Jana Small Finance Bank Limited — Q2 FY26 earnings call

So I don't know a good answer, Manish, if we're late or not. It's possible that our April performance, we saw 96% collection versus the 98.5%-98.6% we've been doing regularly after that, probably is not as good as others. I wouldn't know, you would know others details as much. But I do see that the slippages will go lower certainly in second half.

Analyst questioned if the bank was late in recognizing NPAs, given rising slippages, to which management provided a partial comparison and forward guidance on expected reduction.

Asked by Manish Ostwal

So very quickly, I can add that I would see the credit cost come down at least by 40 to 50 bps. That is our estimate for next year from this year. But listen, I want to make sure that we put all the parts together. First is we don't expect flows like this year in next year. So that will improve the credit cost. Second, we do expect recoveries, whether it is a guarantee book or the non-guarantee book. So that is the second part. And third is where we have guaranteed the book and we are unable to collect, we'll certainly receive moneys under the guarantee. So if you take all 3 parameters, we should be in a very healthy position in credit cost next year.

Management provided clear and specific guidance on the expected reduction in credit costs for the next year, outlining the contributing factors.

Asked by Manish Ostwal

So Manish, the challenge is for us on this cost income and the cost growth, largely, like I mentioned, the number of employees in MFI in this first half is lower than what it was in March. Roughly about 8,000, 9,000 people we have. Normally, they would cause us to have a growth in our revenue and our asset book. Now this entire cohort has seen a negative growth in the first half, roughly about 2%-odd. So our real challenge only on the cost side, actually less about the cost is more about how the MFI book starts growing and that cost base then converts into a better cost income for us. Beyond that, we are very focused on productivity and making sure that everybody is well trained out there selling multiple products.

Management explained their strategy for controlling operating expenses, particularly in the MFI segment, by focusing on productivity and optimizing headcount.

Asked by Manish Ostwal

Okay. So I think from where we sit, if you take our book, in 2 years' time, we should be at least 80% secured and the balance 19% should be under guarantee program. Everything under guarantee program does not recover ECL because of sovereign guarantee. Our secured book, largely except I guess, Used Car, all of them would have completed 5 years, which will be a good enough time frame for us to then judge what the credit losses that we should provide for. We do not see any reason to have a large growth in our credit cost when ECL comes into work for 2 primary reasons: one, the unsecured book being under guarantee program; two, we have seen our credit cost of secured book in a very reasonable and manageable position. So that should not give us any extra stress. I must also add, as we speak, we're carrying about INR 222 crore of accelerated provision over and above the regulatory provision.

Management clarified its approach to Expected Credit Loss (ECL) provisions, emphasizing the role of guaranteed assets and existing accelerated provisions in mitigating future credit costs.

Asked by Farhaan Wadia

Yes. So the process is ongoing in terms of our submission is complete. We are answering the queries raised by the regulator, there is certainly an audit which happens for the Universal Bank, both on the banking side as well as on the technology side, both are complete. So, the process is running in full steam.

Provides an update on the ongoing process for obtaining a universal banking license, indicating progress with submissions and audits.

Asked by Rishab Bajaj

If we do manage to collect in the future, we will certainly release the provisions. So in a way, having 3% and 1% as a condition is not a bad condition to have in most times. It only got a bit challenged now because we had a 3% and 1% condition and we had stress in MFI. ... So Deep, you should look at Page 23. It shows you GNPA on total secured asset is INR 255 crore. The LTV is 38.4% for this gross NPA book, but the PCR is 43.2%. So the big release will really come from this piece because this, frankly, is not required, but we have to do this because we really would like to be under 3% and 1%.

Management explained that accelerated provisions can be released upon future collections, linking it to the bank's strategy of maintaining low NPA ratios and managing MFI stress.

Asked by Deep

Yes. So Gautam, if you see our CD ratio, it's about 93%. So really, there is no rationale beyond having raising deposits, except that we really would like a CD ratio around 90%, and that is very healthy for banks. Secondly, we did decide to accelerate the deposit because the cost of deposits are lower this year. If you take last year, acceleration of deposit, trying to reach a CD ratio, which is lower than where we were, would have been a bit more expensive for us. So I don't think so having a CD ratio of 93% is odd. In fact, going a bit lower would be the right thing.

Management justified the strategy of accelerating deposit growth by aiming for a healthier CD ratio and capitalizing on lower cost of deposits this year.

Asked by Gautam Jain

So it won't fall sharply. It will certainly fall. But I don't understand sharp, but let's say, there will be at least a 10% drop in slippage in Q3 is my estimate right now. It will get even better as we get into Q4, and those 2 will be real.

Management provided a specific quantitative expectation for slippage reduction in Q3 and Q4, indicating an improving asset quality trend.

Asked by Gautam Jain