Ladies and gentlemen, good day, and welcome to the AU Small Finance Bank Q2 FY2025 Earnings Conference Call. As a reminder, all participant lines will be in 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 your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Prince Tiwari, Head of Investor Relations. Thank you, and over to you, sir. Thank you, Sejal, and good evening, everyone. Welcome to AU Bank's earnings call for the Q2 of FY 2025, and we thank you all for joining the call today. The format for today's call will be very similar to what we have had in the last few quarters, where we'll start with the opening remarks from the management for the first 10 to 15 minutes, and then we'll follow that up with a Q&A session with the participating analysts and investors for the next 40 to 45 minutes. To start the call, we'll have our MD and CEO, Sanjay Agarwal, share his thoughts on the overall performance of the bank for the quarter, as well as the strategic outlook for the bank. Besides Sanjay, we also have the senior management of the bank on the call today to answer your questions. For the benefit of everyone, I'd like to request that each member kindly keep the number of questions to two, so that we can take everyone's question and join back in the queue, should you have more questions. You may reach out to the IR team at any time after the call for any data-related questions. So with that, I'll now request Sanjay to kindly start today's call by sharing his thoughts. Yeah. Thanks, Prince. Good evening, everyone. I'm sorry, my throat is bad, so excuse me for any inconvenience, but thank you for joining the call today evening. I'll take this opportunity to talk about four things: operating environment, our growth and profitability, asset quality, and our key building blocks for a sustainable bank. Let me start with an update on the operating environment. As you would be aware, overall operating environment has remained challenging during last six months, with persistent high inflation, a long election cycle, both at the national and state level, intense heat wave in Q1, followed by unusual heavy rains in Q2. This has adversely affected continuity of policymaking and underlying business activity, with the unorganized and informal segments impacted more in Q2 than Q1. Around 80% of our book is in this informal, self-employed customer segments, where our customers are dependent on business earnings rather than the fixed monthly income. Any discontinuity directly impacts their earnings and cash flows. There are some early signs of pickup in economic activity over the last three to four weeks, and we remain optimistic of an improved operating environment in later half year as consumer confidence, rural demand, private investment up again. H2 has always been a seasonally stronger half than H1. Despite the challenging environment, our performance in Q2 has been strong across both growth and profitability. On the deposit side, we had been saying for some time that our franchise is trending, and it's giving us the desired results in terms of both growth and cost. This quarter's strong performance was a reflection of this. I'm very happy to say to you that our total deposits crossed the milestone of one lakh crore to stand at one lakh, ten thousand crores, registering a quarter-to-quarter growth of 12.7%. Our CASA deposit grew by 11% quarter to quarter. All key parameters remain on track, with CASA ratio at 32% and CD ratio at 86%. Our cost of funds was stable at around 7.04%, compared to 7.03% in Q1 FY 2025, and we now expect the full year cost of funds to be in the range of 7.10%-7.15%, rather than 7.2-7.25% initially expected. Our team also had done a lot of work on improving our branch profitability. 43% of branches which were in existence before December 2022-2023 are now profitable in comparison with 25% in December 2023. This improvement is driven by increased productivity and focus on overhead cost controls. On the asset side also, we had a robust quarter, with our GLP portfolio growing around 5% quarter to quarter, 9% on a year basis. Our loan portfolio now stands at INR 1.05 lakh crore, and we remain on course to hit our growth target of 25% for the year, despite slowdown in MFI and calibrated approach in credit cards. All our funded asset verticals, be it Wheels, MBL, HL, and commercial banking, are performing well, including gold loans. Disbursement was up by 18% quarter to quarter in MBL and 12% in Wheels. More importantly, 81% of our disbursement was in high ROA assets. Our EDM assets, EDM gross advances, was broadly stable at 14.4%. We are leveraging Fincare's distribution network and increasing our product coverage in each touchpoint, and to do that, we are starting with Wheels in around 250 touchpoints and MBL in 100 touchpoints by the end of this financial year, and with more to come in years. In terms of profitability, we had a strong quarter, with pre-provision operating profit increasing by 19% quarter-to-quarter, and profit after tax increasing by 14% to close to INR 571 crore, despite headwind on credit cost in unsecured segment. This was driven by all key ROE component. We are able to maintain our yield and cost of money. We had another strong quarter of performance in other income, which increased to 32% of net interest income, versus 27% in quarter one. We have started to monetize all our investments, and our aim would be take to this higher in coming quarters. The strong performance during the quarter was broad-based, driven by all the key components. Example, we are growing our insurance distribution business, which has around 14 partners, by increasing penetration in our customer base. Deposit and lending related fees and charges are increasing with the business volumes. Credit card interchange and other fees will build up as the business matures. All investment has started being monetized, including early signs of offtake in AD-I business and wealth management. Treasury income from interest rate movement, PSLC or capital markets are market dependent and can impact other income by 5-10%. This quarter, strong capital market also aided our other income. Further, we expect all the fee income component to pick further in Q3 and Q4. We were able to maintain our operating expense at Q1 levels despite higher business volumes. This has been an area where we have focused a lot in last six months, and we believe some benefits of scale will now gradually come into the play. Our cost to income ratio has reduced from 61% in quarter one to 57% in quarter two, and I believe this is sustainable. This was driven by higher efficiency, moderation in overhead costs, and calibration of credit card issuance numbers. We also did 11% higher business during quarter two, with broadly the same manpower cost. Operating expenses would be seasonally higher in H2, but I expect cost to income ratio to be around 60% for the full year. Now, regarding the asset quality. In our secure retail asset, which is 2/3 of our book and consists of Wheels, MBL, HL, and Gold, we are comfortable with our asset quality. We remain well capitalized, and ultimate losses in our portfolio have been low historically, even though our gross NPA may remain elevated in the interim. The uptake in our GNPA in this asset class during the quarter is driven by seasonality and weather-induced challenges. We expect a pullback in the H2, driven by both pickup in economic activity and seasonality. Credit cost on our commercial banking assets, which is 20% of our book, remains in line with the expectations. MFI, which is 7% of our book, is cyclic in nature, and asset quality is elevated, driven by industry-wide issue of over-leveraging of customers. As we have communicated previously, we expect a 3% annualized credit cost through the cycle for MFI, and we are building our provisions accordingly. This cycle has come earlier than anticipated, and credit loss could be higher in the short term. We have a strong and diversified MFI franchise, led by an experienced team with conservative underwriting policies. For example, we have one of the lowest average exposure per customer in industry with 26,000 outstanding per loan size. We are the sole lender in 41% of our loan book. Our book is well diversified across 61,000 villages, with no district more than 3% and no state having more than 10%. We have taken some additional corrective actions in terms of strengthening of underwriting norms and collection team, too. There are some early signs of recovery in the leading asset quality indicators in November, but we expect that credit cost for full year to remain higher than our expectations. In our credit card and unsecured lending business, which we are building digitally, which we have taken many learnings from last three years of our data in unsecured lending, and we are implementing these learnings in our digital underwriting on a regular basis. We've also calibrated new card issuance and strengthen our collection team. Credit cost in this portfolio in Q2 are elevated as per the expected lines, and headline numbers is further impacted by lower base effect. We expect credit cost to stay elevated in H2 also. Overall, our credit cost for the first half was around 1.28% on GLP, which is higher than our expectation. We'll see how things shape up in the second half, particularly in the unsecured segment. As things stand today, we expect credit cost to remain elevated and finish full year around broadly the same level as H1, based on the current outlook. There could be a variance of five, ten basis points, depending on the economic condition in the H2, too. To recap on profitability, we achieved an ROA of 1.7% in Q2 and H1. Our underperformance in asset quality was offset by sustained growth in other income and improved cost income ratio. Our margins were broadly stable. For the full year, we aim to defend ROA of 1.6%. Credit cost and unsecured would be a key monitorable, but I expect us to sustain our momentum in other income and cost income ratio. As I also mentioned earlier, that it takes about ten years for a bank to develop fully. We continue to work on our foundation to create a forever bank. We have invested in building a full product suite for our retail and business banking customers. We have a pan-India distribution network with over two thousand four hundred touchpoints. We have invested in our tech stack, both customer facing and core technology. Our digital bank, AU 0101, continues to gain traction, and we are focused on driving efficiency through our tech investments. Our leadership team has remained stable, and our governance pillar is looking fine. And as you all know, we have recently filed an application with RBI for voluntary transition to Universal Bank. An upgrade to Universal Bank license will strengthen our deposit franchise with a better brand acceptance and higher customer perception of safety and trust. So thank you so much for the patience. I'll hand over to Prince for the further proceedings. Thank you. Thank you. Thank you, Sanjay. And, Sejal, we can now open the call for question and answers. Thank you very much. We will now begin the question and answer session. Participants who wish to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. If you are using a speakerphone, please pick up your handset while asking a question. This is required to ensure optimum audio quality on the call. Should your line have any disturbance, you may be asked to return to the question queue if you do not have a clear connection. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants, please limit your question to two per participants. If you have a follow-up question, I would request you to rejoin the queue. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Renish from ICICI Securities. Please go ahead. Yeah, hi, sir. Congrats on a good set of numbers. So just two questions. First, on the margin. So earlier you were guiding at around 5.7, 5.8, and now we are guiding at 6. So how confident we are about sustaining yields and cost of fund at current level, especially if there is no rate cut till March 2024? I mean, sorry, March 2025. Renish, thank you for your kind words. No, you know, if you see us, you know, because you were expecting our cost of money close to 7.2, 7.25 in the beginning of the year, and we want to, you know, guide you, you know, around now 7.10, 7.15, right? So there is a reduction of close to ten pips or fifteen pips, you know, overall cost of money. And we are also able to, you know, get a better yield on our assets, right? Of course, we are not sure about how we want to build our MFI book as of now, but still there is good kind of traction in our retail, MBL, housing, gold, and all those kind of book, you know, including commercial banking. So we expect that, you know, our NIMs should get protected close to 6%. And it's very early, honestly, if you ask me that, because I'm not expecting too good a quarter, you know, in terms of GDP, quarter two. So it may be a little more asked, but, you know, let's have fingers crossed, because there may be a rate cut in, even in December also, right? Right. But I'm expecting a rate cut in, maybe in February also. You know, that's my last bet. But... So overall, you know, so there is enough room for us to protect NIM. Okay. And secondly, sir, on this RBI circular on sort of revisiting the foreclosure charges on the micro and small customers. So what is our RBI assessment? And because in one of the slides we did mention that we have increased sort of fees on lending and deposits. So if, let's say, this circular has to come with some, I don't know, modification or observations, whatever, what is the impact we should have? Or is there any impact at all? So you are asking about the foreclosure charges on SME book? So Renish, I would want to wait for the clear guideline because governor only spoke briefly in his call. So because it is on the fixed book or it is on the variable book, you know, still to be worked out. So we haven't done any calculation. But if foreclosure charges, you know, gets waived on the variable book, you know, then it won't be a much impact. Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead. Yeah. Good evening, Sanjay, and the team. First question, when we look at it in terms of the provisioning, so it seems like incremental delta is not much flowing in from MFI, but particularly from credit cards plus PLBL, as well as the secured retail, when we look at 1.15%-1.28% in the weighted credit cost out there. So and you indicated that secured should come back. Is it like the catch-up in the MFI, which will offset the improvement in the secured and commercial banking, and that's the reason we are still continuing with that guidance of 1.28% credit cost? And does it include contingency buffer? Absolutely, Kunal, you know, you are spot on because quarter two, sorry, second half, you know, will always be better for secured assets, you know. That's a trend we have seen over the years. You know, because of course, the environment is not that great, honestly, as of now, to comment much on that, but I'm still hopeful that, for a secured asset, you know, the H2 will be much better than the H1 But, you know, microfinance, you know, events happened dramatically in last one quarter only, so that space is still to be washed out. October has given us little better hope than September or August, you know? So we want to fingers crossed, you know, so we don't want to over-commit ourselves that our credit cost can be in the range of 1.15%-1.20%, as we promised, right? So we really want to become, we want to really play safe there and hope that secured assets will pull back, and we might have extra cost on MFI, Amazon credit card, you know, but still we want to protect our ROA of 1.6%, you know. The overall idea is to really protect our ROA 1.6%, you know. Some figures will be in our control, some figures may not be in our control. So that's the way we want to build ourselves in H2. Yeah. And secondly, on LCR, now down to almost 112%. No doubt it's indicated that you carry sufficient high quality liquid assets and the non-HQLA investments, but how should we look at it given the draft LCR circular also being there? And how would we tend to improve this LCR ratios going forward, yeah? So what are the initiatives which we would be taking? Kunal, again, I would say that circular is in WIP, you know. Not much, you know, data is coming from various sources that it may be deferred, it may be, you know, put in with the phased manner and all those things, you know. But as of now, anything around hundred and fifteen, we are very comfortable, and if that circular comes in, you know, we'll see. We'll go to the board and we'll go to the risk committee and figure out that what are the best level for us in that given data, right? Because circular will also become very stringent, you know. It will cover all the kind of events or circumstances where a bank may be needing a money, right? So I think we haven't discussed much internally till now because, again, there is no clarity on specific about LCR circular. So we want to keep, again, that discussion open and we'll comment once that circular comes. Okay. Okay, got it. Yeah. Thanks for all the rest. Thank you. The next question is from the line of Nitin Nitin Aggarwal from Motilal Oswal Financial Services. Please go ahead. Yeah, hi. Am I audible? Yeah, yeah. Yeah, hi, Nitin. Absolutely. Great, great. So, good evening to you and the team. A few questions. One is, like, around the same on the credit cost. We are guiding to which again, to be a similar number as one H on credit cost. So is it more out of conservatism or are we expecting Q3 to be, like worse off than Q2? Because Q4 typically is the strongest for us. So why- Yeah, so Nitin, yeah, Nitin. I think Q2 was not so great, you know, and that remained historically also, right? My worry is with be more on MFI, because, you know, MFI, the whole challenge around MFI started coming from Q2 only, right? As I commented earlier, that October has given us some hope, because October is better than September, right? But we really want to see one more quarter to really finally comment that where we are heading in MFI, right? And it's that is 7% of our book. You know, 41%, our customer doesn't take any loan from anybody else. You know, we are largely a very conservative and remain very conservative in our underwriting over the year in Fincare, right? Very experienced team. We have built not much around our collection efficiency because of learning of AU, so I think it's we are working as a team there, right? So but still we need one more quarter to really assess the real impact of this whole free lapses, you know, and so that is one thing, and second, you know, the credit card, where we have taken a very kind of, you know, call, where we just want to understand more digital credit, right? Because anything to be done around manual credit in a credit card or in secure lending is not viable. So the bank has to learn digital credit, right? So we have put in a lot of controls, a lot of learning in prudent process. There may be a case where our book may not grow, and our NPS in terms of absolute amount can be there, right? The percentage term, it might look more, but we want to be very sure about how we really want to build our credit card from here onwards. That too book is very small. It's just around 11-12% of our overall. It won't affect us much. But in that sense, you know, and I strongly believe that retail asset will pull back, and of course, commercial banking is in line, right? I want to really play conservative rather than more aggressive here, because there are little unknowns, you know? We need to see that economy really picking up in the back, because our segment is very, I would say, informal segment, who do all a daily kind of working to really earn their whole livelihood, right? So that uptake has to be there in the market to really give you that comfort that, you know, our credit cost might be lower than what we have done in advance. Right. So, the other question is, actually, like, the slippages during the quarter have gone up sharply Q on Q. So what is the mix of this, like, if you look at between the secured and the unsecured assets? Some color around that. Yeah, hi, Nitin, Deepak Jain. So from the unsecured side, the slippages came around 33% out of the total slippage during this quarter. That is from the secured side. The unsecured piece mainly constitute of credit card and the finance personal loans. So you're asking, as I told you, now, Nitin, Q2 was worse than Q1 so you are asking in 7.25 slippages? 7.25 Where is it? 33% is from unsecured and 67% is from secured. So that's the way, you know, we want to say that the entire segment was affected, right? But that remain the case. It's not we have to only read this data, you know, except the MFI. Mm. Got it. And how will this number be in the, say, what this number be in the first quarter, 33% unsecured contribution now? This was around 25%. 25%. Okay. And lastly, like, when you look at the exposure to the borrowers more than five lenders, which you mentioned in the slide, how is that likely to move? Because the MFI disbursements are not happening, and you would have, like, internally done workings around as to how the repayment trend will be over the year. So how do you expect this exposure to move, and so as to assess by when we can expect this credit cycle to end? So some thoughts around that. Yeah. So Nitin, this is Rajeev Yadav. So as you stated, we have 8% of our borrowers who have taken loans from more than five lenders, equal to five or more than five. And as you know, the industry guardrails are there on number of lenders is four. Fincare guardrails are more conservative than the industry guardrails. So I personally believe this number will gradually decline over the next few months in our portfolio. In fact, Nitin, Prince here. If you look at the data point, I think from June to September, it has gone down from 11% to about 8%, so it has been reducing as we speak as well. Right. Got it. That is interesting. Thanks. Thanks, Sanjay and team. Thanks, everyone, and wish you all the best. Yeah. Thanks, Nitin. Thank you. The next question is from the line of Pritesh from Dam Capital. Please go ahead. Hi, good evening, AU team. Just a couple of questions. First on your CASA. So that has grown very strong this quarter, and especially driven by CASA. So any bulkiness in that CASA, or is it, like, something positive happening on it? So, no, obviously, Pritesh, as we have been saying for quite some time, there is a lot of work that's going on in the bank, you know, behind the scenes, in terms of trying to granularize the book, trying to grow much more. And, I think from a CASA perspective, this quarter as well as, last quarter also, if you saw, the CASA grew, CASA grew pretty well. Last quarter also, there was a 5% quarter on quarter growth. This quarter there was 8% quarter on quarter growth on, on CASA book. On CASA book, I think, we didn't see any growth last quarter because of the base effect from March numbers. But this quarter there was a gradual build-up. Plus, also there are few segments that we have been now trying to entrench, predominantly around capital markets, whatever is happening in the IPO segment, whatever is the... So how do we capture the pie of that particular share? And some of those customers that we have onboarded who invest with us in IPOs and other things, that also is helping the Car business. But maybe I can ask Uttam Ji to add, you know, a more color. Yeah, Pritesh, I'm Uttam here. Just to supplement here, as Prince said, that CASA overall growth has contributed. This is, you know, diversified segments. So we started focusing on that. So money has come from our government clients also, and we have their solution-based approach there, so we garnered from there also. Commercial banking also, we are working hard on business banking, agri banking, all those segments. Capital markets clients also, we have acquired some, so IPO listing money has also come. So, I think all the verticals towards CASA, which we said earlier also, that we could focus on CASA, that has come. It's not chunky money, as you said, but I think transition money is there, and some money comes in month-end also, that is there, but not that any optical money can say that. Sure. Just one another question on MFI. So we've given a good color in our slide, but just wanted to check in terms of geographic perspective, which kind of geographies for us particularly is, you know, seeing some problem? Of course, we've heard industry having north and west of India, but there has been other geographies as well which have been causing problems. So anything on that? Any geographic color? Yeah. So, the one thing that you would have noticed from the slide that we sort of shared was that we are one of the most diversified platforms and this has been the norm for Fincare as it built its microfinance portfolio over the last decade. And our top five states or top three states are 35%, and pretty much in a credit cycle like this, a very solid diversification across states and across districts is a core fundamental framework of risk management. Besides, we are a rural finance player, which also helps us in terms of stability of customers and our ability to sort of, you know, work with them through any cycle. Now, having said that, the more difficult states are somewhat very common which the industry has talked about. So in our portfolio, you know, and which is true for all, all I would assume, it's the Bihar state which is slightly more challenging. The second most challenging state is Odisha. The good news is that our Bihar state is actually the eighth largest state, at about 7.86% of our microfinance portfolio. And Odisha, which I named, is way down. It's only 150 crores, so about 2% of our portfolio. So fundamentally, the more difficult states which have had greater flows in H1 are relatively smaller for us. There are obviously a few more states which are in the yellow zone. These are the red zone, but those pretty much can be managed with less credit losses over a point of time. Sure. Thank you for that. Those were my questions. Thank you. Thanks, Renish. Thank you. Thank you. The next question is from the line of Shailesh from Centrum Broking. Please go ahead. Good evening, everyone. Thanks for the opportunity, sir. So, two questions from my side. First is on MFI portfolio. Have we considered or taken any CGFMU new cover on that? And if yes, what percentage of portfolio would be covered? And second, I was looking at the PCR number, so there has been some drop, sequentially for last few quarters, and currently we are at 61%. So how should we read that number for the year end? So, on CGFMU, the answer is till last financial year, we have not taken any cover. We have only started taking the CGFMU cover from this quarter. So, the standalone Fincare Bank, we have not taken any cover for CD from the portfolio on PCR bank. Yeah. So I think on the PCR, if you see, including the write-offs, you know, it's close to 82%, right? And if you go sector by sector, you know, we haven't given you that data, but internally we track because we are running five or six different asset classes, right? And largely we are into secured. And our net credit loss, you know, is not about twenty basis points or twenty-five basis points, you know, in my secured assets, be it vehicle, be it MBL, be it gold, be it commercial banking over the years. So in my opinion, we are adequately covered in the secured assets. And if you go, because we haven't shared the data internally, but our PCR on the unsecured segment is close to 90%, including MFI. You know, MFI, credit card, personal loan, business loans, you know, all those things. So in that sense, you know, as we move forward, you know, it will be a calculation done based on our provision policy, right? And, so we can't comment at what level it would be, because if the delinquency is recent, then the PCR is less, right? So, we are not targeting any number there, but, we are very comfortable because overall it's 82%, and as of now, it's 63% on an overall asset basis. So, I think, it's good to go there, in my opinion. So just to follow up on the CGFMU, what percentage of our portfolio is covered under CGFMU? In MFI book or overall? MFI. MFI book. We have just started in Q2, and the number is, n egligible, right? Very negligible. So we have just started, Shailesh. So, we didn't use to take it, so you can assume it to be almost nil. We'll update you as we move forward. So, the reason I'm asking is that, as I understand, as we increase disbursement in the segment, our the 1% premium would start kicking in our PNL, right? That is the way it will work. But we will be charging the customer, right? Yes. So I think we will do a fair degree of risk-based thinking on the portfolio, so we will not necessarily be thinking of putting it across the book. But again, these are early days. We'll come back on it. We don't do that. Let's put it this way, we don't do that. We have just started out, and that also for a very small segment of customers based on our internal risk profiling. So, honestly, there's nothing more to compare at this stage. Thanks a lot. Thanks a lot. Thank you. The next question is from the line of Pranav from JP Morgan. Please go ahead. Yeah, thank you, sir, for the presentation. A couple of questions from my side. One, is your incremental spreads continue to be better than your backbook spreads, despite you slowing down the disbursements in MFI and credit cards? So it's 15.2% versus 14.4%. So what segments are driving this, and can this continue going forward also for the next couple of quarters? So, Pranav, I think what we have said that basically it's a function of two things. One is obviously there is a you know after the Fincare acquisition the MFI happened at a higher rate. That resulted in both the things that resulted in one time upward movement in Q1 that you saw which was 15.8 and this quarter it went down because the MFI again disbursements were pretty muted right? But having said that I think the more important aspect there is and what we have written in the presentation as well that all our core assets right? If you look at Wheels if you look at MBL business if you look at housing everywhere we have enhanced disbursement yields. I mean, we have been doing it since last year as well, but I think it has picked up real pace this particular year, and in the first half, we have sustained enhancement in yields on Wheels upwards of 30 basis points, in MBL upwards of 40 basis points, and in housing, almost 100 basis points plus, 130 basis point plus, right? So I think all of this is helping to drive that entire, you know, disbursement yields. So it should sustain at higher than at least on the bookings going forward also, despite- For this financial year, definitely that's the plan, and then we see how things unfold. Understood. Very clear, Prince. Thank you. And one last thing. I see that recently also, I think again, you guys have rationalized your SA deposit rates. So how would you be moving forward with this thing going ahead as compared to other mid-tier banks? Because I think you, it was a 3% for up to one lakh, and now it is 3% up to three lakhs. So, like, what would be the thought process over here? Yeah, so we keep... I mean, again, it's a function of market feedback that we get from the ground, and to that extent, we keep optimizing it. The idea is over a period of time, as the brand builds up, as we have more customer base, we will narrow down the premium that we offer over the large private sector banks. Currently, we do it more optically in certain buckets, wherever we get a room, and this time, like, we did that in the first quarter, and we saw, we didn't really see too much outflow of deposits. In fact, deposits grew in that particular bucket. So to that extent, we took further steps this quarter, and we have now rationalized in up to three lakh as well, taking that number from one lakh to three lakhs. We'll see the response, and if the response has been positive, then we'll further look at how we want to calibrate it. It's more a function of how the deposit build-out is happening and how we are able to narrow down the premium over a period of time. Thanks a lot, Prince. I will get back in the queue. Yeah. Thanks, Anuj. Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead. Mr. Nidhesh, I would request you to unmute your line and speak, please. Due to no response from the current participant, we will move on to the next participant. The next question is from the line of Rohan M. from Equirus Securities. Please go ahead. Yeah, good evening, sir. Thanks for the opportunity. This is on OpEx. Like in your opening comments, you mentioned that there was 11% higher disbursement sequentially, but employee cost was similar. Just want to understand, is there a change in the payout structure or origination mechanism? Also, when the cost is contained sequentially or the expectation of an improvement on this, is there a reduction in spend on tech or branding or any of these kind of one-off non-business linked spends? Some color around that. Secondly, incremental disbursement spend spreads are down 80 basis points Q-on-Q. How should one look at it going ahead into second half? After all, this is on account of lower disbursements on MFI, but just your view here. Thirdly, if you can give MFI collection efficiency for the quarter? Or the overdue book in MFI. MFI collection efficiency for the quarter was 98.15%, for 98.3%, right? Thank you. So the collection efficiency for Q2 was 98.44%, Q1 was 98.07%. So overall, in H1, we have delivered at the current bucket collection efficiency of 98.75%, which we believe is, you know, better than, you know, and than pretty much what we are hearing from the industry, over the years. Yeah. Yeah. So this is Sanjay this side. So again, you know, in terms of OpEx, you know, we remain very focused, you know, in terms of the productivity levels, you know, in terms of managing the overall manpower in the system, right? And I think there was. I would say a very unprecedented kind of focus in the last six months to really contain the cost. And we haven't stopped any kind of investment, be it tech or be it digital framework or whatever is necessary for to build a franchise for future, right? But you will appreciate that, you know, we got around 140-odd branches from Fincare, so we haven't done any kind of branch expansion this year. That is helping us to build lower cost. You know, we have also really, you know, done not many things around the entire hierarchy, where, you know, we were building lot, much different SBUs, and there, you know, we were building lot, much manpower for future. But we have gone back and, you know, re-strategized ourselves that, you know, if something, some role is not required, you know, we have actually zeroed that also. We are also getting our synergy benefit because of Fincare, you know, that is also coming up, and it will come. It will be more and more in maybe next eighteen to twenty-four months. So that is why we have said that, in spite of having around 58% H1 cost to income, we might have around 60% on a full year basis, because there would be some payout and all those things, which will only come out in second half. But, you know, I would say, the trend has started, you know, the silver lining is this, that we are now coming from 64% to maybe 60% this year, and then the scale benefit will start kicking in, you know, so. But the roadmap to maybe 55% in the next couple of years or maybe three to four years is now there, right? And so, the team is also getting mature enough. The automation is playing their role, you know, so the growth has been now really not to that extent that we need to invest more and more. So I think not many things is on the table now, and we are executing it to the core, right? So that is on the OpEx. You know, your other question was around unsecured. Of course, you know, unsecured was not that big a book for us, you know, it was maybe capped at 10%. We are around 10% as of now. And fingers crossed, you know, if things get improved, we can quickly build that book, you know, back. But overall, I would say the 14.4% yield is largely protected because our yield on Wheels, yield on MBL, yield on gold, yield on actual has gone up. Commercial banking has also been able to price their assets more. So that is there. But I think, more than yield, it is about cost also, right? So I think the overall NIM will be protected, you know. That's the overall trend. Sure. Because if I look at the slide, number 16, our incremental disbursement yields are down and incremental cost of funding has gone up. So that's the- It is, one base. No, sorry, you are saying- Twenty basis, yeah. Ten and twenty basis increase. Yes. So, of course, Rohan, so as we said, that's a function of the mix, right? As the... Because each of the core businesses, as we have said, has been able to increase the disbursement yields. Commercial banking has been able to pass on, and the MFI and credit card, MFI predominantly has been lower in terms of disbursement share, and that's a pretty much optical ratio mix, right? Cost of funds have gone up because in the first quarter, when we spoke, so if you recall, we didn't really raise a lot of deposits given that we already had quite sufficient liquidity. And in Q4, if you go, our incremental cost of funds used to be 7.7. In fact, the incremental cost of fund now is at 7.3. We've been able to bring that down, and this quarter you saw our deposit growth were pretty robust, right? Right. I think it should sustain here, unless there is a change in the mix further in terms of disbursements. Rohan, one more thing, that gross advances yield, which is 14.4%, so our incremental yield is also more than that. It's a 15.2%, which is higher than our gross advances. It will, that 14.4% will not come down. Sure. And on that OpEx lever that you have given, sir, just, on the employee piece you did not touch upon, like, disbursements were up. So is it that, incentives are deferred to Q3, or, what has happened there? No, no. So I think overall, as we said, it's not. I mean, we not so. So as there was no deferment of any kind. There's no change in the policy, right? Whatever policy was being followed earlier, same policy still gets followed. I think there has been a lot of, let's say a lot of, with a very large magnifying glass. I think we are looking at every line item, and we're trying to figure out where exactly efficiencies and, you know, productivity can be drawn upon, which are the costs we can do away with. Like, as Sanjay said, some of the, you know, replacement hirings that were to be done, probably we figured out that can we manage with, maybe at a lesser cost, right? So all of those things are on an ongoing basis; we have been working on for the last six months, and that's where the cost to income decline that you are seeing is there, and that's why we are pretty confident that will be more sustainable from here on, and we should see full year around 60 and not necessarily 63-64 that we saw last year. Sure, sir. Thank you. Thank you. Thanks, Rohan. Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead. Thanks for the opportunity, sir. Firstly, on the credit card business, what is the strategy from here onward? I couldn't understand that, we will go more digital. Is it sourcing digitally or, how are you thinking about credit card business from here onwards? My sense was is that we were doing credit card underwriting business on digital footprints, right? And because if you want to build a unsecured book or a credit card book, you know, it's difficult to build a brick-and-mortar franchise because of the cost involvement. So we began with that only, and we want to be on that path. You know, we have learned the hard way in the sense that how good digital credit is, you know, and what are the challenges we faced over the years, you know? And so there was an elevated credit cost. So we have learned a lot and have put in lot many things now, based on this understanding over the years. And now that is why our assurance is not to that extent, you know. We really want to build more cautiously and with more guardrails, so that, you know, and now guardrails around as of now, right, but there are a lot many things coming back in terms of to understand customer, like, you know, account aggregator can help you have more, I would say, data which is reliable, right? There can be other means which we are able to figure out, so I think there will be a... Again, we want to go back to our previous number, but I don't want to put any day or any month or any year on it, right? Because, I would say very, it's a very delicate product, right? You know, so we need to handle it carefully. And we have not, haven't built so, so big that we can't go back and correct ourselves, you know. So both the book, you know, whether be it credit card or unsecured lending. And then one thing is very sure, Nidhesh, we need to understand this, because if you have a desire to become a big bank, then, you know, this portfolio need to build there, right? And the team is committed, and we are all committed to really learn and do the right thing. So my sense is that, you know, you have to give me another maybe two quarters to really come out with a explicit plan, you know, within how and where, how and how big we really want to build this book. Mm-hmm. Okay, sir. Thank you. Second, on microfinance, in H1, our credit costs were around 3%, right? Yep. Yes. Any guidance on the full year credit cost to microfinance? Difficult one, Nidhesh. As I told you, that this, this dramatically happened last quarter only. I would only say this, that October, November is better than September, but very, very early days, you know, just 23, 24 days of October. But my sense is this, because Rajeev is also called, so there would be a little elevation from here, but I think we predicted 3% cost, to be really honest, before we acquired this book, right? So as far as of now, it's in that same bracket, but it may go up, but you know that microfinance gives you 5% ROA, right? You know, it might not be giving us 5% ROA over the year. It might give us maybe 3% ROA, right? But it is still far better than any other book because it gives me a SMA book also, Agri book also, right? So the overall understanding to acquire this business still holds true, you know, and we are optimistic that because this is not an event risk, you know, this is where lender had become more aggressive over the period, right? And that is getting now arrested through all the means. So Rajeev says, you know, Rajeev is on the call, that you can ask him also that it may become more smoother faster than what we are thinking, right? So Rajeev, you want to comment more? You know. Okay. So is it fine, Nidhesh? Yes, yes. That's it. That's it. Yep. Good. Thank you. The next question is from the line of Abhishek M from HSBC. Please go ahead. Yeah. Hi, good evening. Thanks for taking my question, so the first one is on cards. If I look at the yields, clearly QOQ, that has gone up from 13.8 to 14.3. Since the book is stable, is it mostly because, you know, transactor balances, et cetera, are reducing and the mix is changing more towards revolver EMI? Is that how it is evolving, and you know, since you will take about a couple of quarters to recover from or to get a plan in place, basically this book should just keep attriting from here on. No, no. So, yeah. Hi, Abhishek, Prince here. So obviously, you know, we have gone through, but I think the book is still growing at a slower pace than where it should have been, right? Or, or where it was in the last two or three years. I think there's a very clear effort that we have been putting in terms of growing our mix of earning customers, right? You earn on a credit card book through your revolvers as well as through your EMI customers. You don't want your revolvers to go out of a certain range, because then there could be an associated credit cost, right? So you want a very optimum mix of you know people who take EMIs and people who revolve vis-à-vis the people who only transact and don't earn you anything, right? So I think at this last... if you go back in last December, this number for us, the people who used to make us money, right? Which is basically transactor, sorry, revolvers plus the EMI, that percentage was about close to about 37-38%. That has now gone to about 44%. Right? So there is a, the EMI book has gone even from March, when it was 17-18%, it has gone to about 20% as on September, right? So there's a very clear effort that's going on in terms of, you know, monetizing the customers. And it's also happening because the base is expanding, so we have much more acceptance at lot more merchant points. So to that extent, we are also becoming relevant for, the larger merchants, which probably earlier would not really, you know, involve us in their promotions and other schemes. And one thing more, we in the last two months, three months, the industry has also moved toward some interchange charges, which is moving upward direction, including the revolving book rate of interest is also in the upward direction. So everything is supporting to the increase, margins in the credit card. Right. And given that a large part of your book is greater than 7.60 score, and then, you know, nearly 90% is 7.40+, which is a reasonably good score, so where do you see most of the credit costs actually coming from? And, you know, since you said that you are learning from your previous underwriting using digital means, can you give some sense of where things went wrong and what you need to correct now? So, I'm Sanjay this side. So, you know, to be honest, we sourced around ten lakh cards, you know, and out of that ten lakh cards, close to 75% cardholders does not use any of the credit. You know, they just use the card, or they may not be using the card, but they pay on time, right? It's just 25% people take the credit, you know, maybe, minimum twenty days period or maybe some kind of loans and everything, right? Out of that 25%, only 3% people default, you know. So in that metrics, I don't think we have done wrong thing, but that 3% people actually uses their limit to the full extent, so the credit cost is around 7%, right? So I think we might have gone over in terms of credit lines, you know. I think that's the first learning we got it, that, you know, we shouldn't have gone aggressive on the credit line because in terms of acquisition, you know, you sometimes want to take a market by giving more or a larger credit line than what the customer deserves. That was the first learning. So we have started reducing the credit line now based on our data analytics, you know. Second thing, you know, generally, in a digital credit card underwriting model, you don't meet customer, right? And customer tends to- Right. -move from its place, right? So I think we need a very strong collection mechanism too, to really recover money from the customer. So that was missing, so we have built that again. We have built, we are now building to that extent that, you know, we become lot much stronger on the ground. Third, you know, it may be like, you know, the kind of income estimation program which we should run, because it's difficult to judge customer income estimation based on as of now. So there, there was no account aggregator two years back, right? So income estimation was done based on credit bureau, based on other attributes, you know. So I think there we also have gone back and have changed the entire data point so that we start assuming customer income estimation to the extent you know possible right? I mean these are three four things you know which is generally you know we have corrected our course. And I believe that you know the new credit card we've been issuing from last six months have shown us a different data point right? That's why you know this business we can give you 5% ROA on the longer run. And I think if India is the data kind of country where data is available then we should learn this business right? That's the overall from us you know from our side right? Yeah. Sure, sure. Anything- Thanks so much for the granularity. Very, very much appreciated. Thank you so much. Yeah. Thank you. The next question is from the line of Dhaval from DSP Asset Managers. Please go ahead. Yeah. Hi there. Thanks for the opportunity. Just two questions. First is on the credit cost guidance for the full year. I just wanted to, you know, get a clarity around, you know, what surprised us from where we started the year. So based on the data that you've shared, it seems like your gross, so at the start of the year, you were assuming the MFI portfolio to be around 3% up at the upper limit, including the contingency provision. And right now, H1, we are tracking about 3.5%, so that's a 50 basis delta on 7% approximately of the loan book, so 20 basis overall credit cost. Similarly, on credit card, we expected 6.5%, which is now tracking close to 8.5%. So, 4% of book doing 200 basis point higher, so let's say about 8-10 basis point delta there. And then the residual book is slightly higher than what we were expecting at the start of the year. Is that broadly how the math shapes up from that 120 credit cost to 150-160 kind of credit cost for the full year, like the 20 basis delta from credit, sorry, from MFI and 10 basis from credit cards and small bits from the residual book? Is that correct, ballpark? No. So, Dhaval, I think here- Hi. So there are two things, right? Which is what we have given on slide number eight. Right. You know, of course, we securitize some books, so 150-160, we're looking on gross advances. I think we should look at the loan portfolio level, and that's where we had guided, that there'll be a certain mix and a business which, as you rightly said, probably we were expecting microfinance to be at 8% of the book and 3% of the credit card. Now, so, obviously there's been a slight shift in the mix as well, because the disbursement on some of the businesses have been lagging, right? And that's also the environment. So we want to be more calibrated in growing unsecured segment at this point in time, given that the industry itself is going through a challenge. So, A, that impacts the mix. But more importantly, I think, as Sanjay said on the opening remarks as well, and to your question, that Q2 has been a bit surprising, both on secured and as well as unsecured side. More on unsecured, less on secured, but definitely some bit on secured as well, right? Like, say, for example, what we have shown in that slide is if we expected eighty basis points on a secured book, then we got actually a hit of ninety basis points in the H1. And part of it is because of the rains and other things that happened during that particular period, right? H2 seasonally remains strong. So what we are saying is there should be a pullback in that segment, right? We are not really sure how the MFI is going to play out. We will have to... We need some more time, but we said October obviously has been somewhat positive and optimistic for us. We'll have to see how those trends sustain. So on a overall basis, what we are saying is that if you look at the H1, H2 credit cost, at this point in time, we do believe that we should be able to contain at similar levels. But we'll have to give it a leeway of ten basis points here and there, subject to, you know, change in the mix or any kind of further deterioration in the unsecured portfolio. So, Dhaval, hi, Sanjay this side. So let's take one by one, right? You know, when we met in Q1, right? We, before Q1, we expected that our cost of money would be very high, right? But during the six months, we figured out that it won't be so high, and we recalibrated our cost guidance there, and it was about seven point two five, and now we are saying seven point ten, right? So that remains strong for us. In terms of asset growth, asset yield, what we said, we delivered it, right? I think the other income really has made us very strong in terms of our traction, be it insurance, be it third-party distribution, then maybe it's EDM and all those things, right? Has been remained very strong. It's very sustainable, right? I think if you go back and if you go and see the, our OpEx, commentary, we were more, I would say, we're not expecting this kind of, reduction in cost because we have done not many things, but this remained, you know, beyond our expectation in a positive way. But, you know, when we spoke in Q1, we haven't able to figured out that market would dramatically change like this. Q2, to be very honest, was very disturbing in terms of overall economic sentiment in the country. You know, there was an, unusual rains. You know, we are coming out from heat, heat in Q1. There was a side effect of election results. You know, the confidence was down. And, so in there, the slippages was more than what we anticipated. But, you know, it hasn't gone so bad, honestly, right? So it is, maybe in, what we promised was around 110, 115, is now getting around 130, right? So I believe that for, I still believe that, you know, based on the... Of course, the, the subject to the whole economic activity coming back in, in H2, I expect that our retail asset will again perform at the same level with what we had promised, maybe 5 basis points here and there. But I think the fingers crossed is for the microfinance because it just started Q2 you know? So we need to see one more quarter to really assess the real impact, whether it is going beyond 4%, whether it is going beyond 5%. Difficult to comment as of now, you know? But credit card, as you know that, we are on the course of correction, and we are doing it, you know, so there may be a little upside based on the lower book, you know? If it would have been the same kind of run, then the cost would be in the same range, so 6.5%, right? So I think this is overall on the credit cost, but I would say that, in overall scheme of things, I still believe that ROE will be protected, you know. There is something which has been done so well for us. There is something which is beyond our control, you know, so we might not be doing so well there. But, overall, I expect that, you know, 1.6% is still defendable, and we are working for that number, right. Understood. Just, one small follow-up. The contingency that we planned, for the year, will we still, have some more contingency in the rest of the year or, that may get pushed out to next year? Just a clarification. Look, Dhaval, we said that, if I go back in my earlier commentary, that if the credit cost is less than 3%, we want to buffer it up to 3%, because we believe that on a ten-year basis, the MFI will give you a 3% credit cost every year, because that was the data shown us by CRISIL, their research. But if the credit cost in first year itself is 4% or 5%, you know, I know that it may be around 2% next year, and then it will be 2% year after, right? So we would only build a 3% buffer if it's below 2%, right? Below 2%, right. It won't be. We would not build a buffer if it's above 2%, because then it's very normalized credit cost. Understood. So there is a chance that we utilize contingency that we created in one year? That is very small amount, Dhaval. INR 17 crore is a very small amount, so- Understood. We haven't think much about it, right. It's good to have, to be very honest. Got it. Just one last thing on the OpEx side. So, sir, last year, we had positive surprises. I mean, in the sense that OpEx was, you know, rising and we were continuing to invest. This year, on the other hand, you know, that is a line which is, sort of, you know, coming down more than what generally the expectation was. I mean, if you could just give one or two big examples of what's changed, in terms of, like you gave. I mean, I think Prince talked about, you know, having more focus on each of these, but just one or two big items, if you could just call out. And so just to get some comfort around sustainability of this number being around sixty and then lower, so- There are two things. I would say two things. One, productivity of people. We are working with, you know, we are really really worked hard on our people's productivity and so that is why in spite of we have grown ourselves by 11%, but there is no growth in our people's number, right? And second, I would say the synergy because of Fincare. You know, we are not opening any branches. You know, there are a lot of leadership which has come up, you know. The size is there. There is a commonality in our many backend functions, right? So there are no people required at Fincare side for many backend functions. So, there are some synergy which is coming up, and we build more and more will come up, as we move more deep in our journey. Understood. These are two things. Understood. Thanks, thanks, and all the best. Thanks. Thank you. Thank you. Ladies and gentlemen, you may press Star and One to ask a question. A reminder to all the participants, you may press Star- Thank you so much. Very happy Diwali from our side. Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Prince Tiwari, Head of Investor Relations, for closing comments. Yeah, thank you. Thank you, Sanjayji, and thank you everyone for joining the call today. If you have anything residual, you can always reach out to the IR team, and have a good day, and Happy Diwali to all of you from our side, and see you soon. Thank you. On behalf of AU Small Finance Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.