Tata Capital Ltd (TATACAP) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to the Tata Capital Q2 FY '27 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 the conference call, please signal an operator by pressing star, then zero on your touchtone phone. I now hand the conference over to Mr. Rajiv Sabharwal, Managing Director and CEO of Tata Capital. Thank you, and over to you, sir.
Rajiv Sabharwal (Tata Capital Ltd): Thank you very much. Good evening, everyone, and thank you for joining us today. Let me begin with a brief overview of the macroeconomic environment and its implication for the financial services sector. The Indian economy continues to demonstrate resilience, supported by domestic demand and investment. GDP grew by 7.8% in FY '26 and sustain and sustained the same pace in Q1 FY '27, reflecting strong economic momentum. While external uncertainties remain, the underlying growth outlook continues to be constructive. However, a sub-par mans- monsoon and El Niño are affecting food prices, while prolonged tensions in West Asia continue to exert pressure on fuel prices. Headline inflation has subsequently firmed up to 5.54% in September. We are monitoring these developments closely, particularly their implications for consumption and the interest rate environment. Credit momentum remained healthy through the second quarter, with bank lending growing by over 19% in September and NBFC lending by about 16% in August. Activity remained broad-based, aided by sizable FCNRB inflows and strengthened banks' deposit base. Growth in bank credit was also partly supported by funding substitution as elevated bond yields prompted corporates and NBFCs to increasingly turn to bank borrowings. Overall underlying demand across the lending channels remains healthy. In October, the MPC raised the repo rate by 25 basis points to 5.50% and shifted its stance from neutral to calibrated tightening amid rising inflationary pressures from food and energy prices. Given the evolving inflation outlook, we anticipate about two further rate hikes in this financial year.
Rajiv Sabharwal (Tata Capital Ltd): Liquidity conditions remained comfortable in surplus during the quarter averaging nearly 5 lakh crore supported by robust foreign currency inflows. More recently, RBI has been calibrating liquidity conditions through the open market sales and daily CRR maintenance requirements, resulting in surplus liquidity moderating to a level below 1 lakh now. Consequently, we expect marginal funding costs to rise progressively, and overall funding conditions to become less accommodative over the following months. Looking ahead, the RBI's upward revision of its FY '27 growth forecast to 7.1% signals continued economic momentum, although the pace is expected to moderate from the first quarter. While geopolitical tensions in West Asia pose risks to inflation and currency stability, and an uneven monsoon could exert pressure on food prices and rural demand, industrial activity and festive season demand are expected to provide support and partly offset these headwinds. In this environment, disciplined underwriting, prudent pricing, sustained sustained asset quality, and capital-efficient growth will remain key priorities for lenders. Now, let me turn to the key highlights for the quarter. Performance snapshot. Quarter 2 of FY '27 saw broad-based growth, stable asset quality, and improved operating efficiency, reflecting disciplined execution across businesses. As of September 26, consolidated AUM crossed the 3 lakh crore milestone and stood at 3,08,030 crores, up 26% year-on-year and 6% sequentially. Excluding the motor finance business, our AUM grew by 32% year-on-year and 7% sequentially. Consolidated profit after tax for the quarter stood at 1,660 crores, registering a growth of 51% year-on-year and 7% sequentially. Return on assets stood at 2.3%, which excluding motor finance was 2.5%. Our ROE stood at 14%. As far as housing finance business is concerned, Tata Capital Housing Finance continued its strong performance trajectory during Q2 FY '27. AUM reached 95,098 crores, growing by 26% year-on-year and 6% sequentially. The portfolio remains well-diversified across home loans, loans against property, construction finance, and affordable housing. The affordable and micro housing portfolio within Tata Capital Housing Finance grew at 22% year-on-year and 5% sequentially. As we continue to deepen our presence in underpenetrated markets, we expect affordable housing to progressively become a larger contributor to our overall growth. During the quarter, Tata Capital Housing Finance Limited reported a profit after tax of 552 crores. ROA stood at 2.5% and ROE at 18%. Let me take you through our performance across our four key themes and updates on our digital and AI initiatives. Book growth: I'm pleased to share that Q2 saw sustained disbursement momentum across our all our businesses. Consolidated disbursements increased by 29% year year-on-year to 51,665 crores supported by healthy growth across businesses. Our consolidated AUM grew by 26% year-on-year and 6% sequentially. Excluding motor finance, AUM grew by 32% year-on-year and 7% sequentially. Within this, our housing finance segment continued its strong momentum delivering a 26% year-on-year AUM growth. Retail and SME portfolio account for 85.4% of our AUM, remains the cornerstone of our strategy, driving sustainable growth, greater resilience, and superior risk-adjusted returns. Our high-margin businesses continue to show robust growth. Disbursements across these businesses grew by 40% year-on-year, while AUM growth increased to 14%, up from 10% in Q1 while maintaining healthy yields. With disbursements continuing to outpace AUM growth, we expect these businesses to contribute increasingly to margins and ROA. Distribution and customer reach: During the quarter, we continue to grow our branch network with net addition
Rajiv Sabharwal (Tata Capital Ltd): 24 branches and expanding our footprint to approximately 1,515 branches across 1,094 locations in 26 states and Union Territories. The additions were primarily focused on scaling our growth businesses with affordable housing and micro housing expanding into 23 new locations during the quarter. We will continue to deepen our presence across these businesses by expanding into new geographies. Our phygital distribution model enables us to expand efficiently across existing and underpenetrated markets while leveraging a customer base of over 9.2 million to deepen customer relationships and unlock cross-sell opportunities. Overall, our growth remains healthy and diversified, supported by strong focus on portfolio quality. Our continued investments in distribution, technology, data, and product capabilities strengthen our ability to navigate business cycles and withstand external shocks. The second theme I would like to cover is asset quality. Credit costs declined 17% year-on-year, driven by improvement in the retail portfolio. The annualized consolidated credit cost for Q2 FY '27 stood at 0.9% compared to 1% in Q1 FY '27. Gross Stage 3 assets remained stable at 1.9% as of September 2026, while the provision coverage ratio improved to 59%. Slippages remained benign across the portfolio. This performance reflects the strength of our portfolio, disciplined underwriting, and robust collections infrastructure. Our portfolio remains diversified and granular across secured and unsecured retail, housing, SME, corporate, and motor finance segments. We continue to closely monitor evolving macroeconomic conditions and business trends. Based on current indicators, we remain confident in our risk-calibrated approach and the underlying resilience of our asset quality. The third theme I would like to touch upon is our funding, capital, and liquidity. Our AAA credit rating continues to underpin a well-diversified and stable funding profile. Through a disciplined ALM framework, we continue to optimize our borrowing mix while proactively managing liquidity and interest rate risk. Our cost of funds increased marginally from 7.28% in Q1 FY '27 to 7.33% in Q2 FY '27. Total borrowing stood at approximately 2.61 lakh crores as of September 2026. The borrowing mix remained well-diversified with bank loans accounting for approximately 39%, NCDs 35%, ECBs and MTNs 12%, and commercial paper and WCDL at 9% and NHB borrowings and other 3%. NIM declined marginally, primarily due to a modest increase in cost of funds and a slight moderation in yields at mortgage business. Our asset-liability mix provides us flexibility to manage interest rate movements, with 48% of our liabilities on floating rates and 66% of our loan portfolio on floating rates, enabling us to reprice our floating assets in response to benchmark rate increases. In response to the repo rate hike and the evolving interest rate environment, our ALCO has approved a 20 to 25 basis points increase in PLRs across products in the floating rate portfolio. This is expected to help sustain NIM plus fee in Q3 and support an improving NIM plus fee trajectory from Q4 onwards. Our strong capital position, diversified liability franchise, and prudent liquidity management provide us with sufficient headroom to pursue growth opportunities while absorbing potential market volatility without compromising on financial discipline. As of September 2026, consolidated equity stood at 47,778 crores and debt to equity at 5.5x. Tata Capital standalone capital adequacy stood at 17.3% with CET1 at 14.7%, comfortably above regulatory requirements. We continue to maintain prudent liquidity position with total available liquidity of approximately 36,400 crores. Our fourth theme is operating leverage. Our cost-to-income ratio improved by 438 basis points year-on-year to 35.3% in Q2 FY '27, while cost to average assets remained well-contained
Rajiv Sabharwal (Tata Capital Ltd): 2.3%. As of September 2026, our on-roll employee strength stood at 31,655 with over 80% deployed in front-line sales and collection. Against year-on-year AUM growth of 26%, our headcount increased by just 6%, reflecting sustained gains in employee productivity and operating leverage across the organization. Our investments over the past few years in technology, data, infrastructure, artificial intelligence, and distribution are increasingly translating into structural improvements in productivity, operating efficiency, and scalability. Looking ahead, we remain on track to deliver our medium-term guidance with operating leverage expected to be an important lever of further improvement in ROA. At Tata Capital, talking about our AI initiatives, technology is deeply embedded in our operating model and AI has become a key pillar of our digital-first strategy. We are building an AI-first NBFC, leveraging AI across lending value chain to enhance customer experience, improve productivity, strengthen risk management, and create a scalable operating model for future growth. The focus is no longer on isolated use cases, but on enterprise-wide, AI-led transformation. Our strong digital DNA is reflected in the scale of adoption across the customer lifecycle. Today, 99% of our customers are onboarded through digital channels, 98% of retail disbursements are enabled through scorecard and business rule engine based decisioning, 99% of collections are through digital channels, and 98% of our customer queries are digitally addressable. We have also built a network of over 180 digital partnerships, significantly enhancing customer reach and accessibility. AI is now embedded across customer acquisition, underwriting, operations, servicing, and collections. In customer engagement, AI generated content powers the majority of marketing creatives and campaign communications, while AI led onboarding initiatives have enabled over 30 lakh customer interactions. In underwriting, our AI-powered credit intelligence and decisioning engines have processed over 7.8 crore documents and have achieved over 95% adoption across personal loans and business loans underwriting, resulting in meaningful improvements in productivity and turnaround times. Across operations, AI led workflows now process approximately 70% of retail applications, driving productivity gains, faster turnaround times, and lower operating costs. In servicing, AI powered voice and email platforms are enabling automated customer interactions, same day query resolution, and significantly lower cost to serve. AI is also strengthening portfolio monitoring and collections through automated risk surveillance, stock audit monitoring, and AI assisted customer engagement, contributing to stronger collection effectiveness and operating leverage. Importantly, we continue to invest in the foundations of an AI led organization through enterprise AI platforms, robust governance, and workforce enablement. Together, these initiatives are helping us deliver faster turnaround times, higher productivity, better customer experience, lower cost to serve, and stronger risk monitoring. Alongside these transformation initiatives, we remain equally focused on navigating the evolving regulatory landscape. On the regulatory front, we continue to engage proactively with evolving regulators across key areas. On the revolving credit, the SRO FIDC has submitted its recommendations to the RBI. We await the final guidelines and hope they will adequately address practical customer requirements. In parallel, we are also evaluating alternate product structures to mitigate any potential impact. On insurance, the draft proposals are under discussion and we have submitted our feedback to the regulators, both directly and through the industry forum. While the proposed changes could have implications for the industry, it is premature to quantify the impact until the final regulations are issued. Insurance remains an important risk cover for our customers and an integral part of our underwriting framework. We, therefore, continue to see a strong underlying need for these products and will assess the implications more clearly once the final guidelines are available. To conclude, Quarter 2 FY '27 was another quarter of healthy diversified growth underpinned by strong disbursements,
Rajiv Sabharwal (Tata Capital Ltd): and the resilient asset quality and disciplined execution. We remain focused on building a larger, stronger and more resilient franchise through prudent risk management, customer-centric innovation and consistent execution. We are on track to deliver on our guidance across all parameters and remain confident in our ability to sustain growth and create enduring value for all our stakeholders. Thank you for your continued trust and support. We will now be happy to take your questions.
Moderator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, may please press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset and also to limit their question to two per participant. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Shreya Shivani from Nomura. Please go ahead.
Shreya Shivani (Nomura): Yeah. Thank you for the opportunity. And congratulations on a good quarter. My first question is on your FY '28 guidance. So, you've spoken about how you're expecting two more rate hikes and we are in a rising rate environment. So, any thoughts on or any revision that you'd like to make on the ROA, ROE guidance that you have given us for FY '28, given that in a rising rate environment we can never be sure if you'll be able to grow your new portfolio in the deeper geographies by hiking lending rate? That's my first question. My second question is on the rural exposure. So, while we know that MFI is about 90 0.9% of your mix, is there any other segment product via which you are exposed to the rural or to the agri markets or or if you can give us any details of how much exposure do you have in the states which are hit by drought, Maharashtra, Telangana, Andhra Pradesh, Gujarat, Rajasthan? That's my second question. And my last question is on the Tier 1, we are under 15% now. So, any commentary around that would be helpful. Thank you.
Rajiv Sabharwal (Tata Capital Ltd): So, thanks Shreya. First of all, talking about the guidance, we have given a detailed guidance on growth, cost to income, credit costs, as well as PAT growth and ROA and ROE. We are fairly confident of meeting each of these requirements. In fact, some of them we have already met. And we see no challenges on meeting all of them. I don't think so we have any doubt on the same. As far as and we don't want to revise anything. We will look at the end of the year if we want to revise on the upward side, but we are not looking at revising anything below. As far as the rural portfolio is concerned, our presence in rural is only through the microfinance business and if we look at the you know, microfinance business, it forms less than 1% of our book. In fact, we are seeing an improving trend on portfolio quality in microfinance, as well as on the on the growth side in microfinance business. So, so that is positive for us. We do not have any presence in tractor or farm loans, so that doesn't impact us. In fact, we've also looked at our portfolio in Maharashtra, that portfolio is you know, we hardly have any presence, even in microfinance in Maharashtra. So, we're not concerned on any impact of drought or any other thing as far as rural portfolio is concerned. On the capital based on the current growth plans, we expect to raise capital sometime towards the second half of FY '28. We will keep evaluating our capital position as the business grows, and we'll take a call at an appropriate time, but that's the plan as of now.
Shreya Shivani (Nomura): Right. Thank you. And sir, just one follow-up on the PLR increase of 20 to 25 bps that you received your board approval on, is that from today or did you already do it from 1st of October?
Rajiv Sabharwal (Tata Capital Ltd): So, PLR is that decision is taken by the ALCO, and ALCO took a decision of increasing it by 25 basis points. That's what the Tata Capital ALCO decided. Tata Capital Housing Finance decided to increase it by 20 basis points. And both the increases would be effective from 1st of November. All
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