L&T Finance Limited (LTF) Q2 2027 Earnings Call Transcript

Ladies and Chairman, good day, and welcome to the L&T Finance Limited Q2-FI27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal the operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. We have with us today Mr. Sudipta Roy, Managing Director and CEO, Mr. Sachin Joshi, Whole-Time Director and CFO, and Mr. Raju Dorthi, Whole-Time Director and COO, and other members of the Senior Management Team. Before we proceed, as a standard disclaimer, no unpublished price-sensitive information will be shared during the call. Only publicly available documents will be referred to for discussions during interaction in the call. While all efforts would be made to ensure that no unpublished surprise-sensitive information will be shared, in case of any inadmissible disclosure, the same would, in any case, form part of the recording of the call. Further, some of the statements made on today's call may be forward-looking in nature. A note to this effect is provided in the Q2 results presentation uploaded. I would now like to invite Mr. Suzita Roy to share his thoughts on the company's performance and the strategy of the company going forward. Thank you.

And over to you, sir. ...in Joshi, who will take you through the detailed financial performance for the quarter. ...impact on the monsoon and the El Nino on the rural economy, which remains an important consideration of the industry in the current operating... ...the global economy continues to be in a state of flux. Economic growth data combined with uncertainties warrant close monitoring, India's domestic demand fundamentally continue to remain resilient. Input cost pressure has remained. Real GDP growth recorded a growth of 7.8% in Q1-FI27, Reflecting strong demand conditions on back of robust private consumption, investments, and activity, the facility in the domestic finance also continues to grow at a robust pace. Cumulative rainfall and long-period average substantially improves the expectation of a monsoon. Original 1% year-on-year contraction with a total coverage of 101% of the normal acreage. Crop yields and moderation in rural sentiments remain a latent risk. Rural consultations continue to be strong currently. Activities, robust government DBT transfers, services, and broadly stable employment conditions of support and PMI figures. And services sector activity is going to bind domestic and ex-momentum. Thus remains broad-based, strong demand. Finance has delivered another consistently strong quarter of profit with 975 crores, representing a growth of 36,602.6% against 2.48%. ...achieved on the back of quarterly retail disbursements of Rupees 24,027% year-on-year with contributions from all... ...momentum has been a position funnel with a 3 crore customer database and our continued focus on granular distribution channels, branch footprint, digital acquisition capabilities, and our AI-powered credit administration framework to continue to function well. However, we consciously chose to attenuate our clarity on the monsoon outcome, emphasizing on our trajectory of paring down credit costs on account of implementation of structural credit policy measures in our businesses and implementation of project cyclops in various businesses. Consequently, credit cost was moderated to 2.46% this quarter, reflecting a further sequential improvement of 8 business points from 2.54% in quarter 1 FI27, supported by collections excellence and AI-led portfolio management, bringing our guided credit cost to 2.2% by quarter 4 FI27. This, which is another focus area for us, suits stable at 10.48%. Reduction in weighted average cost of borrowing achieved successfully through astute liability management. OPEX remained range-bound at 4.08%. Continued investments in branch rollouts as we're increasing to 13.56%. And that is the consultation paper issued by RDI on insurance distribution and commission structure. It would be premature to quantify the final impact. Nationalize the commission payouts across the board. Insurance and motor insurance. The thresholds of commission payouts on standalone insurance products on the consultation paper are from a viewpoint on making insurance more affordable for the common man in line with the government of India's insurance for all as part of Vikasit Bharat 2047 plan. We believe that there is a significant scope for consultation with the regulator on creating an economic rationale for BFFI entities to continue supporting the insurance industry through their distribution channels. It is to be noted that all credit life insurance policies sold in the country are approximately 90-95% are sold by banks and NBFC distribution channels, and this touches 65-85 million likes in the country annually and accounts for about 35% of all insurance policies issued in India. As an industry, it is working with all member NBSs to kick-start an engagement with the regulator, possibly in collaboration with other financial industry SROs. The salient points of discussion would be a realistic assessment of the distribution cost incurred by the BFSI industry to support distribution of insurance products on behalf of the insurance manufacturer's optimization to distributors in line with the glide path proposed by the manufacturers in the treatment of expense of management. As an industry, we would pursue all possible channels of dialogue to ensure that the final outcome is balanced and positive for all states, including new initiatives like the cross-sell deepening as well as the payments business, focusing on value-added agent e-commerce. In summary, we expect L&T Finance to navigate the IIDI consultation to our Luxe Act 2021 goals. We have two very important initiatives that we have stated in Q2. If I started in Q2, if I expect to gather pay, so our increased focus on reducing cost of customer acquisition, so focused cost and initiatives to our existing customer base, leveraging our extensive agent AKI expertise. You may be aware that L&T Finance is one of the largest customer bases in NBIC industry at 3 crore customers and an equally large number of prospects who have applied for products from a company at some point in time and were found to be not eligible at that instance. Customers, tractor customers, and two-wheeler customers have borrowed more than 50,000 crores' worth of gold loans, prompted our entry into the gold loan business. One of this large base of customers, an integrated agent-like AI-based cross-sell engine called Hercules, is being built and implemented. Quarter 2 FI27 saw the implementation of Phase 1 of Hercules' cross-sell engine across a few important lines of business with promising initial results. For example, conversion of gold loans cross-sell leads generated by other businesses is currently running at 14% plus with Agent EKI workflows with Investor Digital Day on the 15th of December 26th. This platform, which is being rapidly built to provide an agent e-commerce experience to our customers, will also be a driver for increased new customer acquisition velocity. My stack is live and currently undergoing closed user group testing. In the agency commerce payment stack in partnership with Pine Labs, and we'll unveil this effort in RACE 2026. For a prepaid issuer license, we expect two products in FI28 subject to the receipt of the PPI license from RBI. Mission to Delivery. I'm pleased to say that we have began this journey to continue to improve quarter-off course demands on maintaining consistency in execution. The Laksha 2051 is a five-year journey, and therefore our endeavor remains CAGR of 20% plus over the Laksha period. We continue to drive trade costs down to a level of 2%. In quarter to FI27, our anti-skins, CGFMU and CGTMSE, continues to create an incremental safety net for select cohorts of our rural business finance and FME portfolios as outlined. The continued moderation of trade costs and improving asset quality during the quarter provide us confidence that the structural interventions provisions in the corresponding 19 basis points year-on-year communicated early in percent in FI31, ROE increased to 13.56 percent in quarter to FI27 from 11.31 percent macro-prudential provisions in quarter to FI26 basis points on a year-on-year basis. We continue to drive the key outcomes defined by these pillars in our short-term and long-term business, sustainable capabilities for future. In detail about our cross-sell engine project, I wanted to highlight the momentum we are seeing in the other initiatives. It has gathered speed. We are actively enhancing productivity across all our business lines with a primary focus on empowering our frontline employees across the organization. Culsata Tech DNA upgrades to 1,200-plus employees with the Google Enterprise Agent platform and a continuous learning ecosystem with dedicated training price-wide to build a robust network of AI champions, ensuring that AI is not just central technology function but a democratized tool actively utilized by our employees. It is worth mentioning that in a short span of this project going live, 5,730 agents working on a regular business task, Mr. Raju Dotti, our whole-time director and Chief Operating Officer, to take you through an update on the expansion of our gold loans business and the branch infrastructure rollout execution.

Thank you, Sudipta, and a very good morning, everyone. I will walk you through the gold loan business performance and strategy of the company, the position of our legacy physical network to a multi-product sales and service-ready network. This approach is lending to a holistic relationship management, enhancing customer lifetime value by positioning every branch as a gateway to our full suite of financial solutions. Specifically, as we have shared in previous quarters, we have commenced with the integration of our gold finance branches into the multi-product Sampoorna branch format. Since inaugurating our first Sampoorna branch in Ujjain, we have accelerated our model shift from single product touchpoints to integrated service hubs. This also ties in with our overarching cross-sale goal, the fulfillment of cross-sale funnel, as Sudipta just mentioned. I am pleased to share our current progress on this front. Forno branches across the country, in a short timeline of 18 months, since this 37 crore, 29%, 5,043 crore, up to 142% YOY. We've won by our rapid branch expansion, having launched 172 new branches in half-year of FY27 to reach 502 active-10 branches, already crossing 15 crore in pause as of September of 30th, 2026. To create granular awareness and to support the growth in our business volumes, we launched an integrated gold loan campaign featuring our brand ambassador, organic brand integration that these outreach programs while creating brand equity volumes and propel the growth of this business line. I will now request to take you through the financial updates.

Thank you, Raju. As always, I'll be walking you all through the financial performance of the company for the quarter. First, talking about the quarterly performance, consolidated NIMS plus B for the quarter stood at 10.48% versus 10.22% for Q2FI20. It was at 933% year-on-year. Quarterly retail disbursements stood at 24,027 crores year-on-year. The book size reached 33,464% year-on-year in Q2. In the farmer finance vertical, the quarterly disbursement stood at 1,643 crores. Down 1% year-on-year, 397 crores, reflecting a growth rate of 9% year-on-year. As Sudipta mentioned earlier, we closely monitor the development momentum in the third quarter. The two-wheeler personal loans and mortgage loans book size increased, translating into a 32% YOY growth. The two-wheeler business, 3,170 crores in the quarter, up 26% year-on-year. The book size increased to 16,152% of two-wheeler disbursements in the prime segment in Q2F527, a quality growth and optimized. With personal loans business, we achieved our highest average quarterly business. Business volume was aided through an increase in direct sourcing. As mentioned earlier, we have covered around 80% of the portfolio through an insurance cover with CGT-MSE, which puts us in a good position to focus on risk-calibrated growth going forward. As Raju mentioned earlier, in case of gold loan business, the quarterly disbursement stood at 3,237 crores, up to 29% year-on-year. The closing book reached 5,043 crores at the end of the quarter, representing a significant growth of 2,42% year-on-year. Let me now hand over the call back to Sudipta to make it closing.

Summary, this has been a great quarter for L&T Finance with superior performance across key performance parameters, Marked by record disbursements, superior portfolio quality, and highest ever products. What comes reflect the strength of our business franchise, the resilience of our operating model, and our continuous focus on delivering sustainable risk calibration. A key enabler of this journey is our continued investment in technology and artificial capabilities, but also create a more agile and future-ready organization. Attendees in the macroeconomics may not be without challenges, and there may be air pockets. The strength of our franchise, the discipline of our underwriting approach, and our granular distribution model, and the investments we are making in technology and people. We remain vigilant. Opportunities for responsible growth. Thank you.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Shriya Shivani from Nomura. Please go ahead.

Yeah, thank you for the opportunity. I have two questions. First is on the NIMS or cost of fund trajectory. While this quarter has been good, if you can help us understand how are we going to manage the repo rate hike that has come through, how much change will we make in our floating home loan book right away, or maybe any color around, maybe we'll change the pricing after one month, two months, or strategy on fixed asset book, all of those. The second question is on the underwriting strategy that you've spoken about, that you are recalibrating it. So, there are droughts in a couple of states. So, if you can throw some color on how you're going to manage the rural segment underwriting quality, whether it be state by state, what all changes you're making, and also similar comment on the lab segment because the lab has been slightly weaker as well, though it's a part of the urban segment. So, any caller on the lab segment as well would be useful. Thank you.

Thank you. This is Sachin here. Let me address your first question on names and cost of funds trajectory. Yeah, this quarter, as you mentioned, we have actually given a very good result in terms of 25 basis points reduction in the year. This was on account of, you know, getting our strategy right. The liquidity in the system was pretty decent in the month of July. We have actually used this to our advantage by giving up on some high-cost borrowing, mobilized at lower rate, which we achieve out of our PSL. Some PTC transactions during the quarter to one-year kind of CPs. Even the market borrowing were done in the medium to long term. Increasing, we believe that this was just the first. And any increases will keep us in that advantageous position. So, the increases would be there, but we will be less impacted, and we would be in a position to continue to have the NIM plus P trajectory in the range of 10 to 10.5. Last two quarters, we have been at 10.47 and 10.48. I think over the next couple of quarters also, we will be somewhere around mid of this 10 to 10.5 trajectory is what we believe.

And are you repricing any of your assets, right, any color on that?

So, as far as repricing is concerned, only our market is the home loan book is one which is variable in nature, which is about 25,000 odd crores. Yes, there will be, you know, we will wait for the market to react to these record rate increases. And yes, over a period of time, we'll do that. I think our overall mix in terms of fixed and variable, we have matched both on the asset and liability side, so not really majorly worried on that. In fact, this will only give us an advantage by depriising our home loan speed. We did not have the luxury to change the decreasing interest rate scenario. Now that interest rates are increasing.

If you see the progress of the monsoon, the progress of the monsoon has been actually varied. The northern and the northeastern part of the country has received reasonably okay rainfall. If you look at the central part of the country, the rainfall is little below average, but it is not really alarming. It is some parts of, especially in Karnataka, as well as in Maharashtra, some of the districts, some parts in AP Telangana, especially the southern part of the country has received a patchy rainfall, a below-average rainfall, and obviously the governments of these particular states have declared certain districts as being affected by drought. So, we have taken cognizant of this early on, and in our underwriting parameters, some of the guardrails have been strengthened in all the districts, and the disbursements, the rural disbursements, whether it be tractors, etc., have already been tempered in this particular district. One of the important things that we noticed is that the customer demand also was sort of relatively muted. So, it's not that, you know, the customers also came and demanded loans and we denied them. You know, in view of the postponed rainfall, we found that the customer demand is also muted. And you know, keep in mind that majority of the industry just has recovered, especially the, you know, the microfinance industry. And so, the period post the asset quality cycle is typically a very benign credit period. And, you know, MFIN2 dot guardlets have been, you know, rigidly implemented by most of the lenders and actually all the lenders, right? And the fact is that people are adhering to that. So, there literally has been no risk build-up, especially, you know, visible risk build-up during this interview. I've been careful. Flattish Q. I've got bias in our rural disbursements in Q. The trade crop will be very clear towards the last week. So, you know, we've calibrated way, and we are very, very certain that, you know, there is at least, you know, as of now, the CGFMU program, as well as we have taken parametric insurance, Just to make sure that we have additional bulwarks available against any unforeseen sort of eventualities. On the other hand, also in our rural businesses, we are also taking our sort of secured micro lab business up because that is also that has been performing very well in almost 99.9% collection efficiency. It's been working very well. I would like to point out that our collection efficiencies in rural business finance remain in the corridor of 99.7% to 99.8%, which is, you know, in line with the best ever collection efficiency that we have ever seen. Month on month, month on month, these collection efficiencies are sort of on the ball. In the month of October, we are seeing very good progress in the first 15 days. So, you know, what I would like to sort of talk about the notion that, you know, as of now, there is no visible, emanating, immediate risk pocket that we see in some other rural geographies. We are being careful and we are doing calibrated disbursements, but I do not foresee any sort of. The second thing you asked on LAP, business vis-a-vis, in slide 31 of our analyst deck, which you will see the extent of industry delinquency. So for us, LAP remains of least concern, and the fact is that in LAP also we are implementing our AI-based sort of underwriting tool Helios, both in LAP and ModGage we are implementing, so which will give us our underwriters a far greater capability to sort of underwrite LAP. This is concerned. I think we are in ship shape.

Sir, in just one follow-up, the Karnataka, Maharashtra, South, all those states you mentioned which have a drought issue, how much of your rural mix would they make up? I mean, any rough ballpark number would be useful over there?

I don't. See, Maharashtra is very small for us. You know, Maharashtra, we do not have a very large microfinance presence. Neither do we have an extremely large tractor presence. So, Maharashtra is not actually a reasonable microfinance presence, but, you know, we probably can give you that number. Yeah, so we can give you that number, percentage number offline, we can give that to you. Our investor relations team will give that number to you offline.

That was useful. Thank you for the answer.

Thank you. We take the next question from the line of Kunal Shah from Citigroup. Please go ahead.

Yeah. Hi, sir. So, a couple of questions. So, in terms of this entire cost of borrowing 25 basis points, if I look at the mix, in fact, PSL is still coming down sequentially from 26 to 23 odd percent. And CPS is something which is going up from 5 to 8. So, is it more of CPS rather than like, maybe you have mentioned like we are leveraging the rural franchise. So, that should have actually got reflected in terms of the PSL or not really.

Hi, Kunal Sachin here. Yes, in percentage terms, the PSL has come down. But like I mentioned, CPS have increased, but it is demand loan. The new ones have come in at the PTC transactions that money today for me. What was the timing have actually gone for six months to one year. So, you know, try to ensure that next three to four quarters we are in same zone as far as the shorter, short term money that we have. But all other, medium to long term, in the range of three to four, four and a half years also have been raised. And we also had raised some sub-debt during the period. So if we had done the same thing in Q3, there was anyways an expectation that the repo rate hikes will begin. And we were able to take advantage of the FNRB mobilization which were happening, which took the liquidity to over 5 trillion and which gave us that advantage.

Now, maybe in terms of the optimization levers, largely we have used most of them, and just assuming that rates remain where it is, no doubt there would be a hike, but just assuming then we expect that 6.95 can still be sustained. There is no one-off, it will not go up to again 7.1, 7.2 over next two, three quarters.

See, a couple of quarters, it will naturally not remain at 6.5. If that's the case, then I have to assume that there will be further borrowing. Whatever incremental borrowings I do in this quarter, naturally, even the CPs that I raise in this quarter will be higher, right? Right. So, but because the base has come down to under 7, which has happened for the first time, actually, in LTF's history, yeah, we are in an advantageous position vis-a-vis the market. So, with the base being lower, naturally, whatever increase is only going to be of that incremental borrowing. And as I mentioned, we have also taken, to some extent, the care of medium to long-term requirements. So, it's going to be only that incremental borrowing that will lead to that increase. And that is at what rate? Average? Which one? Incremental average, incremental borrowing now. No, I will see. The yields have gone up anywhere between 30 to 50 basis points, depending on. There are some commitments which are still in the pipeline. The sanctions have already been in place, and we have to just go ahead and execute them. But the initial increase that we have seen, the markets have been choppy. So we have to decide on when we exactly go and hit. One thing which we have tried to do is we have tried to ensure that we don't get into any desperate situation that we have to borrow it very easily, permitted, there is enough room for me to play. You know, the resources that I raised will anyway come cheaper than the medium to long-term. I am in a very good position to time the market.

Of an infra and the collection cost, is it like the collection intensity would have gone up and that is leading to the higher ops to asset is also, and what would be our outlook on that? And the second question is, we have seen collection efficiency softened a bit across most of the segments When we look at it, like two-wheeler, tractor, MFI as well. So anything to worry on that front, is it more clear to be seasonal? Because second quarter, we still see some kind of stability out there. This time, there is a decline. So bear in terms of two-wheelers. So how should we look at that? And any risk to the…

So let me first address the initial question on OPEX. The collection costs have been only going down, primarily because the more the Cyclops underwritten book is coming into play, the role forwards have been coming down. Very clearly, this is actually putting us in an advantageous position. Number two, the bots that are coming into play in terms of collections, I think that also is helping us in terms of bringing down the cost. The operating expenses that you see, the range is a mix of business as usual, as well as the investment that we are making in setting up branches. We, like Raju had mentioned on the call, that 172 branches have been set up in the first half. Similarly, we are also rolling out branches for rural lab business and setting up meeting centers. In addition to this, the technology work continues because we have been going ahead with the rolling out of all the products. Plus, Nostradamus also is being implemented. So, all in all, the investments being made actually are taken care of through the savings which are coming up on account of the efficiencies which are building up. So, we really don't see any major movement of this OPEX to book in the near term. We will continue to ensure that our branch rollouts will continue. We want to set up 500 branches, 200 branches for microlapse. So, the rest of the branches will get rolled out pretty quickly. And as the last year, whatever branches were rolled out, the top line is getting beefed up with the branches getting into the break-even zone. So, yeah, this will continue for at least a couple of more years, yeah.

Yeah, so I also, Kunash Shukto here, so I'd like to add a couple of things. First and foremost thing, collection efficiency in our rural business finance vertical is rock solid. You know, it's 99.8, 99.7, so, you know, one business point here and there and a large portfolio will happen. So, the second thing is that in a pharma equipment finance also, you know, if you see typically, Basically, you know, May, June, etc., which is the fag end of the ruby crop, there is a lot of liquidity that comes into the market, and then that gives it a jump in collection efficiency, which goes through a little bit of norming during Q2, and again comes up as the kharif crops comes in. So, you know, you shouldn't read too much into it, right, because, you know, and if you look at, compared to last year, we are ahead of last year, 90 basis points, you know. So, actually, the tractor business is doing, you know, after we published the efficiency drop in the month of September. Questions on this on the call. Aggressive experimentation or AI-based collection curing, right? When we, actually, because now, you know, our self-care is almost close to 43% in the two-wheeler business. So, we wanted to check whether we can push the self-care to 50, 55%. That was an aggressive attempt. Now, obviously, we realized that, you know, beyond the point, probably the marginal utility of AI efficiency in the month of September, It is born out of an experiment, and it is nothing structural. In fact, we are back to similar collection efficiencies exactly in the month of October. You know, we will end the month of October with a 99% collection efficiency, 99.5% in the month of... Nothing structural. It is not a sign of worsening credit quality. It's just a simple experiment that probably did not deliver the intended results. Credit quality of all our lines of business remains strong. We are showing improving credit metrics as we move from quarter to quarter, and we are very confident of hitting that 2 to 2.2% corridor of credit costs responding.

The drawn declared areas, we have tried to see what the PIN codes that have got impacted. We have a 31,000.

Thank you. We take the next question from the line of Abhijit Sibrawal from Muthila Losval Financial Services Limited. Please go ahead. Abhijit, please unmute your line and proceed with your question.

Yeah, am I audible now? Yeah, yeah, yeah. Yeah, yeah. Thank you for taking my question. Sachin, the first question for you, I think you have deliberated and explained to us at length on what helped us reduce our cost of borings, the portfolio cost of borings with 25 basis points. But I think one thing I didn't understand is you said that going forward, it is only the incremental cost of borrowings. And like you mentioned, they're hardened by anywhere around 30-40 basis points, which will maybe lead to the trajectory of cost of borrowings going up. But even this quarter, despite FCNR, I mean, with such a large balance sheet, I mean, only the incremental borrowings that they do, And even if they come at lower cost, how will they reduce the overall portfolio cost of borrowings by 25 basis points? Unless, of course, even the existing lines that you have with your banks get repulsed.

Yeah, so as I mentioned earlier, there are lines when you look at the borrowings. One is the PSL and one is non-PSL. The non-PSL borrowings and against which we take working capital is demand loans. These are of shorter tenures. And when they come up for repricing, if you recall, on account of which the interest and those naturally could be immediately paid off. So our overall liquidity has come down. Average liquidity has come down to 9,500. That money was naturally high priced and that money got replaced. So we got an opportunity to replace high cost borrowings with lower cost borrowings. I spoke on the TPs and, you know, raising money for people.

The second question I had is, sir, I mean, while in your opening remarks, you deliberated on this IRDA consultation paper, insurance commissions. I'm just trying to understand, I mean, as we speak to more leaders like you, I think there's a conversation that is happening that we already know what is the impact on the revenues from cross-selling this insurance And from insurance commissions. Are there any cost levels which are there which will offset the impact? Because using your opening remarks, I remember you saying that there is significant scope for consultation with the regulator to make it viable for the AFSI companies to distribute this insurance commission. And I think, I also remember you spoke about some blind spots, which can be there for insurance commission rationalization, just like it was done for EON, for insurance manufacturers. But sir, let's just assume even if they were very clearly, there will be an impact which will be there. So when you say that we still re-iterate our luxury 2031 goal of getting to a 3.2% ROA, now I remember Sachin sir saying that the NIMP plus fees is expected to be in that mid-range of 10 to 10.5, which is 10.25, then if there is that insurance impact, Of course, maybe we have another 25 business points room. So, what are the other levers which are there to get to that 3%? What were offsets on the insurance commission side?

Yeah, so see, Abhijit, the thing is that this thing is currently, I would say, under discussion, right? So, for us, we would obviously engage with the regulator and try to see if the industry, you know, gets a soft landing is what we, you know, we obviously as an organization, as a responsible member of the financial services industry are completely aligned with the regulator's objectives of insurance for all, right? And, and obviously, you know, we obviously there'll be a, and that is the reason why the regulator has given time for feedback. And I'm sure I believe that there's a landing, then what is, we do this, you know, are already working on what are the components of that plan B, sort of revenue profiles of that plan B. We have been, because, you know, sit down and do nothing. You ask me, this is the consultation paper, there is an estimate, but I, we just don't want to overreact to that. I mean, very, very candid on the call. We just don't want to overact to the ground because it is currently under discussion. And in many of the cases, as previously we have seen, from a discussion paper, what comes, finally what comes, there is discovered during that particular period. And we are also hopeful that the regulator being reasonable, there will be some middle ground which is covered, right? So, obviously, we will come out with an official guidance as to what ROE impact that would be there, you know, on an immediate basis. But what I'm really confident about, in Elenti Finance, the Laksha 31 period, our objective is to make sure that whatever is this reorientation of the business model which is there from an insurance cross-sell, we are able to do the PPI product, right? Prepaid products, for example, can bring in a large amount of fee revenues as well, right, as we see in banks. But obviously, you know, these are businesses which will build, expect that, you know, from day one, these businesses will. But the fact is that these are all planned, and these are all planned as part of Luxor 31. Luxor 31 basis, you know, our AI initiatives will give us large operational efficiencies, which will finally show up in OPEX. Our cost-to-income ratios actually have been falling, right? First to mention, Mr. Reddard was 39%, right? And, you know, as I've fallen below 40%, our objective is to drive it further downwards. Cross-sell platform is an agency cross-sell platform, which means that it really does not require additional manpower to that extent that a physical cross-sell platform would require, right? So, obviously, we are looking at optimization of origination, acquisition cost, as well as incremental fee revenues there. There will be, obviously, scope for revenue optimizations in our different lines of business. So I do expect that over the medium to setting up a one-to-one retail insurance distribution channel. We had already started on building that this year. We are starting to accelerate that build-out also, and H2 will see an accelerated build-out of that. So obviously, multiple, given our strong execution track record, we are reasonably confident that Laksha Kori 31, which is delivering an ROA profile of 3% to 3.2%, will be met. That answers your question.

Thank you, Dr. Sir, for that detailed explanation. With your commission, I just wanted to squeeze in one last question.

Okay, sure.

So, just one thing, I mean, in this call itself, we have spoken that asset quality is holding up well. We also explained why there were some blips in collections in the product where we were trying to see if self-curing any AI can work. All that points, those points are well received. But now that we have rolled out Cyclops and the expectation is that, I mean, the last couple of years, the credit cycle was actually very benign. Now that this year monsoons have been banned, there are various states across multiple districts, they have called out drops. So this is where I think we'll all look forward to what actually Cyclops can deliver. And the fact that we have also implemented Nostradamus in two-wheelers and PL, and I think it's already a work in progress in MFI and PAM. You also called out there is no early warning signals that we're seeing right now. But at the same time, sir, I mean, I remember in a public statement that they made, they also said that there are risks to the rabbit crop now because of these monsoons. So any views on that, any early warning Nostradamus is helping us?

Portfolio remains excess number, Cyclops 90 plus numbers remains around 120 percent, and Cyclops is almost close to about, you know, upwards of about 80 percent of my percent prime customer. If there is a drought or anything around our portfolio quality, we will shift to the question. To the question, Nostradamus has already helped us identify about 50 crores of implementing Nostradamus in the rural business finance vertical also. So, these implementations are finally getting it right. Streamox are working well. You know, for example, in the SME business, I would tell that in the SME business, SME business at 2020, between 20 to 25 percent, we've been growing the SME business. It's working well. It is giving us the results, visited us, and we have had the chance to demonstrate these tools transparently to them. Also, I have acknowledged that these tools are indeed powerful, much earlier than probably a traditional implementation process would have done. So, these are, this is all giving us good dividends. Having said that, you know, I really do not know how the ruby crop will proceed, but the fact is that we are seeing a good build-up of retreating monsoons in the south of India, right? As you see, you know, you can see a very, very large cloud cover over Kerala, Tamil Nadu, Kannataka, you know, as we speak. There's rain shadow areas which provide ruby crop. I think they are sufficient to support ruby crop. And I also foresee that the ruby crop should also be near normal. That is what my forecast is, right? Now, the fact is that, look, I am not an economist or an agricultural scientist, that I'll be able to give on-ground feedback for us is that one thing you have to acknowledge is that the state governments as well as the central governments have been reasonably proactive about handling the drought-affected state. Many of the state governments have talked about extraordinary payout to some of the farmers in this particular area. So, obviously, the government machinery is also being focused on this, and I do believe that the government interventions will also go a long way in softening the blow, especially in the rural areas. We are seeing a very strong start to the October season, and across all our lines of business, we see significant uptick in business momentum, especially in the month of October, in the early part of October, during the Diwali period. So I see a reasonably strong Q3.

Thank you. We take the next question from the line of Avinash Singh from MK Global Financial Services Limited. Please go ahead.

Good afternoon. Thanks for the opportunity. A couple of questions. First is, again, continuing on the asset quality and all. Among the states where you have a sizable exposure, you know, in microfinance and possibly in two-wheeler as well, so Bihar has seen a very, very, I would say, extreme deficient monsoon first and then that, you know, that Nepal flood extension leading to a flood in a large part of the state. So, how do you see, and now the festive return will come, so how do you see your collections and, you know, the asset quality outlook in this rural finance and to really in the state of Bihar? Secondly, this CGT, MSU, and parametric cover, I mean, is the cost of that cover would be kind of visible or a material in your, you know, OPEX line item? I mean, if that is the case, what sort of, I mean, you know, if I were to look at the overall, you know, cost to EVM, where it is kind of a trending currently. And third year, gold lows are now, I mean, very quickly and impressively, you have reached almost 10 crore per branch average. And especially when, you know, a significant part of branch has come up in the last six to 12 months. How do you see, I mean, eventually in a steady state at what level, you know, EVM per branch?

First question, you know, Bihar got good rains in the latter part of the monsoon period, but the fact is that we have got significant amount back. CGTMS and CGFMU, you know, they are not very large ticket sizes that we are not able to, you know, absorb. What is the important part is that they give us capital efficiency, especially on the SME side. You know, because our risk rates go down on CGTMSC coverage on the SME portfolio, you know, we actually get a lot of capital efficiency and that leads to a capital release, actually. The reasons you see our capital adequacy going up this quarter is, as well as because of the CGTMSC, actually there has been a capital release, right? So, in a way, capital point of view. We've covered the sort of the heather-toe unsecured portion of the, you know, SME book into a quasi-secured portion, right? So, which helps us to grow the SME book. We have critical size, very fitting critical size. By the end of this year, we are expected to be about 800 branches. And, you know, we have a plan of expanding until about 2,000 branches. So, take a pause and then try to consolidate. So, you know, I believe that this year and next year will also be a strong growth area for gold loans. Because on an overall strategic perspective, we want gold loans AM to hit about 14 to 15% of our overall AMs by the end of Laksha 31, which is, you know, gold loan AM between 40 to 45,000 crores of our overall total AM. That is what we want to hit. So, this is a strategic business for us. And one of the important things which Raju said as part of the call is that the gold loan branches are also now not stand-alone gold loan branches. A large number of gold loan branches are also Sampoona branches. That means the gold loan customers who are coming in are also being used as a catchment for cross-sell of other products as well. So it's an overall holistic model that we are playing up and we will continue investing.

The biggest advantage, why we have been able to roll out new branches and also achieve a break-even quickly, usually take it to nine months. The business throughput is much faster. These are also the locations in and around where we have already been doing our other businesses. So, it's not that we opened a branch, it may be a new branch, but then we have been in these geographies, me urban, to attract talent, we've been able to, you know, get the infrastructure quickly set up as well as the…

Thank you. Thank you. We take the next question from the line of Abhishek Muraka from HSBC. Please go ahead.

Hi. Good afternoon, everyone. So, the first question is on disbursements in consumer loans. Now, this would not, I'm assuming, have any kind of seasonal element. But if you see on a sequential basis, it's been actually slightly lower. So, is it a risk guardrail issue? Is it a demand issue? Or is it something different? And going forward, how do you see this disbursement trend for the rest of the year?

Good question, Abhishek. Okay, let me tell you, a class in personal loans business is an extremely pain-stricken process, right?

Okay.

What happens is that either the entire funnel goes through that one implementation. Personal loans, you have partners, you have PhonePay, you have Cred, you have Amazon, you have Google Pay. Each of them have their own. So it's not one single funnel it goes through. It is an implementation, bespoke implementation, partner by partner. What happens is that when you do that, Cyclops in one partner, we overcorrected, which we then, you know, you know, which we then calibrated, right? And then we got it back to whatever. So this is the implementation and that is why, because Q2 of Fi27 has been a significant Cyclops implementation quarter, and typically when we implement Cyclops, Cyclops is also very, very sharp in terms of cutting out the bad as well, right? So, typically, even when we two-wheeler, when we implement Cyclops, we actually saw a contraction of market share in the first, you know, six to eight months, after which we started climbing up. Implementation of Cyclops. It is not a credit issue. It is not a nothing-nothing else. It is, it is, basically, we have gone through a very tough period of Cyclops implementation in Q2, and that is why you see a flattish profile.

So, is the implementation now over across partners, and now it's going to be BIA from here?

Yeah, it is almost over. I think one partner is left. It is almost over. One partner is left. So, it should be behaved from here.

And the partner that is left, is it responsible for a large amount of the sourcing or is it marginal?

It's a relatively large partner.

It's not visible when it has a 40%. It will go up further. And which means that something is being given up to replace that, right? So, this share is increasing and the other share, the DSA cost and all this.

Going forward, all the partners who are coming on board, they're coming with, we know what happened is that the implementation pathway with some of the new partners is also a little more elongated because they have to go through this full integration process and the testing process. Prior to that, you know, where we could implement, you know, get up with a new partner life in about a matter of two months, now the same partner to take them life takes anywhere between three to four months because the cyclops implementation process is still 72%. So, it is not small. On a sequential basis, the disbursement is flattish. You will see this growing in Q3 as well as Q4.

It should be reached now. I think Q3 would be a reasonable growth. What is the run rate now, say, in October so far or in the last month? Just to get a sense of where we can get.

I don't have the number handy.

14-1500 is the monthly run rate.

See, only 1500 crosses the monthly run rate to an interim to about 17. See, this is a step function jump. We will grow a business on which, you know...

No, that is perfect. That gives an understanding of where we are headed, and thanks for this clear explanation. The other question is in gold loans, very particularly, are you seeing more GS2 formation, as in more people are delaying payments, and is the rollback slowing down, or is it still BAU? How are things going on there?

I'll ask Raju to take this call. We have not had any episode of a loss so far.

I'm not worried. Sorry to interject, but I'm not worried about the loss. I'm more interested in what is the customer doing now. Are they, say, coming back to pay a little later than earlier, which is why I'm more interested in the GS2 component?

No, we are not seeing that train. In fact, we follow three-pronged approach. One is the SMS stroke WhatsApp message followed by the call and the actual visit. We have seen a good amount of attraction of regularization of account once these three nudges happen.

Okay, okay. And just finally, to Sachin, last quarter, we were expecting that on a full year basis, the cost of fund would be 4-5 bids higher. Now, you've managed to rebase, that is, for the, you know, possibility of raising TP. So, on a full year basis, should you actually end a little lower or flat-ish in terms of cost of funds?

Yeah, I would not expect it now. It will all depend on whether it happens, doesn't happen.

Number two, what is going on?

The only possibility vis-a-vis what we were earlier, we never expected to go below seven. Since we have gone below seven to where we were asked.

Got it. Okay, thanks so much. Thanks for answering those questions and all the best. Going forward.

Thanks. Thanks, Avishik.

Thank you. We take the next question from the line of Neschint Jhavade from KOTA Constitutional Equities.

Thanks for taking my question. Just continuing on gold loans, you know, the slight, you know, delinquency or the rise, which I would agree is probably going to be BAU. Is this kind of seen in bullet loans or is this sort of, you know, seen in the EMI loans?

So, we have actually bullet loan as the main product and the monthly schemes got rolled out just three to four months ago. What we have seen is only in the bullet loan because the RBI new norms which became effective on 1 of April requires us to reckon the interest. So, only in that product this has been observed and the regularization.

Sorry, you just broke up. You said, you know, recognize interest or collect interest. Sorry, you just broke up when you said.

As per the new RBI norms, whether the interest has been paid or not for the purpose of calculation of LTV, that norm came into effect on what has happened for the loan book, which is booked.

So, wherever the LTV is not.

With a very nation portfolio extent.

Got it, got it, got it. You know, the other question actually is on, you know, on margins, and you've done a wonderful job in terms of, you know, getting your cost of funding down. But now given the fact that, you know, we are proactively cutting risk across cohorts of risk, you know, especially in rural India, you know, what implication can it have on margins, you know, given the fact that some of these have been high-yield portfolios?

So, see, Nishin, one of the things is that we are doing risk calibrated disbursement, but I am not saying that my disbursements will go down. Disburse, I will disburse at current rates. You know, try to maintain my yields as far as possible. In fact, you know, the entire team is tasked with the task of picking the yields up, you know, as part of due, normal operating. I really do not see a reason why our yields would fall in any way, you know.

So, just to add, yeah, complete maybe after that. And in the sense of moving more towards time, we will actually end up reducing the overall rates. And this has actually helped us in not just bringing the interest with about 70% interest being charged when we actually migrated to cycle. That almost 90% charged more. And that has led to the increase in the yields on the two-wheeler. And the same thing will play out when we fully migrate for PL, for firms, SMEs. Already, we started working. So, you know, the earlier thought process that moved to the overall yields is actually not the case, not really the case. Similarly, microfinance, we moved to risk-based pricing, and, you know, the customers who have been with us for third, fourth, they have benefited, but at the same time, the new customer base has to be charged based on the risk that prevails. So, actually, depending on the riskiness of the customer, we decide on what pricing should be adopted, and that will hold true going forward across all businesses and segments.

I appreciate that, you know, your risk-adjusted pricing sort of gets optimized with the technology tools. The point I'm trying to make is that, you know, your yield plus fees today is around 16.3% on a reported basis. So, you know, probably your yield on the microfinance business would, let's say, be, you know, higher than this. So, you know, if that part of the segment comes down, then probably that has some impact on the market. I think that's what I was coming to.

Okay. Okay. So, you're talking about the yields going down because of the overall change in mix, right? That's right. That's right. That's right. For the change in mix, that would, because when the microfinance book, we had slowed down on growth. We actually grew only by 5% when the whole markets de-grew. That was the time when our yields had come under pressure. But that was also because the higher-yielding products like Microlab, which is growing. These are the four businesses which are growth businesses for us. The biggest challenge to grow my mortgage is the existing mortgage book. Accelerating that growth over there also, we have introduced the economical housing. I'm sure that we also have a few other fee-generating businesses that we have been talking around, the payment platform being set up, the cross-sell coming in. So, you know, over a five-year period, it's not that we will not do any change to the way we do business or the new things that we will be doing. All those we keep adding, you know, some of the things may go off, but some other things will come up and, you know, as per plan, we will keep working on that over the five-year period.

Got it. Thank you very much for answering the questions patiently.

Thank you. Thanks, thanks. Thank you. We take the next question from the line of Vikram Subramaniam from Marshall Walsh. Please go ahead.

Hello. Hi. Thanks for taking my question, and thanks for all the outlook you have given. Glad to see that we are on path to the Lakshya goals. A couple of questions. Firstly, on the cost of funds, I think in one of the earlier answers or discussion, you had mentioned that a portion of non-PSL bank borrowings is usually in the form of a line of credit like WCDL. Well, generally, what proportion of borrowing have you been maintaining this line of credit, meaning what mix, what is the usual mix for these, and what would have been the rate at which we would have been able to raise this, and what was the lower cost borrowing we were able to raise? Just some data on that.

Vikram, maybe we can do this on a one-on-one basis because these are too granular. We can always get the data for you. The total is the 20 in the form of lines of credit. Part of these will be term loans. Even the term loans which come up for maturity would be the high cost borrowing which would have got replaced with low cost. So if you want exact breakup of this, we can discuss one-on-one.

Yeah, but some of the initial headline data is available in slide 38. That is the breakup of how...

Yeah, we can take it up. And just another question on the non-interest income in your revenue. That seems to have slowed down a bit this quarter. So just wanted to check if there are any movements there.

Yeah, you're talking of fee and other income, right?

Yeah, fee income and other income. Yes.

So fee and other income in quarter one, we had mentioned on the call that we had about 4000 crores of excess liquidity kept because of the external environment getting worse. So that had led to interest costs actually going up in rupees crores. And also those monies are part of the liquidity surplus that we kept. Plus is invested in various instruments, which that is at about 20-22 basis points. Key difference is on account of. Usually it is about 180 to 185 basis points. That action is on account of. And disbursement income goes up.

That's clear, sir. Thank you. Thanks for taking my question.

Thank you. Ladies and gentlemen, we take that as the last question and conclude the question and answer session. I now have the conference over to Mr. Sajipta Roy.

Thank you, everyone, for attending our investor call. I trust we have been able to address all of you. Please reach out to our... I thank you for all...

Thank you. On behalf of L&T Finance Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.