay from Kotak Securities. Please go-ahead.
Shailesh Kanani
Hi, sir. Thank you for the follow-up. Sir, one question on the operational side. When you do the KYC for the borrower, what are the different identification documents which you collect as of now? And has there been any change starting from January because of the new car drills?
Govind Singh
Yeah. So there are — in case of normal banking, there are what we call OVDs, the officially valid documents given by — as per the KYC norm. Specific to JLG customers, there are two documents which are mandatory. One is the card and second is the ID card and the important part from what has happened from 1st January, in fact because of that some clients may not be able to get disbursed also, these are validated from the back-end in both the cases. From the system, these are validated that these are correct ones. So now we are using or that is again as per the industry, everyone in the industry is using two documents, one is and second the water ID card. And these are getting validated also.
Shailesh Kanani
Okay. And what is the change which has happened specifically in the case of Utkarsh from January?
Govind Singh
So water ID card was not mandatory earlier. It has become mandatory and not only mandatory, but it is also being cross-checked from the system that this is a valid one.
Shailesh Kanani
Understood. And what would be the incremental drop-offs because of the water ID and its validation becoming mandatory hello. Sorry.
Govind Singh
I got any longer with you. I don’t have exactly with me, but Vivek, it’s a broad number.
Unidentified Speaker
It’s a broad number, it’s not a very calculated number, but roughly around 6% to 8%, we are seeing additional increase of dropout.
Shailesh Kanani
Understood, sir. Sir, and just lastly, when you submit the — when you try to assess the borrowers leverage using data from the credit bureau. How does the credit bureau identify the borrower as based on what unique ID?
Unidentified Speaker
So basically identify the borrower bases the voter ID card, which we are submitted to the credit bureau. So since card number is not submitted to credit bureau, so they cannot identify the borrower through on the basis of Azhar card and that’s why across the industry, MPs and MP has implemented that voter ID card is mandatory and everybody is required to verify that voter ID card is valid and obviously they have to submit also to the credit bureau.
Shailesh Kanani
Understood okay, sir that’s a little confusing, because then if we were not taking voter IDs earlier, then for our customer set, if the voter ID is not available with us, how does the credit bureau end-up identifying that borrower? If you are not submitting ID or till December?
Unidentified Speaker
No, earlier also we were taking voter ID card, but we were not validating or it was not mandatory. As per the RBI OBD rule, we are taking the documents. Obviously, our card was there and other OBD documents we were taking and numbers were there. But since it has been made post the implementation of Guardian 2.0, we have made it mandatory and we are collecting and we are validating through back-end also.
Unidentified Speaker
And, if you see, usually the way bureaus run, it’s not just let’s say, a ID number or number, it also run with a multiple matches. So basically there are multiple primary matches and secondary matches, which include name of the borrower, databirth, father’s name, mobile number and so on. So basically all of that also they basically let’s say, see whether the borrower profile is matching to get the bureau thought.
Shailesh Kanani
Okay. So in summary, it seems like the borrower identification process at the bureau level has become a lot better now starting January and that can lead to incremental rejections starting.
Unidentified Speaker
Become more stronger and more actually from that angle.
Unidentified Speaker
Yeah. But perhaps actually the — let’s say, because we were already doing sign and EKYC, Adhar was on mandatory document, now ID validation is also mandate, right?
Shailesh Kanani
Understood. Perfect. Thanks a lot, sir. That answers my question.
Govind Singh
Thanks, Ashlesh. Thanks a lot.
Operator
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.
Govind Singh
Yeah, thank you, team for hosting this and thanks everyone for joining our call. You have always been supporting and yes, the — one of the segment of the bank because banks multiple segment, but microfinance is passing-through a tough phase right now and we are seeing certainly some improvements in the — in the overall the way things are happening for microfinance also. And you have been always supporting Utkash and you’ll see that we are able to improve things much, much better from here. And once again, thanks for attending this call and always your support.
Operator
[Operator Closing Remarks]