Ladies and gentlemen, good day and welcome to the Arman Financial Services Q4 and FY25 earnings conference call hosted by Equirus Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be no opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. Should you need assistance during the conference call, please notify our operator by pressing star, then zero on your touch-tone telephone. This conference may contain forward-looking statements about the company, which are based on beliefs, opinions, and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Shreepal Doshi from Equirus Securities. Thank you, and over to you, sir. Thank you, Shruti. Good evening, everyone. I welcome you all to the earnings conference call of Arman Financial Services to discuss the Q4 and FY25 financial performance and business update. Today, we have the senior management team of the company represented by Mr. Aalok Patel, Joint Managing Director, and Mr. Vivek Modi, Group CFO. I will now hand over the call to Mr. Aalok Patel for his opening remarks, post which we can open the forum for question and answer. Over to you, Mr. Aalok. Yeah, good evening, and hopefully I'm audible to everybody. On behalf of Arman Financial Services Limited, I warmly welcome all of you to our Q4 and FY25 earnings call. I'm joined today by our Vice Chairman, Managing Director, Mr. Jayendra Patel, our Group Chief Financial Officer, Mr. Vivek Modi, and the Investor Relations Team from SBA. I trust you had the opportunity to review the earnings documents, including the quarterly and annual results, the investor presentation, and our press release, all of which are available on the stock exchanges and our company's website. I would like to begin with an overview of industry developments, highlighting key trends in business, followed by financial and operational performance. The financial results for the quarter and the full year ended 31st March 2025 reflect the challenging environment that the microfinance sector has been facing. In FY25, our wholly-owned microfinance subsidiary, Namra Finance, reported a net profit of INR 7.8 crores compared to INR 138.3 crores in FY24. However, in Q4 FY25, Namra posted a marginal loss of INR 26 lakhs against a profit of INR 38.8 crores in the same quarter last year. The key driver behind Namra's performance, or lack thereof, was the higher provisioning, largely due to ongoing stress in the rural pockets. We have been prudent in aligning our provision with on-ground realities and have proactively taken accelerated write-offs when necessary. That said, we remain confident in the long-term potential of the microfinance sector. However, we believe the overall growth rate in the MFI segment is unlikely to normalize until the sector deleverages and adapts to the evolving dynamics of the rural market. Over the years, we have taken several steps to adapt to both temporary and structural changes in the industry. Our philosophy has always been to stay agile, to seize opportunities if and when they arise, but also be prudent enough to step back when needed. As of March 31, 2025, Namra Finance's AUM declined by 23% from INR 2,193 crores in FY2024 to INR 1,686 crores in FY2025. Similarly, our overall consolidated AUM declined by 15% from INR 2,639 crores to INR 2,245 crores over the same period. For Namra Finance, quarterly disbursements stood at INR 393 cores reflecting a year-on-year decline of 26%. For the full year, disbursements amounted to INR 1,232 crores compared to INR 1,895 crores in FY2024. In FY2025, the company undertook two key strategic decisions aimed at ensuring long-term sustainability and growth of the business. First, we have begun to completely separate the credit and recovery function from the branch operations. These decisions are based on data and logic rather than sentiment. While we would love for rural borrowing culture to return to its earlier form, the current evidence so far indicates that this may not happen entirely. Traditionally, the MFI industry has operated on the foundation of joint liability group models and population-based credit decisioning frameworks. These include rules such as, "Any one customer cannot have more than X number of lenders," or, "A customer cannot have more than Y amount of outstanding," or, "An EMI burden cannot exceed a certain amount." While these standardized norms served the industry well in the past, we believe this one-size-fits-all approach is no longer adequate. Our systems must evolve to assess each customer based on their individual merits and unique circumstances. Achieving this will require building a strong and independent credit culture on the ground level, along with fully eliminating the long-standing conflict of interest between credit and sales that has existed in microfinance since the industry's inception. Naturally, this decision will result in higher operating costs. However, the alternative is to accept elevated credit cost. Between the two, we are far more comfortable with the former. The decision to establish collections as a separate vertical was not particularly difficult. Field officers will continue to handle regular collections and early-stage delinquencies to ensure the FO customer relationship and the essence of JLG culture will remain intact. Higher delinquency buckets will be taken over by recovery officers. Currently, we have implemented the new credit structure in about 140 of our 391 branches, with the remaining branches to be implemented by Q2 of FY26. Early indicators in asset quality for loans originated under the new credit structure are quite encouraging. In addition, starting from November 2024, all disbursements in the MFI segment are now covered under the Credit Guarantee Fund Scheme for Micro Units or CGFMU scheme. As of March 2025, 34% of our MFI AUM is now covered under this scheme, and this will increase significantly quarter on quarter. We are also fully compliant with the new entry guardrails as of March end, and we have also successfully completed an ERC transaction in March of 2025. For the MFI book, zero bucket collection efficiency for the quarter stood at about 98.5% and improved to 98.8% in March 2025. While still below our expectations, it does represent a meaningful improvement over Q3 FY25. On a consolidated basis, collection efficiency for the quarter stood at 95.3% for all buckets combined. On the other side, our standalone segment, which includes MSME, Micro LAP, and Two-Wheeler Financing, have continued to perform well and show resilience. As of March 31, 2025, standalone AUM stood at INR 560 million, registering a year-on-year growth of 25%. Disbursement in FY25 was INR 481 crores, up 20% compared to FY24. Importantly, this portfolio continues to maintain a relatively healthy asset quality, with gross NPA at 3.38%. March zero-DPD collection efficiency in MSME portfolio was 99.5% and 99% plus for the quarter as a whole. The standalone business benefits from a diversified customer base, lower delinquency levels, and although not in a relatively stable operating environment, focused execution and prudent credit policies in these segments have helped us offset some of the pressures seen in the microfinance vertical. Our consolidated balance sheet remains strong, supported by a healthy debt-equity ratio of 1.3x and surplus liquidity of INR 269 crores. This gives us the financial flexibility and resilience needed to navigate the current operating landscape. While near-term economic outlook remains cautious, our strategy remains clear: stabilize the portfolio, drive operational efficiency, and further strengthen asset quality, the last one, of course, being the most important. Coming to the consolidated operational and financial highlights of Q4 and FY25, gross total income for FY25 stood at INR 730 crores, registering a year-on-year growth of 10%. Gross total income for Q4 FY25 grew by 9% year-on-year to INR 199 crores. Net income for FY25 amounted to INR 491 crores registering a 24% year-on-year growth. Net total income for Q4 FY25 grew by 23% year-on-year to INR 148 crores. Pre-provisioning operating profit or PPOP for FY25 registered a 14% year-on-year growth to INR 333 crores. PPOP for Q4 FY25 grew by 15% year-on-year to INR 102 crores. Profit after tax for FY25 stood at INR 52 crores, reflecting a year-on-year decline of 70%. Tax for Q4 FY25 stood at INR 13 crores. Our continuous emphasis on collection and underwriting processes helped us improve our asset quality. As of 31st March 2025, our gross non-performing assets stood at 3.37%, representing an improvement of 75 basis points from 4.13% in December 2024. In FY25, the company has adopted an aggressive provisioning policy, with cumulative provisions for the year standing at INR 117 crores, covering 5.23% of the consolidated AUM and 6.55% of the on-book AUM. As of 31st March 2025, the capital adequacy ratio stood at 37.34% for our standalone business and a robust 48.37% for Namra Finance. Before I open the floor for questions, I'd like to take the opportunity to thank all the stakeholders and especially our employees for their continued support and commitment to Arman. Thank you very much. Operator, please open the floor for the Q&A session. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch phone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Abhishek from AB Capital. Please proceed. Hello. I'm inaudible. Yes, sir. Yeah. I just wanted to know, what is the status on the ground? Are we seeing improvement, or is it the same since Q3? Is it giving us confidence to grow in FY26? Definitely, there was an improvement in Q4. The continuous decline had kind of stopped, and there was an upturn also in the repayment rate, especially a marked improvement in the zero-DPD bucket, which is the first sign of trouble kind of a bucket if you look at it. That went from a low of about, I think, 97.3% in Q3 in, what was it, November, I guess. November. In November of 2024 to 98.8% in March of 2025. Now, as far as your question about has the situation improved enough where we are confident of growing well in FY26, I would say my honest answer would be no. It has not improved to a level where I would be comfortable, but we are not too far away. We'll reassess and maybe ask me the same question next quarter. Okay. Okay. And one question is about. Vivek. Yeah. By the way, excuse me. I'm sorry. I've been living and breathing. Vivek, thank you. So this is applicable only to the MFI book. Of course, our other books, which is MSME, Two-Wheeler, and Micro LAP, which are now over 30% of the overall book, these we are quite confident, and we are also expanding in those segments with branch openings and other factors. Those will definitely continue to grow well in this financial year. Okay. What percentage of our book is exposed to Karnataka? Under 1%. Under 1%, frankly. We had just gone in, and now we are kind of stable at that point. We have a very small portfolio. Okay. Which states is showing maximum signs of stress in our book? I mean, honestly, that changes. Every state seems to be taking its own turn. If you were to ask me right now, it's probably Rajasthan. I mean, Maharashtra is showing significant improvement, so is MP. Certain areas of Gujarat have trouble, eastern Gujarat side. UP is showing signs of improvement. Bihar, for us at least, is showing signs of improvement. I know some people are reporting the other way, but I'm not exactly sure. For us, it is showing signs of improvement. Yeah, I think overall, if you consider the states right now, which are for us at least, it would be parts of Gujarat, Rajasthan, which are more deeply impacted. Okay. In this. Yes, sir? No, no, no. Please go ahead. In this quarter, we saw that in comparison to last year, ROE has come down. What kind of ROE do you think we will end with in FY2026? I don't think I'm comfortable giving an estimate at this po int. Okay. Thank you. Thank you, sir. Sure. Thank you. Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Apurva Singh from Sanchastrana Investors. Please proceed. Hi. Am I audible? Yes, sir. Yeah. Just wanted to ask, how are you handling the juxtaposition between the asset quality and growth? Because every time growth in a model portfolio is attempted, we might falter in asset quality. I didn't get the last part of your question. Every time, what did you say? My question was, how are we handling, how are we balancing between the asset quality versus the growth in AUM? Growth is really not our priority at this point. As I said, we are in a kind of a situation right now where specifically about Arman, historically, whenever there is uncertainty in the market, we take a step back and kind of evaluate the situation and not really grow until we are comfortable with the asset quality. This has happened during demon, COVID, and other times of our history. When the opportunity is available to us, especially right after a crisis, we have grown very, very quickly also. I think consistent growth is really or trying to achieve consistent growth is really not advisable in this business. In this case, we are at least trying to maintain the portfolio at least for the next couple of quarters, and then we'll concentrate on growth during Q3 and Q4. There are other also considerations on growth right now. For example, the entire sector is trying to deleverage. That is the purpose of the new guardrails. Overall, industry portfolio has gone, I believe, from a high of INR 4.5 lakh crore to INR 3.9 lakh crore in December. I don't think I have the exact March numbers. It might be close to INR 3.7 lakh crore. With our rejection rate, I think in the micro book, and in the MSME book also, is almost 80%. While the inquiries are there, there is just a lot of stress in the rural markets. People have been really, if you look at real income growth, it has not happened in the last four years. Retail debt on a household level has gone up by 40%-50%. That has to deleverage. I think until that happens, it is, of course, very painful when you stop access to liquidity in any market. Unfortunately, it is a bitter medicine that has to be followed through. Only then you can start looking at growth. I do not know if that answers your question. Yeah. Actually, we wanted to ask basically, while growing, what are the things which we concentrate so that the asset quality does not get impaired? That was what I was wanting to understand. What are the measures to take in the growing? We are doing everything. We are following the guardrails. Now, frankly speaking, guardrails is not the, I mean, it is required, but it is not a long-term solution. It is a short-term solution to deleverage the entire segment. As I made in my opening remarks, what we feel is that the market has evolved to a point now where you must manage instead of having a one-size-fits-all credit policies, which MFIs are typically used to, we must evolve to a place where we are able to assess each customer on his or her own specific attributes and conditions, some judgment. We have separated at the patient's level, completely removed that conflict of interest between patient and credit. We have started putting on a new structure called BCM, essentially in control of approving or rejecting loans. When you put people like that, obviously, your rejection rate again is going to go up, right? Over and above the guardrails, you have a special credit person that will be in place. We are taking all necessary steps as much as it is humanly possible to ensure that fresh disbursements that we make are pristine quality. I'll just give you one statistic that even though credit scores are not all customers in the MFI segment have them, but about 72% of all disbursements that we did or no, not even 72, sorry, 76% of all disbursements that in Q4 for the MFI book were 100+ scores, which are considered top-of-impact customers. So whatever is possible to do, we are doing it. Now, over how that rests is up to, if you are superstitious, that is up to God, I guess. But quality is more important than growth. Vivek, you had something to add. I think just covered up in terms of maybe kind of enhancing the credit through the BCM model. It's surprising that another thing is that see why we are confident on the BCM model. If you look at our MSME book, I mean, it's largely servicing similar customers as MFI, maybe slightly one step above or two steps above MFI customers, but from the same area. Definitely, there is some stress there too. It would be very surprising if there wasn't. The stress is nowhere close to the kind that we are seeing in the MFI book. If we kind of really look at what we as a company are doing differently in MFI versus MSME, it is that complete separation of credit and pay, right? That also gave us some level of safety or some level of confidence that this is something that could work. Got it. This last question is, do we expect the credit provision to slow down, or we might need to keep on provisioning them? I mean, so in absolute numbers, you will see it definitely come down, according to me. Sometimes you also see a reverse denominator effect. When the portfolio, if the portfolio declines, you are running into the reverse denominator where if the denominator is declining faster than the numerator, then the percentages might look higher. In absolute terms, yes, we are expecting lower provision. Additionally, what has also evolved here, Apur, is that we've already subscribed to the TVSLU. With credit guarantees being offered through the MCGC, Vibor government, VIXL for this kind of borrowers, 34% of the portfolio as of March is covered under the scheme. It will continue to kind of increase. There, the coverage literally is 75% of the default is covered by the CGFMU. Hence, I think from the provisional aspect, I think one can expect things to improve because of that. Thank you. Thanks a lot. All the best. Thank you. The next question is from the line of Karthik Srinivas from Unifi Mutual Fund. Please proceed. Hello. Thank you for your time. First question, how much% of the borrower base or your borrower base will have more than 50 lenders in the MFI segment? That is my first question. The second question is, what will be the frequency that a company has to report, that agencies for on their exposure? That is my question. Yeah. As far as your second question first, by RBI law, I think they are expected to report it on a monthly basis at least. We are reporting on a daily basis. I think most larger MFIs are reporting on a daily basis. As far as this thing about only Arman and plus one, two, and three, and four, honestly, we are not tracking it much anymore because I did not find, frankly, I know a lot of people have been doing it, so I do not want to, maybe people find good news out of it. I did not find too much correlation anymore, nor too much help to concentrate on it. Obviously, the new disbursements that we have made have been less than three or even more than that on a household level. So Vivek, but if you track those numbers, if you have fresh numbers, but I think three plus would be about 23%-26%. I think it would have come down to 23%. That is probably a close answer. It might be plus or minus 1% here and there, somewhere along those lines. Yeah. One more question. Now that at the branch level, we have introduced the individual credit assessment and the credit culture at the branch level, how do you expect the interest rate cost to go up at the branch level? Do you see that these kinds of measures will help us tackling these kinds of cycles better? Yeah. As far as operating cost is concerned, we expect this to add, I mean, the new recovery function and credit function to add at least 1% to the OpEx overall. That was our initial estimate. Now, I'll only come out ahead if I'm able to save more than 1% in credit cost. I'm very confident that it will. In fact, when we see, it's too early to tell, but there is a 3x difference between early delinquencies in BCM-originated customers versus non-BCM-originated customers. As I said, it's too early to tell right now, but early indicators are quite encouraging for us. What was your other question? I'm sorry. Yeah. Would you want to continue the credit guarantee scheme and create a parallel credit structure both at the same time, or would you discontinue this credit guarantee scheme? Because both would add to the cost. We might consider to discontinue it down the line if things stabilize enough. People ask me, "Oh, why are you being so careful? You have CGFMU." I said that just because you bought insurance, life insurance, doesn't mean you should go out and play in traffic. Obviously, it's something that I hope that we don't have to use, but it's available if we need to use it. In this case, of course, we will use it. The question is that what if the premium that we paid is more than the eventual claims that are there? If that happens, there'll be nobody happier than myself, let me tell you. I'm not worried about that. The expectation is, given the scenario in the market and overall deleveraging which is happening right now, the claims will, despite your best efforts, be higher than the premium that you're paying. My last question is, what is the attrition rate at the state level for grants officers or the sales officers? Is it very significant? I think last year we ended at about 62% or 63%, which is overall, it had reached all the way to like 68%, I believe. Q4 was a lot better. It is still very, very high. We need to get that number. The target is to get that number down to about 40% in the first half of this year. Again, look, this is with the difference to microfinance. For Arman in the MSME and Vinax, it's much stabilized. Yeah. I mean, it's still high, Vivek. Yeah. It's better than, comparatively better. Overall, no matter how hard you try, until the credit cycle improves, the attrition is not really going to improve. I mean, you can give more benefits, you can give more salary, you can give a better working environment and everything. When you are facing collective stress, I think that a lot of people can handle it. They like handling it, to be honest with you. Until that problem gets resolved, I don't think we are going to, the industry itself is going to manage attrition. Got it. That's all from my side, sir. All the very best, and thank you so much. Thank you. The next question is from the line of Saravanan V N from Unifi Mutual Funds. Please proceed. Thanks for the opportunity. With post-COVID, RBI deregularized interest rates that provided room for MFI companies to recover some of the COVID losses. Last year, we also had RBI pull up a few MFI institutions for maybe on account of overcharging interest rates. Where does this leave this industry? On the other hand, interest rates have been deregularized. Also, RBI is pulling up institutions for overcharging. In the current cycle, do we have room to increase interest rates and recover the credit costs? I mean, that's a complicated question. I'm sorry, that's a complicated question. If I could, I would, but I don't see a scope right now. RBI has been very clear about what is acceptable and what is not acceptable to them. We are not looking to buy ourselves out of this by raising interest rates unless the industry as a whole kind of follows that practice. Based on my research, I do not think anybody really is drastically increasing interest rates to kind of take care of this issue. Honestly, I mean, raising the interest rate by a percent or something is not going to solve the issue in the MFI book. We will have to, unfortunately, take the more difficult route, which is figuring out what is causing this and solving it. Got it. One of the MFI guardrails is to restrict the number of lenders for the borrowers. Do you expect some consolidation to happen in the industry? Yes. I do believe that there will be some level of consolidation, but not until the green shoots are there of definite improvement and getting out of this. Because realistically, I mean, in microfinance, I don't think anybody has the guts, I want to say, of purchasing or making acquisitions until and unless you know what the future may hold. I don't know. Vivek, you ha ve a different opinion. Honestly, consolidation in terms of an organic way, maybe yes, there could be some room for some specific areas. At a borrower level, I mean, you really don't have any very robust cash flows to be able to analyze to kind of move your exit sizes from existing 50-75 grand to INR 200,000 if you meant that by consolidation. I'm sorry. Did you mean debt consolidation? No, no, no. I meant only from a lot of MFI entities might be up for sale. I think you have partially answered the question. You will wait for some green shoots. Not only you. I think the players with high capital adequacy may not rush to buy the weaker assets. They may, in fact, wait and watch for some more time. Correct. Correct. Yeah. That's right. Okay. The second question is specifically on the credit guarantee premium that we are paying. What is the one you quantified, the increase in OpEx cost because of your adding credit at the branch, which is, I think, structurally a very progressive step for the industry as well as for Arman. If all of them follow suit. In the time being, you are also taking credit insurance. What's the cost of that insurance on a per annum basis? It's about 1% of the portfolio outstanding of the customer per year. That should come out to be about 1% and 1.6%. 1.6%, 1.75% for the life of the customer because the average loan tenor is two years only. Yeah. Right. I think I'll not consider that in the OpEx because I think that will definitely be offset by the credit cost. Got it. Okay. That was my second question. Thank you. All the very best. Thank you. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Ashlesh Sonje from Kotak Securities. Please proceed. Hi team. Good afternoon. Sir, first question is around this revamp in the team structure that you have done. Can you specifically talk about what is the task that the credit officer will do? And more recently, how have the rejection rates trended for you? Yeah. So the rejection rate, I would say, so from inquiry to actual disbursement, I believe it was 22% in March for the MFI book. And I think it was about 23% or 24% in the MSME book. But in MSME, it's always been there. That's always been there. I mean, MSME was closer to about 70% rejection. That has bumped up to about 75% given the scenario. That is fine within expectations overa ll. Would you kind of work that? Yeah. There's a different kind of pilot going on. But largely speaking, he is responsible for evaluating the customer on an individual customer basis. That means he has to do the house visits, fill out the forms, do a scoring of the customer, talk to the customer. There is a whole kind of system that we have created. We have hired a new credit head to oversee that, who is reporting to the CRO. As I said, different states, we are trying slightly different modified versions to see which one works best. We have also developed an internal scoring mechanism. After they punch in all the different parameters of the customers, it does give out a scoring. The other thing that we are doing, which is actually the most important, is to do a good guesstimate on their household income. Earlier, that task was there with the operational people. Obviously, they could not do it right because of that conflict of interest. We are hoping the BCMs have better luck or whatever you want to call it in doing. This is what would definitely create a better quality in terms of assessing the income. Yeah. With DMs and everything, just by removing that conflict of interest, I would say that 1% will be well worth it. One follow-up on that remark. Are you able to now get a good estimate about at least the household leverage? Because I understand there could be operational issues in getting bureau records for other members of the household. We get good hits on the bureaus. I would say at least 80% hit rate is there in the bureaus now. We are, of course, pulling it for at the household level, the manager and spouse both. Our system combines those and gives an output on the overall indebtedness. Listen, to be quite honest with you, it's not 100%. Given the scenario today, it is as good as it can possibly get. The way to make it better is actually if the government allows us to seed them with Aadhaar cards and use, and obviously at the industry level, we need to ensure that we are using biometric or some kind of Aadhaar verification tool. Only then will we get to a system which is much better. Today, at Arman level, we are doing e-signatures for every customer. Obviously, the Aadhaar gets verified automatically that way. We are not allowed to share their Aadhaar numbers or seed the Aadhaar numbers in the credit bureau data. Until we get on a common ground. What we have internally decided is voter ID and then a secondary ID, whichever one that you want to take, that is fine. Primary would be a voter ID for credit bureau. That is how the industry is getting by that. Now, voter ID, you will find a lot of fakes. You will find multiple voter IDs with the same people. State to state handles it in a different way. Theoretically, it is possible for some customer who has a bad credit to go out and get a new KYC number and pretend he is a new-to-credit, if that makes sense. Does that happen? Yes, of course. Can we prevent it? Not always, unfortunately. Hopefully, that answers your question. Yes. I mean, the way to improve it better is to just have everybody start using a unique identifier. Understood. Sir, and just lastly, can you speak about the competitive intensity now in the MFI industry? I do not know. What can I say? I mean, there is still plenty of competition, but everybody is thankfully, I mean, minus a few cowboys, I guess, which I shall not name. Apart from that, everybody is being very cautious and everybody's books are sort of declining. Yeah. I think everybody has made peace with the fact that degrowth is not a bad word. It happens. It happens. Asset quality is going to be the key concern. You grew for 15 years. Okay. Fine. One year is, I have made my peace with it along with everybody else. Everybody is kind of following along. The problem will come into be is that we have a very wide variety of opinions. And correct me. I mean, because there are some people who are saying that we got to go back to basics. Others are saying that we have to move forward with the new realities. There is not real consensus amongst industry practitioners about what to do. Actually, there is not much consensus on the nature of the problem also. While there are many, many factors which are leading to this. I have made a decision that credit is the way forward, separating credit completely and individually assessing each customer. Because I have the opinion that JLG culture has diluted to a level where it is not going to go back to what it was, let's say, 5- 10 years ago. You must evolve your systems to accept the new reality. There are many who are saying that, "No, we must go back to basics and try to revive the JLG culture." Neither I'm wrong nor that other person is wrong. It is just a matter of perspective and what your expectations are. Somewhere along the line, you have to draw your line, right, what you are comfortable with. Additionally, I think as the digital footprint also keeps on improving, though the pace has been pretty slow. Still, as it keeps on improving in the MFI, I think it's leaning towards more and more individual kind of a model. When you talk of digital footprint, MSME was all doorstep cash collection. In the last year or so, it has moved to almost 20%-25%. In certain districts, it's as high as 35%-40%. Correct. Correct. Honestly, if we can do a 100% less model, which we are trying, I mean, looks like where that is headed towards. I'm okay making individual loans as well. I know that that's macro legit to say in the open. Maybe JLG now is a concept which has outlived its usefulness. I'm open to that. I'm not saying that that is something that I'm thinking about. The model that some people are talking about is where the intermediates will keep on happening. Payment will come digitally or payments are coming digitally. Right. People are doing it. In Karnataka or in Telangana, where we have started, we are doing 100% cashless. It's possible. If you really put your head, if you really kind of make sure on the ground level from inception of a branch, this is the only way we want to do it. Any other way, we don't want their business. It's possible to do it. Perfect, sir. Thank you for sharing your thoughts. Very useful. Thanks. Thank you. The next question is from the line of Amit Mantri from 2Point2 Capital. Please proceed. Yeah. Hi, Aalok. Hi, Vivek. I wanted to understand how the trends have been in April and May with the new guardrails coming in with the 2.0. Has that also further resulted in some deterioration in X bucket colle ction? Yeah. April and May have been quite slow for the industry. Disbursements have come down quite a bit. Zero DPD buckets have stabilized but are not improving overall. There might be a marginal improvement in May. Of course, we'll know better in the next couple of days. But overall, the industry, it's very typical actually for the industry to, for a lot of industries actually, to have a weak first quarter, right? Because fourth quarter is usually quite high up there. This has historically been the case for us as well. Yeah, unfortunately, not that booming recovery that I was hoping for in the first quarter. Okay. On the selection, sorry, on the cost of borrowing front, how is that trending? Vivek, does that really stabilize? In fact, the marginal cost of borrowing for the last six months has incrementally kind of come down only by about 25-50 basis points. Though immediately we are not seeing any direct benefit coming in from the RBI reduction in the repo, I think as we move towards the next couple of quarters, maybe the overall interest softening should start happening. Okay. None of our borrowings are linked to the repo rate, is it? Not directly repo rate, but MCLRs have not really come down. None of the banks have really brought down the MCLR, which is the expectation which probably you would always carry that if RBI softening delays, that somewhere the benefit will start passing off to the ultimate borrowers. Maybe that might happen with a lag effect of one or two quarters. Yeah. It is very typical. Increases get passed on right away and decreases take some time. Take some time. Got it. On this INR 36 crore of income from ARC sales, just want to understand, this is the sale as in cash or as in security receipts? SR. This is SR. I mean, cash and SR would be specifically. Cash and SR. What is the provision that has been taken against the security receipts? Just to explain, this has been completely the written-off book for FY 2024-2025 accounting for about 95% of the INR 1.85 crores which has been assigned to the ARC. INR 185 crores, right? INR 185 crores. Of which about 95% was the write-off done in 2024-2025 itself, and the balance a year earlier. The valuation that we got was about INR 357.5 million for this entire pool of assets. The transaction has happened on March 28. This INR 36.75 crores is the market kind of value, which is about 19%. Historically, that is what we wind up collecting, between about 20% or so of these types of assets. Typically, other banks, when they sell to ARC, they take a provision against the security receipts. Then later on, when there's any collection against those receipts, that gets booked as income. For us in accounting, we haven't done that, is it? For the accounting, it's actually very simple. All the assets that we sold, we have written off. Whatever proceeds we got, we recognize as income. I mean, it's really a done deal. What additional other provision would I require? Amit, to our best understanding, what you're saying does not apply here. Yeah. I guess there are dozens of different structures with these ARCs. Certainly, I'm not an expert. This is the first time we have done it. Okay. I think maybe I'll separately reach out to Amit. I'm inspired to say that I'm not exactly sure what you're talking about. Yeah. Maybe I'll reach out separately on this. Thank you. Thank you for bringing up. Thank you very much. Thank you. Thank you. The next question is from the line of Anand from My Temple Capital. Please proceed. Hello. Thank you for the opportunity. Just following up from the earlier participant's question, how much of the SR or the proceeds from the ARC sale was cash income? And how much of SR? It is 15-85. 85 is SR. 15 cash. 15 cash. About 36, 37 that we realized, out of that 85% is SR and 15 is cash. Yeah. INR 35 crores is SR. Okay. Okay. Would you like, we are kind of testing this quarterly to understand what kind of further provisions will be taken on the assets? Absolutely. You are right. This will have to be tested quarterly. Valuation has to be done on a quarterly basis after these. I think the first valuation is likely to happen now in probably Q1 or Q2. Q1 or June. June. June. Q1. We have already, I think, INR 3.5 crore was already recovered in. Recovery in the first one itself was about, I mean, post transaction itself is about INR 3.5 crore, INR 3.3 crore that has been done. Generally, the recovery seems to be okay. Yeah. Okay. Got it. Got it. The second question was, how much of the provision that we carry on the stage one and stage two assets in the Namra? Could you separately just highlight, separately the stage one and stage two? Maybe one of the next questions. Because that will. No. This was it from my end. This was it. This was it. This will be something to the tune of almost out of the INR 92 crore that we provided for, about INR 58 crore will be in stage one, stage two. Hello? Sorry. I missed out on the number. Sorry. For the INR 92 crore of provision in Namra, approximately INR 55 crore -INR 56 crore would be on stage two. Okay. Okay. And how big would a stage two bucket be in Namra? Just a minute. Yes. Just give me a second. I'll just pull that out. It's okay. We can move to the next question. We'll answer your question once it's on the agenda. Sure. Sure. Thank you. That's it from my end. Thank you. Just to get you that number, the stage one and stage two provisioning that we have for Namra stands to be probably INR 53.29 crore. And INR 38 crore is the provision against stage two assets. The total stage two assets being about INR 85 crore. So INR 85 crore of stage two assets and INR 38 crore of provisioning. And balance INR 15 crore is in this one. Stage one being defined as current and one to three buckets. Got it. That answers. Thank you so much. This will be for micro plan. Got it. Got it. Thank you. The next question is from the line of Bharat from Dexter Capital. Please proceed. Hello. Yeah. Hi, Aalok. Hi, Vivek. Good evening. Thanks for the opportunity. I just wanted to understand the OpEx increase that we have. I can understand the AUM regrowth is a conscious decision we have taken. But the OpEx relatively has increased by 50% if I am looking at the annual number, right? If we just want to look at this and on cost to asset side, if we look at it, it is about 7%, right? Which is last year it was about 3.8%. This is a very, very large increase. Branches about increase, branches increase is about 20%, right? Just wanted to understand this extra OpEx, where is this coming from? Also how does this look like in next year, Q1, Q2, and in FY 2026? I see. If you look at overall OpEx last year on average AUM, it will be higher than what you quoted. The same thing right now in a scenario where it is declining. If you look at average AUM, let's say beginning of the year and plus end of the year divided by two, it is slightly lower than 7%. I take your point. It has increased. Honestly, the only answer I can give you is that we are in the midst of a crisis. I mean, our number of people have increased by almost 25%. I need people to go and collect the money, which is a very human-intensive kind of a job. Frankly speaking, while the inquiries for FOs have remained somewhat, even that has declined quite a bit, in fact. The number of disbursements per field officer has almost halved. I'm just not getting the efficiency that I need right now from the field officers. To collect money, you have to do RNRs. You have to do incentives. You have to do many, many things that people do not like. That is also pushing up the operating cost. As I told you, we have hired around almost 160 BCMs, which are more expensive normally than other people in the team. Plus the structure above them will be another 40 people. Plus another 600 or so recovery officers are on the team right now. Travel has drastically increased, travel allowances because people are traveling a lot more to collect the money. All of these things are contributing to higher OpEx. While we are trying our best to keep that under control, unfortunately, this is just the reality of the situation. Do you think it will stabilize next year? Motherbook, how do you see it going forward? Portfolio starts increasing again, it will definitely come down. 100% come down. This is a temporary phenomena. Even with the BCM structure, I do not think from a percentage perspective, this will remain constant. It will come down to about 5.5% or so. Initially, this is supposed to add as an incremental cost. Once the BCM starts taking the credit aspect of the, let's say, the field team is freed up for raising the number of inquiries. The efficiencies, which have come down because of the overall stress in the sector, are likely to go back once things normalize and the disbursements per FO will start picking up from there on. Plus, as I said, the recovery team is also being revamped and kind of investing there as well. The typical hard bucket selection kind of rests with the recovery officers. Hence, again, the field team has more bandwidth for the portfolio growth once we are in a situation to kind of start looking at the portfolio growth more aggressively. Obviously, from a portfolio growth perspective, percentage-wise, it will come down, right? If you could give some color on how it looks like on an absolute basis, because this is a very sharp move, and I'm hoping this will not grow much in the coming quarter. On an absolute amount, it will stabilize. We do not expect any of those operating costs to drastically increase on a quarter-over-quarter basis. Depending on the portfolio behavior, if we are able to stabilize the portfolio decline, then obviously, in that case, on a percentage level, it still might increase, but absolute amounts will remain somewhat stable. So far, the portfolio decline has been stabilized, right? Yeah. In Q1, it was stabilized. Or, I'm sorry, in Q4, it was stabilized. In fact, it increased in Q4. In Q1, April and May honestly have been a little slow, which is a natural thing, which we expect every year, to be honest. But I don't know how June will go. If June goes hopefully slightly better, then it will be stable. Otherwise, there might be some minor decline. Sure. Sure. Thanks, Aalok. This is super. This is again in the micro book. This is again in the micro book. In the MSME book, it will definitely be stable. Q1s are usually stable. There's not a lot of growth in first quarters for finance companies. Of course. Of course. Sure. Sure. Thank you. All the best. Thank you. Thank you. The next question is from the line of Shreepal Doshi from Equirus Securities. Please proceed. Hi. Thanks for giving me the opportunity. So my question was on transition from MFI or JLG to MSME. How much percentage of our MSME customers are typically the JLG customers? Very few. I mean, we don't really target the same customers by design. I know it seems intuitive, but I think most people consider MSME as customers graduated from MFI into MSME. We look at it that way. We are targeting an entirely different subset of customers, which is not to say some level of cross-movement does not occur, but somewhere around not more than 5%-6%. In that case, will we be launching a newer product like individual loan product or within JLG construct only, we will try to deploy the credit manager model and continue with that? We are not doing, even right now, we are not doing individual in the microfinance. We are still following the group. Down the line, there has been discussion internally, especially amongst the upper management, whether this is something that is viable or doable. We'll probably launch a pilot, I think, sometime late this quarter or early next quarter. We'll see where things go. Okay. Got it. On an individual microfinance product is what I mean. Right. Right. Right. Got it. Just a couple of questions on data side. You highlighted that we have Arman plus 3 at closer to 23%. Is that customer data or is it loan book data? Customer data. Okay. And this number, how much was it, probably, let's say, September 2024? 26%-27%. I don't remember. I think we had disclosed it. We can. I mean, at that point of time, in fact, the number that you disclosed was nu mber plus 4 also. Number plus 4 was, I think, 12%-13%. Number plus 3 was about 26%-27%. Something like that. Got it. That's helpful. That's helpful. Just one more data keeping question was on PAR zero. I mean, as you also highlighted that the stress levels are sort of coming off. At least we are moving towards the right direction. I just wanted to understand how has the PAR zero shaped up for us, let's say, from September 2024 to March 2025? November was about 97.4, was the 1-30 kind of. Yeah. Zero bucket was 97.4. We peaked at about 98.8 in March and about 98.5 in April. May is yet to get over, but somewhere around that neighborhood or slightly higher is what we are expecting. This is customers paying you. Okay. This is zero to 30 bucket. No, no. This is zero DPD. Zero DPD. That means the customer who had paid last month. You are saying zero DPD. I was asking PAR zero. Portfolio at risk. PAR zero plus, basically. PAR zero plus. PAR zero plus. Look at multiple buckets. PAR 1-30, probably that will be close to 18% or somewhere around that neighborhood. 1-30 would be about 78. You're saying all the portfolio of customers who are overdue by even one rupee, what is their principal? In that case, it will be about close to 18%. I don't know what the amount is once you remove the write-off. Right. That will be lower. Operating today is 18%, you said. That's whatever we have to collect. I'm giving you more of the operational number. Maybe take it as. There's an accounting write-off and there's an operational write-off. Accounting write-off happens much, much, much before operational write-off. Operations may continue to follow up sometimes for years. There's a chance of getting it back. That just depends. Because once we do operational write-off, that means all efforts completely stop. There's no further efforts that go into recovery. Got it. I mean, that's it from mine. I'll take it offline maybe. Thank you. Thank you for answering my question. Sure. Thank you. The next question is from the line of Amit from Dream Big Wealth Managers. Please proceed. Hello. Yes, sir. Sir, I just want to ask two questions from our organization. First question is, what is the effect of monsoons on your business? For example, this year, there is a chance that the monsoons are going to be very, very good for India. Do good monsoons have any positive effect on your business? Definitely. I mean, it has a positive effect on the country and the economy as a whole. Obviously, it would have a good impact. Good monsoons will have a good impact on us. It is a dual-edged sword because it creates a lot of temporary issues for us in terms of collections and disbursements sometimes. Especially in the peak monsoons, there are many areas that have really heavy rain, become inaccessible, other issues. Operationally speaking, it does raise some challenges. Overall, good rains are definitely good for us. I think most of your business is in rural and semi-urban areas. Monsoons, do they have a direct effect on the incomes of those families which avail your services, sir? We do not do a lot of direct agri, to be honest. As I said, there is a chain reaction that reaches all the way across the entire economy. While there is no direct, I mean, there would be minimal direct impact as well, but most of the benefits would be indirect. Okay. Thank you. One more question will be asked by my colleague, Mr. Sanfu Jain. Please. Sir, if I look at this quarter, we have major income come from sale of financial assets. When are we expected to get profitable without additional income? Net sale on financial instruments? I mean, here's the thing. We are, I mean, on a consolidated level, we are profitable even without the ARPS. Honestly, by Q2, we are expecting even micro to be independently profitable. I mean, do not hold me to that. We are trying our best. Consolidated level, we should continue to remain profitable. Thank you so much, sir, for answering our questions. Thank you so much. Thank you. Thank you. Due to time constraints, that was the last question. I now hand the conference over to Mr. Shreepal Dosh i. I now hand the conference over to Mr. Shreepal Doshi for his closing comment. Yeah. Hi, Shruti. And thank you, Aalok, for giving us your opportunity. And have a good week and a half. Thank you. Thank you all. Thank you. Bye. Thank you. On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your line.