Q3 FY25 Earnings Call Transcript

L&T Finance Ltd.

Q3 FY25 Earnings Call Transcript

January 21, 2025

Management Personnel:

Mr. Sudipta Roy (Managing Director & Chief Executive Officer)

Mr. Sachinn Joshi (Chief Financial Officer)

Mr. Karthik Narayanan (Head - Strategy and Investor Relations)

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Moderator:

Ladies and gentlemen, good day, and welcome to L&T Finance Limited Q3FY25 Earnings Conference Call. 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. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded.

We have with us today: Mr. Sudipta Roy, Managing Director and CEO; Mr. Sachinn Joshi, CFO; and other members of the senior management team.

Before we proceed, as a standard disclaimer, no unpublished price-sensitive information will be shared during the conference call. Only publicly available documents will be referred to for discussions during interactions in the call. While all efforts would be made to ensure that no unpublished price-sensitive information will be shared, in case of any inadvertent disclosure, the same would, in any case, form part of the recording of the call. Further, some of the statements made on today's call may be forward-looking in nature. A note to this effect is provided in the Q3 results presentation sent out to all of you earlier.

I would now like to invite Mr. Sudipta Roy to share his thoughts on the company's performance and the strategy of the company going forward. Thank you, and over to you, sir.

Sudipta Roy:

A very good morning, everyone, thank you for joining us today. I would also like to wish you all a very happy and prosperous New year on behalf of the entire leadership team at LTF. Today with me on the call are - our CFO, Mr. Sachinn Joshi, and the senior management team of L&T Finance.

Today's call is divided into two sections, taken up sequentially by myself and our CFO - Mr. Sachinn Joshi, who will be talking about the overall business metrics & financial performance at length.

Post our opening commentary, we'll be happy to take questions on the call.

Macro-economic outlook

Before moving to the highlights of the quarter, I would like to give you some flavour on the Macro-economic scenario and sectoral outlook.

Global backdrop remains uncertain at this point as possible policy pronouncements in US, cloud visibility of outcomes in global trade and financial markets. In the meanwhile, stronger growth momentum and high policy rates in US, continue to drive flow of funds towards the US Dollar assets and adding pressure to financial assets in the Rest of the World. Sharp shift in external landscape has triggered tighter liquidity conditions and currency volatility in domestic financial market as well.

In the meanwhile, delayed government spending, mixed demand signals and credit squeeze has hit GDP growth momentum in the domestic economy. Slower urban consumption and moderate investment activity has only partly been offset by rural recovery, leading to a sharp dip in growth during the second quarter of FY25. Government's first advance estimate of Real GDP highlights a tampered pace of economic activity in FY25 at 6.4% annual growth, well below the 8.2% growth in FY24.

Acknowledging the headwinds to consumption demand and private investment in the economy, RBI has also revised down its Real GDP growth projection for current fiscal year. RBI also revised up its inflation projection, highlighting the challenges of bringing down the headline inflation to target level in the current fiscal year. While Headline inflation has seen some moderation in November and December, as improvement in mandi arrival of

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vegetables and bumper Kharif harvest help ease price pressure of volatile components, Core CPI inflation and WPI have seen some uptick indicating broadening of inflationary pressure in the economy.

High inflation level and lower government spending has hit the disposable income available with consumers for discretionary spending. Urban consumption has shown signs of fatigue with the exhaustion of pent-up demand, while rural consumption, despite gradual improvement, remains inadequate to offset urban drag. Unexpected weather events, depreciating currency and worsening of geopolitical conflicts constitute major upside risks to expected moderation in inflation levels going ahead. Hence monetary and fiscal policy interventions to support consumption are key to sustained growth recovery in H2.

In the quarter ahead, we expect rural recovery to continue and hope for uptick in urban demand as inflation levels drift lower. Some of the squeeze in economic momentum is already reversing in Q3FY25 and fiscal support has picked up as well. With further fiscal and monetary support expected in the upcoming budget announcements and monetary policy announcements, we keenly watch for these early green shoots to turn into strong growth drivers in coming months.

Q3FY25 Highlights:

I would like to share that despite the challenging operating environment in the microfinance sector, our diversified franchise has enabled us to achieve the highest festive quarter disbursements of ₹ 15,210 Cr, a growth of 5% YoY and we have been successful in sustaining the trajectory in line with the Lakshya 2026 goals.

Our Retail book now stands at ₹ 92,224 Cr, a substantial growth of 23% YoY. The numbers reflect the strong execution engine aided by a proactive portfolio management and prudent risk management that we have put in place over the last couple of years, and we will continue to bolster the execution bias in every initiative we take.

Many of you would have attended our Investor Digital Day in November, 2024 along with RAISE'24, our AI BFSI conference, where we showcased several of our technology initiatives, some of which could be transformational when successfully completed. I am pleased to share that the progress on these initiatives during the last quarter has been satisfactory. Our next-gen credit underwriting engine 'Project Cyclops' was extended to 100% of dealerships in Two-wheeler Finance and was also launched for Farm Equipment Finance business. In our pursuit of innovation and fostering partnerships within the lending landscape, we established a strategic partnership with Amazon Pay to develop cutting-edge credit solutions, while also extending PhonePe partnership to Personal Loans, thereby delivering a seamless digital lending experience to our customers.

Additionally, we launched Knowledgeable AI (KAI), an AI-powered chatbot that revolutionizes the home loan experience. Furthermore, as announced in the Investor Digital Day, we have commenced work on 'Project Nostradamus', a first of its kind AI driven automated portfolio management engine. We intend to release the beta version of this new technology engine in Q2FY26.

As we look ahead, we remain dedicated to driving innovation and enhancing our offerings to better serve our customers.

Update on Lakshya 2026 Goals

Now, I would like to provide an update on our quarterly performance against the Lakshya 2026 goals:

• The first milestone was to achieve Retailisation of >95%. I am pleased to share that we have surpassed this target with 97% retailisation at the end of this quarter.

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• We had earlier set ourselves a retail book growth target of 25%. However, given our outlook of the business environment in different segments, we have consciously chosen to slow disbursements in segments where risk reward was not in our favour. Consequently, our retail book growth for the quarter stood at 23% YoY, a growth rate we are satisfied with, given the current circumstances. Specifically, as delineated in Slide No. 30, you will observe that in Q3FY25, our RBF disbursements were calibrated downwards to ₹ 4,599 Cr, while simultaneously in other business segments such as Farmer Finance, Housing Finance and Personal Loans, we have maintained growth trajectory based on our confidence in our new generation underwriting capabilities and the market potential. In particular, we have skewed our sourcing efforts towards onboarding more prime customers, who in general exhibit credit resilience during downward credit cycles. In line with this, in the TW business, 69% of our disbursement in the month of December, 2024 was to the prime segment, a number which has jumped to 75%+ in the elapsed timeframe in January, 2025.
• Thirdly, this retailisation thrust had to be credit calibrated with a goal of retail GS3 below 3% & NS3 below 1%. I would like to inform that while the quarter witnessed an increase in slippages owing to macro challenges in the RBF segment, the Retail GS3 & NS3 levels stayed close to the threshold levels. The corresponding consol asset quality metrics in this quarter remained healthy with GS3 at 3.23% & NS3 at 0.97% (below the Lakshya threshold of 1%).
• The fourth and last milestone on RoA front, we have moved from tracking Retail RoA to Consol RoA in the range of 2.8%-3.0% as per our original Lakshya 2026 targets. Our Consol RoA for Q3FY25 stood at 2.27% down by 26bps YoY, which is a mix of two factors, i.e. a compression in NIMs + Fees on account of a conscious calibration in the RBF business and an increase in credit cost during the quarter. I would like to highlight that our credit cost over the past 12 quarters has been in the range of ~2.60% thereby displaying predictability across cycles. We remain confident that in accordance with the initiatives towards sourcing better quality customers and investing in the next-gen underwriting platform like cyclops, along with the improvement in macroeconomic environment will help resume our journey towards delivering 2.8 - 3.0% RoA.

Executive Summary

I would like to quickly run you through the key highlights of our performance in Q3FY25.

• Consol PAT of ₹ 626 Cr in Q3FY25.
• Despite a calibration in RBF disbursements, the retail disbursements for the quarter stood at ₹ 15,210 Cr, registering a growth of 5% YoY, driven mainly by robust performance exhibited by the Farmer finance, Housing, Personal Loans and SME segments.
• Retail book for Q3FY25 stood at ₹ 92,224 Cr, up by 23% YoY. Consol. book grew at 16% YoY reaching ₹ 95,120 Cr in Q3FY25.
• Our 5 Pillar strategy continues to be central to our roadmap to the future. We continue to granularly execute the 5 Pillar strategy, details of which are available from Slide No. 12 to Slide No. 28 in the investor presentation.

The year had a challenging operating environment with certain macro events viz. prolonged heat wave, severe floods in several states and temporary slowdown of government expenditure & grants due to general elections, leading to increased credit cost for Rural Group Loans (RGL) & Microfinance business (MFI) portfolio, thus warranting a case for utilisation of the macro prudential provisions created during COVID (FY21 and FY22). We estimate, based on current trends, that before utilisation of macro prudential provisions, the total credit cost in the RGL and MFI business will be in the range of ₹ 950 Cr - ₹ 1,000 Cr for full year FY25. In light of the above, the Audit Committee and the Board have approved the utilization of an amount of ₹ 100 Cr out of the macro prudential provisions in Q3FY25. Our advance estimate of the macro utilization in Q4 is in the range of ₹ 300 - ₹ 350 Cr based on a peak credit cost on the roll-forward book of Q4FY25.

With abating of the above macro events and early green shoots of stabilization in Collection Efficiency (CE) in Dec'24 and Jan'25 (till date) CE being slightly better than same time last month, we anticipate an improving CE trajectory for RGL & MFI portfolio during Feb and Mar'25, thus signalling sustained recovery trends in this business. Our analysis tells us that the onset of MFIN 2.0 guardrails from April, 2025 will ultimately lead to recovery

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of the credit profile of the sector, albeit at a marginal cost to growth. These norms would be value accretive for participants with high quality franchises.

As asked by many of you in our earlier calls, we have endeavoured to give detailed portfolio cuts on our RBF business in the Investor Presentation. You may please refer to Slide Nos. 16 to 20 and Slide No. 35 of our Investor Presentation for the same.

We are currently evaluating adopting the CGFMU credit guarantee scheme in certain geographies and segments to optimise the unforeseen event risks in the RBF business. We will be in a position to provide greater details around this in the subsequent quarters.

Double Click on the 5 pillars of execution

As mentioned earlier, I would now like to give a brief update on the 5 pillars of execution that we had enumerated over a year back and continue to be in implementation mode against the same.

1. Customer Acquisition - We are continuously working on deepening the customer acquisition funnel both, horizontally (greater geographical coverage) as well as vertically (greater counter share at dealer points). As in the last quarter, this quarter as well, our focus has been on new customer acquisition, albeit with necessary credit adjustments to maintain the future portfolio quality. Accordingly, there has been calibrated channel optimisation in Two-Wheeler and Rural Business Finance vertical with sustained focus on better quality and under-leveraged customer acquisition. We added a total of 5.8 lacs new customers during the quarter. Further details around customer acquisition and repeat share are available on Slides 13 & 14 of the Investor Presentation.
2. Sharpening Credit Underwriting - Our proprietary credit engine, Project Cyclops that was operationalized in Q1FY25 has been extended to the Tractor business (currently live with 24 Scorecards), and having been scaled to 100% of Two Wheeler dealerships, where it is currently live with 18 Scorecards, showcasing encouraging results with Net 0+ reduced by 120bps in the TW portfolio over a four month period when benchmarked to the Non-cyclops portfolio. Cyclops will be implemented for the Personal Loans & SME Business Loans in the coming quarters.
3. Futuristic Digital Architecture - We have spoken at length on our technology initiatives on our Investor Digital Day and granular details on our technology initiatives have been provided for each line of business. Our biggest technology initiative for next financial year would be operationalizing Project Nostradamus, a state of the art, first in industry AI driven automated portfolio management engine.
4. Brand Visibility - We continue to focus on brand building with Jasprit Bumrah as a brand ambassador for
   L&T Finance products. Having successfully concluded RAISE, India's premier AI-themed event in the BFSI sector, which saw more than 8000 registrations and reached an engagement level of 3 lacs, we participated in the India Bike Week, 2024 where the unveiling of the LTF Zoom Two Wheeler Loans took place. As we move ahead, you will see a set of integrated marketing campaigns and targeted branding exercises in the upcoming quarters.
5. Capability Building - On the capability building front, I would like to inform you that the Regional Business Head structure was further strengthened during the quarter with institutionalisation of periodic reviews and processes. Additionally, we worked upon capacitising and upgrading our infrastructure at various branches

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across the country while also opening an integrated Tech, Operations and Data Science facility at Mahape, Navi Mumbai. On the employee initiatives front, we continued to work around performance and productivity with the introduction of integrated employee scorecards and took several employee engagement measures during the quarter, details of which have been provided in Slide No. 28 of the Investor Presentation.

Update on New Product initiatives

As part of our strategic growth roadmap, we are committed to building a well-diversified asset profile, minimising concentration risk on any single line of business. With that end goal in mind, we remain committed to growing our existing and new lines of business while also looking at synergistic opportunities. Amongst our new product initiatives, our team has been successfully scaling our Micro LAP, Warehouse Receipt Finance and Supply Chain Finance products. In the Micro LAP domain, as we shared in our Investor Digital Day, our existing distribution is being leveraged to upsell this secured high RoA product to the cream of our RBF customer base. The Micro LAP asset book has crossed the milestone of ₹ 300 Cr in Q3FY25. Some of you may recall that on our Investor Digital Day, we had called out a booksize of ₹ 214 Cr for this business - exciting growth, albeit on a low base. Similarly, our Warehouse Receipt Finance business housed under the Farmer Finance vertical has also shown encouraging initial traction. This business, which operates on a first of its kind completely paperless journey and digital workflows driven through a network of ~25 branches and presence in ~80 mandis has achieved cumulative disbursements of ~₹ 350 Cr in FY25 YTD. Lastly, our supply chain business housed under the SME vertical was launched in Q3FY25 and while it is still early days, we are optimistic that this business too can scale significantly and profitably.

I will now request Mr. Sachinn Joshi, our CFO, to take you through the financial updates.

Business as Usual updates

Sachinn Joshi:

Thank You, Sudipta. As always, I will be walking you through the financial performance of the company for the quarter.

Quarterly Performance:

• Consol NIMs + Fees stood at 10.33% vs 10.86% for Q2FY25 on account of conscious shift in disbursement and book mix due to a challenging credit scenario in RBF
• Consol PAT for the quarter stood at ₹ 626 Cr
• Healthy quarterly retail disbursements of ₹ 15,210 Cr, up 5% YoY
• Retail book stands at ₹ 92,224 Cr (up 23% YoY) on the back of healthy retail disbursements during Q3FY25. Our Consol book stands at ₹ 95,120 Cr, up 16% YoY
• Consol RoA stands at 2.27%, down 26 bps YoY
• Consol RoE at 10.21%, down 114 bps YoY

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Retail Businesses:

Rural Business Finance

The business registered quarterly disbursements of ₹ 4,599 Cr (down by 16% YoY), the trajectory aided by prudent disbursement strategy. The book size reached ₹ 26,231 Cr (down 1% QoQ and up14% YoY) in Q3FY25.

Farmer Finance

In Farmer Finance, disbursements stood at ₹ 2,495 Cr in Q3FY25 (up by 23% YoY), better than average monsoon and festive season demand resulted in a double-digit growth. This led to the book size reaching ₹ 15,075 Cr, reflecting a growth rate of 9% YoY.

Urban Finance

The segment, which comprises Two-Wheelers, Personal Loans, and Home Loans/LAP businesses, saw a 21% YoY jump in overall quarterly disbursements. As a result, the overall book size increased to ₹ 43,957 Cr in Q3FY25, translating into a 31% YoY growth.

• Two Wheelers: The TW business registered quarterly disbursements of ₹ 2,414 Cr in the quarter (down by 5% YoY), partly due to the strengthening of documentation and credit guardrails taken by us during the quarter for sourcing of better quality credit tested customer and shift towards prime customers. The book size increased to ₹ 12,676 Cr, up 21% YoY.
• Personal Loans: In Personal Loans, we achieved disbursements of ₹ 1,642 Cr translating a growth of 94% YoY with the book size at ₹ 7,820 Cr, an increase of 22% YoY. During the quarter, the double-digit growth in this segment was led by scale up of fintech partnerships and expansion of physical distribution through the DSA channel with focus on salaried prime customers. Our large partnerships business has already started meaningfully contributing to our origination volumes. It was ~12% of the overall disbursements done during the month of December, up from a mere 3% contribution in September, 2024.
• HL/LAP: In Housing, we achieved quarterly disbursements at ₹ 2,475 Cr, up by 24% YoY with the book size at ₹ 23,461 Cr, an increase of 41% YoY, while maintaining a pristine secured portfolio performance.
• SME Finance: Our Q3FY25 disbursements stood at ₹ 1,249 Cr, up by 29% YoY. The book stood at ₹ 5,817 Cr. The growth in business volumes was aided by building additional channels to diversify the existing sourcing funnels.

Let me now hand over the call back to Sudipta to make his closing statements

Sudipta Roy:

Q3FY25 has been a challenging quarter for the entire industry. Our teams have worked extremely hard to deliver a reasonable outcome for us. We are cautiously optimistic that the worst is behind us, and we are hopeful, going into our annual business planning exercise for FY26, that we will be able to continue delivering on our promises of asset growth, profitability and RoA.

I thank you all for a patient hearing. The floor is now open to questions.

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Moderator:

We will now begin the question-and-answer question. The first question comes from the line of Saket Chheda with DAM Capital. Please go ahead.

Saket Chheda:

Congrats on a pretty good set of numbers, more so on MFI front, where we have been meaningfully better versus peers. So, my query was on one of the notes to accounts, wherein we have mentioned about ₹ 250 Cr of provision reversed to P&L account, as is mentioned. But when we see the credit cost ex of the overlay also, it seems that the benefit has not been taken into P&L. So, has that been reserved for the SRs that we would have received against the ARC sale? Just a clarity on that is what I would request.

Sudipta Roy:

Saket, there was a disruption in between. We lost majority part of the question. So, for the benefit of others on the call, can you repeat the question once again?

Saket Chheda:

Sir, my question was regarding the ARC sale related notes to accounts, wherein we have mentioned about ₹ 250 Cr of provision reversed to P&L. But when I see the credit cost ex of overlay also, it doesn't seem that we have taken that benefit. So, is it that we have reserved that ₹ 250 Cr, which was available for the reversal against the SRs that we have. And once that SRs get monetized, that's the time when it will be reversed on P&L?

Sachinn Joshi:

Yes. Thank you, Saket. Thank you for asking the question. There have been some queries on this. You are right. Actually, as per the Ind AS accounting, we cannot take whenever transfer of assets happens to ARC. The provision reversal is just a routine item, which comes as a credit. But 85% of whatever asset goes to the ARC comes back as an investment on the book. So, in this particular case, ₹ 250 Cr got first credited, it got reversed to the P&L. And then the same amount of provision was created when the SRs were created on the books of the 85%.

I will just enumerate the exact chronology and the numbers that have been shown over there. So, ₹ 776.37 Cr was the principal outstanding of the loan transfer. This was the POS. The EAD against this was ₹ 815 Cr, and this ₹ 815 Cr of asset was actually sold at a gain at ₹ 833 Cr. So about ₹ 18-odd Cr of gain was made on this. And 75% of this ₹ 833 Cr was actually booked as an investment, which comes to ₹ 708 Cr. So, against this ₹ 708 Cr, we have, first of all, adjusted the profit made on this because that also cannot be taken to the P&L. So, ₹ 18 Cr was adjusted. And the ₹ 250 Cr, which was reversed to the P&L, was also adjusted against this. So totally, ₹ 268 Cr has been adjusted against the ₹ 708 Cr of SR value. And the net carrying value in our books as of 31st December stands at ₹ 440 Cr. Because both the assets on the loan book also is being accounted through the FVTPL route and the investments are also accounted for in the same way, you can't see the actual provision which has been made, which has actually got subsumed into the financials. Maybe by when we do the 31st March full-fledged financial, this will be visible.

But yes, you're absolutely right that there was no credit taken and adjusted against the credit cost. This is just a setting off, just getting reversed from loan book and getting again adjusted towards the SR security receipts, which has been booked in the books. I hope it clarifies.

Saket Chheda:

Yes. And this was a real estate account, right?

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Sachinn Joshi:

That's right.

Saket Chheda:

Sure sir. That's all from my side.

Moderator:

Thank you. The next question comes from the line of Digant Haria with GreenEdge Wealth. Please go ahead.

Digant Haria:

Thank you for the opportunity. Two questions, Sudipta. First is that you mentioned that in Tractor and Two- wheeler, we have significantly reduced the risk by going more towards the prime segment. So, when I look at your provisioning, even if I remove the whole microfinance-related provisions of ₹ 170 Cr this quarter, we are roughly at a run rate of, say, ₹ 400 Cr - ₹ 450 Cr of provisions for the quarter for the rest of the business. So, do you think that the benefits of this whole moving towards prime and this better underwriting, all of this is already showing in the provisions number or the credit cost can still go down further in the non-MFI part of the business. That's my question one.

Sudipta Roy:

Okay. So yes, Digant, in the sense that the full benefit of all the work that we have been doing is still not visible because it's a gradual process. You have a legacy portfolio at a particular credit profile and you have this new portfolio coming in at a lower credit cost trajectory. Obviously, the new portfolio has to build and the old portfolio has to wash out for the entire benefit of this to be visible. So, I would reckon that it will take a couple of more quarters for this to be fully visible. It is not fully visible yet. However, internally, when we monitor the credit performance of the new portfolio vis-a-vis some parts of the legacy portfolio, that is already visible to us, but it will take a couple of more quarters to fully fructify.

Sachinn Joshi:

So just to add in terms of numbers, if you recall, in the previous quarter, we had made a mention that there were a couple of steps taken, especially on the Farm portfolio, we had stopped the repossession at 90 plus. And there will be an impact on account of this through the roll forwards for a couple of quarters. I think by Q4, that impact should get over. So, one is on the Farm portfolio, this is the impact. On the Two-wheeler, the Tier 2, Tier 3, Tier 4, those kind of cities, the impact which you saw in the Microloan piece, we talked about the rural, there was some impact on account of heat wave and all across the country. So Two-wheeler also, after Sudipta has come in, we have already changed the strategy and started moving towards prime. And as we speak, I think 49% to 50% of our book now is prime. The impact on the credit cost will start as this book starts seasoning, you will start seeing the impact coming into the P&L. And I think 2 to 3 quarters is what perhaps we will take to see the complete benefit of the pristine quality of the Two-wheeler book, which is being built now.

Sudipta Roy:

And Digant, if you see we have put in two additional slides this quarter in the investor deck, which is Slide #23 and Slide #24 where we have given our indexed representation of Two-wheeler portfolio bounce. And you will see that our Two-wheeler portfolio bounce is already at about on an index basis at 84% in December 2024 compared to 100 index in December 2023. So, it is also trending down. And if you look at our sort of net non-starter in our Farm equipment finance business which is basically the number of people who bounce their first EMI. That is at

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25% level compared to the same number in December 2023. That means in December 2023, 100 people bounced the first EMI. In December 2024, only 25 people bounce the first EMI. So, we put this as an index form just to sort of demonstrate the better-quality portfolio that we have been focusing on building. I mean how some of it is showing up in the leading indicators, which is the bounce rate. We consider bounce rate being the leading indicator of credit quality and that is currently trending well. Obviously, this over a period of a couple of quarters will find its way into the credit performance because as the new portfolio builds with these better credit parameters that should obviously translate into lower credit costs.

Digant Haria:

Perfect. Thank you so much for that detailed answer. Second question is on -- Sudipta, on this whole -- this NIMs

• Fees guidance we have it in the corridor of 10% to 11%. But now, let's see, we have done quite well in microfinance versus competition or versus what the general sector is. But that also, maybe next two, three quarters the growth may not be as strong as it was in the past. So obviously, that fees and the fees plus interest income is highest in that division. How do we compensate that given that we are seeing more growth in the LAP home loan portfolio which are obviously at much lower IRR. So how does this whole trade-off work for the next 12 months? And then is the ₹ 100 Cr extra Opex that we saw in this quarter related to collection efforts in Microfinance division?

Sudipta Roy:

Yes. So I'll give you the first -- the answer to the Opex question that's very straightforward. The fact is that this being the festive quarter, we had certain festive-related spends. Secondly, as you are aware and we had informed in the last quarter that we have actually -- we beefed up our collections workforce. So that has got an additional component of expense plus there were certain technology-related expense during this quarter because we have been operationalizing Cyclops across all our lines of business. So, these are the three primary main drivers for some of the increased opex that we have seen this quarter. And so on the NIMs + Fees, yes, there is no easy answer to this. This is a journey that we have told that we are going to travel. And obviously, it's sort of the ongoing credit challenges in the microfinance sector. Obviously, it does not help us sort of -- does not smoothen the journey for us. Obviously, there are a couple of things to this.

First and foremost thing is that we have to increase our fee base. We are working on increasing our insurance penetration. Right now we do insurance only at origination. However, we have a full institution insurance distributor license right now. Now we can sell through the life cycle. That team is building. We are putting together a technology platform for the same. So, we are hopeful that over the next couple of quarters, some more of those fee revenues will come in.

In terms of growth, we are trying to grow our slightly higher yield secured business, for example, our micro LAP business though albeit on a small base, we are trying to grow it. We already have 80 branches. We are going to grow it much more in the next couple of quarters. You can see that personal loans have been growing quite well. Personal loans on a quarter-on-quarter basis has -- on a year-on-year basis has grown by about 94%. Our large partnerships are scaling up well. And one of the things we have noticed is that in terms of digital delivery sometimes you can sort of work on increasing your interest yield without losing too much of expense on that. So, we'll work on some part of nullifications through our personal loans growth. And we are hopeful that even though certain markets of the -- in the RBF business, JLG business, there is stress. There are certain virgin markets where actually, you can safely grow. And I can give you example. There are certain markets that we have ventured into in the last couple of quarters, new markets like AP and Telangana, our collection efficiency is 100%. And we continue to sort of judiciously deploy our branches there. We are focusing on Western UP where collections efficiency trends well. We are focusing on Western Maharashtra where collection efficiency trends well. So, we are finding those pockets in the JLG business where our collection efficiency is trending well and where we can do safe non-leverage business. So, it's a tight balancing act. And I do believe that it will not be easy, but we will try to definitely be within that corridor. Obviously, there is one large sort of part wherein if now possible RBI rate cut or a couple of cuts were to come next year, that will probably ease the challenge a little bit, but we cannot

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