Highlights:

The company had planned disbursements growth of 4-5% for Q3 over Q2, but because of registration issues in Karnataka the company could not materialize business of Rs 400 crore in Q3FY2025.

The overall disbursements were flat yoy at Rs 1879 crore in Q3FY2025, but declined 21% on sequential basis over Q2FY2025.

Telangana is also witnessing challenges for a period of last one year with sharp 33% decline in the disbursements as the sentiments have been impacted by the new government decision to cancel approvals given by the earlier government.

The moderation in disbursements led to deceleration in AUM growth to 9% yoy a Rs 37155 crore end December 2024.

The share of disbursement from Karnataka is 35% and Telangana 15%.

The situation in Karnataka seems to be improving with the government intervention and pick up in issuing of e Khata registration to 1.25 lakh from 45000 20 days back against applications of 10 lakh.

This would be a key to monitor for growth in disbursements ahead.

The performance on the collection efficiency has been satisfactory.

SMA 2 loan is stable, while there was a 50 bps rise in SMS 0 to Rs 2593 crore in Q3FY2025, of which Rs 770 crore of book has outstanding of Rs less than Rs 850 per account which is relating to the check bounce charges only.

The credit cost is expected to be negligible for Q4 and the overall credit cost would be in the guided range of 15 bps for FY2025.

The disbursements are expected to be flat for Q4FY2025 similar to Q4FY2024 and if registration issue in Karnataka improves it would add to the disbursements growth.

There is a positive development on the liabilities side. The company had 35% of the bank borrowing linked to the MCLR and during the quarter it has shifted entire bank borrowings to either repo rate or T bill rate. The company does not have any bank borrowing linked to the MCLR now.

The company has also raised Rs 1600 crore of funds from NHB at a lower rate of 7.6%, which is 30-35 bps lower than cost of bank borrowing.

The company is targeting spreads of 2.5% and the NIM of 3.5% and hopes to comfortably end the year with RoE of 17%+ and RoA of 2.1%+.

The operating cost is stable and the company does not expect any impact on operating cost for Q4FY2025.

The company is undergoing IT transformation and it is working with IBM. This would add to some cost in the Q3 and Q4 of FY2026.

The company has merged 10 branches in Q3FY2025 on account of negative growth or closeness to existing branches. The company has also added 10 new branches and it expects to open 15 branches in Q4FY2025.

The share of the self -employed segment has increased to 30% from 28%, while the share of the LAP segment has also increased to 6% from 5% where the company charges 0.5% extra leading to improvement in yields.

The company expects the GNPA to decline to 0.8% in Q4FY2025.

The company is targeting Rs 12000 crore disbursements for FY2026 which translate into AUM growth of 15% for FY2025.

IT transformation would have some impact on the business, while the company is aiming to keep it at minimum level.

The company is targeting a credit cost of 15 bps for FY2026. It is also targeting a cost to income ratio of 18- 18.5% for FY2026.