Earnings call transcript: SBFC Finance Q2 2025 shows robust growth

SBFC Finance Ltd reported strong financial performance for the second quarter of 2025, with significant year-over-year growth in key metrics. The company’s stock price saw a modest increase of 0.26%, reflecting investor confidence in its strategic initiatives and financial health. SBFC’s Assets Under Management (AUM) grew by 29% year-over-year, and Profit After Tax (PAT) increased by 30%, highlighting the company’s ability to capitalize on market opportunities despite a challenging credit environment.

Key Takeaways

• AUM reached INR 9,938 crore, marking a 29% year-over-year increase.
• PAT grew by 30% year-over-year, reaching INR 109 crore.
• The company plans to expand its branch network by 20-25 branches annually.
• SBFC has tightened credit criteria, reducing approval rates below 40%.
• The company maintains a cautious approach in a challenging credit environment.

Company Performance

SBFC Finance demonstrated robust growth in Q2 2025, with AUM and PAT significantly increasing from the previous year. The company’s focus on the MSME loan segment, which constitutes 82% of its AUM, has been a key driver of this growth. Despite a cautious credit environment, SBFC has managed to maintain a strong presence in 15-16 states, leveraging its strategic initiatives to capture market opportunities.

Financial Highlights

• AUM: INR 9,938 crore, up 29% year-over-year.
• PAT: INR 109 crore, up 30% year-over-year.
• Return on Average AUM: 4.56%
• Return on Average Tangible Equity: 14.09%
• Yield for the quarter: 18.01%
• Cost of borrowing: 8.96%
• Net Interest Margin (Spread): 9.05%

Outlook & Guidance

SBFC Finance targets a 5-7% growth in AUM quarter-on-quarter and plans to increase its leverage from the current sub-2x to 3-4x. The company aims to maintain a 15% Return on Equity (ROE) while expanding its branch network by 20-25 branches annually. However, it anticipates a slight increase in credit costs by 10-15 basis points.

Executive Commentary

"We are not chasing growth at the cost of credit," stated an SBFC executive, emphasizing the company’s commitment to maintaining credit quality. CEO Asim Singh expressed confidence in the company’s strategic direction, saying, "God has been kind. Have the best team in the business."

Risks and Challenges

• Tightened credit criteria may limit loan growth and reduce approval rates.
• Exposure to stressed portfolios, particularly in Karnataka, could pose risks.
• The anticipated increase in credit costs could impact future profitability.
• Potential regulatory changes affecting housing finance companies may introduce uncertainties.

Q&A

During the earnings call, analysts inquired about the company’s exposure to stressed portfolios, particularly in Karnataka, which accounts for 12% of its exposure. SBFC’s management highlighted tightened underwriting norms and expressed caution regarding smaller ticket size loans. Additionally, the potential for regulatory arbitrage with housing finance companies was discussed as a strategic consideration.

Full transcript - SBFC Finance Ltd (SBFC) Q2 2026:

Conference Moderator: Ladies and gentlemen, good day, and welcome to SPSV Finance Limited Q2 and H1 FY twenty six Earnings Conference Call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Ranish from ICICI Securities Limited. Thank you, and over to you, sir.

Ranish, ICICI Securities Representative, ICICI Securities: Yeah. Thank you, Hi. Good afternoon, everyone. Welcome to ISB and C Finance q two FY twenty six earnings call. On behalf of ISB C Securities, I would like to thank ISB management team for giving us the opportunity to hold this call.

Today, we have with us the entire top management team of APFC represented by mister Singh, managing director and CEO, my mister Maheep Dhani, executive director, mister Narayan, CFO, mister Sandeep Pranawal, Chief Strategy Officer and Mr. Adi Kattal, Chief Risk Officer. I will now hand over the call to Mr. Singh for his opening remarks, and then we’ll open the floor for Q and A. Over to you, sir.

Asim Singh, Managing Director and CEO, SBFC Finance Limited: Thank you. You, Ramesh, and good afternoon, everyone. The challenge of any business build is that while one is building for the decades, one is accounting for in quarters. If I ask you what is your plan for the evening today, you are likely to be very specific. I’m going to watch a movie, a play, go to a party.

If I ask you about next week, you have something a little more general. The next quarter, details start to blur. The next year, you will probably say more directional thing and the next decade and we get into the territory of hope. Similar challenge a company faces when it looks ahead, a quarter, a decade and a century. The challenge for any management is to get both the next decade and the next quarter right.

At SBMC, when we look at how the most abused word in startup decks called the total addressable market, the TAM stands, we feel very bullish about the future. The total MSME book of loans between INR500000 to INR3 million, which is our target segment. The total book complete which includes banks, NBFCs, all kind of lenders between R500,000 to R3 million is about R4 trillion as we speak. And this has been growing at a CAGR of 24%, meaning it’s doubling every three years. The best thing is as far back as I look, these numbers have held, which means through peaks and troughs through interest rates and delinquency cycles, the market growth has neither accelerated nor accelerated.

And when one looks at the decade ahead, one can safely presume that the market will grow at the CAGR of 20%, which means it will double in about four years. So from INR 4,000,000,000,000 that it is right now, it will go to probably INR 8,000,000,000,000 by four years from today. Now as we know, growth cycles are produced by interest rate cycles. India right now has one of the lowest inflation volatility in the world. This produces a low interest rate volatility, which feeds into lower growth volatility.

Even if you don’t want to get too technical, let’s just know this, it is not the quantum of the move, but the volatility that kills you. So a low growth volatility is a really good place to be. On top of this, India in my view is a long term trend of low real interest rates. We have decidedly entered a cycle of low real interest rates. A low inflation interest rate growth trajectory to volatility and a low real interest rate trend is music to a banker’s ear.

The long term trend is for India India is very clear, it is up. In business, as in life, is very critical to get the long term trend right. While you may get the decade right, it would be posthumously for the management unless they get the quarters right. So when we look at the more immediate, we shift from the telescope to the microscope, and there is never any beauty one can find under a microscope. The near term view is a chaotic bazaar with so much noise and cacophony that it gets very difficult to preserve your enthusiasm.

To those of you who have followed our earnings call over the years, at the risk of becoming, I told you so expert, we had seen and called out a shorter term trough in April 24. Post COVID, Indian lenders had kept the bar open for too long, And alcohol and money both have unlimited demand if they are easy to get on credit. RBI was watching this too. And in the 2025, it read out the Riot Act on the unsecured lenders first and then the microfinance sector next. We’re in the business of lending loans that will need to get repaid every month over a long period of time.

The business segment we lend to has uneven cash flows and operates in an undisciplined way. A few days back, the screen in our office displayed our live loan book rising in real time as we crossed the loans getting disbursed across two twenty branches. I usually see this excitement when an important cricket final is underway to a nail biting finish. A loud cheer and applause broke out as we crossed INR 10,000 crores of AUM. Now on a lighter note, I know the knife that come came out to cut the cake that’s been wheeled in is on my throat too for we can truly celebrate only when the money has come back.

We are the only business that expects sales returns to happen. These high yielding loans price in the incipient risk in them. Our job and raison d’etre is to price and manage this risk. Last quarter, in line with peers, we too had a large flow in our OnePlus portfolio, the previous quarter, the June. This quarter, while the tide hasn’t fully stepped, the intensity of the flow has calmed, and we are still very watchful for we need to first stem the flow and then try to reverse it.

There are a lot of numbers when a finance company puts out its results, but the first amongst equal or the model of the story is return on equity. What is the return made by the shareholders who trusted us managing their money? We had constructed an ROA tree on the DuPont Curve. The power plants step up the voltage for long distance transmission and step it down to substations and finally delivering it to your home. And when you flick a switch, the bulk comes on.

Reporting this ROE of 14% this quarter for all of us at SBFC is how Edison would have felt when his bulk came on in 1879. This damn thing is working moment. In finance, is never so easy. We could arrive at this ROE by using a high leverage, and that isn’t the ideal solution. So one has to ideally reach it on a very low leverage, which means that you need to deliver a high ROA.

At north of 4.5%, we are achieving 14% ROE at a debt equity of under 2%. I was looking at our first earnings call in September 23, where we had delivered an ROA of 3.8% and an ROE of 10.4%. So happy to see that we have doubled our quarterly profits since then. That was just after our listing. We have ample capital.

And as we build to reasonable leverage, it should be have a salutary effect on our ROEs going forward. We have two tailwinds powering our client. Incremental borrowing cost is down 80 basis points over the book cost at the beginning of this fiscal. Over time, this will keep feeding into the P and L. Cost of operations has come down 112 basis points since our IPO and incremental benefits will keep feeding into the P and L.

But as we make investments for growth at a reduced pace of reduction. I would also like to draw your attention to the headwind we face. Tough credit environment, credit cost has gone up to 1.29%. Our PCR is at 46%, well above our stated intent to keep it north of 40%. And we do not take into account interest on NPAs.

And we do not upfront any income through DA or any co origination to reduce our future earnings volatility. I would want investors to know that while we are doing the best we can, we are solving a difficult problem and the risks are evenly balanced. The yields on our business fairly compensate us for the elevated risk and we won’t sleep easy till the flow into OnePlus is fully stepped. What has changed over the years are the two risks that did not exist to this level earlier, political risk and climate risk. Karnataka is a classic case in point where a superb portfolio till January 25 got rudely shaken up in two months, and this now is going to take several quarters to fix once it starts to flow.

We remain cautiously optimistic about delivering a 5% to 7% quarter on quarter growth. Credit cost could, from this point, inch up 10 to 15 basis points before they peak out. We have further tightened our credit screens, stopped lending below INR 7 lakhs and raised the gate of entry to a CIBIL of 700 at a minimum level. And we now watch out for banking behavior and over levered customers in a more tighter way than we did before. We thank you for your trust.

And with this, I hand you over to Narayan, who understands numbers far better than I ever will. Thank you, Asim.

Narayan, CFO, SBFC Finance Limited: Hi, good afternoon. Our AUM as of September is INR9938 crore. And as Asim said, we achieved INR 10,000 crore now. And this is with a growth of 29% on a Y o Y basis and 6% on a Q o Q basis. With 100% of our books secured by properties and both, we have very minor unsecured book left, which is hardly in terms of percentage.

Our MSME AUM, which is 82% of our AUM, grew by 29% on a Y o Y basis and 6% on a Q o Q basis. We have added five branches during the quarter with a total branch count at two twenty as of September 2025. In terms of yield spreads and OpEx, the yield for the quarter is 18.01%, with an improvement of two basis point on Q o Q basis and 32 basis point on a Y o Y basis. Our cost of borrowing is at 8.96% for the quarter with a reduction of 36 basis points on a Y o Y basis and also on a Q o Q basis. Consequently, the spread for the quarter is 9.05%, with an improvement of 38 basis points on a Q o Q basis and 68 basis points on a Y o Y basis.

Our OpEx continue to improve due to enhanced operating leverage and has improved again by ’19 basis point on a Q o Q basis and 20 basis point on a Y o Y basis. This is in spite of a consistent increase in our branch network. In terms of asset quality, our GNPA is in Q2 at 2.77%, with PCR at 46.17, with credit cost at 1.29% for the quarter. In terms of capital and return ratio, our capital adequacy ratio is 34.05% with tangible net worth of INR 3,174 crore as of September 25. Our return on average AUM for the quarter is 4.56%, with return on average tangible equity further improving from 13.53% in Q1 to 14.09% in Q2.

We made a PAT of $1.00 9 crore for the quarter, thereby reporting a growth of 30% on a Y o Y basis and 8% on q q basis. With this, I open the floor for question and answer.

Conference Moderator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question.

Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abhishek Galati from Galati Wealth. Please go ahead.

Abhishek Galati, Investor, Galati Wealth: Hi, sir. Actually, the numbers are great. So I want to ask what’s the future outlook? Actually, I missed opening remarks if you have said so.

Asim Singh, Managing Director and CEO, SBFC Finance Limited: I mean, I gave a fairly long monologue guide on what outlook is. For us, the outlook continues to be what we had guided, no change in guidance. We hope to continue to grow at 5% to 7% AUM quarter on quarter. And we hope that the credit cost here will start getting range bound, but may increase another ten, fifteen basis points from here. Apart from that, it is business as usual, where we have crossed 14% ROE.

And as more things go our way, in terms of what has been set as operating leverage, the it will have the effect on, on ROE.

Abhishek Galati, Investor, Galati Wealth: Understood. And in terms of are we focusing on higher ticket size loan because most of the NBFCs currently are focusing on higher ticket size loan because of the NPR. So we are also witnessing the same thing?

Executive, SBFC Finance Limited: So higher ticket sizes are typically range bound, and they are, you know, from 5 to 30 lakhs is our sweet spot. What we had mentioned in our last call for last quarter was that we will move away from the lower ticket size where we feel that the stress is building up, which is the sub-seven lakhs. So if you look at our average ticket size for this particular quarter, that’s moved up marginally from closer to 9 lakhs to 10 lakh, 20,000 for this. And that’s largely also because of a higher co origination with ICSA. So to answer your question, our large tickets, the way we define is more between 10 and 30, the odd lakhs.

Abhishek Galati, Investor, Galati Wealth: Understood. And one more thing in terms of the NPAs, that’s still the rate cost we are also guiding would be could interrupt. So we are seeing a stress in a particular type of loan, particular customer behavior that we have found, in which we are seeing the more more risk.

Executive, SBFC Finance Limited: So let me break this into two parts. So one is a segment, and one is a geography. If I were to look at a segment, the segment that we had called out not last quarter, but probably a year back, is that we are seeing stress building up on the lower ticket size. So that call out holds, and that’s something that we’ve shied away from doing it. So as a result, you see our volumes also dropping in quarter two compared to the previous quarter.

To call out specific geographies, as Assim mentioned out a specific state in South, where we mentioned that due to an ordinance issue, clearly, the portfolio color hasn’t been what it was till about January and March. So it’s a combination of both. And that’s the reason we said that we’re not out of the woods as yet. We will see some bit of pain continuing, before we see the trend reversing.

Abhishek Galati, Investor, Galati Wealth: Understood. Understood. And just last thing, how long we are seeing the trend to be continued in the, like, the the rising NPS? Anything that this is your experience that you can see?

Executive, SBFC Finance Limited: It’s very difficult to, I mean, if we could see the sunset and if we could time it, it would have been perfect. I would have given you that answer. But all that we can tell you is that quarter two was slightly better than quarter one. Is it going to end in quarter three or in quarter four? That’s going to be a wild guess.

So we wouldn’t want to commit to that. But all that we can do is if you are in that kind of an environment, you’ll be a little watchful. You’ll tighten your credit filters. You can’t really avoid the credit cost completely, but you can obviously soften the blow.

Abhishek Galati, Investor, Galati Wealth: Understood. That’s it from my end. Thank you.

Conference Moderator: Thank you. The next question is from the line of Nidesh from Investec. Please go ahead.

Nidesh, Analyst, Investec: Thanks for the opportunity, and congratulations, sir, for a good set of numbers. So first question is on the stress with quality asset quality stress that we are seeing. Is it only Karnataka specific, or are we witnessing the stress in other geographies as well?

Executive, SBFC Finance Limited: So in terms of our portfolio, we have Karnataka, where we hold close to around 11%, 12 odd percent. Although we have gone a little slow, but obviously, there’s a legacy book or a large portion of the book there. The trends in the remaining three two states, which is Andhra, Telangana, are pretty much holding on. But I think Karnataka is one state where we’ll be a little watchful. We are present in Tamil Nadu, but the portfolio is not very large.

Nidesh, Analyst, Investec: Sure. How are you seeing trends on the customer leverage? As we wanted we have again started seeing very sharp growth in the unsecured segment, which has been a bit weak for one year. But again, in this quarter, we have seen a lot of lenders growing unsecured book pretty sharply. So how are we seeing customer leverage trends, specifically in your customer base?

Executive, SBFC Finance Limited: Yes. So I think what we are now trying to do, probably if you look at our investor slides, you’ll see possible scores, which were more than 700. That’s inching up by almost 200 basis points. We were close to around 86% on portfolio that’s moved to almost 88%. If I were to talk about the new disposals, almost, I think, 95%, 96% of the customers onboarded are more than 700 and some of them more than seven twenty five.

Now typically, what we look out or what we call out are those set of prime customers within the affordable category, where the number of loans, at least at the time of boarding, is relatively less. So what we’re trying to do is trying to filter out over leveraged customers. It has an impact on our volumes. So you see our volumes down by almost 6% But I guess that’s the right thing for us to do. And even after we put out those filters, overall growth projections do not change.

We are disbursing close to around INR 800 crores in a quarter. That’s if we were to just stay where we are, that INR 3,200 crores in a year, that will still be 20% than the previous year. So I think we’re pretty much comfortable where we are despite tightening our underwriting filters for prime customers in the affordable space.

Nidesh, Analyst, Investec: Sure. So so we are under we have tightened the underwriting filters last year. We have further tightened them in this quarter? Or

Executive, SBFC Finance Limited: Yeah. We further tightened them in this quarter.

Narayan, CFO, SBFC Finance Limited: There’s a continuous process because the way we update some triggers last quarter also, we had tightened some of the norms, and even this quarter, we have tightened some norms. So this is a continuous process. And, of course, what are the learnings we get from the portfolio, we just try to plug it.

Nidesh, Analyst, Investec: Sure. And last question is on from a medium term perspective, do you have plans to add more products apart from SME and gold loans?

Executive, SBFC Finance Limited: No. I think within the ticket sizes, you have you know, that’s a pretty long range. Right? So, you know, when we say that we anything between five and 30, so a 30 customer or somewhere about gives you a yield which is slightly lower. As you keep nearing between 8 and 10 lakh, the yields are a lot different.

So these are different segments, different products within which what we play, and it’s a combination of geographies. I think there’s enough and more for us to do in the distribution that we’ve laid and the pipe that we’ve laid across these fifteen, sixteen states. So I don’t think from a medium term, we will add any more products. But yes, our investment in the distribution will continue to be there because we still feel that a lot of states are underserved, and our distribution in some of the geographies are yet to sweat in.

Nidesh, Analyst, Investec: That’s it from my side. Thank you.

Conference Moderator: Thank you. The next question is from the line of Prithvi Raj Patil from Investec. Please go ahead.

Nidesh, Analyst, Investec: Yeah. So thanks for the opportunity. Just one question on the the MicroLab portfolio that you mentioned that we stopped doing under 7 lakhs. I just wanted to know

Ranish, ICICI Securities Representative, ICICI Securities: how do we look at

Nidesh, Analyst, Investec: the write backs or recoveries from the small ticket portfolio? What is the tenure when we can expect the write back? Or is it

Ranish, ICICI Securities Representative, ICICI Securities: just a write off that we see?

Executive, SBFC Finance Limited: No. So I think it’s going to be a little unfair to say that your LGT on that is almost 100%. That doesn’t work that way. It goes through its process, but yes, the time that it takes for the small ticket portfolio, which is sub 7 lakhs, is fairly longer. I would probably just give you some sense that if I am doing something under SRCASI at a scale of one, then probably if it’s a smaller ticket, which is sub 7, sub 6 lakhs, then the timeline is almost twice of what probably you would have on a subsidy side.

But yes, there is time value of money that you would probably consider. And that’s the enhanced credit cost that comes along with it, but that also gets compensated with a higher yield. Having said that, our percentage portfolio on the overall book that we have is fairly small. So we really aren’t too concerned as to what is the amount of, you know, credit cost that’s gonna come from that portfolio.

Narayan, CFO, SBFC Finance Limited: Just to add the covers in these this segment particularly, so our LTVs would be sub 50. So that also helps us down the line.

Nidesh, Analyst, Investec: Okay. Thank you. And just one more question. What are the number of branches through which we’re doing gold loans,

Abhishek Galati, Investor, Galati Wealth: and how do we plan to scale it in the future?

Executive, SBFC Finance Limited: So we are currently closer to 185 odd branches out of two twenty branches where we offer gold. Incrementally, you would see, you know, branches more number of branches coming in for gold. My sense is that in the next two quarters, we should add close to around 15 branches for gold.

Ranish, ICICI Securities Representative, ICICI Securities: Thank you. Thank you.

Conference Moderator: Thank you. The next question is from the line of Prakhar Goyal from Anivit Securities. Please go ahead.

Nidesh, Analyst, Investec: Hi, everyone. Thanks for taking my questions. I have three questions. First is to Assim. Assim, we saw in the disclosures that your personal holdings came down meaningfully over the last quarter.

Could you please share some context, was it mainly a personal diversification or a liquidity decision? And should we expect any further such transactions?

Asim Singh, Managing Director and CEO, SBFC Finance Limited: No, it is since the eight years, all the money that I’ve ever made is in this stock. And the purpose of Bob of Sale is to create liquidity for myself.

Nidesh, Analyst, Investec: Got it. Got it. Fair, fair. Second, on asset quality, while GNPA has stabilized on a Q on Q basis, the one plus DPD bucket has been inching up for about ten, eleven quarters. What level of one plus do you consider healthy for this kind of portfolio mix?

Asim Singh, Managing Director and CEO, SBFC Finance Limited: There is no absolute level, Bin. I mean, so as I said in my opening commentary that this is a level that we are concerned with and watching it. The velocity of the fall has come down, but it is still not stemmed out completely. So we are hopeful that we should see improvement in that. But clearly, it’s not a level that is something that we are comfortable with or we have to manage it, handle it and bring it down.

So there are certain specific things that have added to it. Some we couldn’t control the Kannada portfolio that I mentioned. And then some which we think we can control to better credit buying, which we will do, which is something that we’ve doing every quarter. We will keep tightening the credit screens until we get to a more comfortable position.

Nidesh, Analyst, Investec: Understood. Just one last question on excellent improvement on costincome ratio.

Abhishek Galati, Investor, Galati Wealth: We are

Nidesh, Analyst, Investec: growing revenues and profits at about 30%, but employee count seems to be up only about 10% Y o Y. Is there any timing or lag effect here? Or should we read this as a structural operating leverage coming through?

Executive, SBFC Finance Limited: So I think what we’ve been doing is there has been a distribution that’s been laid. There’s been an investment in employees that we’ve been doing. And what we’ve always called out that we will not be in a hurry to add branches unless and until my existing set of distribution starts to sweat. Just to probably take my point further is, if you look at probably Slide 15 or Slide 16, where we give a split of our distribution, you’ll see that now over a period of time, almost 60% of our branches are more than three years with an average AUM of more than INR 60 crores, 65 odd crores. And just to give you a sense that the moment the branches are more than INR 40 odd crores, they cross an ROE of close to around 15% and beyond.

You have a set of branches close to a lot almost 25 odd percent of the branches, which are between one to three years, where we feel that there’s still a lot of work to be done, and that’s more like 25 crores per branch. But that’s also a significant ROE of close to ten, eleven odd percent. And then you have the balance 15%, which are less than twelve months. So I think the whole idea is that there is a period where we feel that we’d like to consolidate and see that how are the branches performing, how are we sweating this distribution, is the cost really making it up. Because one thing what we started, which was contrary to our segment, is that we started with an extremely high OpEx.

And while we had promised that over a period of time, it’s going to keep coming off, But we were conscious that the unit economics at a branch level clearly needs to deliver, and that’s how it needs to sum up. Now I think with every passing quarter, as the distribution is beginning to spread as the numbers keep on growing, there’s more confidence for us that this model is working. The unit economics at the branch level is beginning to throw up the required income that was projected and gives us a confidence to invest further in our franchise. And that’s how in the opening commentary, we mentioned that our OpEx, what we have guided that we will try and bring it down every year is something that we’re living up to.

Nidesh, Analyst, Investec: Got it. Got it. Thanks. That is from my side.

Conference Moderator: Thank you. The next question is from the line of Harshita Toshneval from Preme J Investments. Please go ahead.

Harshita Toshneval, Investor, Preme J Investments: Hi, sir. Congratulations for a great set again. I hope I’m audible.

Ranish, ICICI Securities Representative, ICICI Securities: Yeah. Yeah.

Harshita Toshneval, Investor, Preme J Investments: Sir, two questions. One is that if I look at our employee base, if you can also help us that, how much would that be for gold loan business amongst them? That is one question. And second was on the operating leverage piece that so the operating leverage improvement which we have seen, how much also would you want to ascribe towards gold loan being there in now more branches and the efficiency which is coming up with the with the with the in general, the price increase and the AUM increase. So that was one, and probably just one at Stuart and the continuation of the last question that the branch addition target, which we should look at from here on to achieve that five to 7% q o q growth.

I had one more question if time permits. But

Executive, SBFC Finance Limited: Yeah. I I think one of the probably the dumbest thing that probably we’d like to follow is that keep increasing the number of people and the number of branches to chase growth. I think the idea is that there has to be some bit of efficiency that needs to come in for us to deliver a superior you know, at least at a people level, it has to be a lot better. So if my AUM is growing or my income is growing at the next level, my PPOP should probably be better of that, and that’s where the operating efficiencies come in. Having said that, I think what we’ve guided is that we would probably add 20 or 25 branches in a year.

That’s something that we are comfortable with. In select states where we seem to be getting our businesses right at the right deals and at the right cost. Coming to answer your question on gold, we have close to around 185 odd branches. There are close to around eight to 10 people in a branch that comes in. So roughly around 15 to 1,600 odd employees, including the front end and the back end would be on the gold side.

Harshita Toshneval, Investor, Preme J Investments: Understood, sir. And one more thing, if I can ask, probably this might have been answered in previous calls, but just at the pardoning the naivety, but that when we look at the disbursement growth, we saw four quarters of probably a mathematical slowdown, but I think there was some change in the way the recognition happened. And last two quarters, since the base is again normalized, so we are seeing a better growth. So is it when we look at the 20% Y o Y growth, is there anything in the accounting that is that does not make it like to like? If you can just help clear this basic question.

Executive, SBFC Finance Limited: No. No. I think what you’re referring is to the disburses for last year where

Ranish, ICICI Securities Representative, ICICI Securities: you were

Executive, SBFC Finance Limited: in the range of $6.75 to, you know, 700. There was a dip in the last quarter last year, quarter, which is June 24, where there was a circular which mentioned that you would disperse based on the actual receipt in the customer’s account. So there was one reset which happened, subsequent numbers started to inch up over a period. That was also unfortunately a period where we said that we are beginning to see early signs of stress coming in for a smaller segment. And that’s the reason you didn’t really see a big bump up coming up in the subsequent quarter.

So you would probably, at best, see a bit of a straight line that came in. And there was some bit of an uptick, which probably happened between quarter three and quarter four. And then you saw a tick in quarter one, and that’s what we intend to do. What we mentioned earlier, I don’t think we’re in

Ranish, ICICI Securities Representative, ICICI Securities: a

Executive, SBFC Finance Limited: hurry for really capturing capturing a high market share in a segment where probably we’ll spend a lot of time trying to get our money back. I think the whole idea was that at a current run rate of this bursal, we need to be very comfortable that we don’t really break any operating risk or a credit risk or a human capital risk. As long as we’re adhering to all three at a comfortable pace, we should we should be okay. But just to answer your question, there’s nothing that has changed in the way we were accounting. Everything is like to like compared to last year versus this year.

Also, to give you further comfort, I think our distribution, what we have is good enough to generate anything closer to 300 crores a month. That’s almost 900 odd crores. I think it’s by design that we’ve decided to walk away from some parts of geography where we aren’t originating or some category of customers that we are not comfortable onboarding.

Ranish, ICICI Securities Representative, ICICI Securities: Okay. Okay. Sir,

Harshita Toshneval, Investor, Preme J Investments: one thing, and this is not related to the numbers, but in general, as an industry, do you think that this are facing advantage, is there for HFC? Do you do envisage a situation that that can come for NBFCs? Or should we look at that being a very big advantage in terms of

Abhishek Galati, Investor, Galati Wealth: the way we operate?

Harshita Toshneval, Investor, Preme J Investments: I think currently, it’s 20 lakh loan value above which we’ll be able to get. But do you do you think that this is one aspect where government or the regulator is also looking?

Asim Singh, Managing Director and CEO, SBFC Finance Limited: I can’t comment on what the regulator is doing, but I can certainly say that it is a level playing field that NBFCs deserve to be on. And, there is a regulatory arbitrage against the NBFC, and, I hope that it gets recognized and removed.

Harshita Toshneval, Investor, Preme J Investments: Understood. It will be a meaningful difference, relative that regulatory arbitrage is actually a reasonable arbitrage.

Asim Singh, Managing Director and CEO, SBFC Finance Limited: Yes. Yes. It’s a very meaningful one. The time frame of resolution can be more than three to three and a

Ranish, ICICI Securities Representative, ICICI Securities: half x of the basic.

Harshita Toshneval, Investor, Preme J Investments: Got it. Got it. Perfect. Thanks a lot, sir. All the best.

Conference Moderator: Thank you. The next question is from the line of Mayank Mistry from JM Financial. Please go ahead.

Mayank Mistry, Analyst, JM Financial: Hi, sir. Thanks for the opportunity. So my question is mainly on the MSME. So largely, it has remained stable during this quarter given that you have tightened your underwriting a little, so which has led to a a little lower growth in dispersal. But when I make in, you know, only if I make in three to 4% growth in sequential growth in this dispersal, I am I have been able to, you know, gain 5.5% sequential growth for next two quarters.

So I’m just trying to decode. I mean, will the run rate move up from here, or will be tightened dispersal, will the run rate remain stable over next, you know, over the near term?

Executive, SBFC Finance Limited: I think, bursal outlook is gonna be a function about how the zero plus is behaving and how are the credit parameters behaving. I think, as I mentioned earlier, we have a capacity, whether it’s numb in terms of number of people or number of branches, to really ramp it up. But I don’t think we are yet in a position to go ahead and do that. As I mentioned earlier, that we’ve already gone ahead and tightened the filters. All I can tell you is that that’s almost a 10% drop from our run rate.

So if we’re actually disbursing 800, all I can tell you that we’re leaving almost 10 on the table if we were to filter out all the underwriting norms that we’ve left behind. So I don’t think we are chasing growth at the cost of credit or at the cost of an operating risk that may come along with it. So if that means that probably, we will flat marginally probably come off in terms of our ME growth, but our guidance on the 5% to 7% or a 25% to 30% will still continue to hold up.

Mayank Mistry, Analyst, JM Financial: Yeah. Hello. Sorry. How much has it impacted our rejection rates then in last quarter?

Executive, SBFC Finance Limited: So, earlier, our rejections in fact, let me swing it the other way. I think our approval rates earlier used to be in the range of 45 to 50 odd percent. That’s in stuff that’s probably gone down to below 40 odd percent.

Narayan, CFO, SBFC Finance Limited: And this is in spite of the fact that the login filter itself is

Executive, SBFC Finance Limited: Right.

Narayan, CFO, SBFC Finance Limited: Right. So it is plus plus because Okay. We don’t allow logins beyond the cutoff.

Mayank Mistry, Analyst, JM Financial: Okay. Okay, sir. Thanks. Thanks a lot, and all the best. Thank

Conference Moderator: you. The next question is from the line of Abhishek Dilati from Abhishek Wealth. Please go ahead.

Abhishek Galati, Investor, Galati Wealth: Yeah. Hi, sir. So actually, my question is how much leverage we are planning to go? Like, currently, as I can see, we have three x leverage. So what is our leverage target for at least two or three years down the line that we are targeting?

Narayan, CFO, SBFC Finance Limited: So our debt to equity is sub two, while asset to equity is three, but debt to equity is sub two. You know, we from a from a banking covenant point of view, we we are committed to go to debt equity of five. But what we believe is anywhere between three and four is somewhere we will go to the market and start raising equity capital. So as of now, we are sub two, at least we’d like to reach to three and then revisit this.

Abhishek Galati, Investor, Galati Wealth: Understood. And eventually, the ROE target that we are targeting?

Asim Singh, Managing Director and CEO, SBFC Finance Limited: Yeah. We are we are we’ll let it come as an outcome. You’re not targeting any ROE. You know, we had guided a 15%, you know, ROE three. You know, let us first build to that, you know, then we will talk of plans ahead.

At the moment, the guidance continues to be 15%.

Abhishek Galati, Investor, Galati Wealth: Alright. One more thing in terms of during the tough time also, we are able to manage to grow, like, around 6% quarter on quarter and 30% year on year. So during these times, the companies that used to guide that the same growth are, like, also not able to do the same. So what we are doing differently, just want to try to understand what we are doing differently that we are able to deliver in the tough environment as well.

Asim Singh, Managing Director and CEO, SBFC Finance Limited: Well, nothing nothing nothing different. We are we are trying to do the same boring thing, you know, and and improve at it. We are making our mistakes, correcting, learning. And we are at it and it is I mean, nothing is for sure. But we are trying our best.

God has been kind. Have the best team in the business. They are sometimes surprising us also with what they are able to do that as we keep cutting and keep increasing our credit screens, they are still managing to get in more and do the numbers. You know? So I I would I would give the full credit to the team both business and credit, you know, which is making it happen.

Abhishek Galati, Investor, Galati Wealth: Understood. No. Great work. Thanks to the entire team.

Conference Moderator: Thank you. The next question is from the line of Prithviraj Patil from Investec. Please go ahead.

Nidesh, Analyst, Investec: Yeah. Sorry for coming back in the queue. Just I just wanted to know how do we think of the borrowing. So what percentage of the borrowing is fixed rate borrowings, and what percentage of our advances fixed rate? And then how much of the repo benefit have we seen on the borrowing side?

Narayan, CFO, SBFC Finance Limited: Okay. So we have matched the asset and liability pretty well. On the asset side first, the entire secured MSME portfolio is on a floating rate. Gold interest, gold business is a very short tenure business, ranging from six to twelve months, and there’s a fixed interest rate. But since the tenure is small, it hardly doesn’t matter.

From a liability side, we tend to keep everything floating just to match the asset side well. So virtually, almost about 90% of the loan will be on the floating side. To your other question on to how much has been passed on into the so 100 basis point repo reduction has led to almost about 80 basis point reduction on MCLR by private sector bank, and public sector bank is there to follow. There has been a very minor reduction there. So to that extent, the flow is still happening.

The transmission is still happening. We have baked in and captured certain reduction in the repo already in the financial, and we believe that we will capture certain more part of the reduction as we go along to future.

Ranish, ICICI Securities Representative, ICICI Securities: Okay. Thank you.

Conference Moderator: Thank you. Ladies and gentlemen, anyone who wishes to ask a question may press star and one on the touch tone telephone. The next question is from the line of Manav Shah, an individual investor. Please go ahead.

Abhishek Galati, Investor, Galati Wealth: Sir, continuing on the previous participant question. Sir, regarding the spreads and the margin, so what will be your outlook so it can improve from here on as well?

Asim Singh, Managing Director and CEO, SBFC Finance Limited: No. You know, we we we are already above our guided range, Ben, and and do not anticipate any any further increases from here.

Ranish, ICICI Securities Representative, ICICI Securities: So it will be stable around this level, right, around 9% of spreads for FY ’26? Yes. Okay, sir. Thank you.

Conference Moderator: Thank you. The next question is from the line of Akashya from Five Star. Please go ahead.

Narayan, CFO, SBFC Finance Limited: Hi, sir. Congratulations for a

Abhishek Galati, Investor, Galati Wealth: great set of number. So I wanted to understand the Karnataka issue. I mean, several unsecured lenders have mentioned that conditions are improving for them on the ground. So what are our expectations going forward?

Executive, SBFC Finance Limited: No, I can’t comment on the unsecured lenders as such. All I can tell you is that what are we seeing on the ground with respect to the secured on the smaller tickets. If I were to actually flesh it out further, I would say that the smaller tickets aren’t showing sign of improvement as yet. Yes, there is some bit of improvement and stabilization on the slightly larger tickets, but that’s what it is. And what we had mentioned, the positive is that it’s not worsening, but we are yet to see that a lot of customers who had flown actually get back to current.

So we’re able to we’re able to stabilize them, but we’re not able to get them back to current. And that’s the reason we said that we will be cautious in those markets.

Abhishek Galati, Investor, Galati Wealth: Okay. And what is the total exposure, sir, in Karnataka?

Executive, SBFC Finance Limited: Around 12 odd percent.

Nidesh, Analyst, Investec: 12 odd percent.

Abhishek Galati, Investor, Galati Wealth: Okay. And one last question, sir. I mean, is there further scope for the gold loan mix from current levels in our total AUM?

Executive, SBFC Finance Limited: It would move up a percentage here or there.

Ranish, ICICI Securities Representative, ICICI Securities: Okay. Okay, sir. Thank you.

Conference Moderator: Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Narayan, CFO, SBFC Finance Limited: Yeah. Thank you for joining the call. If there are any further questions, please do reach out to me. Thank you.

Conference Moderator: Thank you very much, sir. On behalf of SBST Finance Limited, that concludes this conference. Thank you for joining us, and you may

Narayan, CFO, SBFC Finance Limited: now

Conference Moderator: disconnect your lines.

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