Ladies and gentlemen, good day and welcome to Q2 FY 2023 earnings conference call of Edelweiss Financial Services Limited. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. If you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Priyadeep Chopra, President, Edelweiss Group. Thank you, and over to you, ma'am.
Thank you very much, Aman. Good afternoon, everyone, and a very warm welcome to our results call. Today I have with us on the call Rashesh Shah, Chairman and MD of Edelweiss Group, Himanshu Kaji, Executive Director and Group COO, Ananya Suneja, Chief Financial Officer, Edelweiss Financial Services Limited, and Mr. Ashish Kehair, MD & CEO, Nuvama Wealth Management. We hope you've had a chance to review the investor presentation as well as the addendum on the wealth management business that we filed with the exchanges yesterday. During the discussion, we will be making references to it. Please do take a moment to review the safe harbor statement in our presentation. We will be making some statements today that may be forward-looking in nature and hence may involve certain risks and uncertainties. With that, I'll hand over to Rashesh to begin the proceedings of the call.
Thank you and over to you, Rashesh.
Thank you, Priya, and a very good afternoon to all of you and a warm welcome to the earnings call for the quarter ending September 2022. First of all, I think we must apologize for having this call on the day that India has a match going on. Truly thankful, because I think our board meeting schedule and the analyst call was fixed a long time ago. Truly very thankful that all of you have taken time to be on this call. I hope you and your families all are keeping well. I think this is an important point because we are halfway through this year and this has been a, I think, very interesting year.
The global geopolitical events, the inflation, the liquidity raised by the Fed, even things like, from a larger economic perspective, things like what's happening in the Crypto World, I think there has been a lot of volatility. Amidst that volatility, I think India has been reasonably, relatively more stable. Though our inflation still remains elevated and RBI has been raising rates and liquidity has come down. I think our equity market performance, the rupee performance, all of that has given some confidence that India is more balanced in our ability to weather this storm. If you look at India today, both from the macro and micro perspective, we're actually almost like a golden era where both the macro parameters and the micro parameters.
When I say the micro parameters, I look at companies' balance sheet and companies', you know, growth plans and all of that. Currently, at a micro level, things look very good. I think companies have restructured, there is a reduction of debt. Companies have become more efficient. At the macro level, government balance sheet, all of that is very strong. The only macro issue is the inflation. Overall, I think one of the few phases in India where both the macro and micro look very good. At Edelweiss, our focus has been on building strength and resilience. In the last 5 years, we have spent a lot of time in building this more and more. Our increased focus now going in, we have built enough strength and resilience. Now we want to focus on growth and profitability.
Just to recap, last 5 years, I think the key things we've been grappling with, one of obviously the post-IL&FS NBFC issue and the liquidity, drying up and all. COVID. In the middle of that, we also voluntarily have changed the architecture of the Edelweiss Group in that sense. Earlier, we were one integrated company with a lot of common services, common finance, governance, administration, all of that. We have now truly moved to 8 independent businesses, legal entities ring-fenced capital, ring-fenced people. We have, we no longer have people employed in one company working in another company. That we have cleaned up. Entities are not shared. All entities are. They belong to a particular business unit. Last actually 4 years, that has been also, I think, more than half of our focus.
If about 50% of focus was on managing the NBFC related liquidity issues, and if half the focus was on managing COVID, that half was one half and the other half was changing our architecture. I think changing architecture has been one of the most important changes we have made because this has truly propelled us into a platform where we can actually create a growth in each of the 8 individual businesses. I think the potential, our ability to potentially capture the growth in this has increased manifold. I think in the old structure, even if growth opportunity was there in India, our architecture was a stumbling block. Now I think our org architecture, our leadership architecture, our business architecture, all of them have fallen in place. Of course, all this came at a cost.
There has been a loss of growth and profitability in the last 4-5 years. Hence I said now that we have built strength and resilience via this change in architecture and we managed COVID and managed the post IL&FS issues, we are now getting ready to focus on growth and profitability in the coming years. I think H1 has been a good indicator of that. It has shown healthy profitability across the business. Since our life insurance profit is now for the quarter, back to INR 136 crores for the half year and INR 133 crores for the quarter. So 18% growth on a quarter basis, but a 36% growth on the H1 year basis. The consolidated PAT is also healthy at about INR 93 crores. Of course, we have a long way to go.
Our return on equity, we need to restore it to, you know, good range and all that. Because as I said, last few years we have lost growth and profitability. The change in architecture gives us a lot of confidence that we are now geared to be able to capture that. A lot of our non-credit businesses, asset management, like for example, alternatives AUM, we are now one of the leaders in alternative asset management in India and our AUM has crossed INR 40,000 crores, which is a 70% growth from the. We had a 70% growth in the quarterly gross premium for the general insurance business.
I think our alternative asset management business, our mutual fund business, our insurance businesses have continued to show strong growth including even our wealth management business from client acquisition to top line to profit as you would have seen in the investor presentation. Our customer assets now stand at almost INR 4 lakh crore, INR 3.9 lakh crore, which is a 20% increase. As we have moved to an asset-light capital-efficient model, we want to focus more on customer assets and advisory from third-party AUMs and all that. That has been growing healthily at about 20% a year. You would have seen our balance sheet is shrinking but our customer assets are growing. Our balance sheet is strong, very well capitalized. All businesses have capital adequacy which is much higher than the required norms.
We continue to focus on our key priorities which I will talk about it as we go along. I just want to give you some color on the 4 or 5 key highlights for this quarter. These 5 highlights have been our approach to profit growth, our approach to business growth, our customer franchise, our balance sheet and the update on progress on the key priorities. A lot of this information you would have had in the investor presentation, but we thought we just highlight some of the and give you more color on that. On the profit side, I think as I said last 3, 4 quarters we have seen consistent increase in profit. We still have some way to go to, you know, to get back to the earlier highs. I think the trend is starting to look promising.
Even in the credit business which we have de-grown significantly, the H1 PAT has grown from INR 10 crore to INR 76 crore last year. Our asset management now is starting to grow. Our asset management profit after tax for H1 has been INR 64 crore as compared to INR 37 crore for the last year. Almost 100% growth in the asset management business profit. Our ARC business also has shown about 17% growth for the H1. Last year was INR 120 crore for H1. It's now INR 140 crore. A lot of our businesses are showing profit growth and you would have seen that at a consolidated level also. On business growth also, I spoke about alternative asset management business where we are one of the leaders in that.
Not only our alternative AUM has crossed INR 40,000 crore, we invested about because out of 40 only 20 is invested. Other 20 is tied up, which we intend to invest over the next between 2 to 2.5 years. A couple years ago our invested funds in the alternative was about INR 11,000 crore. We've gone from 11,000 to 20,000 crore of invested and what we call fee paying AUM and that has grown 40% on a YOY basis. I think along with asset management, mutual fund has also grown and we are among the fastest growing mutual fund in India. We are I think ranked 13 largest mutual fund in India. Have shown 20% YOY growth. This has not been a good year for mutual fund industry as a whole.
We are leaders in many segments of the mutual fund market like the passive debt and the debt ETFs and all. Our equity AUM in mutual funds has also shown a 27% growth YOY. Both our insurance business, general and life have grown. Our MI business has grown at 19% 5-year CAGR as we go along. Lastly, our wealth management business, we have an addendum on that because that is a business that is now getting ready to be de-merged and spun off and will be, I think very soon listed, in the market. Wealth management has shown 28% growth in top-line revenue. Its AUM growth has been 22%. More importantly, our profit growth for H1 has been INR 138 crores. The profit for the wealth management business for H1 is INR 138.
Q2 profit has been INR 84 crores. That has been a good growth sign and we remain very bullish on the business and we don't think a lot of you know my shareholders after de-merger we become direct shareholder in that. We'll also get a chance to understand more about the business if we add in that year. Lastly, our credit business has also started growing since we have adopted the asset-light co-lending credit approach. Both in housing and MSME credit, we will continue to grow. Wholesale business continues to de-grow because that is part of our strategy. We want to wind down the wholesale book, and as you would have seen in the last 3 years, there is a significant reduction on that.
The third focus area for the highlight is our customer franchise, which has been the heart of our growth in the last few years. We have not been as focused on balance sheet growth, we have been more focused on customer reach. We now have a customer reach of close to 6 million customers, which is a growth of 23% YOY. Our mutual fund retail portfolios have grown at 32%, and we have now more than 1 million mutual fund investors. Our wealth business has grown 22% , and we have close to 1 million customers. Almost all businesses except credit have customer reach and truly retailization of Edelweiss businesses is also happening. A lot of this is happening by focusing on innovative products, partnership, customer experience.
We do obsess a lot about all that because we operate in these businesses in a very competitive world, and we do feel that understanding customers, coming out with the right products for the customer will can give us an edge. We have shown that in our mutual fund business, alternative asset management business and insurance business. 4th highlight I would like to give is on the balance sheet. The balance sheet, as I said, all businesses are very well capitalized. As we have de-grown, the balance sheet has become stronger because we have more than INR 8,000 crore of equity in a much, much smaller balance sheet. We have reduced our borrowing by INR 7,100 crore over the past 2 years.
Our GE now stands at 2.1, which was 3.3 a year ago, and which was at peak about 5.2. We have come down from 5.2 about 4 years ago to 2.1 now. We carry comfortable liquidity. Part of that is excess earning that, but also the experience of the last 4 years, we and our stakeholders are very convinced that holding good liquidity is also buying good insurance in that sense. As you would have seen a lot of our businesses have capital adequacy of 34% in the credit business and very well capitalized insurance businesses we have. Last item I want to give a update on are the key priorities, which are 3.
One is the demerger of the wealth management business, which has been renamed as Nuvama Wealth Management. Nuvama is the new name of the Edelweiss Wealth Management business, because we are now getting ready for getting that business listed after the demerger. The phase 2 demerger is over. It was a 3-phase demerger. I don't want to go into the technical aspects of that, but as you know, these are very complex processes. We have 3 phases. Phase 2 is over. We got an NCLT order. The phase 3 demerger is going on right now, and we expect to complete demerger and get the shares listed around March 2023. I hope you got a chance to look at the business update of the wealth management business. We have Ashish also on this call.
Ashish Kehair is the MD and CEO of the wealth management business. He has done a lot of work to strengthen the business. The growth you are seeing in the business is all kudos to him and the management team along with him. He'll be also happy to give you more color on that business if you so require. We're scaling down the wholesale loan book. We have reduced 20% in the last 2 years. We further expect almost about 60% reduction from here in the next 2 years. After 2 years we expect the wholesale book to be between INR 2,000-3,000 crores. We continue to monitor if there is any further impairment. We are very convinced there is no more impairment required. We have already taken the impairment.
All of you would have seen last 2-3 years, we have taken a significant amount of impairment on that book. We have written it off. We chose to accelerate the impairment and the provisioning on that business because we wanted to take the pain first and now we are reducing the book. As we reduce the book, a lot of liquidity gets released, a lot of equity gets released, which we can redeploy in other growth areas as we go along. I think the wholesale business in NBFC, which we have continued to say, is not well suited for that. We want to continue to wind down that.
I think along with that, the final comment I would give is what, I think all the internal things we had said to you about 6 months ago and what we had said a year ago, a lot of that on the report card. You've seen my report card saying what we are saying to our shareholders and what we achieved. I think we have made significant progress on that. We have been focused on liquidity and balance sheet strength, and I think there we have come a long way. We now have to focus, and that is, you know, after 2 quarters and after 4 quarters when we chat again, you should hold us to account on that is on profitability growth and business growth and increased digitalization and the Edelweiss Wealth Management demerger.
These are things we are working on, and we hope to continue to show progress on that in a significant way. Thanks a lot for all your support. Thanks a lot for being on this call. With that, we can now open it up for questions if any are there. Thank you very much.
Thank you very much. Ladies and gentlemen, we will now begin the Q&A session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Anyone who wish to ask a question may please press star and one. Any participant who wish to ask a question at this time, then please press star and one. The first question is from the line of Ravi Jain from Astrom Advisors. Please go ahead.
Yeah. Hi, thank you for the opportunity. I just had one question. That we have done a very good job on reduction of our wholesale exposure so far. The planned reduction, which is from INR 8,500 crores to INR 3,900 crores, seems sizable. What are we planning to do different going ahead?
Yeah. Actually, thanks a lot. If you see our wholesale book continues to fall by between INR 2,000 crore-INR 2,500 crore. As you would have seen, a lot of this is real estate housing projects. As the real estate market has improved and a lot of the projects which were stuck are getting completed, the loans are getting repaid. Since we are not doing any fresh disbursement in this book, in the wholesale credit real estate book, we will continue to get about between INR 2,500 crore-INR 3,000 crore of repayment every year. We also getting some of them refinanced. There's a lot of interest that is coming to the real estate market.
As you know, prices are going up, demand is strong and the demand supply equation on real estate has truly improved. We've added total data that we are seeing, this experiential data we are seeing, even in Bombay, South Bombay and Central Bombay, prices are up between 8-10 to 15-20% in the last one year. As prices are improving, a lot of these projects also starting to get completed. 8,500 we should see about 3,000 reduction in the next year and maybe another 3,000 in the year after that, about 2,500. This 8,500 is currently over almost 70 projects. There are multiple projects. We evaluate this project by project. We look at every project.
What is the cash flow expected? What is the NPV of that cash flow? How much we have provided? Are our marks on that correct? We do a full exercise on that and we revise our cash flows every quarter. Based on the current cash flows that we are seeing, we are confident that between INR 2,500-INR 3,000 crores reduction every year in this book will happen in a way in 3 and a half years the book should go to zero because we are in wind down mode. We are cutting down this business. This is actually a non-continuing business for us, the wholesale real estate book.
Okay. Yeah.
Thank you. Next question is from the line of Vinay from Aquarius Capital. Please go ahead.
Good evening, sir.
Hi, Vinay.
Good, wonderful presentation. So you mentioned about a demerger. If you could give some more highlights on a demerger process. Where do we stand? If any approvals are pending and how fast can get it listed?
As I said earlier, Vinay, we are in phase 3 of the demerger. It's in NCLT. We are getting the exchanges and the SEBI approval because it's a wealth management brokerage investment banking business, so we need approval from SEBI and others. I think SEBI approval is in progress to get, after that we get NCLT approval. We expect NCLT approval somewhere around February, even accounting for the Christmas holidays and all. It should take about 4-6 weeks after the NCLT approval for the listing to happen. As you already seen, demergers usually after 4-6 weeks of demerger listing is happening. We have already prepared that.
I think somewhere around March, we should get the listing done and the demerger should happen about 4-6 weeks before that.
Okay. Thanks. Can I add one more question to this, if it is fine? You have one business which is already demerged. What are the other demerger plans you have with subsidiaries you are holding in terms of AMC, maybe insurance or housing finance?
I think our current approach is that we will build business. I think as you know by now our approach is we have these 8, you know, businesses well capitalized. Already the platforms are built. Each of these 8 businesses we've been there for, you know, except for the general insurance business which is about 5 years old. Each of the business we have spent at least 8, 10-14, 15 years in the business as now. All these are very well established stable businesses. We want to grow them. We want to unlock value. Our approach is, when I create value, unlock value. Unlock value in a smart way, like what we are doing in the wealth management.
We are currently, I think the next 2-3 years, as I said, a lot of focus is on asset management and insurance growth and all of that. We will continue to look at options on how to unlock value. We don't have any plans that we can announce as of now.
Thank you.
Thank you.
Thank you. Next question is from the line of Praveen Agarwal, Arjun Investor. Please go ahead.
Hello, Mr. Shah. Regarding the alternatives business, the alternative business has been a significant growth over the years and the leadership has been in private banks only. Any plans of diversifying away from private bank into maybe private equity or anything?
We keep on, I think, evaluating it. As you correctly said, we are seeing so much growth in private debt, like a lot of our funds are now on their third fund. You know what happens in alternative business, as the vintage gets older, as you go from fund one to fund two to fund 3, a lot of your, you know, your investment capability, management team, everything is got made. Currently, I think we think private debt is a great differentiated opportunity. As you know, private equity is a great opportunity in India, but it's also a very competitive space. There are a lot of private equity funds. In private debt, we are the leaders.
We are, you know, one of the pioneers, and especially what happened in the last 4 years, you know, with NBFCs and mutual funds not able to do private credit. A lot of that is slowly and steadily starting to move into the private credit space. Structured credit, private credit, special situations, tactical opportunities, whatever you call them. You know, private equity in India started about 20 years ago. I think private credit in India started about 3-4 years ago. Private credit is also a new emerging field. We are well-established. Currently, we have no intention to expand. We are in the process of raising new funds in this, in the private debt also. Also, in private debt, it's not one category.
We have almost 4 or 5 strategies, and we have about 8 or 9 funds. It's a pretty diversified. We are in infrastructure strategy, real estate credit strategy, distressed credit, performing credit. The private credit space also is a fairly large space with different strategies out there. There are some significant entry barriers. Maybe at a future date when we have a review on that particular business, we'll add an agenda on that. There are significant advantages we enjoy in scaling it up. We have now only gone to INR 40,000 crore. We think the space is fairly large, and we have a lot of investors, and we have some great fund management teams already built. We have the performance and the track record of the last 8-10 years in that business.
Mm-hmm. Right. Also a follow-up question, Mr. Shah. Since you mentioned the scale, given this current scale, I have a feeling that the operating leverage we have already kicked in. Can you give us a sense of how do you see the profitability of the business in terms of the scale and income streams? And any guidance on carry or when will this kick in?
Actually, I think operating leverage is a very important question, especially in private credit space, because you would have seen in the presentation and what I was speaking earlier. Our AUM is INR 40,000 crore. Our fee-paying AUM is only half of that. We are in fees only on INR 20,000 crore. The other 20 is not deployed yet. As you deploy that, you have no real increase in cost because it's the same management team, the same operating cost you have. Last one year we would have deployed about INR 8,000 crore is what I would think. We are now at a stage of strategies, we are deploying about $1 billion a year. As we deploy the dry powder, because out of 40, as I said, only half is deployed, other half is dry powder.
As we deploy that, the fees on that should come in. There is a one operating, like, you know, without increasing cost, you will get increasing fees and all. Part of the growth in the asset management profit you are seeing is coming out of that.
Mm-hmm.
The other factor of profit growth is your carry. Usually carry comes when a fund is after 3, 4, 5 years old, when the carry starts coming in. A lot of our funds have been deployed. I mean, last 3 years, we would have deployed almost 75% of this, deployed INR 20,000 crore has been deployed in the last 3 years. I would think now a lot of this will be 3, 4 years, and by coming year, we should start seeing the carry upside also. You know, we should start coming in. Usually carry as a profit comes after 3- 4 years of the fund. You should also look at the vintage of the fund. I think the way to understand is how much is your AUM? How much is your fee-paying AUM?
How much of that fee-paying AUM has been deployed for more than 3 years? Is there a carry that is also coming into that? We think from the next year onwards, the carry income stream should also start kicking in. How much? It will be a function of the returns we make.
Interesting. Thank you, sir.
Thank you. The next question is from the line of Prakhar Agarwal from Elara. Please go ahead.
Yeah. Hi, thanks for the opportunity. This first question is for Ashish. Ashish, how is the wealth management business different, when you look it from competition perspective and some of your aspirations from that side of the business, if you could highlight? I have a follow-up question I'll probably ask later.
Thanks, Prakhar. See the way we look at it, there are a couple of dimensions on which business is actually built. The first dimension on which I think we are different is the whole target addressable market or the TAM. Typically, most of our peer group operates in the ultra-high net worth segment, except of course banks, which are in retail and affluent. Specialized standalone wealth managers like us are largely in the ultra-high net worth segment, which has its own supply constraints. Whereas we operate from affluent plus to ultra-high net worth. That gives a much larger canvas for us to play, significantly lesser supply constraints, technology leverage, lower cost base and so on and so forth. You know, this also is a business which can be built over time.
It takes a long gestation period because of the whole granularity of it. Once you build the platform, then ability to scale is significantly easier. That is one dimension. Second, I think where we have consciously focused and differentiated is building a more comprehensive product platform. When a client comes on any wealth management platform, and there are a couple of needs which, you know, the wealth manager can address. It could be investments. Now, investments can be on an exchange, it could be of a managed product. Under our umbrella, actually the client can execute across the board. There are players where you can only buy, let's say, managed products, you can't do broking or some can't do lending.
We will have everything under the same umbrella, which basically allows the relationship person to add more value to the client and therefore monetize the clients more. Third, we are, you know, very strongly supported by a alternative investment management and investment banking business, which also helps at a promoter level. When you have an investment banking business, you not only are addressing the wealth and savings needs of the client, but you also work with them on their aspirations on the business side. Ultimately when they monetize, you get the right result. It's really the platform synergy and the TAM, which I think very heavily differentiates us from rest of the competition.
Thanks, Ashish. Some aspirations from that side of the business if you could highlight, maybe over 2-year, 3-year period, how do you expect to do in that side of the business?
I think we are blessed with this favorable tailwind. You know, I've always maintained this business is in a very nascent state, not only for us but for everybody. We can, I think the way we look at it, there is a stock of wealth and there is a flow of wealth. The stock of wealth basically compounds anywhere between 8%-12%, given the combination of debt and equity which you have. Flow of wealth is the new money which gets added either by the new clients which you acquire or the existing clients, which top up or, you know, an incremental flow of clients. If you put the two together, I think, at a base level, anywhere between 18%-20% is where you will see the AUM or the money which gets managed to grow.
On top of it, if you can innovate with some products or something. Between 18%-22% is a safe level of growth which you can consider in the industry per se. Better players will execute more. I think we should aim for anywhere between 20%-25%.
Perfect. Just one last bit from me. Have you guys transitioned completely from Edelweiss?
There were multiple areas of transitioning, because we were actually joined at the hips. There was a technology transition. There was, you know, logistical transition, like your emails. We've done most of it. I would say we are 90% done. The key, or the critical ones like our trading servers, data centers, all that is now done. I think last mile remains about 5-10%. In another 2 months that should get over. The reason, the transition is actually the reason why, you know, some of us were skeptical apart from the cost we have gone up this year because that led to the duplication because we had to have overlap because these are certain mission critical systems. You have to have fall back mechanisms and this will all fall off in the next year.
By December of this year, I think, for all practical purposes, it will be completely independent. By the time we list, I think whatever little remains will completely go out.
Got it. Much appreciated, Ashish. Thank you so much.
Thank you. The next question is from the line of Vishal Sakwate from JP Consultants. Please go ahead.
Hi, Rashesh and Ashish, I have a question. Your half-yearly PAT trend looks healthy. How do you think will this be sustained in the you know H2 and what will be your key drivers of profitability? I have another question on the MSME side also where the PAT looks a little lower compared to the sizable AUM it has now. What will be your game plan to further enhance your profitability for MSME?
I think as you said the H1, PAT has been encouraging. We hope to maintain this, but as you know, I think a lot of this is coming from stable areas like wealth management, asset management, wealth management, mutual fund. As you've seen the credit business also showing uptick.
Because as our co-lending model is starting to fall in place as our wholesale book is very wholesome. We remain positive. I think, last 3- 4 quarters you could see there is a consistent trend in terms of business by business. I think that is what we have given actually each of the business, profit after tax. We hope to maintain that. Mutual funds, I think there are 2 things we are still continuing. One is we are investing in the business and maybe the H1 was slightly affected because of some mark to market in our funds that we have because we also have a little bit of investment in the funds as well. There was a little bit of mark to market as interest rates went up.
Lastly, we continue to invest in that business and the AUM growth we are seeing. It is looking at a PNL cost in that sense and I think it will continue for another one year. We are still not really harvesting the potential profitability of the mutual fund business or the AUM we have because we would rather invest it back because now I think a lot of things, our product strategies, our, you know, our distribution strategy, all of that is starting to fall in place. We would like to continue the momentum of AUM growth and customer additions in the mutual fund business, which will have some PNL impact and that is what you are seeing.
Sure. Thanks. Thanks, Ashish. Thank you. Next question is from the line of Hitesh from Citibank. Please go ahead.
Thanks, Ashish, for your very insightful presentation. Just wanted to do a follow-up on a point you had mentioned in your AGM that you'll be looking at value unlocking in other businesses like life insurance and housing finance companies. Could you throw some light on what's the management thinking on these businesses? You know, I have a follow-up question on the mutual fund business. Any plans for IPO for this business as well?
Currently there are no plans for the mutual fund business. You know, as I said, I think the next 2-3 years we want to continue to grow. That business is still relatively young in our eyes and I think we need to continue to maintain the momentum we have. No plans on the mutual fund side for IPO. On the life insurance, we would like to do some partnership which gets us distribution. As you know, a lot of our current distribution is half agency and other half is corporate agents and bancassurance and direct and online. We would like to increase and grow the bancassurance franchise and all that.
Now, as you've seen, you may have seen IRDA increase the number of insurance partners banks can have from 3 to up to 9 partners. We would like to capitalize on that and look at some value unlocking by giving stakes to strategic investors who can bring us distribution and we would think along those lines. It will take about a year for us to get something in place, but that is one way of unlocking value. I think our businesses we will wait until the profitability happens, which is about 2026 or so for the insurance business with both the life and general insurance before we think of listing them. Housing finance business I think we are building a fairly unique co-lending model on affordable housing.
Obviously others are there, we are not the only one, but it's a fairly differentiated model. We have some early wins on that. We would like to spend the next year or 18 months on consolidating, proving that model before we even think of IPO or strategic sale in that business. As of now that business is very well capitalized. Capital adequacy is close to 30%. We want to get this co-lending affordable housing business model strongly validated over 4 quarters before we look at that. Our idea would be as we have done with Edelweiss Bank, either through IPO or spin-off or demerger, constantly look at if that business is at a scale and size where it can be listed on its own and can also unlock value for Edelweiss and its shareholders, we are committed to that.
Thanks, Ashish.
Thank you. Next question is from the line of Salil Rajimaksa as a personal investor. Please go ahead.
Hi, Ashish. I just want to compliment you on the excellent job that you all have done over the last 3 years in getting all the different businesses in order and independently managed, et cetera. My question is with respect to the wholesale book. You've done a lot of work to get it down to INR 8,500 crore, but you need 3 years more to get it down to INR 2,900 crore. That's a significant amount of time and I was wondering whether there's a wholesale way of solving the wholesale book problem. Is there a way you can just sell that book entirely even if it's a haircut of 10% or whatever and release all that equity? That's my only question.
Good question, Salil. I think it's a career question we constantly evaluate. I think there are inorganics. Basically what you are saying is you can organically reduce the book or you can do inorganic, or you can do a combination of both. I think our approach would be to do a combination of both because A, I think the market doing just one shot entire book sale will be very expensive. To give you an idea, there are a lot of these hedge funds and special situations funds who are always looking for portfolios, but they would like a return of 20-25%. A lot of our assets are good enough, which can give you 15%, 18%, 20% IRR also and these projects are.
The answer to your question would be when we see the cash flow coming in the next 18 months or 2 years, we would rather reduce it organically project by project. Once where we think our cash flows are beyond a level, the IRR is there is no impairment risk on the cash flows because that project has got phase 2, phase 3, phase 4. Those can we do it inorganically, we would be happy to do that, it might come at a slightly higher cost because the return that the new buyer will want will be slightly higher than the return the portfolio is earning. It can shorten the, you know, the release of cash for us. I think our approach would be organic plus inorganic. One short answer is not really possible or always advisable.
If you go for that, the cost is gonna be too high. People will take the portfolio, keep the risk still with you by having covenants or a junior tranche and all that. You don't get anything. You're just kind of giving away a lot of value. Because remember, this is a book of INR 8,500 crore. Only INR 5,000 crore is borrowing. There is a notional INR 3,500 crore equity of ECL Finance. If you look at ECL Finance and our HDFC has an equity capital of INR 3,900 crores. There is a INR 3,500 crore equity out there.
Yeah, that equity will still be trapped, and we'll end up paying a high cost, and they come back to us after 2-3 years, which is, look at any wholesale one, you know, one-stop kind of an answer. It's not really a problem because all projects are different. All projects have different management. We have a management team out there, which is overseeing this. We think there is significant value. You should also remember, as the real estate prices are improving, certainly not to be greedy, but there could be potential upsides also because we have taken impairment. As the prices increase, maybe our recoveries will also be, you know, better.
We have seen that in the past when Essar Steel was sold to ARCs and all that, and ultimately recoveries are good. When assets are good, recoveries are good. You just need to be patient. It's not really affecting us, Salil Bawa. It's maybe affecting some skeptics in the stock market about, okay, wholesale book is still a problem. I think anybody who wants to understand and study, having seen this over the last 3 years, I think last 3 years were trying under IL&FS when the real estate market was down, and we have navigated that well.
Having done all this, I don't know what I will advise a lot of our, you know, different stakeholders we have because at some time some people may feel it better to do one stock, maybe take INR 1,500 crore-INR 1,800 crore cost on that. The other is to do it in a very thoughtful manner. The third is just, you know, pay it out and extract everything you can. I think our approach is more to the middle one. Don't be greedy. Do be thoughtful about it, but do it in a way. By the way, we have done that. If you've seen in the last 3 years, we have done inorganic also.
We have done about INR 4,000-5,000 crores of inorganic sales through AIFs and other hedge funds of assets which required last mile funding, but it also required some holding power. That's our approach. We continue with that. We feel confident that there is the equity investments have been released. There could be maybe upside in Indian promoters as well. We are in the market as well. We also have AUM under control. If AUM is under control, if impairment is done, we just have to do our work and deliberately get capital released one by one. It might give a sense of relief if we just do one short answer to this, but it'll come at a cost which can be anywhere between INR 1,000-2,000 crores of additional cost.
Thank you, Ashish.
Thank you.
Next question is from the line of Mohit from NC Advisors. Please go ahead.
Thank you. We've seen a rapid growth in your general insurance business. Given that you're a late entry to this competitive space, what are you envisaging as your differentiator to continue the sustained growth?
Actually, I'm happy you're asking this question because I know we end up spending a lot of time on the HDFC business and maybe the wealth management business, how effective is the business. Insurance business is also a very important part of of us and our future. As you very correctly pointed, insurance is not where we are the natural players. There are large government-owned companies like in life insurance there is LIC, then there is State Bank, and there is HDFC Life, HDFC, ICICI, Tata, Bajaj, Tata, Birla. I mean, it's a very competitive field. Still we have in our life insurance business grown at 23%. The same thing is about general insurance. The good thing about general insurance, it's an industry which is getting disrupted very quickly.
You would have seen other, you know, digital players, insurance players like Policybazaar and ACKO and others. There is a lot of excitement in that particular business. Our differentiators have been product innovation. If you go to our site or if you go to our investor presentation, the number of product awards our general insurance business has been getting has been outstanding. We do focus a lot on product innovation. Not just product innovation for the sake of product innovation, but product innovation that meets the customer needs. Being a late entrant in a field that is changing very fast and disrupting itself is also an advantage because we don't have any barriers to scale. Even if a product gives us INR 40 crores- INR 50 crores of annual GWP, we are happy to try that product.
If you're a large company, they don't really move the needle for you. For us, it allows us a lot of innovation. When IRDA announced the sandbox guidelines, we are one of the large players in that. We have a lot of products in the sandbox. One is product innovation. Secondly, we work a lot on customer experience, especially health insurance and motor insurance. In motor insurance, about 18%-20% of the customers who buy insurance will have a claim. Your claim experience matters a lot. Same thing goes for health. Experience matters a lot. We all think a claim is a claim. A car insurance is a car insurance. Once you have made a claim, you realize that not all car insurance is the same.
We do work a lot on customer experience, customer insight, customer feedback, NPS scores and all, because that is our other edge. The third one that we have is we are very careful about how we use our capital. We have spent about INR 500-odd crore in that business and with this change, because we've been also very efficient. I think we would have easily spent a lot more capital to reach the same place. I think in these 3 places, because then the capital we have, we are actually deploying it a lot smartly, and we have almost an 80%-83% growth in that business. I think in an exciting field, because we are 5 years old, I
To give you an idea, because we were the late entrant, we were the first insurance company in Asia to be cloud-native. We started on the cloud. We had no architecture which was not cloud. Almost everything we do starts with APIs in that business. Being a late entrant gives you a lot of architectural flexibility because you don't have the legacy bag and baggage of all that. We are very excited by that. It's still early yet. I would tell all our stakeholders that wait and watch for 2-3 years. We still have to prove ourselves in both the insurance businesses. In the last 4-5 years, we have seen in spite of COVID, in spite of all the other upheaval that was going on, both our insurance businesses continue to add significant clients and growth in that.
In fact, our health insurance business now has close to, about approximately, 3 million customers.
INR 3 million.
Yeah. Our total reach has now crossed 4 million customers in this business. There are 4 million people in India who bought our insurance product. Though we are known more for capital market and asset management and others, even in insurance, I think our businesses have made inroads into that. We are still small, and we have a long way.
Okay, sir. Sir, a follow-up to that. Could we look at any JVs or strategic partners and any guidance on breakeven for this business?
Breakeven in the life insurance, our next target is ambitious value breakeven, which we should hit in the next 4 quarters. Because hitting breakeven is an important one. Accounting breakeven should be 26 or so, given the last few quarters. The general insurance business should also break even around 26. Our current gross written premium in general insurance is about, so we're averaging about INR 50 crore a month. That is the scale of that business. We want to continue to grow. We think the general insurance business industry will grow at about 18% a year for the next 4-5 years. We want to grow with that and obviously gain some market share on that. We own 100% of the general insurance business. We are interested in strategic partners.
We don't need partners for capital in that business. It's well-capitalized. We need partners who give us either strategic inputs, either in distribution or in product and technology. Large global firms who are good in digital insurance and all that, we'll be happy to talk to them. We speak to them all the time. When we find the right fit, we'll obviously go forward on that. On the life insurance, as I said, I think a banking partner, banking capital is an important opportunity for us, especially given the changes that IRDA has announced in how many partners a bank can have. We'll also be looking at that. Both these businesses are well-capitalized, and the capital is in place, so we don't need to dilute or capital-intensive in either of those businesses.
Okay. Thank you, sir.
Thank you. Thank you, ladies and gentlemen. In the paucity of time, that will be our last question for today. I now hand the conference over to Ms. Priyadeep Chopra for closing comments. Thank you, and over to you, ma'am.
Thanks, Aman. Thank you very much, everyone, for your time today. Please do write in to us at Investor Relations at Edelweiss for any questions and additional information that you may need from us. Once again, thank you for all your time, and we hope to keep in touch. Bye.
Okay. Have a good evening. Bye.
Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Edelweiss Financial Services, that concludes this conference call. Thank you all for joining us. You may now disconnect your lines. Thank you.