Ladies and gentlemen, good day and welcome to IIFL Finance Limited Q4 FY 2022 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an option ready 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to the management. Thank you, and over to you, sir.
Good day everyone. I'm Rajesh Rajak, Chief Financial Officer. On behalf of team IIFL Finance, I thank all of you for joining us on this call. I'm accompanied by Mr. Nirmal Jain, our managing director, Mr. Monu Ratra, CEO IIFL Home Finance, and Mr. Venkatesh N, CEO IIFL Samasta Finance. I'll now hand over to our managing director to comment on the overall economy and the group strategy and plan.
Good afternoon, everybody. I'm Nirmal, and a warm welcome to our earnings call. In terms of macro environment, currently, the global news is not very encouraging because we keep hearing about, inflation rising in most of the large economies. War, which is happening in Russia and Ukraine, also the resurgence of pandemic or the fear of that. But amidst this, the good news is that, India is going to be the fastest-growing economy in the world this year. I don't think there's too much of any contradictory views on that. Given that, investors cannot ignore this regardless of their views on the short-term valuation. Having said this, inflation, particularly CPI, which has been around seven...
Hovering around 7%-8% may taper off a bit, given that the monsoon news is good. Expectation that there'll be a normal monsoon this year. Despite that, and, you know, given that there's interest rate increase in most of the countries around the world, most analysts would expect about 50 basis points-75 basis points, maybe 75 basis points interest rate hike in India this year. Domestic credit growth has not been strong, but it appears that it might pick up now in the remaining part of the year. For our inflation interest rate, and that will impact growth. The key factor to watch will obviously be oil prices, but we hope that, under the circumstances, it's very unlikely that oil will go significantly higher than $100.
You know, on top of that, I think liquidity in India has been good and also central bank seems committed to make sure that liquidity remains benign. That basically will make sure that the growth momentum continues in the economy. Coming to our company, if the economy does well, then there's a strong growth for credit as well. The segments that we operate in, we have seen that the credit environment has improved significantly in terms of not only demand, but also collection efficiency and the repayment. Last quarter, the quarter under review, we have seen that the loan AUM has grown by 10%, which for one quarter is very significant.
As you're aware that our strategy has been physical, where we basically focus on our physical network of branches as well as digitizing and trying to get efficiency as high as possible with the digital infrastructure as well as digital innovative ideas that we implement. Our branch network grew last year by 731 branches, which required us to add about 8,500 people. After we achieved some size, I think this has been the fastest ever growth in branch network as well as our people. We have done this keeping in mind that there's tremendous latent demand for credit. There's an opportunity because many NBFCs, the large NBFCs have consolidated, and the demand is picking up with the economy.
We already had a good network of branches, and we can see that the branches will take a breakthrough in 12 months-18 months' time, then it makes tremendous sense to invest in the branch network. We are fully aware of the way world is going in terms of digital potential or the way digitally loans can be processed and disbursed. Our DIY loans, which are completely untouched or without any human intervention, have been growing very strongly. In last quarter, they doubled over previous quarter and were close to INR 260 crores. These are focusing on MSME sector. We have seen that this digitally applied, processed, and disbursed loans also depict superior credit behavior as well. The risk-adjusted size is very favorable. We expect a stronger trend to continue here. We also have quite a few digital transformation initiatives in pipeline.
We are very excited about the opportunity that digital technology is offering to complement the branch network that we have and make sure that we can leverage our branch network better and make the breakthrough even faster and also profitable. Last quarter, despite our existing investment in new branches, out of 731, 175 branches went live in last quarter itself. Our OpEx on a quarter-on-quarter basis increased by about INR 50 crores, primarily for new branches' people and also a marketing spend that we do to create awareness about these new branches. Despite this, we are very happy to report that our profit after tax has been all-time high for a quarter, close to INR 300 crores. Our ROE is close to 21% and ROA is 3%. Now with expanded network, we can look at accelerated growth.
In this year, our network growth will slow down and probably maybe this year or next year will pause and see. Our focus will be on making the expanded network more productive. In terms of regulatory environment, there is a very positive development in microfinance industry. MFI industry has been very badly hit by COVID. The regulatory changes which remove the cap on pricing as well as give more flexibility in terms of size of loans and the types of loans will make the industry healthy. We also have a tremendous opportunity to make sure that our subsidiary company, which is in microfinance and among the leading players in microfinance now, grows well with these kind of regulatory changes. In terms of reported NPA, RBI circular, which I think came in 12th November 2021, had an impact.
On a like-to-like basis, our NPAs have improved. If you ignore the impact of circular, then our GNPA would have gone down from 2.5%- 2.3%. In the last quarter, impact of circular was just about 0.3%, and the reported NPA was 2.8%. This quarter is the impact of full quarter, and that is about 0.9%, and therefore the reported GNPA is 3.2%. Our collection credit terms and the structures will align to the new RBI requirements over next two to three quarters. We think that these GNPAs will come back to our long-term trend line of around 2%.
With this, I hand over to Rajesh, who is our CFO, to take you through the details of our financial results, and then we'll have session of Q&A.
Participants, please stay connected and for the management on phone. Ladies and gentlemen, please stay connected while we reach on the management back to the phone. Ladies and gentlemen, thank you for your patience. We have line for the management reconnected. Sir, you may go ahead.
Apologies for this. The line got disconnected. Rajesh will just continue again now. One small thing I want to bring it to everybody's notice that the advertisement that got published today in the newspaper, there was an inadvertent error. The quarterly results show March 2022 were compared to March 31, 2021. Actually, those are for December 2021. Therefore, the quarterly growth that you see is quarter-over-quarter and not year-over-year. Tomorrow we'll publish the revised advertisement with the correction. I mean, that is regretted, yeah. Rajesh, you can continue, sir.
Thank you. Our pre-provision operating
Ladies and gentlemen, line got disconnected. Maybe start from there.
We were at the subject of pre-provision operating profit. It was INR 670 crore for the quarter. This is 14% up on a year-on-year basis and 10% on a quarter-on-quarter basis. Our full year's PPOP was INR 2,346 crore, which was 17% on a year-on-year basis. This was also impacted by our large investment in new branches. Otherwise, our total income was up 23% on a year-on-year basis. Our loan AUM now stands at INR 51,210 crore, which is up 15% on a year-on-year basis and 9% quarter-on-quarter.
In fact, our loan AUM for core products have grown faster at 20% year-on-year and 10% in just one quarter to INR 47,669 crores, driven mainly by small ticket home loan, gold loan, and microfinance loans. We disbursed close to 2 million new loans during the quarter across our core products, 40% higher than the previous quarter. 94% of our loans are retail in nature, and 69% of retail loans are PSL compliant. You should note that gold loans are not classified as PSL loans as per RBI regulations. The large share of retail and PSL compliant loans are of significant value in the current environment, where we can sell down these loans to raise long-term resources.
In line with our capital optimizing strategy, 38% of our AUM is either assigned, securitized or under co-lending as of 31st March 2022. During the quarter, we tied up with SBI and Union Bank of India for co-lending of home loans and gold loans respectively. We added over 730 new branches and 8,500 more people during the year. As a result, the cost-to-income ratio has increased to 40% in FY 2022 compared to 35% in FY 2021. This paves the way for accelerated growth in the future. Our annualized ROE for quarter four stood at 21.1%, driven by annualized ROA of 2.9% despite large investment in growth causing spike in operating costs.
Our capital adequacy ratio was at 23.7% and tier one was at 16%, well above the statutory requirement of 10% and 15% respectively. Quarterly average cost of borrowing declined by 28 basis points year-on-year and 14 basis points sequentially to 8.66 basis points. Our gross NPA stood at 3.2% and net at 1.8% as of March 2022. This includes the impact of RBI notification dated 12 November 2021. With implementation of ECL model under Ind AS, the provision coverage on NPAs stands at 123%. Collection efficiency has improved compared to the previous quarter across all products. During the quarter, now a brief update on the liquidity.
We raised INR 5,964 crore through term loans, bonds, refinance, et cetera, of which 1,464 was raised via refinancing, including INR 1,200 crore from NABARD. In addition, loans of INR 4,284 crore were securitized or assigned during the quarter. Our cash and cash equivalents and committed credit lines from banks and institutions at INR 9,499 crore was at an all-time high. It is adequate to meet not only all near-term liabilities but also to fund the growth momentum. We have a positive ALM as the inflows cover or exceed expected outflows across all buckets. In the quarter, we also bought back $50 million worth of overseas bonds at par, which were funded by a corresponding ECB loan of maturity, which was not less than the maturity of the bonds bought back in line with RBI regulations.
This will reduce the cost of transaction by approximately 225 basis points. During the quarter, we also successfully raised long-term funds of $68 million from ADB to improve financial access to affordable green housing and lower income women borrowers. A brief update on our digital strategy. We continue to focus on digitization and analytics to improve customer experience and enable a convenient one-stop shop for customers' credit and investment needs. During the previous quarters, we had mentioned about digital DIY initiatives for disbursement through WhatsApp and app. More than 27,000 customers have been onboarded till date under these initiatives. The DIY disbursement in quarter four more than doubled to INR 265 crore as compared to the previous quarter.
Our Gold Loan at Home initiative, which started a year ago, saw significant traction with disbursements rising 52% Q-on-Q to INR 209 crores for the quarter. Our Jhatpat home loans, our Pan-India product for instant home loan disbursement, continues to do well, as 100% of the home loans now are worked on Jhatpat loans app. The corresponding percentage in Q4 of the previous year was 94%. IIFL Loans app is being increasingly used for various transactions by customers and has been especially beneficial at this time, which gives customers ease and convenience of access. We have more than 2.1 lakh average active users on the app for the month of March. With this, we come to an end of the update. We are now happy to take questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use headphones while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from Saptarshee Chatterjee from Centrum Portfolio Management Services. Please go ahead.
Yeah, hello sir. Thank you for the opportunity and congratulations on a good set of numbers. Sir, my question is on the home loan. Can you give some color on the, like, salaried and non-salaried, like how the GNPA plays to the team?
Monu, is there a guy, Monu?
Yeah, I'm present. Yeah, hi. Good afternoon.
You want to take this ?
Our salaried home loan composition is almost about 62% and about 37%-38% is self-employed. If you look at the AUM level, our salaried GNPA are hovering around 1% and the non-salaried ones are at about 1.9%.
Okay. Overall it is around 6.6%, right, sir?
Yeah. That is at the loan book level. I was referring to at the AUM level because, and that was also using the dispensation of the IRAC norms which were there. I was referring to at the AUM level. The one which you are seeing is at the loan book level. Because we have almost about 30%-34% of our book is off-book. If you want to see the color of the entire book, then these are the numbers.
Understood, sir. Very helpful. Secondly, on the MFI part, just wanted to understand that earlier across like three quarters we have been maintaining around 100% provisioning on the MFI Stage 3 assets. This quarter we're seeing around, I think around 60% coverage. Is there any change in coverage, provisioning?
Yeah. Sorry, can you repeat the question? Because I think line was.
Yes, yes. Sorry. Actually, I just wanted to understand that last many quarters we have been maintaining around 100% provisioning on the stage three assets of MFI. This quarter we are seeing slightly lower provisioning. Is there any change on provision policy?
You know, as you know, under Ind AS, the expected credit loss is based on the probability of default and the loss given default. When we, as the economy is opening up and we're looking at the past three years data, it's based on the past three years data, and the model basically throws up this number that is required to have a lower provision. As we know the post demonetization, the stress that was there. In the earlier number that was used in the model, even that period was being included. Now as we are going more into the future, the earlier periods are being excluded from the model and the newer periods where collection is now increasing better in the recent months is taking place and that's what's being factored into the model.
Okay. Understood. Last question is on the like home loans, we have disbursed around INR 1,000 crore of home loans in the co-lending model. Can you provide us some lens and maybe expected yield on this co-lending set of home loans?
Yeah.
Yeah. We have seen that typically the spread in these co-lending models is ranging anything from, say, 1.5%-2% in the absolute interest spread, which we see at the moment. We have had a pretty encouraging last quarter on co-lending, and we hope to scale it up much more this year.
Understood. Likewise, the co-lending part that you mentioned around, I think close to INR 3,000 crore in AUM, that is around, like, I think, 25% of that is mentioned, right? The other 20% which included on book.
Yeah, that's right. Yeah.
Okay, sir. Thank you so much, and all the best.
Thank you. The next question is from the line of Sharaj Singh from Laburnum Capital. Please go ahead.
Hello. Hello. Hi, good afternoon, sir. My question was, large part of the growth is coming from the assignment book. What is the sustainability of the partnerships there, and how are we looking to grow the loan book itself?
Actually we have been doing this for many years now. I mean, in many banks, we have a long-term understanding as well that every quarter we give them certain assets. Over a period of time, as the co-lending grows, this will also decline. I think at least for the near future, we won't. The co-lending with this will still be gradual, but between the co-lending and DA together, we'll continue to have higher and higher part of our book, like this is 38% now, going there.
Do we have an internal number? I mean, what percentage of this will be off book around two years?
Probably 40% will be off book over next 12 months-18 months.
Okay. How are we looking to grow the in-house book, sir? The loan book.
In-house book. See what is happening. Supposing we do co-lending, so 20% remains in-house. That grows our in-house on balance sheet books, loans as well. Also what happens is some of the loans. In a co-lending model, the banks have certain credit policies. Based on that, if the loan is strong, they will take it. They also check it on a real-time basis as well as post facto. There are some credit which we are comfortable with and banks are not, so that remains on our books.
Okay.
Certain credit which are not in line with bank policies, but we still want to do it, then they will remain on our books.
Okay. The second question was, how do we look at the NIMs going forward, and the competition, are we seeing intense, increased competition due to which possibly the NIMs could be lower going forward given the inflationary
You know, actually different products have a different structure of NIM and the competition as well as our mix. Gold loans till last quarter, the NIMs were under tremendous pressure. If you look at our yield of gold loan, last quarter alone, it has fallen by 1% over previous quarter. This quarter, meaning from starting from April, we are seeing that competitive pressure has eased because everybody has realized that this is a mug's game and doesn't help anybody. If you see the erosion of gold loan last quarter, you'll see those 49 basis points, 59 basis points per month, they have now all disappeared. We expect the NIMs to improve in gold loans. In business loan, again, it's the type of small loans that we cater to where we should be able to easily maintain.
On a weighted average basis, we don't see any challenge in at least in foreseeable future maintaining around 7% NIM that we always had. 6.5%-7% is, that's a maintainable thing.
When do you look at the same way gold loan is?
I think gold loan NIM will improve now because they'll go back to.
Sorry. 8%.
7%-8%.
In the gold loan, sir?
Yeah, yeah.
How would you look at the scenario in the MFI space is going forward? I mean, in terms of-
MFI space, you know, I think RBI has come up with a very, sort of pragmatic policy structure, and that will revive the industry. See what happens, the risk is always there in any industry, but it has to be priced in.
Right.
Earlier RBI had capped at a 10% of, above your cost of funds. MFIs have a huge operating cost as well. Whenever there are cyclical or sporadic problems like, you know, cyclone or demonetization or COVID, obviously this industry suffered a lot. What happens is typically I have a feeling that most of the industry players will improve their pricing by 200 basis points-300 basis points, which will easily absorb the losses, and the extra provision or write-offs. Besides, what has happened is that relaxation from say, you know, up to 75% you can do in the revenue, 25% you can do other loans. The income-based criteria, the cash flow-based amount of loan, all those things will allow.
See what all happened earlier. Suppose there's a good quality customer, you could not lend, say, more than INR 25,000 crore , but if you lend INR 1 lakh, that improves your cost as well as credit both very well. In any case, you would have been borrowing from, say, four microfinance companies earlier. There are many changes that RBI has done, which I think will help this industry improve significantly this year and next year.
Would you try to be any more aggressive in this space going forward?
No, we have been quite aggressive. Last year, you know, we expanded our network very strongly. Now I think we need to make the network productive. We have already done the aggressive bit. I think, you know, if we are able to spread the network, there's been a very strong growth this year.
What I meant was, would we loosen our underwriting given that we can price the risk correctly now?
No, no.
More correctly.
No way. Because I don't think you can compromise your underwriting norms in this case, whatever be the flexibility on price. The pricing flexibility is against competitive pressure as well, because it's not that in any district there's only one microfinance company. You know, you have to be. I think that little bit of flexibility that has come will only take care of the risk which was there in the district in any case.
Okay. One last question. How do we look at the credit cost going forward in general and especially in the MFI and the business loan segment?
Last quarter our credit costs were very badly impacted by MFI and business loans, because if you recollect January and February were again COVID hit months and RBI's recognition has become much stricter. You know, I've been saying this, but it has not happened till now, but going forward we do see that the credit cost should go down.
Okay. Could we be getting guidance as to what can we expect on the credit cost?
I think it's very difficult. See the long-term historical trend before COVID was around 100 basis points, maybe 100 basis points and 225 basis points. If you take a higher share of microfinance in NSV now, 125 basis points. You know, to be conservative, say, I think this should stabilize around 150 basis points and not more.
On an annualized basis, sir?
Yeah.
Okay. If I can squeeze in one more question, sir.
You mentioned, like, the pricing with structure of competition. Are we seeing more competition than we initially would have planned for in the different verticals we play into, especially in the housing and the housing gold and MFI space? I mean, are we seeing more competition than we would have foreseen?
No, actually the competition is not more. Competition is similar or is changing. If you see housing, there were DHFL and maybe Dewan who were more aggressive. There was also Reliance Home Finance. Those players are not there now. Obviously the existing NBFCs or other banks have become a little more aggressive. I think India has a huge untapped market and, you know, in terms of pricing, like our home loan onboarding interest is 9.5%. We are fairly competitive. The competitive intensity, I don't think is increasing and not decreasing. It stands very well.
In the MFI-
I talked about microfinance last year, you know, if you see microfinance standalone, then our ROE profitability is much below, you know, any acceptable level, and that is about the industry as well. That has to resuscitate back to a normal level where industry can sustain and grow. That is a change that will come with these policy changes.
What I was trying to understand, last part of our growth has actually come from the gold loan space. Now we basically have a INR 16,000 crore book there. Could we see the growth maybe a little tapering down here in the gold loan?
Gold loan?
Yes, sir.
See gold loan, again, the growth is function of gold prices because that determines how much of money can be borrowed against given quantity of gold. Right now, you know, I mean, many people think that most general banks probably might, you know, try to increase the gold reserves and that can have upward pressure on gold prices or at least they'll remain stable. In that scenario, I think it'll continue to grow at around 15% or so. If gold prices were to come down for any reason, then obviously this segment of business will be impacted or this industry will be impacted. If you recollect 2013, 2014, when the gold prices crashed, you know, obviously all gold loan companies have had seen shrinking in their balance sheet, but it bounced back after some time.
It's more a function of gold prices. If the gold prices remain where they are, then in terms of volume or the tonnage, what we say gold tonnage in our vaults, should grow at around 6%-8% at least.
Thank you. Sharaj, I'll request you to come back with another question queue. The next question is from the line of Savi Jain from 2Point2 Capital Advisors. Please go ahead.
Yeah, hello. I just wanted to know, you know, more on this fair value changes. What does it comprise of in this quarter? There's a significant decline both Q-O-Q and Y-O-Y. What is the composition of this?
Mostly in the earlier quarter it was IPO. Basically what happens is as an NBFC, we are also free to apply in an IPO. Some of the IPOs where our research is comfortable, we apply and typically we sell on listing or immediately in a very short period after that. That was the income that used to call it fair value changes. Last quarter we did not have any IPO or, I mean, probably we did not apply in any of the IPOs.
Okay.
That is primary. Other than that, you know, there can be some investment, but we don't have much financial investment in the balance sheet, yeah.
On the MFI business, it looks like we had a loss this financial year. Is that true?
No. No, we did not have a loss.
What was the MFI profit last?
There was INR 48 crore profit for the year.
INR 48 crore profit in MFI, but it has about, you know, usage of INR 1,000 crore of capital.
Was there a loss this quarter in MFI? No.
No. This quarter, what is the profit?
About INR 5 crore.
This quarter is like near breakeven, INR 5 crore of MFI profit in this entire contribution.
I thought that there's some INR 300 crore which has moved out of restructured book. Is that because of write-offs or because of prepayment?
No, because the restricted timeframe will be over mostly. You know, actually, see the restructured book, which was INR 938 crore, has come down to INR 376 crore. Which in a way is good because that is what was at risk of GNPA. You know, that basically had resulted in MFI's GNPA to spike in last quarter. Other than, you know, there are various releases. In case of construction real estate, I know that there's a repayment of one loan. In MFI, what you see is that restructuring is over mostly. The restricted time period is over.
Okay. You know, another thing was that on the standalone financials, there is quite a significant decline in interest income Q-O-Q. What is the reason? Is that because of more assignment? I mean, there's quite a bit of decline.
Savi, there is, yes, that is also a reason. Another reason is that in quarter three, we had IPO funding, so there is interest income from that. If you remember, in quarter two and quarter three, the standalone interest income was higher than quarter one because there was income from the covered bond trust. These are structures that we had created in 2019. What happens is, that's a standalone entity, the trust also, and the incomes are there. Now, when the trusts are concluded, the you know, appropriation of accumulated profits in those trusts, which were held in trust for the benefit of NCD holders, it was transferred to the standalone company in quarter two and three. As there was no such transactions in quarter four, you see a decline.
Combination of all these three things, the trust, the IPO financing, as well as the higher assignments during the quarter.
Okay.
Does it answer your question?
That you talked about the trust thing, which was in Q2 and Q3. Did that also lead to additional profits in Q2 and Q3, or it was just a-
Not on a consolidated basis.
On a consolidated basis, it does not make much of a difference.
Okay.
It gets marked up, yeah.
Okay. You mentioned about this 150 risk credit cost guidance. Does that also hold true for like FY next year, the immediate next financial year?
Yeah. I think, you know, that should, I mean, unless something unexpected happens, that should hold for next year.
Because we continue to provide for in the wholesale book and, you know, MFI also.
Wholesale book we had provided last year. This year it has been mostly MFI and MSME.
Last quarter also we provided for in wholesale, right? I mean.
Last quarter, no. I think last quarter, significant part of it is MSME and MFI.
Okay.
Wholesale book also we have provided, I mean, incrementally a little bit, but most of it has gone to MFI and. So if you see, like MFI and MSME would have taken a brunt of around INR 200 crore in last quarter. There is some normal incremental provision which is continuing in all businesses, you know.
This was only because of the third wave or because all the provisioning has been.
I think it was combination of two things, third wave as well as RBI circular.
Okay. Basically we should revert to a normalized credit cost in the next financial year.
Yes.
There's some reduction in securitization Q-O-Q. What is the reason for the reduction of-
We did more assignment in the business, so normally what happens that, assignment or securitization, you can do one of the two things with whatever assets you have.
I think in securitization we need to provide some kind of first loss, and in the assignment that is not the case, right?
In securitization, what happens that you get a lower interest rate. I mean, you get a better rate from your point of view because you are selling the asset. There is some margin, maybe around 5%, which is given by your bank fixed deposit, and that becomes like a first loss guarantee kind of a thing. That also gets marked up from the capital.
Okay.
When you calculate your capital efficiency.
Okay.
It's a formula, but it has an impact.
In assignment, that is not the case.
That is not the case. First
All losses are borne completely.
If you are securitizing at 7.5%, you'll assign with 8.5%. Banks will basically factor that in the price itself.
Got it. If banks' experience is not as per expectation, then they may be either reluctant to do more assignments or they may increase their cost for future assignments.
That's true. Normally what happens, they have a very detailed process. The rating team, they actually use rating agencies to find out the loss given default or the probability of default. Rating agencies basically go through granular data, and given their experience, they have a very good fix on this.
Got it. One last question. You mentioned that RBI is going to probably hike the lending rates by 200 basis points-300 basis points. What is our increase? I mean, I'm sure it has already been affected.
It will vary from region to region, from state to state. You know, in some cases earlier rates were lower than 10% also. I mean, our margins were less than 10% also. In some cases it was 10%. It again depends on state to state, because some states where risk is higher, you will price more. You know, it's not across the country one rate.
Can you, like, give any indicators that lending rate increase is like in 100 basis points or?
I think, yeah. There will be some increase from 100 basis points-200 basis points at least.
That like literally flows into the ROA because there's no, I mean.
Exactly.
Given that the profile of the business increases significantly.
Yeah, as I said, that, you know, even if suppose you own INR 1,000 crore capital, it takes INR 40 crore-INR 48 crore, it's not generating even 4%-5% of ROE.
Obviously, you know, and our case will be like a typical representative of industry as well. That is what RBI has also recognized, that the rest of your risk is rising because you can't control the pricing and the risk is not controlled. The whole industry should hopefully that would recover in this.
Got it. One of my next question is, there has been an increase in NIM, but it seems counterintuitive given that you mentioned in gold loan you would have seen a reduction in NIM this quarter. How is there an increase on an overall basis?
Yeah, you know, if you see, Savi, the proportion, the gold loan has been the highest increase for the quarter and as well as microfinance and digital financing. Now all these have an above our average yield. Yes, while individual product may decrease, the fact that these products are high weightage and in these, you know, products, the yield by itself is higher than the average, you get a bump up on the average yield in the total.
Okay. That's it from my side. Okay.
Thank you. The next question is from the line of Tejas Mehta from Umbra Capital. Please go ahead.
Hi. Thanks for taking my questions and congrats on a very good set of numbers. Sir, couple of things to tell that, you know. One is gold lending has charted quite well now for us. Almost INR 2,000 crore net addition is a very good number. What sort of guidance can you give on gold lending for FY 2023?
I think this is in our focus. This will continue to grow. Very difficult to give guidance because as a concept, gold lending in India is a little new and we've been working with multiple banks. We'll try to maximize it, but it's difficult to give guidance at this point in time, Tejas.
Right. Yes. You know, can the current hundred be kind of maintained on a?
Yeah. I think so. I think that 100 can be maintained.
Okay. Got it. Sir, the other question is, you know, how long will it take to see this gross NPA reporting be normalized after the entire impact of earlier norms is included?
I think, it should take about two to three quarters.
Essentially, we can see further increase in the NPAs, though not as acute. It may not impact.
It won't happen because this quarter was full quarter impact.
Right. Okay. This is starting to be stabilizing at the current numbers from this quarter.
Now it should go down, and over a period of two, three quarters or maybe by this year, we should see it coming back or converging with the earlier norms, you know.
Right. Got it. Actually, third question which I would like to understand was on the OpEx side. You said that this year you will go slow on the expansion front. Any number on the number of branches that you're looking to add or are we going to
Last year we added about 800 branches. This year we'll add about 250-300 branches.
Right. Compared to
Because, you know, 300 branches will get added because there are quite a few locations and things already in pipeline.
Right. Opex as a percentage of assets was about 4.4%, can we confirm, sir? Versus earlier, we used to be below 2%. Do you think over the next four to six quarters this number can go back to 2% or will remain elevated?
Yes. Surely. Certainly, it will go back to 4% or lower.
Finally, just on, you know, you announced that you have applied to RBI for credit cards. Could you throw some light on the plan, where you are looking to go?
I think credit card has opened. RBI has now opened the application or they have started taking application from NBFCs for credit card and UPI. We have a base of 6.5 million customers. There's a tremendous opportunity for us to, if the RBI gives approval, to have these products in our portfolio.
Right. Right. Do you, as in, you know, what sort of plans do you have as in is there anything on the drawing board right now? How will you approach this segment and what kind of scale up of the business do you try to see in this space?
It's very initial time and it's very fluid at this point in time.
Okay.
There's a tremendous opportunity because in India, debit card penetration is almost 80%, but credit card penetration is just about 3%. If you see the smaller towns, then the credit card still is not there with many people, because when you say 3%-4% credit card penetration is really, really low. Again, like any other product, this product has got reach the smaller towns in India where we have a good network. We see a great opportunity here.
Yeah. You know, there's a fact that, you know, while there are risk-adjusted returns are good, actually it's a, you know, it's a product which is unsecured and it's not fixed price product. Time and again we have seen banks booking significant losses, every month every now and then, especially during crisis times.
I agree with you. One has to be cautious.
Yeah. Okay.
The credit underwriting process has to be strong.
Yeah.
The card is just a mode that instead of credit line, you can give a credit card.
Yeah.
I agree with you that this business has had cycles.
Yeah.
You know, people have you know seen high profit and high losses both, so one has to be cautious. I'm with you on that.
Right. Just one last question, sir, on the home loan side. Why is it that we saw such a significant spike up in the RGI related new norms related home loan this quarter? Typically it's supposed to be a very safe segment and usually will not see such a spike. I'm just trying to understand what sort of.
I don't think we'll have losses, but if people have, you know, normally you have, you know, loss given default is very low because of the collateral.
Yeah.
Yeah. Monu.
If you-
Yeah. If you see the home loan side, although these are because of the RBI norms, but almost 80% of it is in 30-60 DPD and another 5%-10% is in the 0-30 bucket. It's only 10%, which is in the 60-90. I think it's just a change of habit which has to come into play and, I think, in the next two quarters we should be pretty good. If you will see, if you would have taken away this impact aside, actually our GNPA have gone down in home loans from the last quarter. This one has changed a bit and it was there for the entire quarter.
I think it's more of a behavioral thing and we should not see any losses there.
You know, I'll request all the participants to restrict to one or two questions because there are quite a few people online waiting.
Sure, sure.
Then we can come back, you know, in case you have more questions. Restrict to one or two important ones and then again we can, yeah, because this queue is becoming longer.
Yeah.
Tejas, go ahead.
Thank you so much. Thank you, sir.
Thank you. The next question is from the line of Vikash Agarwalla from Bank of America. Please go ahead.
Hi. Can you hear me?
Yes.
Trish, thanks for the opportunity. Just a couple of questions. One is on the disbursement and the AUM growth guidance. Sorry if I missed this earlier. Can you share what's the guidance on disbursement and AUM growth for different products for FY 2023?
Normally, I mean, we don't have any specific guidance, but historically as we have indicated that. Okay, last quarter we grew by 10% quarter-over-quarter. Under normal circumstances, you know, we can grow by around 25% in terms of volumes.
Got it. For AUM, what would it mean?
Yeah, just for loan AUM only.
Okay. Understand.
Disbursement can be little higher, but I mean disbursement number will be, you know, difficult to track because every business has a different ratio of disbursement to loan book. I think maybe loan book or loan AUM will be a more better indicator.
Understand. Thank you. My second and last question is on the dollar bond side. You have, you know, made some purchase on dollar bond side very recently. You had mentioned in the presentation that this will reduce its cost of funds by about 225 basis points for that transaction. Can you explain the dynamics on, you know, what are the details, what's that that's leading to this saving? Related to that question is again, how should we look at the, you know, overall maturity? I think still close to, you know, stand at more than $100 million outstanding maturing next year. How should we look at, what's your strategy in refinancing or repayment of that?
You know, the dollar bonds are coming at a dollar rate, which is much higher than our cost of funds in rupee terms. Supposing dollar bond gives a yield of 7%-8% and then we can cancel the forward contract also as we buy them back. RBI regulations do not allow us to buy back under normal circumstances. We can buy back only to the extent that we are raising another dollar loan of a maturity not less than the residual maturity of the dollar bond. We had an opportunity to raise $50 million ECB. We basically used that money to buy back. Then based on the maturity, there was another $2 million-$3 million release. We bought that also back.
We are trying to negotiate another tranche of $50 million, you know, from a ECB loan, which is like in dollar, foreign currency loan. Probably we can buy back more.
Understand. For the remaining maturity bullet, what's the, you know, strategy as of now? How are you thinking about it?
That's why I'm saying although the domestic liquidity we have significantly higher than. Our dollar bond now outstanding is around $300 million. Our liquidity is $1.2 billion. But I can't use the rupee resources to buy back the dollar bonds. We are looking for opportunities to borrow in dollars, and then we can use that to buy back the dollar bond.
Sure. Just one last question is, so this ECB loan, what's the all-in borrowing cost and tenor?
I think as you know, our CFO has pointed out in the results that this is saving about 200 basis points-225 basis points all in.
Understand. Thank you, Mr. Jain.
See, what happens is you cancel that forward cover, you take a forward cover on this. Everything all adjusted on a net basis, it saves about, you know, 2% or a little over that.
Sure. Thank you.
Thank you. The next question is from the line of Pratik Chheda from Guardian Capital Partners. Please go ahead.
Thanks for taking my question. My question is more on the gold loan side. What we've seen is that we've gained quite a bit of market share in the NBFC space, but it has also come at the cost of yields. This has gone down to around 120 basis. Is it fair to say that even we are sort of focusing on higher ticket loans where the risk of default is slightly lower? Also could you just give a breakup of the loan book at the time of disbursement into larger ticket and smaller ticket loans say? How much would it be above INR 1 lakh at the time of disbursement? How much would be below INR 1 lakh at the time of disbursement?
Our average ticket size is INR 75. I don't. It's not that we are focusing on a large ticket loan. We also look at cash flow and the purpose of the loan. To some extent, what you are saying is right, that we'll probably, you know, try to have a lesser risk than the yield, or we have to balance the two. Having said that, last year, in last quarter, in last couple of quarters more, there's been tremendous pressure because of lot of competitive activity, competition, you know, activity in terms of, interest rate, which, you know, it appears that this quarter has settled down. Most of those, you know, those kind of schemes, you know, the competitor who were hyperactive have withdrawn their schemes.
Fair enough. Are you thinking of the similar tune that, since the economy is sort of opening up, banks are again sort of focusing on the non-gold part of their AUM rather than?
Banks are focusing.
Going aggressive on gold loans?
No. Banks continue to focus on gold loans, but they are one of the products for them.
Sure.
They have certain type, I mean, they basically can cater to certain types of customers and certain size of customers. This is a huge market after, you know, beyond banks.
My second question is on business loans. Its collection efficiency is again still sort of at 97% levels in this quarter also. I just wanted to know how much of this business loan book is secured, and what is your understanding on how much would be the ultimate loss on loans given default versus what is secured?
Last quarter, again, because as you know, January, February, two months were affected badly by COVID. Secondly, the unsecured is about one-third of the book, but there our interest rates is much higher. You know, in terms of like-for-like basis, the GNPA would have come down from 6%- 4.8%, if you take the way we were recognizing GNPA earlier. I think long term, you know, you should see about, you know, unsecured losses could be around 3%, 2.5%-3%. That is, you know, properly taken care by the price that we, you know, have for this. Yeah, these loans are typically at 24%-24% interest rate, the unsecured loans.
Sure.
Whereas secured, you know, lag. It depends on the size of the lag, but can go down to 14, 15 also.
Sure. All right. Thanks a lot. Thank you.
Thank you.
Thank you. The next question is from the line of Abhinav Iyer from Deutsche CIB. Please go ahead.
Hi, sir. Congratulations on a good set of numbers. Again, apologies if this is a repetitive question, and maybe I need a bit more clarification on this. In terms of the GNPA increase due to the RBI norms, given the fact that the recognition is a point-in-time process rather than over a period of time process, what's changed between December till March that the recognition norms have affected our numbers? Broadly speaking, shouldn't all the effect be captured in December, in the December number because it's a point-in-time calculation?
See, Abhinav, the circular came in twelfth November.
Yes.
The first set of EMIs that would have fallen due would be around fifth of December, right? There's only one set of EMIs which had to be selected. Whereas for this particular quarter, I mean, you would have all three months, including the three months of the previous quarter as well. Anything that would have fallen due in December, for example, if you don't collect, would have become an NPA as of March. Whatever was in November would be in February. There is a
If you think of it in terms of a funnel, so the amount in collection or the amount that is required to be collected in absolute terms to enable it to escape the NPA classification is much higher now compared to what it was earlier.
No.
I'll actually explain how these new norms work.
Yep. Yep.
Supposing that your monthly installment is, say, INR 1 lakh.
Yep.
For you to become NPA, you would have missed three installments of, in aggregate, INR 3 lakh, right?
Yes.
Earlier, supposing out of these INR 3 lakh rupees you collect INR 1 lakh rupees, then you say, "I have collected the first month," so again it's 60-day, not 90-day, and it's not GNPA. What RBI has said that to take it out of GNPA you have to collect all INR 3 lakh rupees.
Okay. Got it. Okay.
You can't say that I'm collecting the first month, second and third month are pending. It's like it keeps rolling over. That is why, you know, that is how the impact is.
Got it, sir. Broadly speaking, that is a three-month delay in the applications, what you're saying. Which means that effectively all the norms application has been taken care of by March.
Yeah, that's right. Earlier you would have hit one installment, now you hit three installments. All three, yeah.
Got it, sir. The second question was something which was conveyed at the start of the call. It was mentioned that basically home loan NPAs for salaried was around 1% on medium level and 1.9% for non-salaried level, non-salaried. Whereas the NPAs for, you know, on-book portfolios are on 2.6%. Is there a concern that, you know, a better part of the book is suddenly securitizing involved in co-lending versus what's actually been on our...
No, not really. If you see this, slightly what numbers I had stated were this is the, like to like without these, new RBI norms, that this 2.6 is inclusive of the RBI norms we're taking into account. The differential is very marginal, so it is nothing significant. The difference between both of them is about, 20 basis points-35 basis points. There's nothing more than that.
Got it, sir. Got it. Thanks a lot. Thanks for the clarification.
Thank you. Next question is from the line of Vishal Singh from ICICI Securities, please.
Hi. Thanks for taking my question. I have two questions on volume and interest. Sir, main
Vishal, sorry to interrupt you. Your voice is not very clear. May I request you to speak through the handset?
Sure. Just a second. Hello. Am I audible?
Yes, go ahead.
I just wanted to ask, you mentioned that in April gold financing have raised the rate. Have we also raised our gold loans rate? If yes, by how much? I mean, what is the lowest rate it seems right now?
They've not raised the rate, but they've withdrawn the schemes which were like extremely low prices, like 49 basis point, 50%. All these gold loan companies cost of funding more than that. Those schemes now have been withdrawn. Effectively, you know, the yield which had gone down by, say, 1% should at least bounce back to the earlier level. Overall, we hope that it can further improve.
Got it. For us, the interest rate will remain. I mean, our rate will remain same, but for other people,
No, because we also had a product. These are all teaser products. You know, the way the industry is operating is that you offer something at a very low rate, and if there's one default or slight delay, then you increase the rate back to the next level and next level and go, you know, jumping scheme or default.
You know, we also had one of product like this, one or two, which we have now taken back.
Got it.
I think the yields should improve by 100 basis points, you know, broadly. That's what my, you know, per my estimate will be.
Understood. Secondly, if you look in this quarter, like, most of the growth has come on the back of gold lending, gold lending schemes, gold EMI, which I'm assuming that's where we have seen lower yields. Now that you're mentioning that the lowest credit schemes have gone, will it have any impact on the growth? Do you feel that there is still, like, good demand outlook in the market? Since the competitive intensity from the pricing point of view is gone, there'll be no impact.
No impact will not be there from that point of view. See, typically March quarter has little higher growth for whatever reasons historically.
Got it.
Maybe, you know, in this quarter people go on leave during April, May. I'm talking about last 10-year trends, you know. For not only us, but all gold loan companies. There are some seasonal variations in the volumes, but that'll be more because of seasonality rather than and not because of the rate changes.
Okay. Understood. Just last question, I mean, have we options, gold, and if yes, then how much and what would be our, like, option to launch? I think we used to give it earlier in the presentation.
Options are in normal course, they keep happening.
Okay.
The loan book has every size of every tenure of the loan. The average is about three to four months.
Typically I think we are around 20-25 basis points, but I don't have the number at this point in time. Okay. It's not very significant. It's a small number.
Understood, ma'am. Just last question. What would be our typical ROA or ROE in gold loan business, only?
Normally it's difficult to calculate ROA, ROE on a fully allocated basis because most of our branches work for multiple products.
Okay.
It's something very similar to the company averages.
Thank you. Understood.
Which is ROA is closer to 3% and ROE is closer to 20%.
Got it. Understood. Okay. That's all from myself. Thanks.
Thank you. The next question is from the line of Deepak Kothari from Safal Capital Partners. Please go ahead.
Yeah. Thank you very much, sir, for the opportunity. You mentioned our new normalized credit cost is at 1.5%. Is that right? Because earlier you used to say 1% is our normalized credit cost.
Yeah, that's right. New expected credit cost, you know, we should plan at least 150 basis points. Because now the MSME and microfinance has grown a little bit. Historically, whatever we have seen, you know, at least the last couple of years, that whatever estimates you make, the cost will be little higher.
Okay. Every-
You are right. Historically, prior to COVID, w e used to have around 100 basis points or maybe a little less than that also.
Okay. What you're implying is that effectively we are looking at 1.5% credit cost. Is that what you are implying?
Yes.
1.5% credit cost. Okay. Understood.
I mean, if everything remains normal.
Understood. Something about the cost-to-income ratio, now 40%, how do you see cost-to-income ratio in FY 2023?
It was 35% prior to this expansion.
It will gradually slide back to that level.
Gradually, maybe next two to three years would be a fair assumption or maybe one or two?
I think, maybe, four to six quarters, maybe one and half years.
No. Your voice was not audible, sir.
I'm saying maybe a year. Up to two, one and half to two years.
Two years. Two years we are looking to go back to 35% kind of a cost-income ratio.
That's right.
Okay. Ideally if your AUM is growing at 25% and cost income is declining, your PPOP growth should outperform your AUM growth, right? That would be a fair assumption to make. Like if 25% AUM growth, our PPOP can grow at 30% rate.
Absolutely.
Okay. Understood.
Yeah.
That's it. Thank you very much.
Thank you very much. That was the last question for today. I now hand the conference over to the management for closing comments.
Thank you so much. If you have any more questions, you can always get in touch with our investor relations or CFO's department. Thanks for being patient, and have a good day ahead.
Thank you very much. On behalf of IIFL Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.