SRG Housing Finance Q2 FY26 earnings call

What moved the numbers, as management explained it

• Loan book growth: 33.21% YoY to INR867 cr from INR651 cr; AUM per branch ~INR9.3 cr currently vs target INR20-25 cr.
• Q2 disbursement at INR117 cr vs INR63 cr (+85% YoY) drove AUM growth; Q3-Q4 guided at INR150 cr each.
• NHB-mandated 70-30 housing-to-LAP mix shift compressed yields; yield to settle around 9-9.5% from earlier ~11%.
• Borrowing cost declined to 10.99% from 11.03% YoY; INR50 cr mutual fund NCD raised in Q2.
• Income up 32% to INR48 cr; PAT up 25% to INR8 cr with net worth up 38% to INR279 cr post fundraise.

The numbers management led with

• Outstanding borrowings: INR685 cr (vs INR542 cr in prior quarter)
• NCD issuance (Q2 FY26): INR50 cr NCD issued; INR50 cr subscribed by mutual fund (first such subscription)
• AUM per branch (target): INR20-25 cr per branch at maturity (vs INR8-9 cr currently)
• Rating outlook: Upgraded from BBB+ stable to BBB+ positive

Guidance on this call

What changed since the Mon 5 May 2025 call

By business

Balance sheet, capex and funding

• Borrowings; Total borrowings INR685 cr (banks 45%, NHB 4%, NCD 7%, financial institutions 44%); INR50 cr NCD issued in Q2, INR26 cr in current quarter.
• Liquidity; Liquid fund INR132 cr with INR70 cr undrawn sanctions.
• Capital adequacy; CRAR 42.68%; net worth INR279 cr (+38% YoY); no further fundraise needed till AUM INR1,500-2,000 cr.
• Asset quality; GNPA 1.88% (vs 1.96% YoY), NNPA 0.64% (vs 0.59%); 1+ DPD 12%, 30+ DPD 7.32%.
• Credit cost; Credit cost 1.66% in Q2 FY26 vs 1.81% in Q2 FY25.
• Branch expansion; Branches at 93, target 100 by year-end; no further expansion for 2-3 years.

The industry, as management sees it

Management views the NBFC/HFC sector as structurally large given only 3-4% of Indians file regular income tax returns and the remaining 96% need credit access. The NHB-mandated 70:30 HL-LAP mix is compressing sector yields, and any stress in adjacent verticals (microfinance, unsecured) keeps bank lending rates elevated across the industry. Long-term sustainable growth in housing finance is the call.

Risks management named

• NHB-mandated reduction in LAP portion is compressing overall yields
• Industry-wide microfinance stress could keep bank lending rates elevated
• Early-bucket DPD uptick (0-30 DPD at 4.65% vs 4.10% prior quarter)
• Reliance on multiple-state presence to win rating agency confidence

Not answered directly

• Cost-to-income reaching 55-60%
• Exact AUM target date to reach INR1,500 cr (later clarified to 2028)
• Reason for early-bucket DPD increase — called it normal noise

Asked for a number, answered without one

• GNPA/NNPA target by year-end: Said rural sector sees only 1% up-and-down movement; expects around current level, no specific number given.
• Cost-to-income below 60%: Said cost-to-income will fall by 2-5% over 2-3 quarters but did not commit to a specific level.
• A- rating timeline and criteria: Said A- rating tied to AUM crossing INR1,000 cr; no specific timeline beyond that threshold given.

Every question, with its answer

1. 1. Cost-to-income and NIM outlook

   Moderator (Kaptify Consulting), Kaptify Consulting

   Question. Cost-to-income ratio has been elevated and profit was stuck below a threshold; this quarter profit crossed INR8 cr. What is the vision and growth strategy, and how will NIMs and cost-to-income ratio play out over the next 2-3 quarters?

   Answer, Vinod Kumar Jain, Managing Director. The company was in an expansion phase for the past 2 years, so expenses were high. As the business grows, the cost-to-income ratio is starting to decrease. Senior manpower has been settled. Costing will not grow and will decrease day by day. By reducing cost-to-income by 2-3%, we can reach around 62%. PBT is around 22% and NIM is around 9% — tightness from NHB regulations has kept NIM slightly lower than otherwise.

   Partly answered.

2. 2. Future equity dilution

   Ankit Kanodia, Unknown

   Question. The company recently did a fundraise. Over the next 2-3 years, do you think you will need any other fundraise given the growth ambitions?

   Answer, Vinod Kumar Jain, Managing Director. In a finance company, as the loan book and AUM increase, leverage ratios matter. NHB allows leverage up to 12x but banks don't lend above 5x; at 3-4x leverage we would need equity. With current equity levels, no further fundraise is needed until AUM reaches INR1,500-2,000 cr. We will raise only when needed.

   Follow-up. Sometimes when you need funds the market is bad and prices are low. Will you time the raise in advance when the share price is good, or wait until needed?

   Answer. Diluting equity before it is needed makes it difficult to run the company. Our focus is not on share market rates — when the company needs funds we will raise them. The share market will be there as long as the company is there.

3. 3. Regulatory environment and NBFC outlook

   Ankit Kanodia, Unknown

   Question. From a regulatory perspective, there is a general sense that the regulator is encouraging NBFCs. Do you agree, and will the NBFC market be big enough to absorb many more players entering?

   Answer, Vinod Kumar Jain, Managing Director. In India, only 3-4% of people file regular income tax returns — for them there are big banks. The remaining 96% still need access, so even 2-5% more penetration would need many finance companies and banks. The NBFC vertical will keep running as long as the country runs.

   Follow-up. What is the biggest risk for the company in the next 1.5-2 years that you are preparing for?

   Answer. Discipline. In finance you should run with discipline and not take shortcuts. Housing finance takes long-term money — we do not take short-term money or do bullet payments. If we run with discipline we will run for a long time.

4. 4. Balance transfer dynamics

   Ankit Kanodia, Unknown

   Question. What is the status of balance transfers for the company and how do you see them in the next 1-2 years?

   Answer, Vinod Kumar Jain, Managing Director. Balance transfer is a practice we consider wrong but it is the best practice of the industry. Where a customer gets less rate they will do a balance transfer. If we do 10-12% balance transfer, then 20% comes to us from other companies. This will continue. New clients will come and go — it is a process.

5. 5. Disbursement and AUM guidance

   Rohitash Arora, Unknown

   Question. This quarter disbursement was INR116 cr. What is the guidance for Q3 and Q4 disbursements, and by when can we reach the INR1,500 cr AUM?

   Answer, Vinod Kumar Jain, Managing Director. Disbursement target is INR150 cr each in Q3 and Q4. INR1,500 cr AUM can be reached by 2028 — not three years, but one to two years from now.

   Follow-up. Will the loan mix between housing loan and LAP be maintained?

   Answer. Yes, as per NHB guidelines — 70:30 housing-loan-to-LAP. The balance sheet is 60% housing and the rest is 70:30 mix.

6. 6. AUM per branch and branch expansion

   Suyash Bhave, Unknown

   Question. With 93 branches and AUM per branch between INR8-9 cr for many quarters, what is the peak AUM per branch assuming we have all the funding?

   Answer, Vinod Kumar Jain, Managing Director. The target is to make AUM around INR25 cr per branch since each branch covers 50-60 km. Branch count will not increase for 2-3 years except for 5-7 more in existing states. With INR20-25 cr per branch average, the book will be around INR2,000-2,500 cr.

   Follow-up. When will cost-to-income go below 60% or around 55%? Any guidance?

   Answer. If expansion stops, costing will gradually go down. We cannot commit because as the book increases, manpower cost and expenses also increase. It will fall around 2-5% and take 2-3 quarters.

   Not answered directly.

7. 7. New geographic expansion

   Harshil Bhayani, Unknown

   Question. On the new expansion in Maharashtra, Karnataka and Andhra Pradesh, what kind of environment are you seeing — competitive, credit-wise — and how does it differ from core Rajasthan? What are the positives and negatives?

   Answer, Vinod Kumar Jain, Managing Director. Karnataka has better development; property quality is good, more educated customers, more decisions and fewer discussions. In the last 6 months we built a book of INR34 cr in Maharashtra, INR20 cr in Andhra Pradesh and INR18 cr in Karnataka. Ticket sizes are higher — average INR20-25 lakhs. All three states gave good results.

   Follow-up. What is the competition there, and do you have to compromise on lending rate for growth?

   Answer. Earlier we had higher LAP percentage; now we focus on housing loans at 16-18%. The rate has fallen a bit but you have to move with the times.

8. 8. Branch breakeven and DPD

   Harshil Bhayani, Unknown

   Question. What is the breakeven for branches in these 3 states, and how are the initial DPDs in Karnataka and AP and overall?

   Answer, Vinod Kumar Jain, Managing Director. DPDs are not that high in new states — only 5-10 cases. Overall 1+ DPD is around 12% and 30+ DPD is 7.32%.

   Follow-up. What insights are you getting from the digital platform Srajan — what percentage of new enquiries comes from the app?

   Answer. We work 100% on the digital platform. Agreements and all processes run digitally. Signups and all come through the platform. Digital is beneficial and work is fast.

   Partly answered.

9. 9. Yield guidance

   Harshil Bhayani, Unknown

   Question. Yield has come down to 9.7% from 11% earlier. Is that because of the 70:30 HL-LAP guideline? How are you looking at yield going forward — single digit or double digit?

   Answer, Vinod Kumar Jain, Managing Director. Yes, the mix change is the reason. Housing loan rate is lower than LAP rate; reducing the LAP portion brings the rate difference. Branch AUM will increase, portfolio will increase, so even at lower rate profit will be good and costing will be less. The combination of repo rate benefit, costing benefit and rating upgrade runs together. Yield will be around 9 to 9.5% — currently 9.67% and expected around 9.5%.

10. 10. Microfinance overlap and underwriting changes

    Kaushal Mehta, Unknown

    Question. You work more in the rural sector — how much overlap do you have with the microfinance sector, and what changes have you made to credit underwriting models?

    Answer, Vinod Kumar Jain, Managing Director. Microfinance is completely different — it is unsecured while we do secured housing loans. When we do loans we look at CIBIL and everything. If a person takes microfinance separately, we cannot stop it. On underwriting, the process is the same as before but we have made it auto-mode using geotagging and video calls for faster decisions. Rajasthan is good and there is no problem there.

    Partly answered.

11. 11. Sector outlook and H2 guidance

    Aditya A, Unknown

    Question. Larger affordable housing companies reported lower disbursement growth and higher DPDs this quarter. Do you think there is a slowdown in the sector and what is your H2 outlook for AUM growth and asset quality? Can we expect improvement in GNPA and NNPA by year end?

    Answer, Vinod Kumar Jain, Managing Director. Affordable housing loans given are not bad — growth has been up and down for the last 3-4 years and it could come back. For asset quality, we don't do loans far from the city because the customer may not live there and default. We follow 50% LTV, so 50% of the customer's own money is required. There is no stress in the market. We can expect improvement in GNPA and NNPA by year end.

    Partly answered.

12. 12. Rating upgrade path and benefits

    Vishal Mehta, Unknown

    Question. At BBB+ positive with cost of funding close to 11%, how much time will it take to reach category A, and what criteria do rating agencies look at? Would terms improve materially after an A rating?

    Answer, Vinod Kumar Jain, Managing Director. As soon as AUM exceeds INR1,000 cr we will go to category A rating. Rating agencies also look at the financial industry — when there is stress anywhere (microfinance, unsecured, etc.) banks don't reduce their rates. After the mutual fund came in, NCDs started coming and housing finance tenure of 5+ years is now available. After A rating, the bank's risk weight on us will come down from 150% to 75% or 50%, which means we will get loans more easily and at better rates.

13. 13. Borrowing cost post fundraise

    Moderator (chat - Anand Mundra), Unknown

    Question. Why has our borrowing cost not reduced after the fund raise?

    Answer, Vinod Kumar Jain, Managing Director. Fund raise and borrowing cost are two different things. After a fund raise you still have to borrow, and banks give at their own rate. Bank rate is not reduced by leverage — if the business is more, it does not reduce.

14. 14. State-wise AUM mix

    Moderator (chat - Kartik Srinivas), Unknown

    Question. What is the share of Rajasthan and how will it change 3 years down the line? Which states are we focusing on now?

    Answer, Vinod Kumar Jain, Managing Director. Earlier we did 60-70% business in Rajasthan. As we started other states the share has come down — 44% in March, 42% in Q1 and now 40% this quarter. Karnataka is the new focus state.

15. 15. FY26 targets

    Moderator (chat - Arvind Kumar), Unknown

    Question. What are the AUM and disbursement targets for FY26?

    Answer, Vinod Kumar Jain, Managing Director. AUM target for FY26 is INR970 cr and disbursement is INR400 cr.

16. 16. DPD bucket analysis

    Harshil Bhayani, Unknown

    Question. Confirming — you said 1+ DPD is 12%? Last year same quarter 0-30 DPD was 3.26% and 30+ was 3.5%. What is the reason for this increase? Is there any stress in the books?

    Answer, Vinod Kumar Jain, Managing Director. If you subtract the buckets: 0-30 DPD is 4.65%, 30-60 DPD is 3.48%, 60-90 DPD is 1.96%, and the total average (90+) is 1.88%. It is normal — 0.5% up and down keeps happening. The total is 12% for 1+ DPD.

17. 17. Branch strategy in Rajasthan

    Moderator (chat - Ravi Rohit), Unknown

    Question. Why do we not have a larger number of branches in Rajasthan itself, given we are from Rajasthan?

    Answer, Vinod Kumar Jain, Managing Director. If we come to A rating then we will start branches there. Rating companies expect multiple state presence, which is why we expanded. When we move from BBB to A, we will focus on Rajasthan and other places.

18. 18. DPD trend and AUM guidance revision

    Aditya A, Unknown

    Question. What is the trend of 0-30 DPD and 30-60 DPD — how was it last quarter and how is it this quarter? What GNPA and NNPA level can we expect by year end? And earlier AUM guidance was around INR1,000 cr by year end — has it been reduced?

    Answer, Vinod Kumar Jain, Managing Director. Last quarter 0-30 DPD was 4.10%, now 4.65%; 30-60 DPD was 3.75% now 3.48%; 60-90 DPD was 1.79% now 1.96%. In the rural sector we have never seen a big difference — 1% up and down — so we won't expect it to go down significantly, it will be around current levels. The AUM guidance change is because of the NHB reduction in LAP portion. Housing loan disbursements are not 100% upfront — if I do INR50 cr business, only INR15-20 cr is actually disbursed.

    Partly answered.

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