Earnings Call Transcript - XNSE:UTKARSHBNK 2026-11-04

Operator

Ladies and gentlemen, good day and welcome to the Q2 and H1 FY27 Earnings Conference Call of Utkash SFP hosted by ICIC Securities Limited. As a reminder, all parties online will be listening only more, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please send an update or by pressing star 10-0 on your touchstone phone. Please note that this conference is being recorded. I will now hand the conference over to Mr. Ranish from ICSCC Quality. Thank you and over to you, sir.

Raneesh, Head of Investor Relations

Yeah, thank you, Muskan. Thank you. Good evening, everyone, and welcome to Utkarsh Small Finance Bank Q2F 27 earnings call. On behalf of ICSA Securities, I would like to thank Utkarsh SSB for giving us the opportunity to host this call. Today, we have with us the entire top management team of Kudkar S&P, represented by Mr. Govind Singh, Managing Director and CEO, Mr. Sarjeev Kumar Simarya, Executive Director, Mr. Amit Acharya, Chief Risk Officer, Mr. Manmohan Shetty, Chief Financial Officer, Mr. Vilinder Sharma, Head Microbanking, Mr. Saurabh Bush, Head Consumer Banking, and Mr. Abhay Kataria, Head of Defense. I will now hand over the calls to Govind Singh for his opening remarks, and then we will open the floor for Q&A. Over to you, sir.

Govind Singh, CEO

Thank you very much, Raneesh. Thanks a lot, as always. Yes, good evening, everyone, and thank you for joining us for our quarter 2 FY27 earnings call. Let me begin by reflecting on the evolving operating environment for Utka Small Finance Bank. Our business momentum is recovering. Stress formation has reduced substantially. Collection efficiency remains strong, credit costs have moderated, and funding costs are declining, and the contribution of diversified businesses is increasing. At the same time, our operating profitability is improving every succeeding quarter. These are important developments because they demonstrate that improvement is not dependent on any single factor, but is being supported by multiple levers moving in the right direction. A little bit of our growth has been a little slow but steady, and the same is ready to pace now. Our pre-provisioning operating profit increased to 85 crore in Q2 FY27, compared with an operating loss of Rs.3 crore in Q2 FY26, resisting a sequential improvement of 34% over Q1 FY27. For H1 FY27, PPOP stood at 149 crore. Alongside this, credit costs have reduced sharply. To 2.8% in H1 FY27, from 9.1% in H1 FY26. Consequently, the bank's net loss declined by close to 80% via while to 70 crore in quarter to FY27, and 104 crore for H1 FY27. While the reported loss in Q2 was higher than Q1, the previous quarter benefited from certain one-off items like CGMFU, provisional reversal, and ARC transactions. Adversing for these non-recurring items, the underlying net loss in Q2 was significantly lower sequentially. The combination of improving operating earnings and a substantial moderation of credit costs is strengthening the underlying earnings profile of the bank. The improvement in portfolio performance further reinforced this trend. Collection efficiency in the X bucket of JLG segment remained strong at 98.6% during the quarter, compared with 98.6% in Q2 of FY26. The SMA pool within microbanking has contracted to 1.7% from 4.9% in September 2025. Fresh NPS slipages net of recoveries and upgradations declined to 175 crore in Q2 FY27 against 415 crore in corresponding quarter last year. For H1 FY27, these stood at 300 crore compared with 810 crore in H1 FY26. Consequently, GNPA as a percentage of gross gross loan portfolio improved to 5.9% as on September 26, reflecting an improvement of almost 630 basis points year on year. These developments indicate that Stenson collection infrastructure, enhanced monitoring, and more disciplined credit practices are transferring into lower incremental stress and better portfolio performance. Another important positive is the recovery in business activity. Total disbursement during H1 FY27 grew by 52% year-on-year, with JLG disbursement increasing by 2% and non-JLG disbursement registering growth of 94%. This supported gross growth growth by 7.5% year-on-year and 2.3% subsequently. The improvement reflects a gradual restoration of business momentum while maintaining a calibrated approach towards customer selection and underwriting. Our focus remains on growing the portfolio through quality incremental lending rather than pursuing volumes at expense of risk-adjusted returns. On the liability side, the bank has made meaningful progress in censoring its deposit franchise. Total deposits grew by 7% year-on-year, support by 14% growth in CASA deposits, and 12% growth in retail term deposits. The CASA plus retail term deposit ratio improved to 82% from 78% a year ago, while the CASA ratio reached 21.4% as of September 2026. This improvement in funding composition already reflecting our cost of fund is declined by 50 basis per year-in-year to 7.4% in H1 FY27. With the benefits of deposit repricing and the improving liability mix expected to flow through progressively, we see further support to funding costs. Improving business momentum, lower credit costs, and declining funding costs are providing a stronger foundation for sustained earnings improvement. Let me now touch upon the structural changes underway in our business model. Portfolio diversification continues to be our most important strategic and priority. The JSE portfolio which constitute 88% of the gross loan portfolio in March 2020. And 90% including BCJLG exposure has now reduced to 24% and 26% including BCJLG exposure. In contrast, secured lending has increased to 52% of the gross loan portfolio from 47% a year ago. This transformation is reducing dependence on traditional group lending and creating a more balanced portfolio with multiple growth and earning drivers. Within micro banking, our micro banking business loan portfolio, product continues to gain traction. The product enables us to graduate customers with demonstrated repayment. This has been into individual lending relationship. Further, we have expanded the product to cater to new to bank customers as well. The micro banking business loan portfolio registered growth of 146% year-on-year and 15% sequentially during Q2 FY27 and now represents 35% of our micro banking portfolio. With penetration currently around 20% of our customer base, there remains a considerable opportunity to scale this business further. We believe MBPL will play an important role in stensing. Banking businesses are also contributing to the portfolio growth. The MSMA portfolio expended by around 8% year-and-year to 4,489 crore, with microlife contributions to deliver disbursement yield of 18%. The housing loan portfolio grew by 4% year-and-year to 984 crore, while the BBG, the business banking group portfolio, recorded strong growth of 38% year-and-year. In the commercial vehicle and construction equipment segment, we are maintaining a calibrated approach towards asset selection with used vehicles accounting for around 30% of disbursement. We are also expanding gold loan penetration through a digital loan origin system, which is expected to improve turn-on time, process controls, and operation efficiency. These businesses... to deepen our presence across customer segment while creating a more diversified and stable earnings base. To further strengthen the quality of incremental matter of finance lending, the bank registered under the CGFMU Credit Guarantee Scheme for eligible JLG and Main Microbanking Business Loan Disbursement with effect from January 17, 82025. 48% of our microfinance book relating to disbursement up to quarter 4 FY26 is already covered under the scheme, increasing up to almost 80% upon including H1 FY27 disbursement. The CTFMA window is currently not open for fresh loan guarantees as the scheme is undergoing the government approval process for its next phase. We expect the window is about to reopen soon and have already accrued the requisite 1% guarantee fee towards the eligible disbursement. With additional risk protection, together with strengthening, writing, and portfolio monitoring, From a capital liquidity perspective, bank continues to maintain comfortable buffers. As on September 2026, surplus liquidity stood at around 2,540 crore. The LCR was 177 percent and C-V ratio stood at 81 percent. Capital adequacy remained at 17% comfortably above the regulatory requirements. The bank had planned to raise its 500 crore through NCDs during the current financial year. Office 300 crore was raised in September 2026 to support growth initiatives and reinforce capital adequacy. Additionally, on August 13, 2026, the bank exercised the call option and redeemed its Rs. 195 crore tier 2 NCDs ahead of scheduled maturity after obtaining the requisite regulatory approvals. This initiative reflects our focus on maintaining adequate capital strength while optimizing the overall funding structure. On the proposed amalgamation of the holding company Utkaz Core Invest Limited with an into the bank, the NCLT during its hearing on October 22, 2026, The matter is scheduled for its next hearing on November 19-2026. The reverse murder is expected to be completed over the next few months, subject to NCLT proceedings. Operational efficiency and technology-led transformation remain important enablers of our strategy. We have censored the collections infrastructure, operationalized a specialized call center for overdue accounts, and enhanced branch-level monitoring and customer engagement. Trading programs for new frontline employees have been reinforced, with particular emphasis on center meetings, customer onboarding, and consistent field-level execution. Our collection workforce-supported JLG and MBBL business now exceeds... 1,400 personnel. For the secured portfolio, our focus is on containing fresh slippages and improving recovery from the existing NPAs. We have strengthened collection teams, field coverage, and account level monitoring, while also strengthening litigation and recovery framework, also with focused efforts on reposition and settlements. These initiatives are helping improving execution standards and strengthening recovery outcome across the portfolio. Through the Utkash 2.0 technology transfer project, we are progressively integrating automation, data-driven decision-making and stronger monitoring mechanisms across the organization. Digital writing tools are helping identify and avoid over-leveraged borrowers, falsity degree control parameters. Mapping is enhancing visible across the credit life cycle. Bank also launches new core banking system during the quarter. In parallel, we are improving the quality of new account sourcing and leveraging. Library offers general banking branches to cross-sell asset products, thereby increasing product penetration and customer wallet share. Thank you. The existing branch network is being... Automation, digitization of customer journeys, reduction in manual intervention, and simplification of product and process are expected to further improve turn-down time, service quality, and operational efficiency. Looking ahead, our focus will remain on sustaining the improvement in collections, further reducing stress formation, expanding secure lending, and accelerating growth across diversified asset classes. We will remain... We will continue to strengthen our deposit franchise, optimizing funding costs, and improving operating productivity while maintaining decision-making and proven risk management. Our medium-term aspirations are still... Thank you. To conclude, FY27 represents a pivotal milestone in the bank's journey to restore sustainable earnings and strengthen the financial foundation. Having closed FY27-26 with a substantial loss, The bank has since executed a focus business revival strategy and that has positioned the current financial year for a return to profitability. Our continued focus is on sustaining this positive momentum and building a stronger, more resilient and well-diversified franchise that delivers consistent and long-term value to all the stakeholders. With that, I would now like to hand over the call for Q&A session. Thank you very much.

Operator

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on the touchstone telephone. If you wish to remove your spell from question queue, you may press star and two. Pulsions are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Raj, an individual investor. Please go ahead.

Raj, Analyst — Individual Investor

Hello, can you hear me?

Operator

Yes, sir.

Raj, Analyst — Individual Investor

Hello, everyone. So, I was seeing the results and I could see that there is a considerable improvements on the NPA deposits and on the core revenue. So, just two questions. One is on the provisions part like last quarter we were seeing that it was around 109 and in the current quarter it was increased to 166. Even though there are improvement areas reducing the secured like non-secured loans and multiple improvement areas. The provision part increased in the current quarter, which directly reflecting on the final loss of around 70 crore, so minus 70 crore. So, the first question is on the provision part, and the second question is on the upcoming quarters, can we expect profitability on reduction in the provision?

Manmohan Shetty, CFO

Good evening, Mr. Raj. Mr. Raj, I guess if you recollect the... Results of Q1, and we had started earlier from January 25, you know, covering our anti-microbanking portfolio under the CGMFU Guarantee Scheme, and that obviously is a premium cost. What we did in Q1 that once you have a premium cost, you have an ability to give a provision of only 28% of the provisioning that is required and 73% provision credit you can take because the portfolio is guaranteed. Provisioning that we did in Q1, as you see, it was 109 as you speak, but actually had we not taken the credit, my real cost provisioning is 190 crores. So, you know, in that sense, it's 190 plus 109 now, which has become 166, so actually the credit costs have come down. So just that a one-off credit that was taken in Q1, and that was taken first one to the regulatory norms available for credit available for the CGMFQ cover that we have. Had we not taken that, then the provisioning as we speak would have been higher by 75 crores, and there was also a 65 crore of ARC sale. See, if I add both of that, then my provisioning line that you see as 109 in the previous quarter would have reflected its 250 or 240. So, it's a provision of 240 coming down to 166, and therefore, what I'm trying to say that there is also a continued, you know, kind of an improvement in provision beginning from almost last Q4 onwards, you will see complete provisioning reversal happening. In fact, at a point in time. So, the point that I am trying to drive, there is a significant improvement as part of the commentary Govindji gave.

Govind Singh, CEO

On the other point that I am talking about profitability, yes, certainly I think we are looking much better trajectory from here onwards. As you mentioned that, you know, next year we do expect that our numbers will be much better the way we mentioned, and certainly, you know, coming days will be much better in terms of profitability also.

Raj, Analyst — Individual Investor

Sure, yes, thank you.

Operator

Thank you. The next question is from the line of Sagar Shah from Spark PMS. Please go ahead.

Sagar Shah, Analyst — Spark PMS

Thank you for the opportunity. First of all, congratulations to the management for at least posting, for holding the ship, actually for holding a better set of earnings. So, my first question was related to our sequential uptick in slippages, actually. That means in this quarter, we did see slippages actually inching up to 239 crores. So, it was up on a... Sequential basis as well. So, can you highlight that which of the segments is actually facing stress in this scenario or is it because of drought or West Asia crisis? What is the reason? Can you throw some light on that, sir? That is my first question.

Govind Singh, CEO

There's only one statement. Before Amit, our CRO, he'll speak about the overall NPA. I want to make only one statement. As it brought and, you know, these people have very temporary impact on sometime collections, you know, especially in JLG collections, especially when it happened in Bihar and those states. So it has not impacted the NPA, you know, trajectory as far as NPA trajectory in a very, you know, in any significant manner. So that's not the, you know, reason for any drop. In fact, you must have seen our collection efficiency remains almost same level. Some geography, there might be some delay in collection, but overall it remains the same level. But Amit can talk about the overall trajectory.

Amit Acharya, Other

Yeah, hi. So, just to share the breakup of 239 crores, if you will see from MFI, MB business, it came 66 crores out of 239. And non-MB was around 173 crores. Out of that, CVC contributed 30 crores, MSME contributed 64 crores, and WSL was an outlier this time that we had 33 crores fresh slippages, though we recovered 8 crores also, and in this WSL, if you see, this is a book of now close to 6 years old, almost 5 years we operated at a nil NPA basis, but as the book gets matured, it is bound to have some dienquencies there, but And all these, you know, be it this WSA line talking about or CVC or MSME are banned by securities, so either by mobile properties or by the vehicle itself. And we have that collateral security efficiently covered, and all the recovery processes are on the track. Though it takes some time, so that is why you see the recovery a little slower, otherwise all in control as such.

Sagar Shah, Analyst — Spark PMS

Okay, so is it the reason behind the increase in provisioning, sir? From 109 to 166, is it the reason for higher slippages? Is that the reason for providing more in this quarter? The credit cost going high?

Manmohan Shetty, CFO

I just explained, you know, a while ago, and I'll try to, you know, once again explain, is that if you really look at 109 crore of the provision, which is Q1, There we have taken a credit of CGMU benefit that is available under the RBI regulation, and that credit is personal to the premium and the coverage that we have in the guarantee, and that credit was 75 crore. See, if that credit would have not been there in Q1, this 109 would have been gone up by 75 crore, and as well as I mentioned that in Q1, we did mention we did an ARC deal of 65 crore. 140 crore is. 109 has these two credits. As mentioned of, you know, Act of ARC and the benefits available under the RBI norms, actual provision would have been around 249 crores. Now, 249 crores you have to compare with 166. Thank you.

Sagar Shah, Analyst — Spark PMS

Okay. Okay. Fine, sir. I've got your point. My second question was related to your other retail loans, actually. The other retail loans has seen a good pickup in the disbursements, actually. So, means I wanted to understand in the other retail loans, which are the segments, actually, this bank is targeting, especially towards the secure space.

Govind Singh, CEO

So in secured large, you know, what we call the, we have a multiple type of where the largest space will be, where we talk of lab. Lab can happen in multiple ways. So we talk of micro lab, which is below 25 lakh. Then the normal lab, which is 25 lakh upwards, in fact. And then sometimes we have a prime lab also, which is crore plus. Plus we also have a business banking group. Again, all the loans are covered through bagged by collateral only, hard collateral only. So, the biggest focus for the bank remains that we are, you know, we are able to secure through hard collateral, and little bit also we are trying through gold also. Our gold portfolio is around 400 gold plus right now. So, efforts are that we should have either property or gold backed, you know, the moment we are talking about the secured part. So, there are two crimes, but in, you know, lab, you are aware that there is no liquid size, the segment changes. So, that is with us also currently. And in future also, I mean, obviously, we have a micro banking, which is almost, you know, one third of our portfolio right now. But besides this, lab will be the biggest segment in various forms for us.

Sagar Shah, Analyst — Spark PMS

Okay. So, within the secured space, MSME, affordable, and CV loans, why is our disbursement or even our portfolio is not growing, sir, especially if you compare to the March 26 numbers and September 26 numbers, we have seen hardly any growth in these three segments, actually. So why is the reason for that? So are we targeting only LAP or what is the reason actually that we are lagging behind in these three segments?

Govind Singh, CEO

I will not use the word only LAP, but yes, LAP is the primary driver for us. As I mentioned, we have micro, we have mid-segment, normal segment, and then we have a premium segment as well as SME, where we are getting through LAP only. The disbursement for last quarter too got little impacted because we launched our new CBS, and during that period, sometimes the business gets a little slow. August month became a little slow and, you know, because there's a dispersion number that goes a little lower, that reflected in the lower growth for, you can say, MSME and agile type of portfolio. But I think our focus remains at these places. MSME and Agile type of load, and you'll see a good pick-up in the...

Sagar Shah, Analyst — Spark PMS

Okay. Just my last question now is related to our digital initiatives. You have highlighted in one of the slides that the kind of measures that you have taken, actually, especially on the AI side. So, especially for underwriting for our MFI customers or even for regards to MBBL loans. What are the AI-led digital initiatives actually exactly have we taken? Have we developed a separate app for our customers, for our vendors? What exactly are they actually, means how are they functionalities that you have done?

Amit Acharya, Other

AI usage is largely, you know, we have been calibrated as you will see the other news is also that RBI is giving trust on, you know, putting framework on the cyber threat, generating from AI usage as well. So we have been very calibrated in our approach. It is the internal usage. In our internal processes, we have defined certain use cases where we can do, you know, using the technology. On the underwriting part, on the due diligence part, it is not for the customer directly, but it is for using. For our own underwriting space, doing some RCU activities, some other, you know, getting the summary on the bureau reports, putting those rules in the rule engine and using those product norms automated. We have moved down to our retail lending loans also completed. Things have been automated using the leverage on, you know, banking, using the perfios, the banking analysis, using the save risk where you get all the financial or the other details about the companies, etc. So that is how we are using it in a calibrated manner.

Sagar Shah, Analyst — Spark PMS

Okay, and just last suggestion from my side, sir, I'll highlight it in the first quarter as well. In this quarter, unfortunately, we haven't actually done. If you can highlight the segmental-wise asset quality in the slides, in the MSME, CV, and especially housing, what is the GNP and NetNP of the particular segment, that would be quite good, sir, at least for clarity for investors. How are we progressing on the secured loans?

Govind Singh, CEO

Point taken, point taken. We'll ensure that part. Sorry, missed it, but we'll ensure that part, yeah.

Sagar Shah, Analyst — Spark PMS

Okay, thank you, sir, and all the best.

Operator

Thank you. The next question is from the line of Kunal Kochal from Philip Capital, India. Please go ahead.

Kunal Kochal, Analyst — Philip Capital India

Yeah, can you hear me?

Govind Singh, CEO

Yeah, yeah, please go ahead.

Kunal Kochal, Analyst — Philip Capital India

Yes, so my question is related to the equity raise plans and also from the asset quality point of view, from the provision coverage that we have, how much would be covered under the stage 1 and the stage 2?

Govind Singh, CEO

So maybe, you know, our CRO and CFO will talk about the second part. On the first part, obviously we are at 70% capital DPC. We have... So, adequate coverage for this year, and our idea is not to raise capital immediately. I mean, there's no plans to raise immediately capital. I'm talking equity capital. As we mentioned in my initial opening remarks also, we raised 300 crore as tier 2 capital during quarter 2. We still plan to, you know, we have approval for 500 crore, so our plan is to raise 200 crore or tier 2 capital during this quarter, you know, based on obvious market conditions. But we will not be going to equity market immediately unless there is some very specific transaction or something like that. And we will be looking, you know, going for equity sometime next financial year only, not this financial year. We may not be requiring this.

Kunal Kochal, Analyst — Philip Capital India

Okay.

Amit Acharya, Other

If you need, I will give the breakup on secured or unsecured as well. So the overall PCR for September quarter stood around 55.5%. Out of that, if you will see our MFI book, PCR was 67.7%. And on the secured book, it stood around 36%. And on the unsecured book, overall unsecured, including the retail unsecured, it distilled around 65.1%.

Kunal Kochal, Analyst — Philip Capital India

Okay, but just on the overall book, like on the stage 1 and stage 2 assets, like how much would be the coverage there?

Amit Acharya, Other

See, ECL, if you will see, ECL is not applicable to small finance banks, so that we do not create provisions based on that methodology, but we create as per the IREC norms, which are driven by the regulatory norms as per RBL Circular, and whatever standard provisions are there or NPA provisions are there. On NPA provisions, if you will see, we do a little higher as compared to the regulatory norms. And it moves on every quarter as the bucket moves. The bucket movement within the NPA happens. So every quarter it then increases.

Kunal Kochal, Analyst — Philip Capital India

Okay, got it.

Govind Singh, CEO

Thank you.

Operator

Thank you. The next question is from the line of Vinay, Nankarmi from Headway Investments Private Limited. Please go ahead.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Yeah, I see my focus is basically on your branch network. You have one of the biggest branch network among the small finance banks. Why is the throughput from the bank so low, branches? Because your quarterly, I mean, your past is now past, but growing forward at least, having a 2.3% quarter-on-quarter growth for a branch network of 1,100, when your other peers are growing at 5.6% quarter-on-quarter, what exactly is stopping you from growing faster there?

Govind Singh, CEO

No, I think there's nothing which is stopping us, but, you know, we had challenges which are higher than many of our peers in fact you are aware of this part. And some of the portfolio, you know, because last year we had some ART transition which will move out from our portfolio also, so growth. So, net of, you know, ARC would have been certainly higher than what we are showing, but I take your point, and in fact, that is what we are trying to do right now. We have the largest, one of the largest network, and it's a major network, because we have not opened any branch during the last 18 months plus now. It's a major one, and that's why when I say 25 to 30 percent growth, it will come automatically from the technology, from the manpower, from the product and services we have got, and from the network we have today, extension network. And you'll see significant improvement, you know, on a month-on-month basis, quarter-on-quarter basis, and year-on-year basis, henceforth. Because I think it has taken some time to stabilize various things. And we also have a good product, whatever is required for a small finance bank. You know, all relevant products are also there, available. Technology we have changed, you know, wherever it was required or upgraded, wherever it is required. So, that's why you will see a significant improvement from here onwards.

Manmohan Shetty, CFO

Just wanted to add, I mean, you know, if you really look at FY26, you know, and largely as we spoke about MFR, it was more collection, correction, collection, correction first, and then the disbursement. But if you really look, the green shoots have already began from the last year. This, you know, probably to say that disbursement actually creates a good interest accruable AUM, we grew by disbursement in Q4, 30% YOI, which means Q4 over the previous Q4, we followed it by growth in the disbursement in Q1 at 50%, which is again YOI Q1, this Q1 to the previous Q1, and it was almost 72% in the non-MFI book. And in Q2, we grew by 55% disbursement. Of that, the non-MFI grew by 77%. I guess when you said set of branches, yeah, we have about, you know, 770 types in the MFI, and we have around 330 in general banking branches. But the traction of growth has already come back. As I told you, there's green shoots, and you will see the momentum coming up, you know, as the quarters come. I guess I can also add that if I really look at H2M. Fy26 over H1, Fy26, generally the H2 disbursements are, you know, reasonably higher. We have an incremental disbursement deposit in H2-FI26 over H1-FI26. Given this H2, which is, you know, the two quarters coming, we will see those disbursements keeping space to what we have done earlier. And now the opportunities are back. So we will look forward for a disbursement growth, keeping up the pace and the portfolio growth that UNG mentioned around 25 to 30 percent for the full year basis.

Vinay Nankarni, Analyst — Headway Investments Private Limited

So, you are expecting F27 to be, full year growth to be around, what, 10-15%?

Govind Singh, CEO

No, no, we mentioned 25-30% is our growth expectation for this year. So, it will be 25% plus.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Okay, because you have done 7.5% as of now, H1 to H1. So, you are expecting a real bumper growth in the next half.

Manmohan Shetty, CFO

Yes, yes, yes. And then, you know, it catches up with the previous year.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Yeah, that's good to hear. Now, the second thing is what it's little intriguing is when I look at your secure portfolio increasing steadily and rapidly, in fact, your yield on advances also is going up. If I, I can't understand this. Generally, when you see secured going up, your yield on advances either stagnates or slightly tithers down. What is driving this yield on advances with your Secures book also growing?

Manmohan Shetty, CFO

So, this is yield on portfolio advances. It's a combination of microfinance yield and yield of non-microbanking as well. As you see, the disbursement is going up, including microbanking. You will see there was a degrowth our early few quarters of last year. And therefore, when you do an embedded growth, you will see yield and advance growing up.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Okay. So, you have given your wholesale banking yield on advances, but I don't see any mention of retail banking. Is it possible for you to share that numbers?

Govind Singh, CEO

Yeah, certainly we'll share. We'll share. We'll share. Yeah, yeah. Certainly.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Okay. Okay. I think that's it for me. I'll join back in with you for any further questions.

Govind Singh, CEO

Sure, sure. Thank you.

Operator

Thank you. The next question is from the line of Darshal Javiri from Crown. Captain, please go ahead.

Darshal Javiri, Analyst — Avanti Capital

Hello. Hi. Thank you so much for taking my question, sir. Sir, I just wanted to ask in regarding what ROI target for this year and next year, sir.

Govind Singh, CEO

Sorry, let's repeat your question.

Darshal Javiri, Analyst — Avanti Capital

ROA target for this year and next year, sir.

Manmohan Shetty, CFO

So, you know, we generally, I guess, you know, when we say ROE, it's one way to replace. So, we have said that we will be an ROE of 15% in FY28. This is the building of profitability for FY27. I remember mentioning a two-digit ROE in exit of FY27, which will become the base for the next year, ROE of 15%. I mean, I have not worked out the ROE in this peak, but I guess that is an overall indication of where the returns on the equity comes.

Darshal Javiri, Analyst — Avanti Capital

Oh, fair enough, sir. And sir, just wanted to understand, right, in the current scenario where, you know, repo rates is increasing, we've been able to, you know, reduce our cost of funds. But if there are more hikes, right, will there be pressure on cost of funds and will our target of 8% NIM come under certain pressure? Because right now we are at 6.3%, right, with the increase of secured, that will also not be very NIM accredited, right? So, what is our pathway to reaching our targeted NIMSAR?

Govind Singh, CEO

So, two things will happen. One is that some of the costs will also get passed on to customers because, you know, almost 50% of our portfolio, I mean, broadly speaking, will be under floating rate of interest. So, when the rate of interest for deposit go up. And second, you know, because we have also completed a cycle where the rate of interest was lower, so the repricing of fixed deposit will take some time, even if the rates go up tomorrow, because we are not dependent on any market borrowing. Our market borrowing is nil. I mean, for almost many years now, we have not any market borrowing. So normally when you have a strong market, high market borrowing, your cost of an immediate gets impacted. But because you have largely term deposits, almost 80% plus your term deposits only. They are the, you know, till the tenure is over, the rate remains the same. So, the hit because of the increasing rate of interest will not come immediately. That is one part. And second, the cost of funds in many of the cases will be passed on to the customer also. So, that's another aspect that will happen. So, obviously, I mean, when this remains on a sustained basis, there will be some impact. But overall, NIM will be, you know, will be productive either because of lower cost of funds or because of the passing on of the cost to the customer.

Darshal Javiri, Analyst — Avanti Capital

Oh, okay. That's helpful, sir. And, sir, just wanted to understand, like, secured, what are the yields that you're getting currently, sir? Rough also will do, right?

Manmohan Shetty, CFO

This is your disbursement deal that I'm talking. Your retail MSME is giving me around 13%. Housing loan is about 11%. Your commercial vehicle and construction equipment is around 12.15. Wholesale is around again 10.9 to 11%. Personal loan is 16%. And gold loan is around 12%.

Darshal Javiri, Analyst — Avanti Capital

Okay, okay. Fair enough. Yeah, that's it from my side. Thank you so much. All the best.

Operator

Thank you. A reminder to all the participants, you may please star and want to ask questions. The next question is from the liner Akhleesh Soni from Kodak Securities. Please go ahead.

Akhleesh Soni, Analyst — Kotak Securities

Thank you. Good evening. Sir, just a few questions from my side. Firstly, on the asset quality side, if I heard the numbers correctly, the previous slippages have remained high. When should we expect these slippages to come off meaningfully? Because right now if I see the slippage ratio seems to be somewhere around 12% annualized.

Amit Acharya, Other

So, if you will see, the wheels in the previous quarters were pretty high, which has come down from 44 levels to last two quarters were 27. Marginally high this quarter was around 30. But at the same time, recovery and upgradations have also been increased. And when initially we had a spurt in the delinquencies, last time also I think I updated, that we did lot of policy and product norms intervention. And we do track the portfolio which we are building up post those interventions. And if you will see from April 25 onwards around 400 crore is the outstanding whatever we dispersed beginning April 25. And out of that gross NPA or slippages SMA 2 if you will see it is below close to 1.2% and NPA is below 1% out of that particular portfolio. So, whatever slipage is, it still comes from the legacy book, and we have strengthened the entire collection network, framework in terms of, you know, repossession of the vehicles, the collection agencies have also been appointed, so that we have a better collection and recovery percentage from the NPS coming out of those legacy book.

Akhleesh Soni, Analyst — Kotak Securities

And you would expect the next quarter slippage to come off meaningfully, or you expect this to continue for some more day?

Amit Acharya, Other

It should come down, it should come down, because if you see, so for CVC, the starting buckets are very, very important, that what are the flow rates from your 0 DPD or SMA1 bucket to SMA2, and that is where last two months we have seen that we are able to do much better, And the flow rate from SMA1 to SMA2 has come down drastically, and the collection team is pretty much focused on those buckets, so that the flow into NPA should be very very minimal. Going forward.

Akhleesh Soni, Analyst — Kotak Securities

Understood. So the second one is on MFI, the 67.7% PCR that you have quoted, does that include the CGFMU guarantee? And if you can also share any color on the state-wise collection trends that you are seeing in the month of October, if there is any deterioration over there.

Darshal Javiri, Analyst — Avanti Capital

Yeah, so, Sajuk, please.

Manmohan Shetty, CFO

So, Ashoresh, 67.5 includes CGMF guarantee. The only point I want to be communicating is that that guarantee is up to the first, 31st March. After, you know, first appearance in the point, as I, you know, in earlier introductory earnings call that Gohanji mentioned, we have yet to open the premium for the two quarters, and therefore, whatever is a CGMFU credit that we have taken is only up to March, but it includes the CGMFU adjustment. And I... Hi, this is Varendra. Just to give you a perspective, we are still holding on to the collection efficiencies and accept us. A little drop on the Maharashtra side, where we have less than 5% of the portfolio, we are sustaining on the collections, and our collections look stable, and we hope, we don't foresee any changes in the, or any deterioration in the collections, as majority, even after the impact of, say, some floods in Bihar in the last month, we have been able to bounce back, and we don't see any, Unforeseen event happening. So looking forward to a stable collection efficiency in microfinance, please.

Akhleesh Soni, Analyst — Kotak Securities

Understood, sir. And would be great if you can quantify the Maharashtra numbers on the collections front.

Manmohan Shetty, CFO

See, we have a portfolio of around 5% of our book. Percentage was close to 98.83, which was for the month of October, whereas prior to that we were averaging around 99.5% for full year.

Akhleesh Soni, Analyst — Kotak Securities

Understood, sir. Sir, and just lastly, if you can indicate how the ROI tree improves from here.

Manmohan Shetty, CFO

I did mention about the ROE guidance. Again, as I mentioned about CGM2 credits, and also we look at ROE more closely.

Akhleesh Soni, Analyst — Kotak Securities

Sir, I'm just talking about FY27. If I have to build it in the model, which lines do you think would show an improvement broadly?

Manmohan Shetty, CFO

I mean, all the lines. We spoke about, you know, the name going up and you will have seen that even as we speak from a 5.1 of Intu to FY26, we are at 6.3. So, you will have an interest yield, you will have a cost, which you will pay. You also have an advantage of higher disbursement which will give you a good, you know, the other income because process. If you really look at dropping the, or to say sorting out the entire past legacy book pen, in fact, on a half-year basis, my provision, which was in 872 crore for the half-year last year, is 276 crore. So there has been a constant drop in credit costs. My credit costs at a point in time, you would have noticed Ashish as a part of your analytic research that you do. From a 9.7% we are at 3.3. I just clarified again that Q1 is showing a credit cost of 2.3. While it is increased to 3.3 in the current quarter, it appears that the credit cost has gone up. But if I were to add back in my earlier answer to one of our colleagues' question, if I had to add back the benefits taken on the CGMF, UNARC, actually my credit cost was 5.1% in Q1, which is improved to 3.3. We are looking at the trajectory improving even in Q3, Q4. As a result of all of these factors, this should lead to ROA and ROE both moving from, say, negative zone to a positive zone. We'll be right back.

Akhleesh Soni, Analyst — Kotak Securities

Understood, sir. Thank you, sir, for answering all my questions.

Govind Singh, CEO

Thanks. Thanks a lot, Aslesha.

Operator

The next follow-up question is from the line of Vinay from Hattway Investments Climate Limited. Please go ahead.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Yeah, there's two questions. You have now built a substantial write-off book. What is your recovery target for H2 and for Fy28? Because your recovery so far has not been anything substantial compared to the book that you hold.

Manmohan Shetty, CFO

So, on the recovery side, we have been able to get around 50 crores in this financial year, and we expect that to be slightly growing higher in H2 for this piece. Normally, in the last two quarters, we nearly will be able to close to do, I won't like to number, but substantially higher in the next two quarters. We will be recovering that part of it.

Vinay Nankarni, Analyst — Headway Investments Private Limited

And what is your kuku's write-off book?

Amit Acharya, Other

So on the JLG side, if we exclude the ARC part, which we did for the write-off as well as a combination, I think the total write-off book for JLG available would be close to around 700 to 800 close kind of thing.

Vinay Nankarni, Analyst — Headway Investments Private Limited

And non-JLG?

Amit Acharya, Other

Non-JMG, not so much, because hardly the unsecured portion, the legacy book, which we must have done the write-offs, that's the book. On the secured side, it happens very minimal. That should be entire, if I take all the 10 years horizon of the bank, so must be close to another 60, 70 crore. Though I will have to check, but I am just giving you a ballpark number.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Okay, so not a very large sum. So around 700, 800 crores, you're recovering roughly around 50 to 100 crores in a year.

Amit Acharya, Other

Yeah, just to add what Virendra said, so there is a large collection team now deployed on the MFI side also, and their core target, apart from doing the normal, you know, NPA, the recovery or bucket flow movement control, but they have a huge focus on, you know, this legacy book of write-off. And to crack down these customers in terms of settlements or in terms of getting the entire recovery also. So, both the parts. And that is being tracked by Girendra and his entire collection leadership team.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Okay. The next one was on... Sorry.

Govind Singh, CEO

So, just on the cumulative, you know, total cumulative write-off that we have done on the BookSwinds inception. That's about 855 crores. Okay. Okay.

Vinay Nankarni, Analyst — Headway Investments Private Limited

And the last thing was on the cost-to-income ratio. If you are expecting a bumper H2, if you are targeting 20% growth, From 7.5%, I'm expecting a real good H2 for you. How would you look at your cost-to-income ratio? Because your cost will not go up like what you said just now. So what kind of cost-to-income ratio are you expecting except FY27? And what would be projected for FY28?

Manmohan Shetty, CFO

So, you are right. I guess, you know, it was at a point in time almost 110 percent, and you will appreciate that it's a factor of income that determines the cost versus the income over the previous quarters has been low by virtually by all the reasons of stipendies and all that. I guess the cost correction has already happened. So, now it's going to be a fraction of the income with the cost remaining same. We had a Q3 FY26 110 percent cost to income ratio, which has already improved to 84 percent. And we are looking at further improving this over the next quarter, two quarters, hoping to get this around 70s in, you know, 75s in this year, and maybe going back to 60 to 65 to 70, because then we will have to catch up with the growth as we speak as we go along in the next year. But around 60 to 65 could be a sustainable one in FY28.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Yeah, that would improve your ROA and ROE also.

Manmohan Shetty, CFO

Indeed, certainly.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Thank you very much, sir. All the best for your H2 numbers. Looking forward.

Govind Singh, CEO

Thank you.

Vinay Nankarni, Analyst — Headway Investments Private Limited

I'm very happy, Jivali, to all your team.

Govind Singh, CEO

Thank you.

Operator

Thank you. The next question is from the line of Devorah Zaz from Awash Captain. Please go ahead.

Devorah Zaz, Analyst — Awash Captain

Hello, am I on the moon? Yes, sir. Thank you for the update on Q2. My question is around Q2 S by 27 provisionings. While the pre-provisioning operating profit has gone up from 65 to 85, because of the provisioning expense, your PVT is looking worse off. If you can help us understand or contextualize the Q2 provisioning, why it has gone up, and what is the outlook going forward.

Manmohan Shetty, CFO

Thank you. Kind of took care. Again, that my credit cost is 2.3, which has gone up in 3.3 in Q2, but technically, if I add back the events that I just mentioned, which is the credit, then my credit cost is 5.1, which will be improved to 3.3. So provisioning across the last five, six quarters, and particularly a little bit tail remaining in the micro-banking, otherwise it is through and through, improved significantly. Could I answer your question?

Devorah Zaz, Analyst — Awash Captain

God, so I'm getting that H2 provisioning. You've already done most of your cleanup, and H2 provisioning will be much lower, hopefully.

Govind Singh, CEO

It's a decline. It's a decline, yeah.

Devorah Zaz, Analyst — Awash Captain

Thank you.

Operator

Thank you. The next follow-up question is from the line of Sagar Shah from Spark PMS. Please go ahead.

Sagar Shah, Analyst — Spark PMS

Yeah, first of all, thank you again for the opportunity. Sir, my question was related to our CGFMU scheme, actually. Now, in Q1FA27, you highlighted that the incremental disbursements from January 25 to Q1FA27, 80% of the loans were covered, actually, for GLG as well as NBBL. So, what is the figure as of September 30th out of the total loan book that we have? For group loans that stands at 4747 crores and MBBL stands at 2586 crores. So what is the, actually, what is the book that is covered under this scheme as on today?

Govind Singh, CEO

This is covered under CJFMU. Close to 6005. Of course, 7001.

Sagar Shah, Analyst — Spark PMS

Okay.

Govind Singh, CEO

So...

Sagar Shah, Analyst — Spark PMS

Okay, yeah, 6,500 crores.

Govind Singh, CEO

Correct, correct. That's the right figure.

Sagar Shah, Analyst — Spark PMS

Okay. So, out of that, how much has gone into NPSR? And have you claimed that amount under this scheme, at least till date?

Amit Acharya, Other

209 crores is the NPA out of the CGMFU-covered portfolio.

Sagar Shah, Analyst — Spark PMS

Okay, so when are we planning to claim, sir?

Amit Acharya, Other

So, we have done, we have put up our first claim because we started last year mid-January. So, the claim got due only in this quarter and I think close to 80 crore plus we have already submitted for claim, obviously it is under process with the agency. So, around 80 crore plus is already submitted for claim.

Sagar Shah, Analyst — Spark PMS

Okay, okay, fine. And my, sir, my last question was related to our employee strength, actually. Our, in this particular quarter as well, our headcount actually went low to almost 18,300. So now, since we are rationalizing our employees and moving to connections, so I think that is the driver, if I'm not wrong, for the lower cost to income ratio as well. So what is the headcount that are we targeting at least for the end of the year? And how are you planning to put into for disbursements, especially for MSME, CV, and the Affordable Housing Fund?

Govind Singh, CEO

Rationalization of employee and, you know, in some places we might have increased also based on the requirement. So normally typically what happens now, there are a lot of, you know, you can say non-business department where we must have done the rationalized part. Sometimes in the operations department type of places where we have done a lot of automation, so there are a lot of rationalizing in those places. And sometimes we might have people, you know, excess people in the middle of management, so that rationalization will also be done. So, going forward, I think our number may not be significantly different from what it is today. There may be some increase at the FOS level, you know, for example, in terms of collections, especially in the micro-banking part, there may be some increase in the collections part. But more or less, the number should be in the same range for next, you know, six months' time also. We expect much significant change in this 100, 200, you know, number plus minus on the current number. And the plus, if at all it happens, it will happen in the FOS segment, the feed on seed segment, where we require people to go to either for collection or for bringing the fresh business. But in the middle and senior management, we are not looking any increase in the manpower, you know, at all. If at all, there may be at the FOS level in some cases. Okay.

Sagar Shah, Analyst — Spark PMS

So, is it safe to assume, sir, that our H2FI-27, the recovery will be largely led by income and not by reduction in OPEX?

Govind Singh, CEO

We have done a lot of initiatives during last, you know, not only the employee cost part, but even on the, you know, on various expenses which undergo, you know, in case of any institution. We have done a lot of work on that part. So the plus will be that the employee cost will not go up. I mean, large in the same range. I mean, one, two percent plus minus is always there. Similarly, the OPEX will remain always in the same range. But our business number will go up. So I think in terms of ratio or in terms of overall percentage, these will come down. Because the numerator, the numerator and denominator effect, the ratios will come down. Absolute number may not come down significantly from here because we have already done that part during the last two years.

Sagar Shah, Analyst — Spark PMS

Okay. Okay. Fine, sir. Fine, sir. Thank you so much. And I'm happy to give all you to the entire team.

Operator

Thank you. As that was the last question for the day, I would now have the confidence over to the management for closing comments. Over to you, sir.

Govind Singh, CEO

Okay, thank you very much. Thank you very much, the ISAC team, and thank you all the investors for coming on this call, and your all support throughout this period. There have been tough times, we all know that part, but now we are seeing that the trajectory is much, much better, and we can see much better performance on a month-on-month basis and quarter-on-quarter basis on all the parameters we discussed today also. So once again, thank you very much, and happy development to all those who joined this call.

Operator

On behalf of ICAC Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.