Ladies and gentlemen, good day, and welcome to the Arman Financial Services Limited Q3 FY 2026 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touch-tone phone. Please note that this conference is being recorded. I want to hand the conference over to Mr. Aalok Patel, Joint Managing Director from Arman Financial Services Limited. Thank you, and over to you, sir. Thank you so much, Muskan, and have a very good afternoon to everybody. Thank you for joining us today. On behalf of Arman Financial Services Limited, I extend a very warm welcome to all of you to our Q3 and nine-month ended FY 2026 earnings call. I'm joined by our newest Executive Director and Group CFO, Mr. Vivek Modi, and the investor relations team from SGA. I trust all of you had the opportunity to review our results, the investor presentation, and the press release, which are all available on the stock exchanges and our company website. Hopefully, also I'm audible to everybody because we are working on some new hardware here. Muskan, please interrupt me if there's any problem with hearing me. Yes, sir. Before I move on to the business performance, I would like to highlight important leadership transition at Arman. Mr. Jayendra Patel, the founder of Arman, has transitioned from the role of Vice Chairman and Managing Director, and now will continue as the Whole Time Director. He wrote a letter explaining his decision to the shareholders, which is definitely a good read. In this new capacity, he will remain closely associated with the company and actively engage with the board and senior management in providing strategic guidance, mentoring the leadership team, and ensuring a smooth transition with continuity and stability. For better or for worse, now I step into the role of Vice Chairman and Managing Director, of course, pending shareholder approval. I've had the privilege of being with the company for over 16 years now. I tried my best to learn everything from the bottom up. I deeply value the trust placed in me by the board and remain committed to carrying forward our legacy while steering Arman into the next phase of long-term, value-driven growth. I'm also pleased to share that Mr. Vivek Modi has been appointed as Executive Director, again, pending shareholder approval, in addition to continuing as the Group CFO. Vivek has been with the company for the past eight years, and in his new role, he will help execute the strategic goals of the company. His financial discipline and structured approach will continue to strengthen our institutional framework as we enter the next phase of growth. We congratulate Vivek on his new role and wish him best of luck on his added responsibilities. For sure, he will need it. Moving on to the business performance, the past one and a half years has had its own share of challenges, which I have discussed in excruciating details over the past 4-5 calls. The industry had to navigate a series of events, including over-leveraging, low growth in real incomes in the rural household, changing JLG culture, regulatory uncertainties, regional political developments, and broader macroeconomic pressures. While these factors created short-term uncertainty and affected industry sentiment, it also pushed the MFI companies to become more disciplined, risk-focused, and structurally stronger. During this period, MFI tightened underwriting standards, strengthened monitoring mechanisms and recovery processes. In many ways, this period helped the sector build a stronger systems and operate with greater prudence. I'm happy to say that the industry continues to learn from every crisis and pushes forward. Notably, much of that uncertainty has now eased. Now we are seeing clean, broad-based recovery taking shape. Repayment behavior has improved across key geographies, collection efficiencies are much stronger, and fresh delinquencies are moderated to a great extent. Borrower cash flows on the ground remain subdued, but our systems have evolved to better assess household cash flows, and demand across our business segment is showing healthy, sustainable traction. At Arman, too, we took a step back, assessed the situation carefully, and focused on getting the fundamentals right again. Over the past few quarters, we tightened our underwriting, strengthened our recovery processes, and enhanced monitoring across verticals. One important step we took was clearly separating the underwriting and recovery teams. This has brought better accountability, sharper credit decisions at the time of disbursement, and more focused flow upon collections. This structure is now in place across a majority of our branches, and we're already seeing the benefits in terms of more stable portfolio behavior and stronger execution on the ground. As a result, our business performance has strengthened. Our consolidated AUMs stood at INR 2,274 crore, registering a sequential growth of almost 7%, reflecting improving demand and calibrated disbursements. Disbursement momentum gathered pace across segments, with consolidated disbursements reaching INR 612 crore during the quarter, compared to INR 475 crore in Q2 FY 2026, marking a strong 30% sequential growth in disbursements. This growth has been supported by sharper credit screening at the loan officer level and improved confidence on collections. Q4 seems to be shaping up even better. On the financial front, gross total income for the quarter stood at INR 160 crore, remaining largely stable on a sequential basis. Gross total income for nine months, FY 2026, stood at INR 470 crore. Pre-provision operating profit, or PPOP, stood at INR 55 crore in Q3 FY 2026 and INR 166 crore for nine months ended FY 2026, reflecting steady operating performance even as we continue to invest in people and technology, strengthen our systems, and building long-term capabilities. We are improving on-ground conditions and stronger repayment discipline. Impairment costs have moderated consistently over the past few quarters, declining from INR 76 crore in Q3 FY 2025 to INR 26 crore in Q3 FY 2026. This reduction reflects the benefits of tighter underwriting standards, better early-stage controls, and sustained focus on collections. As a result, profitability has improved. While sequential growth may not always be the most appropriate metric to assess profitability, profit after tax for Q3 FY26 stood at INR 22 crore, registering a sequential increase of 177%. For nine months, FY 2026, profit after tax stood at INR 16 crore. This improvement, in our view, is a strong indicator of the broader normalizations, largely by our MFI business and other operating trends. Asset quality trends have also strengthened. GNPA as of December 2025 stood at 3.4%, improving from 4.13% in Q3 FY 2025, and 3.69% in Q2 FY 2026, while NNPA stood at 0.77%. Early delinquency indicators are also moving in the right direction, with PAR 30/90 bucket showing sequential improvement, particularly in the microfinance segment. Collection continues to show steady improvements, supported by tighter monitoring mechanisms and disciplined field execution. Collection efficiencies improved to 96.3% in December, compared to 96% in September 2025, reflecting strengthening borrower behavior and sustained recovery momentum. Operationally, we added 15 new branches this quarter, taking our total branches up to 524, while remaining focused on strengthening our presence in core geographies. On the liquidity and capital front, the board has approved raising up to INR 500 crore through NCDs on a private placement basis, providing us with additional financial flexibility to support future growth. During the quarter, we also raised INR 522 crore of debt, further strengthening our balance sheet. We remain very well capitalized, with capital adequacy ratio of 38.3% for the standalone entity, Arman, and 52.3% for the subsidiary, Namra Finance. Both very comfortable and well above regulatory requirements. In addition, our liquidity position remains healthy, with INR 247 crore in cash and bank balances, liquid investments, undrawn CC limits, which ensures adequate headroom to support business expansion. Now, moving on to the subsidiary, Namra Finance, which is where the MFI portfolio is kept. Our MFI portfolio grew by 7.3% sequentially to INR 1,618 crore, supported by strong disbursements of INR 455 crore during Q3 FY 2026. We are seeing strong traction in the new individual loan portfolio, which now stands at INR 285 crore. While growth has resumed, we have remained measured in our approach, ensuring that expansion is supported by disciplined underwriting and strong risk controls, especially in the current operating environment. Gross total income for FY... or Q3 FY 2026 stood at INR 107 crores, while for nine months FY 2026, it stood at INR 316 crores. Pre-provisioning operating profit was, for the quarter, was INR 35 crores, reflecting a sequential decline of 2.2%. For nine months FY 2026, PPOP stood at INR 102 crores. PPOP should also start improving once AUM starts to increase and generating more interest income. Importantly, we returned to profitability for Namra this quarter after four consecutive quarters of losses with profit after tax standing at INR 13 crores. For the nine-month period, we continue to report a loss of INR 16 crores as we steadily work through the stress seen in the earlier year. Earlier in the year, sorry. Our net interest margins have also begun to improve with Q3 FY 2026 margins at 14.77%. This is driven by two factors: our ability to raise borrowing at competitive rates and new portfolio being built at healthier yield levels. Asset quality trends continue to move in the right direction. GNPA stood at 3.4% and NNPA at 0.66%, reflecting improving portfolio stability. Collections have strengthened on month-to-month basis, with December collection efficiency at 96.4% and ex-bucket collections of 99.3% in the MFI book. Early trends for January and February also indicate continued improvements. As of December 2025, 82% of our MFI portfolio is covered under the CGTMSE scheme, providing an additional layer of risk protection and balance sheet comfort. Overall, we believe we are past the most challenging phase and now on a steady path of recovery, with improving fundamentals, stronger controls and renewed confidence across the portfolio. Now moving on to the standalone Arman business. During the quarter, we have piloted a new product offering solar loans. This initiative, started in November, is aimed at supporting households and small businesses in adopting clean and sustainable energy solutions. The product carries an average ticket size of about INR 2 lakh and has been rolled out in selected areas across Gujarat. The initial response has been encouraging. As of December 2025, we have disbursed approximately INR 56 lakh under this portfolio in two months. The product has a loan tenure ranging from 12-16 months, with an average tenure of approximately 30 months, offering a balanced mix of profitability and manageable repayment structure. Beyond this, our non-MFI portfolio continues to witness strong traction. Disbursement during the quarter stood at INR 163 crore, comprising of INR 115 crore in the MSME book, INR 32 crore in the two-wheeler book, and INR 16 crore in the micro LAP book. Our AUM stood at INR 657 crore, registering a year-on-year growth of 28%, with 74% of this portfolio in the MSME book now. We continue to see healthy demand across these segments, supported by disciplined underwriting and improving on-the-ground confidence. For Q3 FY 2026, gross total income stood at INR 54 crore, registering a growth of 20.2% quarter-on-quarter and 3.6% year-on-year. For the nine months ended FY 2026, gross total income grew by 20.2% year-on-year to INR 157 crore. Pre-provisioning operating profit, or PPOP, for Q3 FY 2026 stood at INR 19 crore. For the nine-month FY 2026, PPOP stood at INR 40 crore, reflecting largely stable performance on a year-on-year basis, despite significant headwinds. Profit after tax for the quarter stood at INR 9.4 crore, marking a sequential growth of 5.4%. For the nine-month FY 2026, tax stood at INR 31 crore, registering a modest growth of 1% year-on-year. Asset quality improved sequentially across our stand-alone portfolio. As of December 2025, GNPA for MSMEs stood at 3.74%, for the LAP book at 0.31%, and for the two-wheeler segment at 4.28%. Collections have also strengthened across these segments. In December 2025, collection efficiency of the MSME portfolio stood at about 96%, while the two-wheeler portfolio reported collection efficiency of 95.6%, reflecting stable repayment behavior and disciplined follow-up. Lastly, as the environment continues to improve, we remain focused on building a stronger and more resilient company. With disciplined growth, prudent risk management, and committed team on the ground, we are confident of delivering sustainable performance in the quarters ahead. With that, I believe we can now open the floor for questions. Thank you very much. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask question may press star and one on your touchtone telephone. If you wish to remove yourself from 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 Kartik Srinivas from Unifi Mutual Fund. Please go ahead. Thank you so much. Congratulations, team, for the good set of numbers and the organizational change. So I had two or three questions. One being, what will be the percentage of the loan book that that would represent the loans raised in FY 2026 now, sir? What will be the percentage of the loan book that... that is, that represent the FY 2026, the loans that have been raised in FY 2026? The loans that we have given out, how much of the AUM will contribute to loans that were disbursed in 2026? Is that, is that the question? Did I get that right? Yeah. FY 2026. Yeah, right. Do you have that number? It would not be readily available, Kartik, but, generally, if I give a good guesstimate, it will be somewhere between about 70%. Yeah. 65%-70% would be a good guess also from me. We can pull that number out and give it out to you. Sure. So, when you just mentioned about the collection efficiency, 96.4% for MFI. So, while the peers have reported collection efficiencies of 90% and above, what would be the difference in the calculation, sir? How do we compute vis-à-vis the collection efficiency? How, how do we, you know, understand the collection efficiency in right metric, or how do we compare it? So that's the other question. So that's a good question. So there are two kinds of collection efficiencies which are reported. So one is typically called a zero bucket collection efficiency, or other is the overall total across all buckets. So the number that you are most likely seeing is the X-Bucket or the zero bucket collection efficiency, for which ours is about 99.3%. Got it, sir. Sure. Understood, sir. Now, and, so if I may ask one question, what are the key changes to your like over-leveraging episode, versus vis-à-vis as it is now, and see this going forward? So as our ECL model strengthen, how have we strengthened our ECL model to accommodate such kind of shocks? So what will be the key parameters that have changed in your ECL model? In the ECL model, you are saying? Yeah. Right. In your assumption- I mean, the... all we can do is provide more management overlay. Our ECL model is evaluated semiannually, right? Yeah, semiannually. Semiannually, and whatever needs to change in that, that is the—I mean, you know, once a, once a account goes into 1+ DPD, that's when the ECL model kicks in, and then obviously there is some bit of provisioning which is there on the zero bucket as well. In addition, Aalok, if I can add? Yeah. So in 2024, 2025, when you really saw the asset quality deterioration, ECL is one way of ensuring covering yourself up for probable future losses. But as a strategy, it was also important for us to ensure that at a sector level, if the stress continues, then how do we safeguard ourselves? And that's wherein you're probably one of the few who took the leap forward and started subscribing to the CGFMU coverage. As Aalok, during his opening remarks, commented, that we already have 82% of our microfinance book in Namra being covered under the CGFMU cover, which kind of came into existence since October 2024. Right. Right. So I think that's an excellent point, Vivek. So, you know, provisioning, I know a lot of people put a lot of emphasis on the provisioning figure, but, I mean, you know, from a non-accounting standpoint aside, only thing the provisioning helps is to covers. It's just a balance sheet figure. So, I mean, yeah, I guess that provides comfort to some people. But, you know, like having adequate liquidity, sufficient capital available, you know, and other factors play a lot bigger part for companies to get out of, any jam that they find in themselves in during a down cycle. So CGFMU was definitely one of those calls, where if there was a way to, you know, sort of hedge away the risk by paying some premium, I think it was a no-brainer, and that's what we jumped into, and that is basically the, the, the insurance policy available to us today in case something drastically goes wrong again in a short period of time. Just a follow-up question. In that case, will your provision PCRs come down now that your 82% of your book is now covered by the scheme? Yes, you're right. Because, you know, you're paying for the default guarantee cover, and you're covered for every INR 100 that you kind of take a coverage for, the default guarantee cover applies to about 75% of it. Right. So the provisioning requirement to that extent will come down. Right. So in some ways, the OpEx would increase because you are paying for the cover, and subsequently, your provisioning might decrease to the percentage that that cover is guaranteed for those particular assets which are in default. Got it, sir. And last question is on the growth rate. So now that the entire sector is on a steady state, like coming out of the woods. So, just talking about growth rate, how do you see that now that the number of lenders is capped, and then you have a high rejection ratio. So going forward, what will be the strategy to grow then? So would you go, would you have to seek more and more penetration, or would you have to give, how do you grow then, so in terms of your strategy? Also the growth. See, there are a couple of things here. So first of all, let me say that hopefully people like myself and the industry has learned enough lessons where, just because the market is improving, we don't really go into not just unreasonable growth. You can grow fine, but, you know, not just put growth ahead of, whatever the lessons that were learned during this crisis, right? People have a tendency to sort of forgive and forget and move on after a couple of years, and, so my, my fear is, that is exactly what's going to happen again, and hopefully that does not happen. So whatever growth comes in has to be calibrated. It has to be well thought out. But to answer your specific question, you are right. As far as JLG and things are concerned, you know, I mean, the culture is diluted. You are restricted with underwriting in every... You are restricted in terms of number of MFIs and total leveraging and other factors. And so honestly, as a company, we have already started to redefine of what is microfinance, right? Because it's not just the JLG model. That might be a model that is there and it's become, it still is a substantial part of your books. But I personally feel that the future is in product innovation and better underwriting. If we are able to assess the customer better, and that's what we are trying to do with the BCM model, that's what we are trying to do with technology, with new algorithms and stuff that we are starting soon. That if we can assess the customer better, we don't need them in a group. We can service them individually. And we have been doing that in the MSME book as well for many, many years successfully, perhaps even more successfully than the JLG model. So I believe that the next phase of growth is going to come with innovating the product structure itself. So we are not saying reinvent the wheel and find new customers, but the segment that you are servicing, can you evaluate them better and service them with different products, basically? Sure, sir. Thanks a lot. That's it. All the very best. Thank you. The next question is from the line of Rudra Raheja from ithought Financial Consulting. Please go ahead. Yeah. Thank you for the opportunity. Am I audible? Sir, can you speak a little louder, please? Yeah. Am I audible now? Little more, sir. We can't hear you properly. Yeah. Yeah, I wanted to check, sir, what kind of growth rates would be, would we be comfortable, now the industry books has all been cleaned up and all of that? That's an interesting question, and that's probably one that I also struggle with. Key, is there a growth rate that we can target, or should the growth come naturally as a function of all the things that... all the changes and all that we are trying to do? So, I mean, I would say in FY 2027, roughly speaking, I would be comfortable growing maybe 25%, just throwing a figure in the air. But I think we are going to stop doing those kinds of things that, "Okay, we want to grow at 40%, and what do we need to get there?" I think it needs to be a function of many, many different things, and the growth figure has to be reverse engineered in that perspective. So usually there are, right after a crisis, there are short-term opportunities available. Typically, we have advantage of, so you might see a sort of strong growth in the last quarter of this year, for example, when a lot of the MFIs are still kind of coming out of crisis, working through liquidity issues, leadership issues, and other things. So that creates sort of a temporary vacuum where we can sort of take over market share, and then typically that slows down, right? So, I don't have an exact growth percent to give you. Certainly, I don't think we can expect growth out of the industry that we have, the market has been, historically been used to, very honestly. But that said, I think FY 2027, you can expect at least a 25% growth. Understood, sir. Understood. And, sir, would it be fair to assume that non-MFI book would grow at a much higher rate than MFI book going forward? ... I would say that non-JLG will grow much, much faster, whether that is in the subsidiary Namra or in the standalone Arman through MSME LAP and two-wheeler loans. So, yes, I would say JLG will be a lot slower to, or even, I dare say, grow, and while these other products will continue to grow faster. Understood. And, sir, for business going forward, what level of debt to equity would we be comfortable before getting into the market and raising more equity and diluting? So what is the peak debt to equity that we foresee? We are usually comfortable at about 4.5x, which we are—I mean, it's a very wide distance from that. Right now, our debt equity is less than 2, in fact, less than 1.5, for that matter. Yeah. But having said that, I mean, with the new normal, it'll be first, first milestone would be to reach a debt equity of at least 3-3.5. Then looking at the overall how market behaves, we might have to go forward. And largely, we can say that at an organizational level, group level, till an AUM size of about 5,000, I think we should be comfortable with a capital adequacy of upward of 25%. So largely not really seeing that as a challenge in our target. Understood, sir. And, last question, sir, from my side. Would we be like, stepping up disbursements a lot on the MSME book now? Or we will be focusing more on more new products, like one you mentioned, this quarter, we have done a pilot on solar goods, et cetera. So what is going to be focus on non-MFI side? No, I mean, there are no here for sure that if I can grow the MSME book a lot faster, sure, I'll take the opportunity to do that. But, that product has always been sort of slow and steady kind of a growth for us, and has worked very well for us during both COVID and whatever you call this new crisis. So, you know, I would rather not take my chances. I've been lucky with that product for the past many, many years. So I think the growth rate in the MSME book should be similar to whatever you have seen in the past three-four years. Understood, sir. Thanks a lot. Thank you. The next question is from the line of [Ronak Khera from Omega Capital Advisors LLP. Please go ahead. Yeah. Am I audible? Yes. Yes. Hi, hello. Congratulations on the disbursement growth. I have two questions. One is on the pilots which we were running, especially on some LAP products, et cetera. Just wanted to check on the progress. Have you met internal benchmarks for, you know, to, kind of now see a significant scale-up on these products? In your past answers, you really mentioned about adding more products. So, so, what is the status there? And, will we use Namra's distribution kind of, you know, to go ahead and ramp up this product significantly? Yeah. So, definitely the LAP is doing reasonably well. Little bit of sort of fear, which is a good fear in the, you know, the micro LAP and the affordable housing space. Obviously, there are murmurs of something of quality-related issues that might, may or may not happen in the short term. But, you know, we are steadily growing. I think, Vivek, what are we now? About INR 6.5 crore, the disbursement on the LAP, and growing about, you know, probably 5%-10% every month. And so, yeah, as far as we are concerned, we are on schedule for whatever we had envisaged for it. But, you know, I'm very cautious about blowing anything up. So we'll continue with that slow and steady approach, and we'll see. As far as performance goes, we are facing no significant so far in the LAP book. LAP portfolio. It's about, close to INR 90 crore now. Close to INR 90 crore is the LAP. Actually, I think we, we are out of that project phase, because today we're kind of doing it across at least three states. And as we move into UP, I mean, north in terms of UP, you know, even... I mean, that way, we can clearly say that it's definitely not a project phase, and we're looking at scaling it up in, in all these geographies where we are comfortable with. Right. And so as far as some of the other pilots, I think we had mentioned, we started in November, the rooftop solar financing. Again, that's just probably an experiment and also a limited opportunity in the market because there are, you know, government subsidies available directly to the customer, so it has become a very popular option. But what we found is that most of the marketing is being done in the urban... you know, metropolitan cities and tier one cities. I don't think that reach has developed in the rural yet for these rooftop solars, and arguably they probably need it more than the urban people, you know? So, you know, we have started this pilot, let's see where it goes. I mean, we have done very small volume so far, about only about INR 56 lakh. The goal is in this quarter to reach about INR 1 crore of disbursement monthly by March, hopefully. So, we'll keep you posted on that. My question was more on LAP, given that it's in at a critical size, can this go to, like, INR 500 crore, where our MSME book is over the next two to three years, given that if the internal benchmarks are met, you just roll it out across your different geographies, and you already are doing unsecured. The question was more on the LAP side. It's definitely possible even going past that, because, you know, the LAP ticket sizes are larger and- The stickiness is higher. The stickiness is higher as well because the tenure is higher. But you know, these are not, honestly speaking, from my perspective, you have to take a balanced approach because LAP does not. Well, the OpEx is low in LAP as well, so let's not compare it to MSME, but the margins are also lower in the secured book. So it's just not a matter of being secured or unsecured. I think you have to take a calibrated approach. And yeah, over two to three years, I think it's definitely possible for it to even surpass the MSME portfolio for the reasons which I said. But I won't really feel comfortable making long-term predictions on this one. Yeah. And second question is on MFI. So given that the guardrails are in place now, a lot of the borrowers who may have defaulted in the last cycle are already out of the system. So wanted to check on the on-ground credit growth demand, and is that aggressive enough for us to step up on disbursement? Is there enough growth? And the second part is, are the fintechs, et cetera, which were active in the last cycle, still relevant as competition, or you're seeing some of the competition with various startups, you know, exit the market and there are a handful of players now catering to this demand. So just wanted to check on this front. Yeah. So to answer your second question first, definitely there are a lot fewer players serving the same customers as we were today than they were, let's say, about two years ago or something. So yeah, I would say... Again, I don't have any numbers to back it up. This is just the feedback which I receive from operations team. But definitely their overall presence in the markets that we are servicing is significantly lower, number one. Your first question was, remind me again, what was your first question? About- About, yeah, about the growth and- Yeah. So that is, I mean, again, we struggle with these kinds of questions very often as well, that, you know, during COVID, you had a significant serviceable population drop out because of defaults. During this cycle, you have another significant portion. So the market is becoming, from a client perspective, becoming smaller and smaller because for most MFIs, being a past defaulter is an auto reject, right? I mean, no, no human eyes will even look at it. The system will automatically reject the customer. And so over the long run, what do we do with these customers? You know, I mean, I don't know. You know, it's really a valid question that the industry needs to get together and try to figure out that if we keep removing customers who have ever defaulted from the overall pool of potential customers you have, that in and of itself is a problem. But on the other hand, nobody's going to really risk giving loans to customers who had higher defaults, right? So that is one aspect of it, and that is something that we face on a day-to-day basis. That is what pushes up our rejection rate significantly as well. So you were asking about inquiries. So the inquiries have increased. The rejection rate has improved slightly by 2-3%, where it was, let's say, about 80% earlier, now it is closer to 77%, 75%, 77%. So it's improved slightly, and the inquiries have also increased over the last two to three months. You know, I think our staff is now better trained or have better experience that which customers will have a higher chance of getting approved, and so that is what the pipeline gets pushed into the system as well. But there are a lot of contributing factors that would, you know, determine how much we can and cannot disperse. Obviously, past default is a huge issue that the industry would have to solve in the next year or 2. ... and my last question is on your recovery. Given that now the disbursement is- Can I request you to rejoin the queue for the follow-up question? Sure, sure. I'll come back in the queue. Thank you so much for answering my questions. Thank you. Ladies and gentlemen, in order to ensure that management is able to address questions from all the participants in the conference, please limit a question to two question per participant. Do you have a follow-up question? We request you to rejoin the queue. The next question is from the line Chinmay Nema, from Prescient Capital Investments. Please go ahead. Hi, sir, hope I'm audible. Yes, a little louder if you can, please. Sure, sir. Sir, just wanted a little better understanding of the trend in PAR on the microfinance side. So, one, if you could explain what has led to such a sharp decline in the 30-90 book in the last 2 quarters. So have the collections been better, or have the fresh inflows have been significantly lower? And, secondly, the same trend is not visible on the 90+ book, which I believe is the book on which you would have had all the write-offs. So, if you could explain that as well. Yeah. So, you know, it's the reduction in PAR figures is, you know, at the expense of overusing this, a function of many different things. So first of all, you know, whatever pain points we saw were essentially disbursements made prior to March 2024. So and typically, when you work with a 24-month cycle in the MFI pool, long story short, you know, either those customers have mostly repaid you back, or they have defaulted, and we have written them off or are provided for and are already at 90+. Whatever new pool was created for September or November, that we are tracking closely with new underwriting standards, with guardrails in place, with, you know, very, very calibrated kind of disbursements. We were looking at their performance and following up on their performance in terms of quality basis, very, very closely. So the reduction is largely replacing bad customers with good customers. That's number one. That's probably 80% of the reason. The 20% is probably slightly better macroeconomics and better collection team on the ground level. Vivek, anything to add? I don't know if... No. So again, just from a more statistical point of view, because you would have seen that the X bucket collection efficiency or the zero bucket collection efficiencies have been constantly improving in the sector and also for Arman, which automatically means the slippage ratios into the 90 to 30 will, you know, in a phased manner, come down. Because, when the trouble was at the peak in, let's say, quarter two of the last fiscal, then the collection, the, the zero bucket collection efficiencies have come down to as low as 95.9, 97.5 or something. And today, they're upwards of 99%. That clearly means that you're adding so many less defaulters every month. Correct. Correct. Yeah. So that is also a very interesting point. So, right, the, the zero DPDs is something that in the MFI pool, you follow very closely. Usually speaking, again, this is a very rough statistic, but a customer who goes into 1+ bucket, depending on what crisis it is, whether it's COVID or demonetization or others, there is about a 30%-50% chance or 30%-40%—30, 30% chance that write them off, right? So they'll keep going into different buckets into 30%, 60%, 90%. So the idea is that you don't want things to slip into even one plus bucket, because then the probabilities are very high that eventually you'll have to provide for them and write them off completely. So yeah, that has come down significantly as well, well, and for reasons which I just explained to you. Sure, sir. Understood. Thank you. Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead. Yeah. Hi, sir. Good afternoon, and thank you for giving the opportunity. So, sir, first question is on your OpEx. So for nine months, we can see that the OpEx in absolute terms has increased to around INR 40-odd crore, and around INR 17 crore-INR 18 crore is being contributed by the MFI business. So I'm guessing some part of it is related to the premiums that you might have paid. But if you can explain, you know, what has led to this sort of an increase in the OpEx and how we should look at OpEx ratios going forward? Yeah. So OpEx has definitely increased. There is no denying it. I mean, I've covered this in previous calls as well, but you know, largely we added the whole BCM structure, which is expensive. We separated you know, operations completely from credit and so that adds to the OpEx. We have a big recovery team which is in place, which is you know, collecting a good bit of money that otherwise would have gone into NPAs and provisioning and write-offs. So definitely we are getting more value from them than what we are spending at this point, for sure. But that has also increased the overall OpEx related to employee costs. And as you mentioned, the CGTMSE, we have paid INR 7 crore this year in CGTMSE. So that has also- And there is... Honestly, the only way to... I don't think it's going to be possible. All we can do is that at the existing level, we increase the portfolio, and therefore the interest income that we are earning as portfolio, and that will increase the PPOP. I don't think it is a good strategy today to about reducing that absolute number of OpEx, but certainly from a percentage standpoint, it will slowly start coming down. Even in the standalone piece, I think the OpEx has increased by almost 50%. MFI, we understand collection teams and credit structure and premiums, but in standalone, what has contributed to this high OpEx? Standalone, you're talking of Arman? Yes. Okay. So, standalone Arman, we kind of added team on the LAP, and there has been expansion of the Arman team itself into states like UP, Uttarakhand. Yeah. Additionally, the expansion basically. So basically expansion, and then we've added this entire, you know, solar energy or clean energy team. So it's not a very, very large team, but still, that's something that has come up in the quarter three itself. No, I think if you look at it, we have opened new branches, we have opened new divisions, you know. Employee costs are going up, just like many other companies all over India, so I don't have any better explanation than that. And additionally, also to address, while this number in absolute terms may not be very high, because two-wheeler itself is not a very big portfolio, it's just about less than 10% or around 10%, for the standalone. But quarter three is the highest performance quarter for the two-wheeler, and that's where the expense also kind of peaks sort of thing. Yeah, I think he's talking about the nine months. Yeah. Yeah. So, so kind of both, both nine months and nine months, yeah. Where should it settle, sir? Where are your OpEx ratios going to settle, if you can give some guidance on that? No, I would love for them to aim at about 4.5%-5%, about 5% of the AUM there. Well, for micro, at all level, let's say about probably 4.5%-5%, about 5% of the AUM there. Typically, I think the good new target to keep. Okay. And, sir, this quarter, I think last quarter, we felt that, you know, you are slowing down a little bit on the MSME piece and increasing other product segments more than MSME. But this quarter, I think again, we have seen a sharp increase in the MSME disbursements vis-a-vis other bucket, other products. I think we are seeing on MSME. Is that what you are saying? No. So last quarter, I think going by the commentary, it looked like, you know, you are relatively preferring other products, which are lower ticket, lower yielding products within your standalone business. But this quarter, I think again, MSME has grown the most in the disbursement. So, has there been any change there? Let's, let's first kind of directly. First is the quarter. We misunderstood the. We, we were never kind of wanting to slow down our unsecured. Yeah. Last, last quarter, in fact, we started or ramped up our branch network in newer states as well. So maybe, you know. I say a lot of things, but sometimes I don't remember it. So, so it wasn't probably the. I, I might have said it in a proper context that I don't remember. But no, my intent was never to slow down MSME, so let me very, very. Okay, sir. Thank you, and all the best. Thank you. The next question is from the line of Srinivas V from Bellwether Capital. Please go ahead. Hi, Aalok. Just wanted to take forward from Ronak's question on loan against property. So what we're kind of looking for is a slightly more nuanced and detailed understanding of how do you plan to roll out this product, you know? And what kind of, you know, customer occupancies have, you know, you've seen join in, join in or cohorts where, you know, it's worked out well. And if you can share, you know, between the three markets, how has been behavioral pattern? And one of the issues in this particular product has been that there's been some level of over-leveraging at the end client. And, you know, what are your thoughts on that, and how have you built a credit process to kind of keep a check? Because if the-... Customers not been that over-leveraged, so the collections in these products are phenomenal. So generally, we want to get a perspective of how you are seeing this product and its nuances over like a three-year window. So let me tell you that the NPAs in this segment are pretty much very, very low at this point. I think it's only 30 bps. So I don't have enough data to develop that nuance scale. Is one occupation better than other? Is one region better than other? I've not noticed anything that you can from at least from the BI perspective, we do track all of these things, but nothing really has emerged as more or less risky in terms of LAP. Now we are rolling them out in our MSME branches, which are located in Gujarat, MP, Rajasthan, Telangana, and Maharashtra, we are not rolling out, but obviously we have in Maharashtra as well. So far we have rolled them out in MP, Telangana, and Gujarat. I- We have not rolled them out in Rajasthan yet. No, not even in Rajasthan, actually, but- Uh. Maybe few cases we might have tried there too, just to get the flavor of the place, but- Right. But the major buy for the LAP portfolio, as we talk today, stands in Gujarat, which is more than 60% of the entire, and then Telangana, MP. And, as we scale up, maybe UP might be also one of the larger. Yeah. Right. So, in the MSME side, we are pushing our branches towards UP, and so that can be another place that we can start Micro LAP, in the UP market. Now, in terms of underwriting, you're absolutely right. See, in the... I don't know so much about the LAP, but at least in the affordable housing, you know, some players are better than others. Some are just considering something as secured and just not doing a lot of underwriting checks. And I mean, they are, they are making sure that all of their loan agreements and, mortgage deeds and everything are absolutely clean. But as far as assessing whether the customer can actually repay the loan, I don't think a lot of players, in, in my limited opinion, are doing a very, very good job. Just getting comfort from the fact that it's a secure product, you know? And I believe that, in the Indian context, it's very, very difficult to, you know, repossess somebody's house, their primary residence. And so whether it's secured or unsecured, you have to make sure that the underwriting is all the underwriting you do, that's, you know, assuming that it's going to be very difficult to get comfort from the security itself. So we are doing everything that we can. I mean, obviously, we are doing the reasonably well income assessment and making sure that, you know, on the ground level, doing all kinds of checks that we possibly can. Income proofs are difficult to get in some of these segment markets, but in the event the income proof is not available, our BCMs go in and make sure that they get a good guesstimate around it by supporting the claims. So, I don't know if that answered your question or not. Yeah. Perfect. Just to... So effectively, we have 120 MSME branches, so over a period of time, most of these branches will also service Micro LAP. Would that be a fair understanding? I would say most, not all, for sure, but most, most would, yes. Got it. And these are separate teams completely sitting there, right? Because last time I checked, the credit appraisal team of the Micro LAP is completely different. So it's basically one infrastructure housing two different teams. It's one infrastructure housing two separate teams, but in many cases, we are using. So there are two levels of BCMs that we have. The more senior BCM structure we have can do the evaluation for both the MSME and Micro LAP. And of course, there are other branches where it is separated also. So it just depends based on branch to branch nuances. Got it. Got it. Just one last question is in MFI, we've added credit officer in many of these branches. I just wanted to circle back. Even last time, you had very encouraging feedback on this practice. You know, how has been your, you know, assessment of loans that have been disbursed post this particular, you know, addition in those branches? Have you particularly seen quality of book being better when there is a person kind of overlooking the specifics, so on and so forth? Right. And that's a great question. So on average, non-BCM-originated customers post, let's say, November of 2024, yeah, compared to BCM-originated cases post-November 2024, there's almost a 50% difference in the default rates. So- Wow! But the default rate is low as it is, you know, so, so if one, let's say, if it was non-BCM originator where, you know, 2%, this is close to 1%. So there is, there is a broad difference right now. Whether that carries forward during credit cycles is anybody's guess, because, you know, it's easy to say 50% when your default rates are low, but whether that same thing carries forward when the default rates are high, I don't know, and there's no way to know until you reach that, right? So, but I'm very bullish on it. And having BCMs, apart from having, apart from reduction in overall credit costs, also serves another benefit in terms of culture and having the ability to introduce new products, right? So if you are just doing the same JLG, you know, one could argue, well, you know, given the cost and what you are saving, it's probably... it might not be worthwhile to have BCM. But having BCMs, every new product that we introduce is always like, okay, this requires a lot more evaluation. It's a higher ticket size. It's something we haven't done. And so it allows us a lot more flexibility to be agile in terms of offering new products or changing our products. Perfect. Perfect. Congratulations. That sounds good, yeah. I'll get back into the question queue. Thanks a lot. Thank you. The next question is from the line of Jaiprakash Kumhar from Korman Capital Investment. Please go ahead. Hi. Hi, sir. So my first question is on this provisioning and NNPA. So we've seen some rise in the NNPA from generally, I think, your last 3 quarters were about 0.5%, and now this has increased up to 0.8%. So does it mean that you have confidence in terms of your GNPA accretion to be lower going forward, and that's why maybe you have not provided for, and you are comfortable with that kind of numbers? Two things that have happened here over the last one year is, given the overall market scenario, we've been slightly aggressive in our write-offs and hence the on-balance sheet books. The average DPDs of the NPAs are far lower when you compare on a year-over-year basis, right? So that means something which sits at an average of, let's say, 180 DPD in my NPA book, usually an average that would have been, let's say, 225 days. My NPA provisioning requirement, based on the analysis, will slightly come down, taper down. So to that extent, there is an improvement in the overall collection efficiencies and the quality of the NPA book. Got it. Got it. And, so just a follow-up. But just a question on this, you said product innovation and new products, right? If you can give some more color on the around that side. Like, we see that solar financing as a new product launch. And, can you provide me some thoughts on new product launches in the foreseeable period? So, the individual loan portfolio in the microfinance number side is one such thing where, I think... What is the book now of that? 280- 285 INR 85 crore, odd crore, yeah. So that is one part where we are using the BCMs to evaluate customers, almost similar to how we evaluate them in the MSME book, right? And we are focusing on... See, one of the main purposes of JLG was also the OpEx side, because we were doing doorstep collections. And so instead of going to 1 customer to collect at their doorstep, it's a lot easier to go to 5 and collect at their doorstep, right? So there was, apart from the risk mitigation part, there was a good case in terms of operating costs as well. So with these customers, we are targeting cashless and, I think last month, until last month, in this entire portfolio, I believe 75%-80% of the money was coming through cashless mechanisms, which is- Primarily the UPI mandate. UPI mandate or NACH mandate. So that is the pull model. We are not waiting for the customers to initiate a cashless payment, but we are directly pulling it out of their bank accounts. So as long as it remains that way, you know, even if it maybe slightly goes slightly lower, I'm very, very comfortable with the individual book. In fact, more so because we are doing a lot more underwriting. The only problem with individual that I had was, you know, the OpEx side, but as long as it continues to perform well in cashless payments, I don't foresee much of an issue there. So that is the individual loan side. Other than that, obviously, we had started micro LAP. We have talked in quite a bit of detail in this call about that. I won't get into that. Solar is just an experiment. I mean, I don't want to spend too much time talking about it. People who have been following the company knows that we do these occasional pilots and experiments. I think let's talk more about it in next quarter. Let's... It's, it's, it's really too early to kind of get into a lot of details about that. Got it. Thank you. Thank you. The next question is from the line of [Shyam Sampat] from MSE Capital Partners. Please go ahead. ... Hello, sir. Good afternoon. I want to understand, firstly, on the MSME book, right? We had spoken about earlier with another participant, how the book grew, and it contributes a significant portion of the high yield book. So, because this is a high-touch cash collection model, I wanted to understand, do the current branches and manpower infrastructure that we have, does it support further scaling of this vertical if required without diluting the underwriting standards? The current infra... So what you are asking is, can I push the portfolio higher without increasing operating costs? Is that- Correct. Correct, correct. Yes? Yeah. Yeah. Yes, but not by much. Maybe 10%-20%. No, I, I take that back. I mean, we have a, we have a lot new branches. New branches, yes. Maybe by about 20%-25%, for sure, can be captured. You know, we can scale up without increasing OpEx. Will we? I don't know. I mean, you know, it's a continuous process. We've got to open branches, invest in people. The caseload of around 300 or something in the MSME, I have to hire another ICO. Once the branch reaches a certain portfolio, I have to get an assistant BM. Once the branch reaches a certain portfolio, I'll pull in the credit side instead of one. And then there's a whole support team above it. So, MFI, 100%, I can tell you that we can scale that up quite a bit before need to hire new people, at least in terms of portfolio and disbursement. MSME side new branches, I'm not too sure. Okay, sir. Understood. Sir, and the next question, with regards to, in the presentation, we had mentioned that digital collections are now about 25%, and, you're... So I want to understand with that, are we analyzing the credit behavior of digital payers versus cash payers? And if in case we are doing that, and if digital payers show a lower default rate, are we thinking of any differential pricing with lower interest rates to incentivize digital adoption? Oh, that's a good question. So I mean, at origination stage, are that we with cash payers and cashless, because we encourage all customers to become cash. At origination stage, I don't... I mean, that's, it's an interesting point, Vivek. Because, we'd have to look into that at that point. But, right now, no, we are not distinguishing the cash payers versus cashless payers. It's hard to tell them apart during the origination side. In terms of offering better rates to people who are paying cashless in further cycles, of course, I'm happy to do so because the operating cost would be much lower. So yeah, I think, if a customer is paying a significant, their EMIs through cashless mechanisms, definitely we can pass on some. Okay, sir. Got it. Sir, next, I wanted to understand, you had mentioned, there were commentary around like visible signs of normalization and credit behavior is improving, right? Of like industry-wide. So given that our MFI GNPA has moderated down to 3.4%, do you think that this is the bottom of the credit cost cycle that we are seeing, or in the coming quarters, can we expect more write-offs? You know, I'm not sure exactly how to answer that, Vivek. Will GNPA continue to go down from this 3.5%? My judgment tells me that, yes, definitely, looking forward, it should go down further, but you are the accounting also. So, primarily, if you can look at the GNPA plus 12-month trading write-offs, if you can put it that way as a figure, that definitely has been tapering downwards for the last 3 quarters. And we feel that this will continue to kind of keep coming down. With the overall improvement in the sector, and also, you know, with the kind of checks and balances that we've put into place, this will be probably expecting it to perform better than the market for number, yeah. But, you know, where the industry stands today, it would be hard for me to say, where we will ever go to 3%, for example. So, I mean, yeah, good cycle where you are growing very fast, and because the denominator effect, maybe under like 3%, but it would be very say that it, it in the long run, on average, it will go below 3%, but happy to be proven wrong. Okay, sir. Got it. There was a slight disturbance, but I think, I get the gist of what you're saying. Sorry. No, no worries, sir. No worries. Next, I wanted to understand, sir, around the MFI customers. We are down to about 500,000, and our disbursements are rising... So, is this because we are increasing the ticket size per borrower to drive growth? And do you see this as a risk of increasing delinquencies next FY? Yes, I would say it would be hypocritical of me to not acknowledge the fact that the average ticket sizes have increased, especially not in the JLG products. I think in the JLG products, they have decreased or are stagnant. But in the other products, like the individual loans, they are obviously much higher. But that said, being a sort of a conservative kind of a guy myself, in terms of risk, I am not very uncomfortable, even despite the higher ticket sizes in the individual products. Because, again, we are being very, very careful, very selective. To give you an example, in the individual product, all of our customers have, like, a credit score of 300+, you know, and they all have credit history. So we are not really doing a lot of new to credit borrowers unless, you know, the checks and balances around that are even much stronger. So, it's just a different product, you know? So I would be a lot more uncomfortable if the JLG ticket sizes are increasing. In this product, we are taking ample precautions and still, I agree, it's still at an early stage to say whether it's less or less risky, more risky. But, it seemed like the right strategic decision, and I, you know, I still stand by that this was the right right direction to go towards. Okay, sir. Understood, sir. Sir, and on the- Yeah. I heard on the line. Muskan, are we disconnected? Yes, sir. The participant left the queue. So as that was the last question for the day, I would now hand the conference over to Mr. Aalok Patel, Joint Managing Director, for closing comments. Over to you, sir. Okay. Nothing much to add. I think, nice long call. Thank everybody for being a part of this call and, hopefully answered all the questions to the best of our abilities. You know, if you need more information, please feel free to contact the investor relations team. You know, their contact available in the presentations, and I appreciate everybody's time. Thank you very much. Thank you. On behalf of Arman Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.