Can Fin Homes Ltd

NSE:CANFINHOME

Earnings Call Analysis

Can Fin Homes Shows Strong Growth and Positive Outlook for FY ’25

In Q2 FY ’25, Can Fin Homes reported a significant 28% increase in disbursements compared to Q1 and an 18% rise year-on-year. Their AUM growth also improved from 9% to 10%, with projections of 11-12% for Q3 and reaching 13-14% by year-end. Despite some challenges in Telangana, overall growth remains strong. The company maintained a net interest margin of about 3.5% and expects stable credit costs at 10-12 bps. They foresee a 13-14% loan growth for FY ’25, supported by a broader geographical presence and new marketing strategies.

Strong Disbursement Growth Signals Robust Demand

In the second quarter of FY '25, Can Fin Homes Limited reported a commendable 28% growth in disbursements compared to the previous quarter, and an 18% increase year-over-year. This uptick indicates strong demand in the housing finance segment, particularly driven by the recovery in Andhra Pradesh where disbursement growth resumed after previous declines due to regulatory issues.

Adjusted AUM Growth Forecasts Resilient Trajectory

The company has improved its assets under management (AUM) growth from 9% in Q1 to 10% in Q2. Going forward, management expects AUM growth to accelerate, projecting 11% to 12% by the end of Q3 and aiming for 13% to 14% by the end of Q4. This trajectory signals confidence in continued expansion as the company addresses previous geographical weaknesses.

Stable Margins Amid Regulatory Challenges

Can Fin Homes maintained stable net interest margins (NIMs) at approximately 3.5% with a slight spread improvement to 2.5%, despite a marginal increase in the cost of borrowing. Management's strategy includes a conservative approach to pricing as they focus on controlling costs while enhancing product offerings, suggesting a cautious yet optimistic outlook on margins moving forward.

Cautious Asset Quality Management

Management acknowledged a slight uptick in SMA (Special Mention Accounts) categories, particularly SMA-1 and SMA-2, but indicated that this increase is manageable and attributed primarily to regulatory adjustments and minor operational delays. Credit cost guidance remains stable at 10-12 basis points, underscoring a commitment to maintaining low non-performing asset (NPA) ratios well below 1%.

Geographic and Segment Expansion Potential

Future growth plans include an expansion of branch locations in north and west India, with approximately 15 new branches targeting deeper market penetration. The company also aims to shift the loan mix towards a balanced approach of 65% salaried and 35% self-employed borrowers, while briefly increasing loan against property (LAP) exposure from 5% to 7%. This mix aims to capture a wide berth of potential customers.

Investment in IT to Enhance Operational Efficiency

A significant investment is underway in upgrading the IT infrastructure, with an estimated cost of ₹300 to ₹350 crores over seven years. This project aims to streamline operations and improve customer service, with operational expenses anticipated to increase by ₹25 crores annually, which reflects strategic alignment with digital transformation trends in financial services.

Long-Term Growth Guidance Reaffirmed

Management has set an ambitious growth target of 13% to 14% in loan disbursements for FY '25, backed by historical performance indicating second half disbursements typically exceed the first half. Looking ahead to FY '26 and beyond, Can Fin Homes expects this growth trajectory to continue, with an AUM growth target between 15% to 17%. Such consistency suggests a resilient business strategy aimed at navigating the evolving real estate landscape.

Ongoing Focus on Quality and Compliance

Management emphasized a rigorous focus on maintaining asset quality alongside growth, indicating proactive measures in collection practices and compliance with regulatory standards. This dual focus on growth and quality management is essential to ensuring sustainable long-term profitability.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Can Fin Homes Limited Q2 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nidhesh Jain from Investec Capital Services. Thank you, and over to you, sir.

[Nidhesh Jain, analyst]

Thank you, Sita. Good afternoon, everyone. Welcome to the Quarter 2 FY '25 Earnings Conference Call of Can Fin Homes Limited. To discuss the financial performance of Can Fin Homes, and to address your queries, we have with us Mr. Suresh Iyer, MD and CEO; Mr. Vikram Saha, Deputy MD; Mr. Apurav Agarwal, CFO; Mr. Prakash, General Manager; and Mr. Prashanth Joishy from Can Fin Homes Limited. I would now like to hand over the call to Mr. Iyer for his opening comments. Over to you, sir.

[Suresh Iyer, executive]

Yes. Thank you, Nidhesh. Good afternoon to everyone, and thank you for taking the time out to join the call. I'll just touch upon a few important aspects for the -- regarding the performance of this quarter, and then we can open it for queries. In terms of -- the first thing is in terms of disbursement, we've had a good quarter. There has been a good satisfactory improvement in terms of the disbursement growth over Q1.

In terms of -- compared to Q1, there's a growth of 28%. And compared to Q2 of last year, there's an 18% growth in the disbursement. In sanctions, also, we've seen a good growth. Last quarter, we had indicated that there are 2 particular states that is Telangana and Andhra Pradesh, where we've had a negative growth or the growth has not been up to the mark. So from those 2 states also, in this quarter, we've had Andhra Pradesh, which has turned around, and it is in the green in this quarter. So only Telangana, we're having a bit of a problem, and we are going a little slow because the same issues of registration. And there are some incidents regarding demolitions of unauthorized properties because of which the sentiment is a little low.

Other than that, in terms of the AUM growth, we have had an improvement compared to Q1, where we ended at 9% AUM growth. We have improved it to 10%. Going forward, we expect that by the end of the third quarter, this AUM growth should be in the vicinity of 11% to 12% and then going forward by end of fourth quarter, it should be around 13%, 14% or we'll try to at least cross that. In terms of the spreads and NIMs, we've had a very stable quarter. Our cost -- our yield has remained stable at 10.12%. And in terms of our cost of borrowing, as indicated in the last quarter thing, we were expecting a 1 or 2 basis point improvement, which we have witnessed. So therefore, the spread has improved by 2 bps, and NIM also has improved.

In terms of the credit cost, of course, we have had a reduction in our absolute value of NPA because of which our stage 3 provisioning has come down. There's a marginal increase in our Stage 2 provisioning. We are working on that. That is one area where we need to work or deliver into Q3. And in terms of -- however, we are sticking to the same guidance in terms of 10 to 12 bps in terms of our credit cost. OpEx has been a slight increase. Mainly, there is -- one aspect is, of course, a cyclical aspect where in the second quarter, we announced the promotions and increments and all. But over and above that, in this quarter, we've had a slight aspect in respect of actuarial valuation wherein we've had -- because of a discounting rate, we've had about INR 3 crores of higher costs coming in.

And as we had indicated in the last quarter also that we are stressing on the SARFAESI actions. So because of that, there is approximately a INR 1 crores of expenses which has gone up because of our legal expenses for SARFAESI and all. And also, there is a small increase because of our communications because we've set up our marketing team, we've activated our social media advertising and everything. So there's been a small, about INR 80 lakhs, INR 90 lakhs increase because of our communication costs as well.

So these are the major highlights in terms of the performance. I think along with each of these aspects, I've also guided as regard to what we are looking for in the coming quarters. In terms of the spread, we don't expect any deterioration going forward also. Because in terms of our sanctions also, we still hold a good amount of sanctions, which are at very competitive rates. One another aspect, which has recently happened is that we have also got a sanction from NHB for a refinance sanction, which will be at a cost lower than what we are borrowing from banks and NCD and everything. So that also should help us in the third quarter.

And so we don't expect any deterioration in the -- in our spread, and we continue to have the same guidance of 2.5% plus spread and a 3.5% plus NIM. So that's the nutshell -- in a nutshell, the performance of the quarter and the guidance for the next quarters. I thank you once again, and I'll leave it open to the floor for queries.

[Operator]

[Operator Instructions] We have the first question from the line of Mr. Rajiv Mehta.

[Rajiv Mehta, analyst]

Congratulations on strong performance. Sir, my first question is on the increase seen in SMA 0 and 1, particularly in Q2. So Q1 was understandable, but Q2, we have seen even higher increase in SMA 0 and 1. It also indicates the collection drop at the first place. So just wanted to understand why it happened. And is it also in some way linked to, I mean, were these accounts more on the side of self-employed home loan or LAP? And if you can comment about the reversibility of this increase in the coming quarters?

[Suresh Iyer, executive]

Thank you, Rajiv. This is -- increase in SMA 0 has been not much but, however, the SMA 0 is mainly on account of a small regulatory change, where we had this tendency of customers paying some small amounts in advance and it used to be up to 1 EMI as advance because of the payments which are received from the customer. So some 1 or 2 small blips like one check bounce and we have to redeposit or something of that sort, those kind of customers would generally, the amount will get covered from the advance.

So there was always that impact. But the last -- one of the recent circular said that any amount of -- excess amount has to be credited to the principal. So to that extent, that small flexibility has gone. But that is more of a cyclical thing because what we are seeing is that when the next NACH hits that whatever INR 50, INR 100, INR 200, small, small amount gets adjusted and they are cleared. So SMA 0 is not a problem. SMA 1, yes, there has been a slight increase as I indicated.

In fact, what we have observed is that our SENP, we have had a slight improvement. The improvement that has come in our NPA also is also mainly in respect of the SENP category, where we have seen. So there is no that kind of concern that we see in terms of a segmental issue, which can affect our collections. But yes, about INR 102 crores approximately increase in our SMA-1 plus SMA-2, which is what we need to work on in this quarter. So this third quarter, we will definitely be focusing on bringing this down. But we don't see a problem in this sense, as I indicated, because it's more of a little extra effort, we'll have to put it. That's fine.

[Rajiv Mehta, analyst]

Got it, sir. And also what explained that we were able to hold on the portfolio yield. So I mean, firstly, you can give out incremental lending rates in salaried home loans, self-employed home loan and LAP on a blended basis. So what is the incremental lending rate here? And is there any other factor besides the product mix, which is supporting yields as well on a portfolio basis?

[Suresh Iyer, executive]

See, in terms of our product-wise pricing, there has been no change in Q2 over Q1. So the main reason for this yield holding up is only because there's been a slight improvement in our -- as we've already indicated, there's a scope for us to improve a little bit of our SENP. And also, there is a little bit of a scope to improve on our LAP. Although LAP has not been increased much, it's a very, very marginal thing. But our SENP, which used to be around 28%, now we are having about somewhere in the range of 35% to 38% is the incremental SENP category lending that is happening. So to that extent, our 0.5 percentage extra that we used to charge for the SENP over salaried segment, that is helping us in holding up our yield.

[Rajiv Mehta, analyst]

Okay. And just lastly, if you can just tell us the mix of bank loans in terms of the benchmarking, MCLR, repo and the other shorter-end benchmarks, the composition of bank loans, please?

[Suresh Iyer, executive]

Yes. See, last quarter, we had a 40-40 breakup of bank term loans linked to repo and MCLR. We've had some MCLR-linked loans, we have either repriced or we have repaid. And that is why now and move to repo-linked loans. So we have about 45% of our bank term loans which are linked to repo, 35% linked to MCLR and the balance, we have T-bills and all those things. So basically, only 30 -- that MCLR-linked loans are now reduced from 40% to 35%.

[Rajiv Mehta, analyst]

And would we be allowed to use the NHB sanction in repaying the MCLR-linked bank loans? I mean, is that allowed or it has to be only used for refinancing of the asset. So I mean, can we have that arbitrage in our favor when the money comes?

[Suresh Iyer, executive]

It is for incremental creation of portfolio that will -- that has to be there for incremental portfolio that we'll be assigning and creating.

[Rajiv Mehta, analyst]

Okay. Not on the existing MCLR loans?

[Suresh Iyer, executive]

No, no. We'll be able to use some other flexibilities there to use because we have another INR 2,000 crores sanction, so that increases our sanctions on hand. So that definitely will help us to free up some more things which we can use to repay the MCLR-linked high-cost loans.

[Operator]

We have the next question from Mr. Shreepal Doshi from Equirus.

[Shreepal Doshi, analyst]

First of all congrats for the recent quarter. [indiscernible]

[Operator]

Sorry to interrupt, your voice is not clear.

[Shreepal Doshi, analyst]

Am I audible now.

[Operator]

Much better, sir.

[Shreepal Doshi, analyst]

Yes. Sir, my question was on pricing and margins. So given the portfolio mix marginally shifting towards better yielding and also there might be some possibility of portfolio repricing. So do you believe that we can actually do a better margin this year than last year?

[Suresh Iyer, executive]

Yes. Thank you, Shreepal. First of all. See, in terms of the pricing going forward, yes, we will have a little better-yielding portfolio, which will get created. So that is there, but we'll have to see how we are able to reprice. In fact, it is more likely that we will be able to benefit from the repricing of the liability side rather than from the asset side. That is more likely possible. As I just mentioned to the earlier question also that our MCLR-linked loans and some of our high-cost loans, now that we have a higher sanctions on hand, we will be able to maybe reprice or repay some of our high-cost borrowings and MCLR-linked loans. And going forward, when the rates start coming down, yes, that will benefit us. On the yield side, not as much as from the liability side.

[Shreepal Doshi, analyst]

Got it, sir. And then second, just on the -- this SMA-1 and 2 pool. So as you highlighted that it is not much of a concern. But -- so because, typically, what we see is that from 1Q and 2Q, the seasonality sort of moderates and collections start to improve. But despite that, this quarter has also not seen that. So what are the aspects that you are seeing, which is giving you comfort that in 3Q will be able to sort of recover these accounts?

[Suresh Iyer, executive]

As I said, this slight change in this guideline where we are not able to keep an advance of revenue that is, in fact, giving us a slight flexibility that we had has gone. So therefore, the flowback is also if it happens, we are not able to come back and some customers always have that seasonality or some delays they keep making and collection has to be a little more expensive for some of the segments and small pockets. So those are the ones where we are having it, but we will be deploying more people, and we will be taking some more things.

In fact, we have already started taking certain actions for those kind of things. So I think it should not be -- my comfort comes from the fact that from 2 points actually as to why we believe that our NPA and gross NPA, our collections will improve. One is that in terms of our restructured portfolio, our collections have come down considerably, and our NPAs also reduced, which was in Q1 at 18% of the outstanding restructured book has come down to 17-point-something percent in the restructured book. So that is one thing.

The second thing is in terms of -- as I mentioned earlier also, our collections or our -- the reduction which has come in our portfolio, that is coming more from the SENP segment, which is generally considered to be a little more sticky. So these are the 2 aspects why we believe that it should not have an impact. And to some extent, yes, the collection efforts that we are putting will also bring in some support. So that's basically the reasons why I believe we are confident that this would not have a problem.

[Operator]

We have next question from Mr. Abhijit Tibrewal from Motilal Oswal.

[Abhijit Tibrewal, analyst]

Just 2, 3 things. First, I mean, just trying to understand while this has been a good quarter, I'm just trying to understand how should we look at the industry in general. Why I asked this is today, if you look at the small ticket size or what we call as the affordable housing segment, there we are seeing growth sustained. But on the other side, we look at, I mean, some of the large HFCs, who are into slightly higher ticket sizes where there is, indeed, tightness in terms of growth. So I mean, if you could just explain this dichotomy, which is there from an industry perspective? And then a related question that while for the full year FY '25, you've guided for 13%, 14% kind of loan growth, I mean, how is it going to translate into disbursement momentum for the next 2 quarters? And then will be we running for higher loan growth from next year onwards?

[Suresh Iyer, executive]

Yes, sure. See, first of all, as to your first question regarding the segment as that affordable housing companies are doing better and higher-ticket loan companies are having an issue, actually, if you look at our quarterly performance, in fact, that same trend which we had in the first quarter is continuing. Where in our 20 lakh-plus segment is where we are seeing the growth. Well if you look at the simple fact that the cost of construction also today, even in the smaller Tier 2 towns, the property values are not anywhere below INR 25 lakhs.

So affordable segment, it's a different segment that you have segment of unbanked or maybe all those kind of appraised income where formal income segment is not there and all. But in our case, in fact, it's a 20 lakh plus segment where we've seen the growth. So I don't see any issue on that. And as I also mentioned in the first part itself in the opening remarks that our growth is, in fact, we've witnessed across geographies, except for the state of Telangana. So even Andhra Pradesh, we have seen the same trend. But across the board, we are seeing improved -- the growth has come from the INR 20 lakh plus segment.

So I don't -- maybe it could be some other reasons. And we don't see that kind of a thing. Even in terms of sanctions, if you see, our growth has been very strong in the Q2 compared to Q1. That's the reason we believe that there is a good amount of scope, and we don't expect things to come down. That is the first part. And in terms of the guidance that we are talking about 13% to 14%, see, normally, first quarter -- sorry, first half, it's 45%. And second half, we witness normally 55% of the disbursements happening. That's the general trend. The second half is always better. Now if you go by that, we've already done about INR 4,500 crores close to that we have done in the first half. Going with that argument, another INR 5,500 crores, anyway, is what it should happen even if you go by the past cyclical trend.

That plus whatever extra push that we are making is what we believe will bring us to something more than INR 10,000 crores by the end of the year, which is what should get us the 13%, 14% kind of a growth. I hope I've answered your question, Abhijit.

[Abhijit Tibrewal, analyst]

Yes, you answered. And you're expecting a similar growth trajectory the next -- over the medium term, I mean , beyond FY '25 as well?

[Suresh Iyer, executive]

Beyond '25 also, I believe this trend should continue because we are putting in place a lot of things like, one, is we are broad-basing the geographical presence. In last year also, we opened branches, mostly towards the North and West. This year also, we're doing it. So basically one step we're taking is we are broad-basing the geographical presence. The second thing we are doing is we have opened up segments like, as I mentioned, this SENP slightly improving. We are also opened to a little bit more of LAP, although which is right now only about 5%, and this quarter has not seen much.

But, as I mentioned, we have initiated the activities for marketing. We've also set up a small marketing team and all. So going forward, all those things should translate into better business and a more sustainable business going forward beyond FY '25 also.

[Abhijit Tibrewal, analyst]

And sir, the second question I had was, I mean, again, on asset quality, a lot of discussion has already happened on SMA-1 and SMA-2. But I mean, my question was more generic given that in the last maybe 1 or 2 quarters, right, there are banks, there are NBFCs, right, who started talking about more of a broad-based kind of stress that we are seeing both in retail and SME.

However, having said that, right, I mean we are not seeing -- we are not talking about that stress in the housing segment or the mortgage segment today. So just trying to understand, I mean, are there any indicators which would suggest that some of this stress which is there in unsecured today can spill over to the secured segments as well, like, mortgages?

[Suresh Iyer, executive]

See In terms of the unsecured segment, obviously, there has also been some regulatory tightening. And that also would obviously have impacted the repayments and everything because a lot of it is more one loan then tends to other, which is exactly what the RBI has pointed out. In terms of a housing loan, however, that particular tendency is not there. So I believe, you cannot compare the unsecured loan vis-a-vis the housing loan.

And particularly, when you're talking about a self-occupied residential house that we are talking about. Unlike the personal loans and short-term loans, which are more for consumption or for investment or speculation or whatever. So these are 2 completely different segments. So housing loan should traditionally also reflect a better repayment compared to the personal loan and short-term loans. And that is precisely what -- since our self-occupied residential is what we are mainly focusing on. Therefore, that is something which is not yet reflected.

[Abhijit Tibrewal, analyst]

Got it. And then my last question was, I mean, while you've already given out the bank term loans, what is the mix between the repo, MCLR and T-bills, just trying to understand, I mean, hypothetically speaking, right, let's say, if there is a 25 basis cut in the repo rates, I mean, how will -- and over what duration will that translate in our liabilities? In other words, out of 25, what proportion will reflect in our lower cost of borrowings and over what period? And commensurately, I mean, having seen so many cycles, typically, is it the case that, I mean, in the initial part of a rate cut cycle, margins will be under pressure and then if they will pick up as things go along?

[Suresh Iyer, executive]

See, as we mentioned, about 60% plus of our borrowing is on the -- through bank term loans and about 45% of that is linked to REPO. So any reduction in REPO will immediately translate in about 25% of our book on the liability side, which will experience a 25 bps benefit. So which means if 25 bps reduction is there, then we will be in a position to pass on somewhere in the range of about 10 bps max to the -- down the line to our customers.

And we have already moved, effective January, we have -- last January, we moved our reset cycle from annual to quarterly. So on a quarterly basis, we'll also pass on. And we have in the past also been very fair and we have passed on immediately without any lag, much of a lag. So at most if all, there is something, it will be for a quarter that we may be enjoying a little bit of a benefit in terms of the interest rate. And as soon as the repo rate cut is announced, the banks will have to immediately pass it on to us. And we will add the next reset cycle, which is in a quarterly cycle, we will also pass it on to our customers, obviously, on a pro rata basis, which is INR 0.10 to INR 0.25 paisa kind of thing.

[Abhijit Tibrewal, analyst]

Got it. So just to clarify that, I mean, is that, I mean, when there is a 25 basis points cut, depending on how it affects your cost of borrowings on a pro rata basis, on a proportionate basis, you'll be passing it on because our home loans are not really linked to repo.

[Suresh Iyer, executive]

Yes. We are not required to be -- to link it to EBLR.

[Abhijit Tibrewal, analyst]

Congratulations on a good quarter.

[Suresh Iyer, executive]

Thank you, Abhijit.

[Operator]

We have next question from the line of Ms. Shweta from Elara.

[Shweta Daptardar, analyst]

Congratulations on a good quarter. I just have 1 question. So while you were alluding to a growth targets of 12% to 14%. One, what is the growth target for next year. Two, how much steadiness do you see on the repayment scenario? And if you could throw some color on BT out cases?

[Suresh Iyer, executive]

Yes. So I'll just -- I think I missed the second question, not very clear, but I'll just answer. See, first of all, in terms of our BT out, it is just about -- sorry, we have a total close to 3.75% quarterly repayment which is happening, which comes to somewhere around 15% for the entire year, breaking up into our how much is part prepayment, how much is amortization and the rest is closures and BT out. Our BT out, out of that 15% is about 4%, 4%, 4.5% is our closures and BT out. The remaining 10.5% is either part prepayments where customers continue to service their balance portion of the loan or amortization impact, which is there. And growth -- for next year, I think we would continue to have about 15% to 17% is what we would aim in terms of the AUM growth.

[Operator]

We have next question from Pavan Kumar from RatnaTraya Capital.

[Pavan Kumar, analyst]

Sir, I wanted to understand what is the new geographies that we are entering in terms of number of branches? Do we even plan to increase the number of branches? And what is the strength of our sales forecast, sales force team as of now? And what do -- what are our internal targets about how much of the new business can be sourced through our own sales team?

[Suresh Iyer, executive]

Sure, see in terms of our branch expansion, we are planning for another 15 additional branches in this financial year. And this would be mostly in the north and western geographies. In terms of our sales force, we don't have a dedicated sales force in a large sales force. We have just started a marketing team, a sales team that is. And we have a very small team. We are just experimenting in the North and West mainly. So in a couple of states, we are doing it. So we don't have much of our sales force presently in the on-ground kind of a thing, which we will -- however, we'll be building as we go forward. So this is a small pilot, which we have done, and this has started showing some results.

In the long run, we expect about 20% of the business to come through this sales channel. And our sourcing should come down from the present 80% to about 60%. That's the breakup, 60-40 is our goal, which we expect to achieve in the next 2 years by FY '27. We expect to bring it down to 60-40.

[Pavan Kumar, analyst]

Okay. But are you planning to hire new people from the market for our marketing as of now?

[Suresh Iyer, executive]

We will be either from our existing teams wherever possible, wherever productivity limits are allowing us, we will take from our existing teams also. Otherwise, yes, we are open to, in fact, slowly build our sales force through lateral hiring.

[Pavan Kumar, analyst]

Okay. And one last thing, what are the new states that we are entering?

[Suresh Iyer, executive]

Sorry? I can't hear you.

[Pavan Kumar, analyst]

New states you are talking about in North India that you were entering, so I was just curious on what are the...

[Suresh Iyer, executive]

We are not looking at new states. We are already present in almost all the states in the West and the North. We will be expanding or going deeper in these geographies basically. Like last year, we are already there, like last year, we opened branches in Bikaner, Palli, then we have in Ratlam, Ujjain, we had in Saharanpur and Meerut and so on. So basically, we will be in the existing geographies, we are looking at deepening our presence and opening offices in Tier 2 towns.

[Operator]

We have next question from Anusha Raheja from Dalal and Broacha.

[Anusha Raheja, analyst]

Sir, what is the incremental average ticket size of the loan?

[Suresh Iyer, executive]

Average ticket size, we've not seen much of an increase in our ticket size. It's still hovering around INR 25 lakhs.

[Anusha Raheja, analyst]

Okay. And on a blended basis, what will be the average ticket side?

[Suresh Iyer, executive]

That's what I said, on a blended rate, it is about INR 25 lakhs, but we've seen more of a rise in the 20 to 30 and 32 -- 30-plus segment. And yes, it is -- so it's a little in the -- decimal increase would be there. But otherwise, it is in the 20 to 30 and 30-plus segment only, we have seen a growth and average ticket price is around INR 25 lakhs, which should inch up to around INR 27 lakhs in a year's time or something.

[Anusha Raheja, analyst]

Okay. And sir, on the margins, if I have to sum it up, you said that there could be positive traction on the margin side. That will come more from liability repricing. But in a declining interest rate scenario, we are in a competitive world. So even banks would -- banks are also there in a similar set of loans. So if banks bring down their rates on the home loans, is it not possible that you will also have to bring it down and so that might result in a stable margin profile?

[Suresh Iyer, executive]

See, there are 2 things to this. First is that our reliance on deposits is a very, very small percentage. We have less than 1% or thereabouts in terms of our deposit reliance. So therefore, our main cost of borrowing is impacted mainly because of the bank borrowings, NHB refinance and NCDs, okay? Whereas in terms of the banks and some of the larger players, their reliance on deposits as a source of funding is much, much higher. As a result of which, today, looking at the rates at which are -- the deposits are being raised, definitely the incremental cost of borrowing is unlikely to kind of come down.

So the flexibility to reduce the rates, I feel it'll be a little less for some of the bigger players as compared to us. And in our case, anyway, if the competition is not reducing the rates, obviously, we would not reduce the incremental lending rate except for the whatever rate benefit we have to pass on to our existing customers.

[Anusha Raheja, analyst]

Okay. So any qualitative expect how much could we see a margin traction or expansion, some broad view there?

[Suresh Iyer, executive]

See, we -- our endeavor would be to repay some of our high-cost bank borrowings or things like that. But of course, I wouldn't -- I mean, I don't have a number right now readily available as to how much will be because it's obviously also a matter of how much we can discuss with the bank because it's a long-term relationship we have. And so it's not going to be very aggressive. But yes, our endeavor is going to be there. We will try to negotiate and if possible, if banks willing, we will be able to reduce it. Otherwise, we will have to also look at it. But I don't have a figure, but that is one avenue, which is open to us to kind of bring down our cost of funds.

[Anusha Raheja, analyst]

Okay, sir. And just one last thing on the mix of the loans between self-employed and salaried, we are seeing a good traction on the self-employed segment. So any idle mix that you are aiming between the two?

[Suresh Iyer, executive]

Yes. Actually, we had about 72% salaried and 28% self-employed. But incrementally, it is right now around 35% or thereabout 35%, 38% is coming to self-employed. But on the overall mix, we are still closer to the same 70-30 or thereabouts only. We are open to go up to 65% in the salaried and 35% in the self-employed the near-term range, in the next 2 to 3 years, we are open up to -- we are okay up to 65-35 on the AUM basis, of course.

[Anusha Raheja, analyst]

Okay. Just one last question, if I can squeeze in. Sir, you said that you will be opening closer to around 15-odd branches current fiscal. So -- can we expect a similar sort of trajectory over the next 2 to 3 years' time frame that this expansion will continue in FY '26 and '27 as well?

[Suresh Iyer, executive]

Yes. We are looking at about up to 300 branches by FY '28. So we will be looking at around 15, 20 -- 15, 20 branches in the next years as well.

[Operator]

We have next question from Antariksha from I Pru.

[Antariksha Banerjee, analyst]

Just one small question. This is regarding this 4th October draft circular by the RBI regarding similar lending by group entities for banks where they're proposing not to do similar activities under different related group entities. Any conversation with your parent or any discussion on comments that you would offer?

[Suresh Iyer, executive]

Not yet because right now, it is still at a draft stage. So I believe all the banks have been given time until November 21 or something to give their feedback. And I believe there is already a thing that looking to the kind of -- there is also a little bit of ambiguity in terms of which all segments it covers because it is not only going to affect housing finance company, it's also going to affect all the personal loans or these vehicle loan companies. It's also going to affect insurance holdings and stuff like that. So maybe some more clarity will be definitely sought. And there definitely is going to be some more discussions which may happen before we finally see something coming out of it.

[Operator]

We have next question from Kushan Parikh from Morgan Stanley.

[Kushan Parikh, analyst]

Congrats on a good quarter. And I have 2 questions largely around the asset mix. So obviously, you said that we are comfortable with taking salaried down to 65% and 35% self-employed. Do we have a similar target mix that we are looking at between housing and non -- small housing essentially LAP. And just also from a data keeping perspective, within LAP, could you be -- could you help us with the collateral share as in how much would be against residential property and how much against commercial? That's my first question. I -- should I put in my second question as well?

[Suresh Iyer, executive]

Yes, first I answer this, if it is okay. So first thing, thank you, Kushan for your this thing. In terms of the projected mix for LAP, as I said, for salaried, self-employed, we are okay with 65, 35. For LAP, right now, we are around 5%, we would be okay going up to about 7% because eventually, in terms of our excluding -- after eliminating the CRE portion of the housing portfolio also, the pure housing, we would like to kind of keep it up to around 70%.

So keeping that in mind, we have a scope to around 2% to 3% of extra leeway that we are currently having. Of which, we would like to have LAP going up from 5% to 7%. So that is one thing. And in terms of your LAP breakup, actually, most of it would be housing, though I don't have an exact number right now, but I think we -- we are mostly doing only against -- LAP also is purely against residential only, commercial LAP and even commercial lending itself for us is very, very small. So out of the 5%, I think it -- I don't think it will be more than 0.5%, but I don't have the exact number to be right now in hand.

[Kushan Parikh, analyst]

Understood. That answers my questions. And then if I can put across my second question. As I understand, basically, on the Telangana part, do you see the...

[Operator]

Sorry to interrupt, sir. Your voice is not clear. Can you please repeat the question?

[Kushan Parikh, analyst]

Is it clear now? Am I audible?

[Operator]

Yes, so much better.

[Kushan Parikh, analyst]

Yes. So on Telangana -- on the Telangana situation, I just wanted to understand if you started seeing an improvement in 3Q. And I mean when you say -- when you, I mean, target INR 100 billion plus disbursements for the full year, F'25. Does that include any improvement in the Telangana situation? Or that is irrespective of the current situation there?

[Suresh Iyer, executive]

Yes. See, in Telangana, we have at least Q2 has been quite stable, although we've not had a positive growth. So there is no this thing. But last quarter, we had this issues. After that, I myself has visited also. So basically, there is a little bit of a comfort among the builders segment and all because there've been some demolitions and stuff like that, obviously, doesn't affect everybody. But still, there is a slight kind of cautious approach was taken by the developers. So the present what we are looking at in terms of this disbursement target that we have given, we are looking at a steady state Telangana performance. What is there in Q2, Q1.

So obviously, if it improves, that will help us. But I don't know how long this will take because normally, these kind of things are generally clarified well in advance or quite quickly by the government but this has gone on for -- this is the second quarter, we are experiencing this kind of a thing. So I mean, if it improves, it will definitely help us. Does that answer your question, Kushan? Yes.

[Kushan Parikh, analyst]

Yes, that answers my question. .

[Operator]

We have next question from [ Omkar Shinde ] who is an individual investor.

[Unknown Attendee]

I wanted to understand, you have mentioned that there is a technology upgrade that is initiative, and which will go live by next quarter. So what is this technology change that we are doing? And how is this going to help for the business, in what strength it will be?

[Suresh Iyer, executive]

See, we have a present LOS LMS package which we are upgrading in terms of -- we are upgrading. That is the first phase of our technology transfer that we are doing it. So that is something which we have already implemented in the sense that it's already tested, the UAT has been completed. Our -- parallel run across branches has also been completed. So that is going to be implemented now. Now once that happens, of course, it has -- it will enable us to, in fact, add a lot of other third-party solutions also to it, which already we have quite a few of the smaller modules we have already implemented like in the last 2 to 3 quarters, we have implemented tie-up with [ Velocity ], which is for a valuation. We have tied up with this solution for us a little bit of a CRM and marketing. So a lot of things we are already doing. So these are the things which will be possible.

So this is the first phase of the upgrade for which some of the cost implement -- cost aspect has already been incorporated into our expenses because this started from January '24 onwards. So in Q4 of last year, plus Q1 and Q2 of this year, the impact of the -- the cost impact, which is about INR 3 crores per quarter increase that has already been factored in.

[Unknown Attendee]

Understood. So is this like some platform based, like Salesforce or Oracle something like this or this is something entirely different or it is existing and on top of it, we are upgrading?

[Suresh Iyer, executive]

No. This is an existing one, which we have been using for the last many years, almost a decade kind of a thing. On that, we are upgrading because the vendor is -- with the help of the vendor, we've upgraded quite a few aspects in that solution. Even in the UI/UX, we have made a lot of changes. We have kind of made it a little easy for the users to use and they've also enabled a lot of features like they have their own CRMs, they have their own kind of thing. So all the things we have done it, vendor management we have implemented, reconciliation modules we have implemented. So some of these things we have already implemented, but these enhancement that we are doing, which will go, which is now going live in this month, that will allow us to add quite a few new modules as well [indiscernible] old one.

[Unknown Attendee]

Understood. What will be the -- what are we looking to gain from? So will this improve the productivity? Or how will it impact the business going forward? Or that is also I wanted to understand.

[Suresh Iyer, executive]

See, there are 2 benefits basically which come from it. One is, of course, as I mentioned, the UI/UX. So from the user point of view, a lot of things are already incorporated. We are also -- so once it is implemented, we'll be able to streamline a lot of things which are presently being done manually. So that should help us in terms of the productivity like once this is done, the CRM module can be incorporated, the SARFAESI module, which is now being done manually can be incorporated. Of course, we have done the Karza and we have done this [ Velocity ] and all those tie-ups we've already done, but those are operated separately. This can also be incorporated into the same existing module. So the flow, which is there, which also will become a little bit more seamless. This will help the users also to kind of improve in -- there will be an improvement in our TAT to the customers also.

[Unknown Attendee]

Okay. So what is in the current TAT now and where we see it going?

[Suresh Iyer, executive]

See, right now, also the current TAT would be around for a salaried customer about 3 to 4 days. And for the self-employed, it would be a little longer, maybe about 7 to 10 days. So we are expecting from there also if it's a salaried customer and a high profile customer and everything is absolutely clear, I think the TAT should come down by another 1 or 2 days.

[Unknown Attendee]

Okay. And finally, with respect to incrementally, we are seeing, our disbursements being towards more than INR 30 lakhs, so the share is increasing. What I wanted to understand is, do we then see any benefits coming from the PMAY scheme or will that not affect the business much because that the scheme focus is more on the INR 25 lakhs and below segment. We are seeing more traction in the INR 20 lakhs above and INR 30 lakhs above. So I wanted to understand that.

[Suresh Iyer, executive]

See the PMAY once it gets implemented and gets rolled out in a full manner, the demand for home loans also should marginally improve, although this scheme has much lower benefit compared to the previous PMAY CLSS 1.0. The CLSS 2.0 has a slightly lower benefit and it is spread over 5 years. Yes, there could be some benefit which would come from it.

In the past, whenever customers have come, this would definitely help. The other thing is in PMAY 2.0, the government is also looking at a portal from which the customers themselves can select the vendor or the lender with whom they want to go to. So they have to choose 3 to 5 lenders whom they want to go to and the data of the customer will go to those -- here.

So in fact, right now, it is more of a sales-driven kind of approach where we are doing 20-plus segment and all, which is more directionally, we are trying to focus on that segment. But here, there will be a lot of -- inbound kind of demand which will come to us through the portal once it gets implemented. So there, yes, it can help a little bit. But how soon they are able to implement it, we don't know. We'll have to wait and watch. The scheme itself gets operational from the 1st of September only.

[Unknown Attendee]

Just 2 data keeping points. What is the login to sanction ratio and sanction to disbursement ratio?

[Suresh Iyer, executive]

No, login to sanction ratio. Once the sanction is there, it is obviously linked to the stage of construction and to the kind of product. So that is something which will -- which we cannot change. If the customer takes 2 months to go to the next stage of construction, then obviously, the next disbursement will happen after 2 months only. We are talking about the login to sanction data.

[Unknown Attendee]

Yes, login to sanction, what is the ratio? If application was of, say, x amount, how much of it is sanction? And I wanted to understand that.

[Suresh Iyer, executive]

You're talking about the funnel. The funnel, yes...

[Unknown Attendee]

Yes. Funnel, funnel.

[Suresh Iyer, executive]

If you see our data also that we have about 90% of the cases are getting sanctioned. If you see the sanctions right now in the -- in our presentation, our sanctions have been almost INR 2,600 crores and disbursements have been INR 2,380 crores. So that's almost like a 90%, 95% is the flow-through.

[Operator]

We have next question from Jigar Jani from B&K Securities.

[Jigar Jani, analyst]

Congratulations on a good set of numbers. Just a couple of questions. On the OpEx front, because you said that most of the tech investment over the last 3 quarters, you have done INR 3 crores every quarter. Do we see any material change in the cost-to-income ratios going ahead? Do we expect an improvement? And I believe there was another big project wherein we were trying to kind of revamp the entire IT system also. Any update on that? Because I believe 6 months back, we were talking about that as well and whether that could be taken up in FY '26 and correspondingly, what would be our cost to income assumptions for FY '26?

Similarly, for credit cost, this year, we have seen significantly lower credit cost of 10 to 12 bps. Do you maintain the same guidance for FY '26 as well on the credit cost front? Yes, these are my 2 questions.

[Suresh Iyer, executive]

Sure. See, in terms of IT costs, the changes that we made in the last 2 to 3 quarters, they have already been there. As I said, the major component is the upgradation of the present package, the LOS LMS package, which is approximately about INR 3 crores per quarter. And that has already come in to the picture from January onwards. Yes, there are a lot of small, small packages, which we are also incorporating which we are also doing it. A lot of it is -- it already comes in with the -- it's part of the upgrade that we are already doing. So it will not have very much impact in terms of the cost going forward, at least not the Phase 1 that we have seen, it's already been factored in, okay?

Second thing you mentioned is, your question was regarding the major IT transformation project, which we have done. So we had an RFP, which was floated and that we have already received 6 bids for it, and we are right now under the evaluation stage. We expect to close that by end of December and award the contract to one of the SIs. Once that is done, the project is estimated to take about 9 to 12 months. So it is not -- I would say probably somewhere in the Q3 of next financial year is when we will see it implemented.

Obviously, I don't know the cost because until we open the bids, we don't know what is the cost expected, but at least what we believe is that a major component would be the CapEx. The OpEx would be somewhere around about INR 30-odd crores, INR 30 crores to INR 40 crores would be the actual cost, which will be there. Presently, we are already spending about INR 15 crores as OpEx in terms of the IT. So if it goes to about INR 40 crores also, about INR 20 crores to INR 25 crores is what we expect the incremental OpEx on an annual basis to go up. Once the new scheme is implemented -- sorry, the new IT project is implemented somewhere in the -- by the end of December '25.

So that is the point. As regards the credit cost, well, yes, traditionally looking to the kind of portfolio, the kind of NPA ratios and all that we've had, where, our gross NPAs have always been below 1%, and we are right now also in the same phase. So going forward also, I think that should eventually work out to around 10 to 12 bps in terms of credit cost only.

[Jigar Jani, analyst]

For the project which we had mentioned last time? The CapEx estimate was around INR 60 crores, right, for the IT project?

[Suresh Iyer, executive]

So initially, when we had looked at the first RFP, our budget was around -- which was around -- which we had announced in 2022, which we actually didn't go through. At that time, the cost was, yes, about INR 60 crores would be the CapEx. And then about INR 25 crores, INR 30 crores would -- INR 30 crores approximately for a period of 7 years will be OpEx. That is what was the initial approval, which we had taken from the Board and which was the kind of expectation there.

But as I said, since in 2 years have kind of elapsed so we are not sure as to what would be the cost. But yes, I mean, if you look at the simple -- the IT costs have gone up. So we are not sure whether it will be in the range of about around INR 300 crores instead of INR 250 crores or it would be around INR 350 crores. So that would be the kind of range. I don't expect it to be beyond that.

[Jigar Jani, analyst]

So INR 250 crores to INR 300 crores should be the total cost?

[Suresh Iyer, executive]

So this is the -- INR 300 crores or something is what I'm saying about is the OpEx plus CapEx over a period of the next 7 years is what I'm talking about, which was earlier INR 60 crores plus INR 30 crores over 6 years versus somewhere around INR 250 crores, which probably could be around INR 300 crores. So if that happens, probably instead of INR 40 cores, it could be about INR 45 crores also.

[Jigar Jani, analyst]

I understood. So largely, it will be in the OpEx mode is what I understand because it is spread over 7 years and you are expecting INR 30 to INR 40 crores of OpEx per year. So it's mainly in the OpEx in which we will be doing.

[Suresh Iyer, executive]

No, the OpEx, it would be, as I said, around INR 35 crores to INR 40 crores, which is currently around INR 15 crores. So that would be the impact, yes.

[Jigar Jani, analyst]

And sir, lastly, just on this PMAY scheme, can you just throw some color because I was speaking to someone and they were saying that now probably the government is thinking of giving the subsidy directly into the customer's account as against adjusting it from the principle of the loans. So have you got -- could you throw some color whether that how is how it is going to happen or it will still be like how it was running in the past like it will be adjusted from the principal outstanding?

[Suresh Iyer, executive]

No, it will be from the principal only. That is how it is going to be. And this time, we recently had -- because what has happened is the government has now released the draft MOU also. And the government is expecting to kind of execute this in the next month or so. So if that happens, I mean that is what it is. But what indication during the meeting, which we had was that the government will continue to make the payment to the PLIs and PLIs will have to give an immediate transfer to the customer's loan account. And the entire amount will go towards the principal, which in fact was the case in the previous version of CLSS also where the entire amount had to go towards principal and cannot be adjusted towards outstanding or any overdues or anything of that sort.

[Jigar Jani, analyst]

Right. And this will be split into 5 parts. So the principal rundown will be a little bit lower than what it was earlier in the earlier CLSS?

[Suresh Iyer, executive]

Not only will the run-down be less. But at this time, the government has done 2 very, very positive things for the industry. One is that if the customer transferred the loan during the period of the PMAY scheme or when the payment, the balance payments will not be made. So if the customer has to avail the entire benefit of the PMAY, then the customer will have to continue the loan for a period of 5 years with the same institution. So suppose, somebody has taken up PMAY benefit from me. And after the end of 2 years, they've moved the loan to some other lenders, then in that case, they will not get the remaining 3 years benefits.

The other lender also cannot claim the benefit for that particular loan. So that is the one benefit that has happened. And second thing is that the government has also stipulated that the loan has to be a perfectly regular service account. If the customer starts defaulting, then the balance benefit under the PMAY will not accrue to the customer. Therefore, they should also bring in a little bit of discipline in the customers as well.

[Jigar Jani, analyst]

The default is 90 plus right now?

[Suresh Iyer, executive]

That I guess they have said default, so we will have to see whether it is even SME accounts or it is only NPA.

[Operator]

We have next question from an Pavan Kumar from RatnaTraya Capital.

[Pavan Kumar, analyst]

[indiscernible] in the sense IT cost, where you are saying operational cost will be around INR 40 crores per year out of which, currently, we are already incurring INR 15 crores. So the incremental cost that we'll incur is INR 25 crores per year. Is that right?

[Suresh Iyer, executive]

Yes, that is correct. That is correct. Once it is implemented, the OpEx will go up by -- OpEx will go by around INR 25 crores in a year. So presently, our total OpEx -- I mean, total cost is around INR 200 crores for the entire year. So if you look at our INR 20 crores, INR 25 crores, then to that extent, you can imagine that slightly it will go up. so that 1 or 2 years, when they immediately start kicking in, at that time, the cost-to-income ratio slightly have a higher value. It will definitely go up. Then once obviously, it will get absorbed over a period.

[Pavan Kumar, analyst]

And how do you expect this system to benefit us in terms of usage, in terms of scaling or is it in terms of efficiency? How does this work?

[Suresh Iyer, executive]

You're talking about the new IT transformation project where you're talking about?

[Pavan Kumar, analyst]

Yes.

[Suresh Iyer, executive]

See obviously, the present package, as I had mentioned, is already about a decade old in our company. And therefore, there are a lot of packages and modules, additions and small, small things which have been subsequently added and it is there. So new package when we look at it, it will be a completely new LOS, LMS along with all the other added OEMS also will be there. It will have a treasury module. It will have a DMS module.

It will have -- so everything will come in the same go. So therefore, the system itself will become a little more flexible because right now, it's a lot of patch work, a lot of management and monitoring and all those things issues are there. So once this new package comes, obviously, it will help because it will be a seamless kind of a thing and all the packages will be integrated upfront and we'll operate over the same UI/UX for the customer.

[Pavan Kumar, analyst]

Okay. Any guidance you can give on what is going to be your cost to income this year and for full of FY '25 and say from FY '27 onwards because when this IT project is implemented, any numbers we have done on that?

[Suresh Iyer, executive]

As I said, if the cost goes up, it will be about INR 25 crores. And presently, our total cost is around INR 200 crores, so about if today it is 17%, then it should go about 18.7%.

[Pavan Kumar, analyst]

Okay. And for this year, are we saying the cost to income would be around 18% or is it going to be lesser because in the first half, we have done better?

[Apurav Agarwal, executive]

This was basically on account of the expenses that we have incurred during this period. this quarter because of actuarial cost of some roughly INR 3-odd crores and some legal expenses and marketing expenses. So this is onetime cost, and we expect that the cost to income ratio should be in the region of 16% to 16.5% till the time the new IT system is there. Otherwise, it should be in the region of 17% to 18%.

[Suresh Iyer, executive]

That is once it is implemented.

[Apurav Agarwal, executive]

Once it is implemented.

[Operator]

We have next question from Chinmay Nema from Prescient Capital.

[Chinmay Nema, analyst]

Two questions from my side. Firstly, could you provide some color on the restructured book? So how much is the Stage 1, Stage 2, Stage 3, how much is the share of LAP, housing and how much is salaried and how much is self-employed, some general qualitative sense around this? And secondly, a while black, I think you were talking about some builder tie-ups and is that something that you're still working on?

[Suresh Iyer, executive]

Yes. See, in terms of the -- our restructured book, see across the board, I mean, in terms of SMA-0, SMA-1 and SMA-2 as well as in NPA, we have seen an improvement in the Q2 compared to Q1 in absolute value itself. And obviously, translated into percentage terms as well, okay? Now I don't have the breakup in terms of the salaried and self-employed and all. And anyway, frankly speaking, I mean -- it's been more than almost a year since the restructured book has completely come out of restructuring. So right now, it is as good as the regular portfolio. But yes, we do have a slide in our presentation where we have given the breakup of the NPA.

But in terms of SMA-0, 1 and 2, I mean, offhand, I don't have it, but I can tell you that across the board in terms of SMA-0, SMA-1, SMA-2, there has been an improvement in the restructured pool. And as I earlier mentioned, the first part of this thing also con call that we have also seen the difference or the improvement that has been witnessed in the restructured pool also is mainly in the SENP category.

[Chinmay Nema, analyst]

Got it. Got it, sir. And on the builder tie-ups?

[Suresh Iyer, executive]

Yes. On the builder tie-ups time, yes, we are still focused -- we are still pushing that, although we've not had a great success in that. We have started, as I said, we have about 30 people in the marketing sales team. And we have started. We are getting some response. Q2, we have already started some builder tie-ups and we have as of now, it's a very, very small number, only 20 kind of tie-ups that we've had with builders because we started off in the second quarter only. And we expect that by end of the Q3, we should have more than 50 kind of APF tie-ups with builders.

And these are, as I said, only in 2 states that we are mainly looking at, to start with as a pilot because the first attempt, which we did -- even last year, we tried to make an attempt, but it was not very, very successful. So we've done a little more concentrated and a little more focused with this, only in 2 pilot -- as a pilot project in 2 states, where we have now started getting some success though it's a very small number. Going forward, we will now improve further and then replicate it across all the geographies.

[Operator]

Thank you so much. Ladies and gentlemen, we will take this as our last question for today. I would like to now hand the conference over to management for closing comments. Please go ahead, sir.

[Suresh Iyer, executive]

Yes. Thank you. Thank you, first of all, a very big thank you to all of you for joining this conference. I hope we have been able to answer. But even otherwise, if at all, there are any queries, we are most welcome to get in touch. We also thank the team at Nidhesh and his team for organizing this call and to Chorus for this -- managing this entire investor call. Thank you. Thank you, everyone.

[Operator]

Thank you so much, sir. On behalf of Investec Capital Services, this concludes this conference. Thank you for joining us. You may now disconnect your lines.

[Suresh Iyer, executive]

Thank you.