Your gross non-performing asset (NPA) improved to 1.9 per cent in Q2. How much of that do you attribute to your own business strategy, and how much to normalisation in the microfinance segment?
Normalisation definitely has some effect. But our numbers are very good. We have probably posted one of the highest return on assets (RoA) of our life. If I exclude the management overlay, my RoA for this quarter is about 6 per cent. Some of that is attributable to the recovery, but more of it is because we have been prudent in our growth and careful on asset quality. That is why our credit cost is far lower than the rest of the industry.
Is the current level of credit cost sustainable through a full cycle?
I think so. One key thing to look at is that even though we are making good profits, we are still creating buffers, so that if anything happens tomorrow, we have more cushion than others. We build buffers during good times so that if a bad time comes, we stay stable.
You raised the management overlay to ₹50 crore in Q2. Are you looking to strengthen the buffer in view of the West Asia war and El Nino?
We have no stress right now on any of these fronts. On monsoons, the drought is in two states, Maharashtra and Karnataka, which together contribute only about 1-1.5 per cent of our portfolio. Even in those states, we see no stress in repayments. The West Asia war has had no effect either. This is a contingency buffer. If something crops up, we are well-positioned to brace for the shock. Hopefully, we will never need it, but it gives us peace of mind that we can withstand any shock if it comes.
Will you make additional provisions or management overlays in the second half (H2) of FY27? What kind of level would you consider adequate?
We have not announced a number yet. Internally, we are contemplating it, but we will see how the situation pans out. As a prudent management team and institution, we feel ₹100 crore buffer would be good enough. The Reserve Bank of India (RBI) requires a provision of about ₹152 crore, and we have made more than that. But nothing stops us from not going further in the future. If the numbers are very stable, why build so much buffer that it becomes a drag. An RoA of 6 per cent (excluding management overlay) perhaps looks better than 4.8 per cent (recorded in Q2). But as a matter of prudence, we are still creating buffers.
Would you consider not strengthening the buffer further only if you see a durable period of stability?
Yes. We are all still talking about West Asia, El Nino and so on. The moment things die down and nothing is likely to require us to draw on the buffer, that’s when we will take a call that there is stability. Until then, we keep building it, for as long as we still hear talk of these risks.
It's October and the festival season is under way. What kind of demand and disbursement trends are you seeing?
Historically, the last two quarters are always the best, and the January-March quarter is practically an outlier. The first-half performance, which used to be subdued, has not been subdued for us, so that's an added kicker. The next two quarters are our bumper quarters every year, and demand is still very strong. We are trying to outshine our (assets under management, or AUM) growth guidance of 20-25 per cent, and we are well-poised to beat it.
 "H P Singh")