India Shelter Finance Corporation Limited (INDIASHLTR) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the India Shelter Q1 FY '26 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this call is being recorded. With this, I now hand the conference over to Mr. Chintan Shah from ICICI Securities. Thank you, and over to you, sir.

Yes. Thank you, Samya. Good morning, everyone, and welcome to the Q1 FY '26 Results Conference Call for India Shelter Finance Corporation. So first of all, I would like to thank the company for giving us the opportunity to host this call and congratulate them on a good set of numbers. From the management, we have Mr. Rupinder Singh, MD and CEO; Mr. Ashish Gupta, CFO; and Mr. Rahul Rajagopalan, Head, Investor Relations. So without further ado, I would now like to hand over the call to Rupinder, sir, for opening remarks, followed by Q&A. Thank you, and over to you, sir.

Thank you, Chintan. Good morning, everyone. On behalf of the company, I extend a warm welcome to all of you. Thank you for joining us for the call today. Before we delve into the highlights of the quarter, I would like to share an overview of the current macroeconomic scenario and the sectoral outlook as we are witnessing. In the recent months, several consumer demand indicators have demonstrated some softness. In the first quarter of financial '26, we observed a slowdown in UPI transaction volumes, a contraction in passenger vehicle sales and decreasing two-wheeler registrations. In urban areas, wage growth has been subdued and continues to lag behind other sentiments. So contributing to slower-than-expected recovery in urban demand. Despite these headwinds, inflationary pressure has continued to ease, notably headline CPI inflation, which is a 6-year low of 2.1% in June 2025, providing a stable backdrop for consumer and business alike. Rural India has shown remarkable resilience. The success of the Rabi harvest and timely widespread monsoon rains have resulted in strong rural cash flows and optimist sentiment. These factors have already led to a noticeable uptake in the rural consumption with FMCG volumes in rural market also beginning to rise. Meanwhile, capital expenditure has gained momentum in sectors such as steel and cement, reflecting the increased capital expenditure initiatives by both state and central governments. This uptick in infrastructure spending is expected to create favorable conditions for broad-based consumption growth moving forward. The Reserve Bank of India has also played an instrumental role, reducing policy rates and implementing a suite of liquidity measures in the previous quarter. These actions have resulted in a surplus liquidity within the financial system, ensuring faster and more efficient transmission of monetary policy to credit markets. So as we look ahead, there are many reasons to remain optimistic, like demand is showing signs of strengthening, policy is being prudent and supportive and the potential for [ cash ] growth in our economy is obviously immense. Together these elements create a story, our story of a nation poised for sustained progress, steady renewal and a shared prosperity. While we have undoubtedly faced a few hiccups along the way, the challenges we discussed only make our recent progress more meaningful and affirm that the future looks brighter from here. Moving to the sector update, affordable housing in India continues to gain momentum, supported by urbanization, rising incomes, government programs like Pradhan Mantri Awas Yojana. One of ICRA estimates, the affordable housing finance loan portfolio stood at INR 1.4 lakh crores as of March 2025. And the affordable housing companies' loan portfolio is expected to reach INR 2.5 lakh crores by financial year '28, growing at a CAGR of 20%, 22%. On that note, let me move towards the quarterly update. We are pleased to announce that company delivered strong operational performance in the first quarter of financial '26, driven by a strong demand environment in affordable housing segment. We delivered AUM growth of 34% year-on-year, reaching an AUM of INR 8,712 crores. In quarter 1 financial '26, we disbursed INR 878 crores -- INR 887 crores, registering a growth of 24% year-on-year. In quarter 1 financial '26, we added 24 new branches as per the branch expansion strategy. With this, geographic presence stood at 290 branches as of 30th June 2025. On profitability metrics, PAT for the quarter came in at INR 119 crores, registering a growth of 43% year-on-year and 10% quarter-on-quarter. Return on equity further improved to 17.2%. This time, ROE crossed 17% for the first time post listing. And our net worth now stands at INR 2,836 crores. We continue to maintain our guidance of branch addition of around 40 to 45 for the year, maintaining spread of more than 6% in the medium term, credit cost of around 40 to 50 bps, loan growth of around 30%, 35%. Before I hand over the call to our CFO, let me also highlight a few of the recent tech initiatives that we have undertaken to further enhance our tech capabilities. Technology is significantly transforming operations by automating key processes, improving risk assessment, enabling faster and better spread decisions and eventually enhancing customer experiences. A few of the initiatives that we implemented are like Aadhar-based instant e-KYC level, enabling faster onboarding, promoting paperless process, enhancing security and fraud preventions at the same time providing a cost-effective and scalable process. Machine learning-based credit origination score card to analyze financial behavior, digital payments, cash flow and nontraditional data to assess borrowing risk. These are the few important objectives that we took a couple of quarters back and are able to complete it by the end of this quarter. Now I would like to hand over call to Ashish Gupta, our CFO, to take you through the financial metrics. Over to Ashish.

Thanks, Rupinder ji. Good morning, friends. Let me take you through key financial numbers. We have ended the quarter June '25 with AUM of INR 8,712 crores. Year-on-year growth in AUM is 34% while quarter-on-quarter growth is 6%. Total income for the quarter is up by 39% year-on-year. Our portfolio yield is at 15%. Marginal uptick in the yield is driven by improvement in spread of co-lending loans due to reduction in CLM cost of funds, which is linked to the repo rate. Our disbursement yield is stable at 15%. Our bucket cost of fund is further down by 10 basis points in Q1 to 8.6%, driven by lower marginal cost of funds and reset of our borrowing linked to repo rate. Our marginal cost of fund is at 8.5% for quarter and is down by 30 basis point year-on-year basis. In the last 4 months, we have seen 20 bps reduction in our bucket cost of fund, and we expect another 20 bps cut by the year-end. With this, our lending margins are up by 20 bps to 6.4% and are consistently above 6%, in line with our guidance. Net interest income has gone up by 34% year-on-year and 8% quarter-on-quarter due to growth in AUM and expansion in spreads. In terms of percentage, NIM is stable at 9% year-on-year in spite of improvement in leverage from 2.6x to 2.9x. Coming to OpEx, our year-on-year growth in OpEx is lower than growth in AUM, resulting in better cost ratios. OpEx to AUM for the quarter is at 4.2%, down by 20 bps year-on-year. On asset quality side. Stage 3 is at 1.2%, up by 10 basis point year-on-year. Credit cost for the quarter is 5 basis points, in line with our guidance for medium term. Net Stage 3 asset is stable at 0.9%. Provision coverage ratio for Stage 3 asset is stable at 25%. Our total ECL is INR 67 crores against the regulatory threshold of INR 40 crores. We have adequate provisioning in buffers in place. Profit after tax for the quarter is INR 119 crores, up by 43% year-on-year basis, up by 10% quarter-on-quarter basis, driven by growth in volumes, improvement in productivity, expansion in margins and stable credit costs. ROA for the quarter is 6%, up by 20 bps quarter-on-quarter. ROE for the quarter is 17.2% on an annualized basis with a leverage of 2.9x. On liquidity side, we are comfortably placed with a liquidity of INR 650 crore plus and undrawn sanction of INR 560 crores. Our ALM is positive across all the buckets. With this, I conclude, and now we can open the floor for Q&A.

[Operator Instructions] The first question comes from the line of [ Varun ] from Kotak Securities.

If I heard it right, you said that there's already a 20 bps moderation in cost of funds and you expect another 20 bps in the next 9 months. So if you can break down your overall borrowings into how much is floating? And of that, how much has already seen repricing? And how much you expect to flow through in the next 9 months? And what's the proportion of NCDs that are going to mature? That would be helpful. And following that would be if you're planning any PLR cuts, when are you going to implement it or when are you going to take a call on that? These are my questions with regard to margin. And if you can also highlight what is the reason for the gross Stage 2 rise that we see in this quarter?

Sure, [ Varun ]. To start with the borrowing mix, 90% of our borrowings are linked to variable rate. And if you look at within the variable rate, about 35% of the borrowings are linked to repo rate, wherein we have already seen the benefit of repo rate cut. And then remaining variable rate-linked borrowings are linked to banks MCLR, wherein we have yet to see the pricing cut from banks and whenever the reset will come on these MCLR-linked borrowings. So remaining borrowings are -- 10% of the borrowings are at fixed rate. Coming to the pass on of the benefit. So if you recall, when the repo rate has gone up by about 250 basis points, we have not passed on the impact to the customer like to the same extent. So we will hold back till the time of -- till Q3. Once we have a reasonable cost of fund reduction, we will think of passing on the rate reduction to our customers. But having said this, it is worthwhile to note that out of the total loan assets that we have, out of that, only 15% are linked to the variable rate. The remaining 85% is fixed rate or semi-fixed rate, wherein the loan rates are fixed for initial 3 years, then it will become variable. On asset quality side, if you see, our DPD, 30-plus has gone up by about 100 basis points. So partially, on account of seasonality, you have seen earlier as well in Q1, Q2, generally, delinquencies goes up. And partially, it is on account of macro positioning that you are seeing across the industry.

Okay. On that front, are you witnessing any particular states which see a rise in stress? And the reason I'm asking is because Karnataka, growth has also been weak for us. It's only about 15% year-on-year. So -- and that ordinance had created a -- what do you call it, a flutter or some kind of negative on the collections front. So are we seeing that still sustaining? Is it long to run out? Or is it normalized in Karnataka? And are there any other states like MP, where we have seen stress that it has again shown up stress?

So Karnataka, purposely, we have not expanded in last year or so, right? And the plan is to again sustain whatever the numbers which we have for some more time before taking to the next level. The delinquency, what has increased in a couple of quarters early, I think, 6 months back in Jan, Feb when Karnataka issue arises. After that, we try to have a control on that side. And largely, it has been there. It's not like something has gone out of hand on things around that side. But yes, there is always an uptick when you see the quarter 1 numbers. That is across, it's not only the Karnataka, it is in most of the places, and that we are taking a stock of that regularly. And we are aware of that as the things are settling down, there is definitely going to be an improvement as the quarter progress. Quarter 1 is [ the very least ] this time because of macro factors. Macro factors, [indiscernible] but what we see as we see the progress in month of July, the 30 DPD remains almost same number, what was in quarter 1. And if we maintain that this quarter, then there is optimism in terms of next couple of quarters coming around. So it's not because of only Karnataka or things on that piece. Overall, we see that there's a little uptick on that.

The next question comes from the line of [ Soumil Jain ] from Lucky Investments.

Congratulations on a great set of numbers. I had a follow-up question on the asset quality. 30-plus DPD bucket is about 4.5%. Even accounting for the seasonally weak quarter that 1Q is, this is significantly up from the last year's DPD numbers. So are you seeing that transmit into higher credit costs going forward? Are you sticking in the 40, 50 bps credit cost guidance that you mentioned? How is the trend of those 30-plus DPD buckets in, let's say, moving into quarter 2?

So we are going to maintain our projection on 40, 50 bps when we talk about credit cost, particularly. July month income of 30 DPD, since you asked 30 DPD particularly, look, almost same number what is in quarter 1, basically. So they may be at 2 bps lower, but not upper side. That's the July month number what we see around basically. So what -- still, there's 2 months for this quarter, particularly. I think giving exact number will be a little difficult. But what we see that as the time progress, we're also strengthening ourselves accordingly. This should not be a challenge. So we are giving the same guidance of 40, 50 based off credit cost in coming time.

Got it. And secondly, just if you could reiterate on the cost of funds trend. Sorry, I missed it in the last question. You mentioned 90% of your book is floating rate on the borrowing side?

Yes. On the borrowing side, 90% of our liabilities are variable rate. And out of that, about 1/3 is linked to MCLR and rest is -- 1/3 is linked to repo rate and 2/3 is linked to MCLR.

And you expect a further 20 bps reduction in cost of funds only?

Yes.

Okay. And on branch addition, we have added about 24 branches this quarter. Any full year guidance?

For entire year, we planned what we also projected at the beginning of the year. We plan to open around 45 -- 40, 45 branches. We'll stick to that plan. Out of that 24 has been executed in the first quarter itself. In the next 3 quarters, we are able to spread in certain portions.

The next question comes from the line of Darshan Deora from Indvest Group.

Yes. Firstly, congratulations, Rupinder and entire India Shelter team, fantastic all-round performance. The question I had was regarding on the cost of total assets. This quarter, we have brought it down a bit to 4.2%, which is an improvement from the past quarters. But some of our peers are operating below 3%. So what is our long-term aspirational cost to assets that we can achieve as a business on a steady-state basis?

So this is a continuous journey, and we always keep maintaining the stance that year-on-year, you'll find it is coming down 50, 20 bps, and we stick to that. So if you see that it has to come at a stable state, I don't think that has to be prudent thought around that piece. We feel whatever the state it is, to keep -- have scope of improvement that will continue to work in future also. So a lot of things happen in terms of technology changes and things on that piece. So there is no stable state around that piece. There has to be continuous improvement and that's our philosophy of taking it further particularly. So it started from -- at the time of IPO, it was 4.8%. In fact, quarter 3 financial year '23, it was 4.8%. And today, we are at 4.2%. So we feel in this financial year, again, as we keep moving around, there is a scope of reducing by 15, 30 bps and eventually in the coming years. It's a long sustainable business, so it's not about for a year or 2 years. Let it be continuous process for coming years and coming times basically.

Got it. And [indiscernible] regarding employee productivity. So any insights you can share on currently what is our employee productivity, however, the company measures it? And what has been the trend and what is the future expectation, whether it is files per loan officer or AUM per employee or disbursement per employee. How ever you would like to measure it?

So normally, what we see, as we keep saying that most of our sourcing comes directly, we don't depend upon the DSAs and third party. So we have a large set of team around that piece in place. Today, there are more than 1,700 loan officers which work for us in these 290-plus branches. There, in [ property, ] what we measure in terms of number of files they are disbursing, not on the volume particularly because, again, our ticket size is consistently stable, if you might have seen in last many quarters. So what we feel that if an employee is able to cross [indiscernible] with these [ direct sourcing impacts ] in terms of disbursement -- I'm not talking about [ loan here ], I'm talking about disbursement particularly, then the things are just justifiable. So as we closed the last financial year, that has cost even the range of beyond [ 2 ] also. But quarter 1 are normally little lean and you add up many people around since you opened 24 branches and things like that. So it has slightly comes down less than [ 2. ] But we are confident as we keep improving on this side, this should definitely beat the last year number. In fact, quarter-on-quarter compared to the last year, this quarter was better in terms of employee productivity.

Got it. And an aspirational target for this figure would be?

So we try to improve every year by 10% at least on that side. And we don't say that this is a large, fixed target on that piece. We put a lot of thoughts on the technology and ease of doing business. That's a continuous process. And I think there should not be some [ upper or over ] on that side. Let's continue on -- in the journey around basically. So -- but in every year, you'll find the improvement in the productivity that we can assure you.

The next question comes from the line of Shubhranshu Mishra from PhillipCapital.

Two or three...

Sir, sorry to interrupt but your audio is not clear, sir. There is a lot of background noise.

Can you hear me now?

Yes, sir.

Shubhranshu here. So two or three questions. First, that we've been hearing about asset quality stress in LAP. And especially a ticket size of around INR 10 lakhs to INR 20 lakhs. How are we faring in this LAP? Any extra comfort we are taking in terms of collaterals? Or decreasing the LTVs and incremental disbursements? Second is that we still are running at a higher capital adequacy ratio. How do we plan to deploy this over the period of next 2-odd years? And when -- what would be our disbursement guidance for this year, if you can allude to the guidance in '27 as well? And what will be the split between home loan and LAP in that mix?

Thank you, Shubhranshu ji. So you talk about asset quality stress in LAP, particularly. So you're talking about, and we also [indiscernible]. Typically, on Stage 3 side, we don't see difference between LAP and HL. The number remains same with the two. But yes, on 30-plus side, LAP is a little higher than the HL piece. If we are at 4.5% of 30 plus, then you can assume that HL is 30, 40 bps lower than 4.5%, and LAP is around 30 bps higher than 4.5%. These are the normal trends, what -- we can see that. Beauty of this product is since LTVs are low, we are maintaining LTVs around 45%, 47%. Whenever this customer moves to Stage 3, we definitely have a capability of using tools like [indiscernible] and thus, the recovery is quite faster in that sense, right? This is the reason between the two categories of HL and LAP. When you talk about Stage 3, there is no difference around it, that has been same in terms of NPVs. On the collection side, we have all been prudent, keeping in mind that LAP has to be purely on a self-occupied residential property. Today, we are maintaining 99% on the AUM side. But if you see the running disbursement, then it is 100%. There is no -- we are not taking any calls on -- anyway, we're not taking any calls from last many quarters when it's about LAP apart from [indiscernible] piece. If we talk about going forward, we have given projections of around 30%, 35% of growth. From last 6 quarters, we are maintaining that, and we feel there is a lot of hope going forward also, and this should be a continuous journey for many quarters going forward also. So we are -- find comfort around maintaining that 30%, 35% that we're going to maintain in terms of in AUM particularly. And if we consider this piece, so your question about capital adequacy ratio, because today, leverage is 2.9, it is around 57%, 58%, we feel we should be back in market somewhere after financial '28 closure for the next round. That's what we look forward. We'll be able to consume that piece. Once you are at a 4.5x leverage, I think you are good to go that what -- that is our understanding. But yes, let's see how the time progress, how we can bring back -- bring prudency into this entire mechanism that we are creating around that piece. And lastly -- sorry, you have one question from something...

No, no, no. That was missing. You were coming to that answer of the split.

Yes, yes, yes. So at the LAP ratio, we want to maintain 60-40 that is going to be our trend going forward. As our process, our mechanism, the market which we operate, the set of customers we are targeting, we are quite comfortable on that side. We are not going to change much around that piece. Yes, for [ position's ] sake, we always look forward to increase by 1% or 2%, that is the progress which we have to continue to take [ share ], though we are not able to get it as of now. But that's all [indiscernible] that we have to take it up in the future, particularly. So it'll be a little bit here and there, but you can continue to think about the ratio of 60-40. 1%, 2% upper side, something which you want to take as an advantage.

Right, right. And just one last question, if I can slip in. Given the fact that we would be assessing our customers' cash flows on various other things apart from the income, so it's basically an assessed income. What are the ranges of FOIR at the point of onboarding for home loans? And what are the various mechanisms that we deploy, especially quantitative mechanisms during the tenure of the loan?

So FOIR generally remains for us 50%, 55%, irrespective of whether the customer is a home loan customer or loan against property because we deal in the same vicinity particularly. There, if you see the tenure for the loan against property's average coming around 10 to 11 years. And for home loan, it is around 15 years that we look into at that side. What we have seen that the monthly income for these set of customers start somewhere from INR 30,000, INR 32,000 and goes up to INR 65,000, which are the focus area, which we work around the piece. So these are the aspects that we look into. What is important for us is where we try to fund in the smaller markets of Tier 3, Tier 2, where these set of customers have their own stability in terms of their work, their past experience, or maybe the collateral what they are acquiring or what they already have. So that stability piece, we you always look into that piece. So these are few, three, four important items quantifiable that we always look forward in overall [ macroscopic way here, ] while underwriting.

The next question comes from the line of Shreepal Doshi from Equirus.

So my question was again on the LAP segment. So could you please give us some color as to what would be the end use for this category of loans for customers as in like is it more towards MSME? Or is it more towards, let's say, some emergency needs of the customers? That's the question number one.

So the market, what we are serving, these customers should be a part of that ecosystem and servicing his -- activity to serve that market particularly. They can be in form of small retailers, cloth merchant, sweet mart, grocery shops, small manufacturers having late machines, all that kind of customers, which is -- who's income starts somewhere from INR 32,000 or something. And have a vintage in those markets of at least 3, 4 years. That is there. And now have an aspiration to go the next level in life, whether by further acquiring of some shop, whether stocking -- putting stock in his business. Since maybe sometimes there are small manufacturers, they want to put some machines and all, all that kind of customers. Because more than 95% of these customers are MSME, self-employed in this market. But yes, being a LAP profile, what we make sure that we don't compromise on the collateral, and there, we make sure that we are taking self-occupied residential property with LTVs of less than 50%. That is always a key that we have to keep in mind. And that helps us out also. Like everyone, we also see a lot of noises in market that MSME customers are in pain. But with this kind of security, we have seen that when you execute your process around that piece, you're able to get back these required recoverable amount that we look forward in these kind of set of customers in time of difficulty. So this is the way the business works basically.

Got it. Got it. So that's a very detailed answer. Sir, the second question was like, I think you highlighted that closer to 35% of our bank borrowing or liabilities are linked to repo and 20 basis point benefit is what we expect for the full year. So what is the benefit that we are expecting on the spreads or margin front because we've not yet passed on any benefit to the end customer. So for full year, are we looking at any benefit or that will not broadly be different?

So as we have already said that in terms of our asset profile, about 85% of our total assets are at fixed rate or semi-fixed rate and 15% are at variable rate. So even if we think of passing some benefit in the month of, say, like December 2025, say, like 25 basis points, even in that scenario, it will not be having a material impact on the overall yield at the portfolio level. So we don't think that there will be any impact on the overall yields this year with respect to the benefit to the customer.

Got it. So nothing on the spread and NIM side as well, right?

On NIM, so spread will remain briefly -- so we have given a guidance that the spreads will improve by about 20 basis points further this year. And on the NIM side, NIM is a function of your leverage as well. So as the leverage will go -- spread and leverage will offset each other. So it will remain broadly stable at about 9%.

Got it. Got it. Sir, I just had the last question, which is on PMAY CLSS 2. So are we seeing -- like how is the momentum in that segment with respect to approvals, eligibility, how many cases have we seen being approved? Or how many are in pipeline? If you could just give some sense on that?

Yes. I think month-on-month traction is coming on PMAY scheme also. Initially, there were hiccups because of the process -- new process being laid out. And this time, the process has to be more on the tech integration and things around that piece when that money has to be passed on to the end customer. So today, we have shortlisted. In fact, there are almost 1,500 applications that were being processed. And quite a large chunk of that is in position to get a PMAY scheme. Almost 500 to 700 applications are still in process, and we expect outcome very soon around that side. In fact, in 200 customers -- as we speak today, more than 200 customers already get a first tranche of subsidy for which we applied to the bodies around for this PMAY. So we feel this is a continuous process. And as the time progress, with the ease of this process and more customers getting aware, we have a plan to go in these geographies more deeper, to have a marketing activities around that side and convince -- convey these customers the right message which government want to pass on where they can also get a benefit on that side. So that's the process. Now we are more comfortable putting around. But till now, the more action was to make the process more [ speed ] and smoothen which is now picking up basically. So you can see fair traction. With 200 numbers, it is still very low. So for the first couple of months, I think this can -- I'm satisfied with that, but I think there's a lot of scope going forward that...

The next question comes from the line of [ Varun Bang ] from Bandhan Life Insurance.

Congrats for the good set of numbers. Just two questions. Firstly, how do you see competition on the ground and how it is impacting us and the industry? And do you sense that the quality of underwriting is deteriorating for industry? Or at least in some cases? Some thoughts would be helpful.

Market is enormous as we keep saying that, and we are still too small as a player to feel the heat of that large competition of the bigger players around that side. We have stated our own niche, targeting this Tier 3, Tier 2 market. We believe our productivity sets are yet to get further improved that we are working on that side. And when we go to market for source of customers, we don't find some kind of undercutting or customer -- pressure on the customer to get moving from one point to other point in terms of what happens in the larger or prime ticket size. That is still away in this segment, particularly, where we are doing it. Since set of players who are focused around that side is still limited. The same set of players are operating from last 10, 12 years, those serious players. We don't see much of action in terms of undercutting or push-pull around the customers. Yes, there is always competition in terms of poaching employees from one company to other company, which we also face around that side. That is one side, particularly what we feel. On the other side, you said that underwriting, things are going down or something like that. That's a philosophy of any organization, how they want to take it up. There are short-term and long-term goals. The people which exist from decades and continue to give the performance, I think they know the value of the upside prudency. We don't find any challenges there. But some new companies, some new players, if they want to play around that, that is their way of thinking about particularly. For us, we are very clear that this is a journey which ties to the customer for many, many years going forward. And that's the prudency we want to take it up next level. So there's many things happening in the industry. There are many companies which do come [indiscernible] for that piece, but that's not a focus area for us.

Understood. But from an industry perspective, it is right to say that the quality of underwriting is sort of getting impacted negatively to some extent.

Overall macro scenario as well as seasonality factors, there was definitely a challenge. We have seen the situation happening in MFI, situation happening with unsecured that is that [ fee ] does these set of customer also since market trends are like that. So that set of [ fees ] is there, definitely there. But you have [ to -- where you're aligned ] accordingly and take it to the next level.

Understood. And the second question is on the attrition rate...

Sorry to interrupt, sir, but your audio is not clear. You are sounding very low.

Yes, is it clear now?

Yes, it's better now.

Yes, the second question is on the attrition rate. How is the attrition rate in the sales team? And let's say, versus last year, how it is evolving?

So we have always divided attrition rate into two pieces. One is regrettable and one is non-regrettable. And yes, non-regrettable is always higher than the regrettable. When we compare to the last year, attrition rate has slightly improved, but not to approval satisfaction. There's a lot what we can do about it. And yes, there's a lot of it in market still going on. There's no doubt of improvement compared to the last year when we see the attrition rate. So if I give you a data point, quarter 4 to quarter 1, there's an improvement of around 10% when you talk about the attrition rate, particularly. Again, to make sure facilitation about our set of employees to engage more to make sure that they look for a long, steady career on that piece, Board has been very kind to support the company particularly here, where there's almost what used to be 25% of employees with the stock options has to go beyond 50% that we are taking in the next [ fund. ] So all performing employees, which we think that can be regrettable attrition for tomorrow, we are trying to rope up under the domain of employee stock options. So today, we have around 350 employees, which are under this piece, which will go up to the level of 800 in this quarter itself. That is the thing that we're picking up. And thanks to both, and thanks to our investors that have been so kind in terms of supporting for this mission, what we're building around.

That is helpful. And if I just may know the percentage attrition rate in the sales team?

For regrettable side, yes, it's very heavy -- sorry, non-regrettable side, it is very heavy. For regrettable side, it is around 20%, 23%.

The next question comes from the line of Umang Shah from Kotak Mahindra AMC.

Congratulations the team on a good quarter. I have two questions. One is on, if you could help me, what's our asset mix split in terms of fixed, variable and partly fixed-income variable?

So in terms of overall asset profile, about 15% of the portfolio is variable rate. Then about 30% of the portfolio is semi-variable kind of rate, wherein initial 3 year is fixed. So we started this product about 18 months back. So still 18 months of fixed rate journey is left in those loans. And then remaining 55% is completely fixed.

Okay. And could you help me with the fact that how much have we passed on the variable rate portfolio? Or as you mentioned at the beginning of the call that we'll wait for the cost of funds to come down and probably then pass on reductions on the variable rate book?

So as we have said that we have not passed on the entire repo-rise benefit as well -- when the repo rate was rising. And in fact, at this point of time, we are still yet to see the full benefit on the cost of funds side because the larger part of the borrowing is linked to MCLR, wherein banks MCLR has come down by about 10, 15 basis points only. And the benefit of that will come to when the reset will happen for those borrowings. So we believe that some sizable benefit on the cost of fund will come by Q3 and then probably we will evaluate that how much we need to pass on those 15% variable rate borrowings -- variable rate assets.

Okay. And -- got it. And sir, on the semi-variable piece, right, if you could help us that even on an incremental basis, the proportion of semi-variable loans would be largely similar in terms of origination, or it would be lower?

So on the incremental basis, if you look at the breakup of the total disbursement that is happening, around 50% to 60% of the incremental disbursement is happening on a semi-variable rate structure. So down the line briefly, we have an aspiration that down the line 2 years, we should have 65% of our total assets are linked to variable or semi-variable rate and remaining 35% get funded by a fixed rate or equity.

But typically, do you really believe that whenever the semi-variable rate loans become fully variable, right, which is typically after a period of initial 3 years, does that create some sort of a volatility in margins? Or you think on a proactive basis, can the management, depending on the rate environment at that point of time, can look at repricing these loans vis-a-vis competition?

Umang ji, when we took this call particularly, there was two thoughts on basis of data points which were available. We have observed the customer which are stick to us for more than 30 months, they continue to run with us for a pretty long time. The maximum foreclosure, the maximum balance transfer, which happens is in the first 24 to 30 months, what happens there basically. So this is one of the factors that become a key driver, particularly. Yes, we have to maintain variable fixed proportion also, keeping in mind how is our liability franchisee. You have to always be prepared for the rainy season. And because of that reason, we come up with that fact. And when you have a customer which is engaged with us and you're giving good service, then at least you can engage for long. So I think till now, and we hope in future also, this strategy should work. That is our thought. And on basis of that, we are working towards.

And just to clarify like here, Umang, that these semi-variable rate loans are not a teaser loan kind of structure. The customer is having a regular rate of interest at this point of time, which is fixed rate. And after that, that kind of rate of interest will just become variable.