We have with us the management team of IIFL Finance, represented by Mr. Nirmal Jain, who is the Chairman. Mr. Rajesh Rajak, who is the CFO. Mr. Monu Ratra, who is the CEO of IIFL Home Finance. And Mr. Venkatesh N, who is the CEO of IIFL Samasta Finance. With this, now I shall hand over to Mr. Nirmal Jain for opening remarks. Over to you, sir.
Thank you and welcome everybody on our Earnings Call. Maybe I'll just start with the macro environment as we see it, and how we have been progressing on our strategy. Then I'll hand it over to our CFO, Rajesh, for more detailed commentary on the results, and then we can have Q&A. I mean, all of us are well aware. In terms of surprise element, there was a sudden wave three, very swift but less damaging, and hopefully it's tapering off and will be behind us very soon. I mean, without commenting on stock market, I mean, they can guide it in their own manner. Our macro environment is looking much better as we are seeing that earnings of most of the companies have shown significant improvement.
Our government spending has gone up, and the budget also people are expecting the momentum to continue. We see that government is spending a lot on health infrastructure as well. Last year, because of the sudden COVID wave two and three, the revenue expenditure was up by at least 0.8% of GDP, as compared to the budget estimate. Hopefully, the government doesn't have to spend that money again this year. Obviously, there'll be a lot of leeway in the budget to spend more and make sure that the economic growth momentum continues. Besides, a lot of groundwork has been done on disinvestment, and maybe LIC will go through, but significant part of disinvestment target will not be achieved in this year.
That may be good news for next year because government will have a lot more money in a year when actually they need to get the economic momentum right. In terms of financial sector, I think bank credit growth Y-o-Y 9% is healthy, which was, you know, is moving up from, you know, what we used to see around 5%-6%. The liquidity has eased significantly. And what we are seeing is that the demand for credit seems very optimistic and sanguine. It looks like that as the economic activity is picking up, things are improving and credit demand will also look up. Coming to our IIFL Finance, our momentum is good. Our core products are showing strong growth.
As we step into this quarter, which is seasonally a peak quarter for financial services, the credit growth momentum is there. In terms of collection efficiency and asset quality also, we are seeing an improvement. The last few quarters, every quarter there's some surprise or another, and obviously, that impacts the reported results. This time we have two factors that have impacted our provision in a significant manner and also the GNPA, as we reported. One has been RBI circular impact, which was a bit of a surprise for the industry. It doesn't really impact the quality of assets that we have on our balance sheet, but it does impact the reported numbers.
Hopefully, as the industry gets adjusted in terms of how to deal with this in next few quarters, the numbers will come back to the normal channel. But for the time being, that has impacted our GNPA as well. Besides, microfinance, you know, faced little difficult times with continued impact of COVID wave three. Hopefully even those things will get better. The liquidity in the system has improved significantly. If you see our own balance sheet, then at INR 9,000 crore, this all-time high liquidity that we are carrying, which has a small impact on our margins also because of the negative carry that we have.
I think what we have done is a prudent policy keeping in mind the growth trajectory that is ahead of us and also you know the sudden volatility that can be caused by COVID or global factors as well. In terms of interest rate and liquidity, although they look benign at this point in time, but obviously everybody's talking about and is worried about what U.S. Fed will do. Given the inflation situation there, people most of the investors are getting prepared for rate hike there, but only question is how much and when. Whenever it happens, it can have some impact on emerging markets, like it always had historically. In India also most experts expect upward bias on the interest rate.
Our belief is that even if there's a rate hike, it will be marginal as compared to the base interest rate in India, which is already high. India was never at a 0% or near 0% interest rate. But from these levels, 25 basis points or 50 basis points can be taken in stride. As far as we are concerned, we have most of our assets are short-term. We have also, in fact, increased our liquidity buffer. Now in last 2-3 years after IL&FS crisis, we are trying to make sure that our liabilities are for longer period, even if there's a higher cost. With this, we seem to be reasonably comfortable in terms of liquidity as well as tapping the growth opportunity.
We have been investing a lot in digital transformation and couple of initiatives that we have highlighted in analyst presentation that time. One is our DIY loan, which is completely paperless, presence-less, and you can do it in two ways. One is you can download an app called MyMoney, and entire journey is automated right from starting your application to transfer of documents to transfer of loan amount back to your bank account. The same journey can be done on WhatsApp also, which is industry first. While many players do generate leads on WhatsApp, but what we've done on WhatsApp is end-to-end completion of entire journey is seeing good traction in terms of disbursement last quarter. Although the volumes are still small, but on the basis of quarter before, they have quadrupled and we see strong growth continuing there.
Another initiative on which we have worked our technology backbone to be very strong and that is gold loan at home. We started in a few cities. We'll roll it out. This product basically charges customers and where the gold can be collected at home and the money gets digitally transferred to customer's account. Customer has flexibility to repay at any point in time, reduce the interest burden, can top up or renew the loan. Also we can deliver the gold back at customer's place whenever the loan is fully repaid. In this initiative also, I think we'll have an advantage. Our brand is known. The customers have seen our branches and brand and therefore the trust element is higher.
Also, with that, I hand it over to Rajesh, who will take you through the details and then we'll have the floor open for Q&A.
Thank you, Mr. Jain. Let me take you all through a brief commentary of our recent results. IIFL Finance profit after tax was highest ever at INR 310 crore in Q3 FY 2022, up 15% year-on-year and 6% quarter-on-quarter, driven by strong volume growth. We recorded pre-provision operating profit of INR 650 crore during the quarter, which was up 6% year-on-year and 12% quarter-on-quarter. Loan AUM grew by 11% year-on-year and 6% quarter-on-quarter to INR 46,780 crore.
Loan AUM for home loans in fact was faster year-on-year, at 16% year-on-year and 6% quarter-on-quarter to INR 43,293 crores, driven mainly by small ticket home loan, gold loan, and microfinance loans. 94% of the loans are retail in nature and 67% of our retail loans are PSL compliant, excluding gold loans which are not classified as PSL loans. The largest share of retail and PSL compliant loans are of significant value in the current environment and we can sell down these loans to raise long-term resources. In line with the capital optimizing strategy, 36% of our AUM is assigned to securitize as of December 2021. During the quarter, IIFL Finance tied up with HDFC and Union Bank of India for funding of gold loan and home loan respectively.
This is over and above our existing tie-ups. We added over 550 branches and more than 6,000 employees during the current financial year. Cost to income ratio increased to 39% as compared to FY 2021 due to expansion in our physical and digital footprint. Annualized ROE for quarter three stood at 20.7%, driven annualized ROA of 2.9% despite large investment in growth causing spike in operating costs. Capital adequacy ratio was 25.4% on an overall basis and Tier 1 capital adequacy stood at 18%. These are much higher than the statutory requirement of 10% for Tier 1 and total capital requirement of 15%. Total capital of home finance and microfinance subsidiaries also remained healthy at 31.7% and 20.4% respectively.
Average cost of borrowings declined to 27 basis points year on year to 8.7%. Our gross NPAs stood at 2.8% and net NPAs at 1.5% as of 31st December 2021. This includes the impact of RBI notification dated 12th November 2021. With implementation of ECL model under Ind AS, the provision coverage stood at 133%. Collection efficiency has improved across segments. Microfinance collections saw a marginal dip in quarter two because of high area collection in Q1 of earlier quarters in quarter two. During the quarter, we raised INR 4,300 crores through term loans, bonds, and refinance. Out of which we raised INR 1,100 crores via refinancing, which included INR 850 crores from National Housing Bank. In addition, loans of INR 3,600 crores were sanctioned during the year.
Cash and cash equivalents and committed credit lines from banks and institutions of INR 9,145 crores were available as on 31st December 2021, adequate to meet not only near-term liabilities but also to fund growth momentum. We have a positive ALM, whereby inflows cover or exceed expected outflows across all buckets. Lastly, IIFL Home Finance raised INR 404 crores through public issue of secured bonds in January 2022. A brief on digital updates. We continue to focus on digitalization and analytics to improve customer experience and enable a convenient one-stop shop for customers' credit and investment needs. During the previous quarter, we had mentioned about our digital DIY, do it yourself, initiatives for disbursements through WhatsApp and MyMoney app. Disbursements under MSME DIY loans grew more than four-fold to INR 114 crores during the quarter.
More than 18,000 customers have been onboarded till date under DIY initiatives. Our gold loan delivered at home initiative is also gaining significant traction. Disbursements under this initiative grew 30% quarter-on-quarter to INR 137 crore during the quarter. Jhatpat home loans, our pan-India product for instant home loan onboarding, continues to do well, as 100% of the loans disbursed during quarter three were sourced through Jhatpat loans. The corresponding percentage for previous year, same quarter was 88%. IIFL Loans app is being increasingly used for various transactions by customers and has been especially beneficial during COVID lockdown times.
Giving customers ease and convenience of access. We have around 200,000 average active users on the app for the month of December. That brings an end to the update. We are now happy to take questions. Thank you.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question might press star and one on your touchtone telephone. If you wish to remove yourself from the queue, you may Press Star and then two. Participants are requested to use handsets while asking the question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Our first question is from Sushant Pari from HSBC Securities.
Hi, sir. Thanks for taking my question. I just had a couple of questions on the NPA part. If you could just tell us what exactly has been the impact of the RBI circular on overall NPAs? If you have taken any additional provisions against the same? Also secondly, I just want to understand what the restructured outstanding is as of December.
The impact on GNPA is around 30 basis points of the RBI circular. The restructured book only we have given in the slide number 18, which was 9.37 as of December against 1,027 last quarter. The DCCO amount has fallen significantly from
1800.
1800-600, as most of the projects have come out of DCCO.
Got it. Thanks for this. Just one more question. Are there any plans on normalizing the liquidity buffer eventually, or do you have any glide path towards that?
Liquidity buffer. Normally, we want to have liquidity for a year, you know, in terms of all the contractual liabilities. The current liquidity that we see ±10%. Obviously, over a period of time, as our volumes grow, our book grows, this will also grow. It may be slightly higher at December end, but you can say that around INR 78,000 will be a, you know, reasonable number in these, for this book size.
Understood. Thank you. That's all from my end. Thank you.
Thank you. Thank you so much.
Thank you. The next question is from Akshay Ashok from Dalal & Broacha Stock Broking. Please go ahead.
Yeah. Hi, sir. Congratulations on a good set of numbers. I have three questions. First, why the disbursement in home loans this time did not catch up on QOQ basis, any particular reason? And the second question will be, this co-lending, if you could just elaborate on whether the disbursements have started with the banks if you have tied up with and what is the progress on that? If you could just answer these two.
Monu, you want to take this thing?
Hi, Mr. Akshay Ashok. Good afternoon, everyone. If you look at the disbursement in home loans, they look flattish because there was a bit of a pent-up in Q2 which we had from Q1. Otherwise, we entered December pretty aggressively. December numbers, our disbursements were our all-time high of last one and a half years. We expect that the Q4 should be a much significant number to look at. But yes, because of the pent-up which we had in Q1, which came into Q2, we did it very well.
Q1 spilled over in Q2 and got booked in Q2. The disbursements are booked in Q2. Because Q1, I think, was impacted by COVID.
Yeah, coming to December itself, as I told you, we did all-time high numbers in home loans for the last one and a half years. Coming on the co-lending part, as far as home loan part is concerned, we were able to do a co-lending of nearly INR 850 crore with multiple banks. That's been a great experience and experiment which we think is going to only solidify from here. We did INR 850 crore of disbursements in under the co-lending for home loans. Similarly, some borrowings have also been done from other products like gold loan as well.
Okay. You got an agreement with two banks. Development Bank of Singapore, is it? And-
No. Sorry? Yeah. These, they are product-wise. There are product-wise things.
Remember when sir told that you got an agreement with two banks.
Yeah. We have started with DBS, and last quarter we've done a lot of technology integration and testing, and we are starting with them. Gold loan is something that we are doing with DBS at this point in time. We have multiple banks for multiple products. Yeah. With Development Bank of Singapore, we are starting the gold loan product.
Yeah. Last question, sir. The construction and real estate portfolio, the idea was to run it down, right? Why this quarter on a QOQ basis there was a 2.2% growth in your AUM in construction and real estate? Did you give incremental loans or? Because you don't, they don't do the disbursements, right, for construction loans.
Yeah. Actually,
2.2% AUM growth in this quarter in construction and real estate. Historically the book has been running down for the past several quarters. What was the reason for this growth?
Okay. You know, if you see slide 32, we have given a very detailed explanation on what our strategy and goal on the construction and real estate booking, and how should we look at it in terms of going forward. One is that, construction and real estate finance, what we are doing earlier through HDFC, which was against land and against SRA project, which is a higher risk. Suppose you have a piece of land which is say INR 100 crore and construction cost maybe INR 30-INR 40 crore. Normally what happens, we finance land only against the construction part of it, and that is what we will continue to do through our HFC. Now, that is where your yield will be lower because the quality is much superior and the risk is lower because you start construction after you receive all the approval.
Historically, many HFCs, supposing INR 100 crore land is there, people would lend 50 crore against the land also, which may be a take out or maybe for some other purpose, or maybe for our consideration for land itself. That is something that we are discontinuing. What we will continue to do are two things. One is through our HFC, we'll try and fund only the construction part of it, and that also with two more conditions that we try and make sure that they are fulfilled. One is that we fund affordable housing project and not anything else. Secondly, we are looking primarily or predominantly at green and environmentally responsible or environmentally sustainable projects.
Also, what has been done is that we have signed up with ADB, and we are in advanced stage of negotiation with ADB and Proparco for funding these. They are quite keen to support construction of green projects and affordable also, and they'll probably give a line of credit which can be used primarily for this. Other than this, the earlier funded projects, what we have done through HDFC, although we are not taking up any new projects of the similar type, but that's where if there's a last mile funding or a construction or something is required, we continue. Within the sanction or board approved limit, those projects will continue to be funded.
Okay. Transfer to AIF, what portion has been transferred to the AIF or is it all internal going on?
When we transferred at that point in time whatever book we had about a third of it. We realized that the terms of AIF are not great and you end up paying 18%-19% interest when you can borrow at 8%. Most of the projects now are seeing a recovery or demands. The next 2-3 years time, you should see that most of them get, you know, the cash flows are actually better than that. If you look at the CRE book over years and in FY 2019 it was INR 5,055 crores, it has gone, it's become half now almost at this point in time. You know, in the HFC component we'll continue to fund some of the CR.
This is what most of the HFCs will do. If you see very highly established HFCs from HDFC to everybody, they will have some component of their book, which is for developer funding. That basically dovetails into home loan also because most of the projects that you fund, you may have a priority access to the customers who are buying housing units there.
Okay. Okay, sir. Thank you. That was very helpful.
The slide probably will give you a very, detailed, you know, explanation on what our strategy is.
Yeah, yeah. I'm doing. Thank you, sir.
Thanks. Thank you.
The next question is from Abraham Iyer of Deutsche Bank. Please go ahead.
Yes, sir. Congratulations on a good set of numbers. My first question is actually pertaining to, you know, the microfinance segment. We've clearly seen a lot of growth from a quarter-on-quarter perspective or even from a YOY perspective on top of the 60 AUM. But I was wondering if you've also seen sort of a jump in GNPA in some, you know, levels you have not seen in, even in first wave or towards the end of last year as well. Could this primarily just be, you know, increase due to the RBI new norms or is there any other factor here? What's the company's overall strategy here in microfinance? Are you like focused on growing the book here? Because the growth rate has been much more than, you know, sort of the other segments.
Most of microfinance companies have not yet reported numbers. I would think that the growth has been there for most of the microfinance companies in last quarter. Secondly, in terms of GNPA growth, almost about 1% is impact of RBI circular. Other than that also, you know, the restructured book has come down. I mean, I think restructured book has come down by 20-25%, so some part of loan has come out of that also. Then coming to the next part of your question, outlook. You know, microfinance industry has been impacted by one or another reason in last few years several times.
If you look at the business of the customer, then they basically borrow loan for income generating activity and as a group. Typically, under normal circumstances, performance is very good. Hopefully, we'll have normal circumstances going forward. We'll see a strong pullback in the GNPA as well as improvement in asset quality and collection efficiency.
Got it. Just sort of a follow-up question to this. What's the strategy in terms of, you know, targeted AUM growth over say the next 10 months?
I think targeted AUM growth should be around 25% or so.
Over 12 months. Got it.
One thing we must keep in mind is that we are talking about core product and 25%-30% depending on how our core lending picks up momentum because core lending is rather where you know if the banks basically have a willingness to take more aggressive approach we will be obviously supporting them.
Got it. Lastly, I've seen that, you know, this has obviously been very robust for the bank and, you know, the liquidity position has been maintained. Is there plans then to just tap the domestic market here and, you know, or, you know, is there a sort of strategic return to the U.S. market?
No, domestic market for debt you're saying?
Yeah, correct.
For debt, at this point in time, domestic market liquidity is good and interest rates are also going down. If you look at fully hedged cost, then it doesn't make any commercial sense to tap the overseas market on a broader issue. You know, on bilateral transactions or ECB, and actually we are negotiating with ADB and you know, some other multilateral organizations. If we get a good rate, then obviously the ECB market is there. It will be transaction-specific. At this point in time, at least we don't envisage kind of a public issue or a larger issue of bonds.
Got it, sir. Got it. Thanks a lot for your clarifications.
Thank you. Next question is from Thomas Griesner of abrdn Asia. Please go ahead.
Yeah, thank you for taking my question. Very similar to the previous one. I was just gonna ask on your dollar bond outstanding. So is your plan to retire that bond or will you decide at the time or in a year's time whether you refinance in the dollar market and what the conditions are like at the time? Thank you.
Thank you. You know, our dollar bond was $400 million at the time of issuance. We have bought back some whatever is allowed as per RBI guidelines. In fact, we are allowed to buy back more and, you know, reduce our cost of funding on an aggregate basis. If you really look at it, maybe 350 kind of thing would be outstanding, and we got more than a billion or $1.2 billion of liquidity on our books. The way things stand today, I think, probably, you know, we'll repay the bond, you know, on maturity. Under these conditions, it's unlikely to refinance them. If the, you know, interest rates improve or for ratings or for some other reason, we will look at it.
For the time, I mean, you can see on the financial numbers also, we have more than adequate liquidity. In fact, we have more than three times the liquidity to buy back the bond, even at this point in time.
Okay. That's very clear. Just one quick follow-up. If you were to tap the dollar market again, would you re-engage with one of the rating agencies or do you?
Would we engage any?
The rating agencies. Yeah. If you were to do another
I think we'll engage them. If we are to tap the dollar bond market again, then we'll have a dialogue with rating agencies and, you know, let them reevaluate the whole thing and make an assessment. See, I think rating agencies also have to catch up because if you look at our capital to risk now is 25%, 30% for subsidiary companies have improved significantly. Our liquidity has improved. Our asset profile has improved. We'll engage the rating agencies regardless of whether we do bond issue or not, but I think immediately after these results now, because they're quite clear in the last one month, we'll engage with them, and we make representations to them on the rating.
Because I think there's strong case for us to make them look at the numbers which are significantly better than what they were when they did their assessment.
Yeah. Yeah. Thank you so much.
Thank you.
Thank you. The next question is from Deepak Poddar of Sapphire Capital. Please go ahead.
Yeah. Thank you very much, sir, for the opportunity. I just have one query. In terms of your cost, so how many quarters away we are from a normalized cost of 1% that you had been talking earlier? Yeah.
Deepak, actually, yeah, it's becoming a little bit difficult or embarrassing to answer this question because something or other has been happening in every quarter. Like RBI circular or, you know, these kind of microfinance situations we did not expect earlier.
Okay.
Maybe hopefully it should happen very soon. I'll keep fingers crossed, and let's see, you know, every quarter that how do we get there. Because every time we say something, but something completely unexpected happens. You know, let's keep our fingers crossed and hopefully, in this year it should happen.
This year means FY.
2022.
Yeah. Year 2022, right?
Yeah, yeah.
RBI requiring, like, we have taken some provisions this quarter, so it's likely to continue into fourth quarter and first quarter as well, higher provision.
No, which provision? RBI, in fact,
Yeah.
That is, that it came in the middle of the quarter. Now I think most of the NBFCs will try and make sure that their collection system as well as contractual arrangements with the customers happen in a manner that, you don't get into that trap of, having higher NPAs, higher provisioning, and then, you know, it goes into vicious cycle because it also impacts the customer's credit rating. I think this impact will taper off in next couple of quarters, March and June. It won't happen overnight, but I think these two quarters should get fully adjusted.
Okay. Understood.
Right.
Yeah. That's it from my side. All the very best.
Thank you.
Okay.
Thank you. The next question is for Prashant Shelar of SBIMF. Please go ahead.
Yes, sir. Am I audible?
Yeah. Very much.
Just looking at just the real estate part, and you mentioned that in 1,800 around INR 600 crore is left in DCCO so far. We also see the NPAs in that segment rising. Do we assume that despite DCCO, some of these projects could not complete in time? Is that the interpretation?
I don't know. I would agree with that. See, the problem with current, you know, this current RBI circular, where even if there's a 1 day's delay or a listing, then obviously it has to be recognized as NPA. This kind of a scenario, it doesn't actually increases the risk on the of the asset what it was, but the reporting is little different from the reality. What happens in Indian conditions that, you know, people sometimes they get delayed or the payments get delayed by a few days and obviously you're forced to report NPA but it should not impact the recovery or the quality of assets.
No, what I was trying to understand is actually to real estate, if we look at the performance of the projects that have come out of DCCO, how do they look? Would any of them have slipped into NPA or something?
No, no. Okay. Some of them have been paying after that and some of them have paid a little bit of. Most of them I think are on track. In one or two projects we've got a developer transfer. We got the project transferred to a new developer who is financially stronger and has a track record which is good, so doesn't have any delinquent track record. I think things are looking better there.
Sure.
The projects which are under DCCO are not into trouble, they're getting out of it.
Mm-hmm. Mm-hmm. Okay. Is there a watch list or something that you are tracking and are you able to track them?
Yeah, actually. See, there are about 20-25 projects that basically account for almost entire this thing. We review it every week. Now we got a team. We enhanced our team, so kind of from project monitoring to financial diligence, you know, so we increased our resources there. We are tracking them very, very closely. I mean, we understand that this is a large chunk of asset and obviously it requires close monitoring and a recovery effort.
Mm-hmm. No, I was just trying to get a sense of it. Just one other question on the gold loan side. This quarter and last quarter, from the disbursements you've done, what is the average interest rate and tenure of the loan distribution?
Average interest rate is slight downward pressure on that. The tenure has not changed. If you look at our portfolio yield, it's come down from 18% last, you know, maybe by March end to around 17.4% now. There's a 60 basis point decline on the overall portfolio. The onboarding yield, which is the incremental yield, might have fallen by about 1% or so. I don't have those numbers, but my guess is, portfolio yield has also would have come down by around 100 basis points.
Okay. That is,
I'm sorry. The blended yield has come down by 60 basis points in this financial year, no?
Sixty.
60 basis points, which is an entire portfolio of INR 4,600 crore.
Is that major because of bank competition or?
Yeah. There's a massive competition at this point in time. What has happened is that there are many new players who have funded and also the banks are getting into this in a very aggressive way. Sometimes they may not be pricing the risk properly, but at least in the market, there are competitive pressure on the yield. You know, if you ask me, we have seen these kind of bout of competitive pressures earlier also. They happen sometimes. Another thing, what happens in gold loans is that typical product is that you start with a low interest rate, and those low starting interest rates have come down to a very low level now.
When the customer actually, if he's not paying on time or he's taking tenure or some other extension or whatever, then the interest rate goes, you know, over a period of time.
Sure. Great. That's it from my side. Thank you so much.
Thank you. The next question is from Sharad Singh of Libord Capital. Please go ahead.
Hello.
Yes.
Hi, sir. Thank you for taking my question. Leaning on the gold loans, where do you look at these rates stabilizing? I mean, do you see it already bottom or where do you expect it to stabilize?
Some of the players who had offered these, what we call teaser rate, if you have seen the advertisement like, you know, 49 basis points percent. Some of them have already withdrawn, you know, and they understood that there's no merit in this. You know, maybe this quarter, next quarter, you know, over a period of time they may stabilize at little lower level. There is a covenant damage of 50, 60 basis points, but they should stabilize in this and next quarter.
Sir, do you expect the banks withdrawing, banks only being temporarily here, aggressive here?
No, banks are not tempering, but the problem is that the more competition from NBFCs, wherever banks can reach out or customers can afford the processing time that bank turnaround time the bank takes, they'll go to bank. Suppose you go to State Bank of India, they can give you a home loan at 6.5%-7%, which obviously require you to go there to the branch. Sometimes some of the banks basically take your gold today and give you loan tomorrow or day after they approve and your loan comes. The way gold loan product is that many customers who take loan for a very shorter duration, and they want to have it quickly done and flexible terms. Those are the customers that come to NBFC.
There are areas and, you know, places where banks don't reach out or even if banks have branches, they don't do gold loan. The market is huge, you know. A significant part of market still with money lenders and pawn brokers who charge exorbitant rate of interest. You know, banks will be there. I don't think banks will withdraw for any, you know. They'll continue. NBFCs that were trying to have easier rates, you know, that might, their activity might slow down.
Right. Okay. Sir, the next question is regarding the provisioning on these NPAs. On these increased gross NPAs due to the RBI norms, are we taking some excess provisions there or are we sticking to the ECL norms?
ECL norm is broader, which actually can be higher than typical interest, or the GAAP accounting which is required for RBI. We are taking higher provisioning broadly on an overall basis. It's not that we are trying to link it to RBI circular, but ECL is a more prudent way of estimating losses and doing this. We can make sure that we are conservative in our provisioning requirement. If you see RBI's requirement, if you look at my entire book, then as per RBI norms with the revised guidelines, everything, our provision requirement would have been INR 493 crore, which is there on slide 17, 493.5. Whereas actual provision that we have taken in our books is INR 1,246.3 crore.
Right.
Almost 2.5 times what is required for RBI.
One last question. In the affordable housing finance where you're going, what is the yields and LTV and who are we competing against effectively? I mean, customer profile, if you could give some more around the customer, exact customer profile that you're catering to.
Monu?
Yeah.
Monu can-
Hi. I'll just mention that. If you see our overall portfolio mix, about 65% of our customers are salaried people. These would be blue-collared employees who are seeking home loans. We have a very vast majority of our customers who are also eligible for the CLSS subsidy. Nearly 50,000 customers we have given the subsidy as well. These would be first time home buyers. Their annualized incomes would be surely below INR 6 lakhs, and they would be largely into the blue-collared segment.
Okay. Sir, what would be the yields on these loans which we offer?
Yeah. These yields, the incremental yields, which we are able to get today is about 9%-9.5%.
Okay, sir. Okay.
Yeah.
The LTV, sir? Sorry, LTV?
LTVs would range typically because we are in the affordable segment. These LTVs would be somewhere in the range of 75%-78%, average LTVs for our portfolio levels.
Okay. Thanks so much, sir. Thank you. Bye.
Thank you. The next question is from Bhuvanesh Garg of Investment Principal. Yes, Bhuvanesh.
Hi, sir. Thank you for the opportunity. I have a couple of questions on the assigned assets and the income. Firstly, if I heard it correctly, you did about 3,600 assigned in nine months FY 2023. Is that right?
No, you are saying 3,600 assignment?
nine months, FY 2023.
No, no. In one quarter I think we do this kind of numbers.
Okay. Okay.
In the last quarter, yes.
Okay. What would be the number for nine months, sir?
The total gross assignment then because some of them are paid back. I'll give you the number. Just one second. INR 6,400 crores actually, nine months. If you say INR 3,400 quarter, then INR 3,000 into three is two quarters, right?
Yeah.
Quarter one was not much, you know. Quarter one is typically COVID, slightly affected quarter.
Okay. All right. Can you please provide the breakup of the assignment book, like the 3,004 assignment FY 2022? What is the breakup of the segmental breakup?
Asset book segmental breakup means you're seeing the asset wise, product wise.
Yes. Yes.
I can give you a broad breakup. One second. Monu, how much will be our home loan assignment? One second, I'll give you the numbers.
Home loan amount is yearly about INR 6,000 crores. INR 5,800 crores is home loan.
Gold loan is also about INR 6,000. The remaining will be microfinance and business loan.
Okay. Fine. Sir, next, if we look at your NIM on assigned assets, which is about 6.6% for nine months. If we take the INR 6,400 crore of your assignment during nine months and 6.6% of NIM, your income should have been around INR 315 crore-INR 320 crore. But we see INR 88 crore reported.
No, you are saying what should it be? INR 600 crore, you're saying?
Six, uh-
No, no. What happens is assignment or your assignment was earlier also, and some of the assignment get repaid also. It's a flow. I mean, it's not a static number. There is a assignment of the last year also flows into this year. There's some income of that also.
Okay. It's a recurring income. Sir, just one last thing. If we consider your total assignment income, so it forms a significant part of your NII. For nine months, it is about like 70% of NII. In that case, how do you view the stability of this income stream going forward?
The assigned assets are like also our loan assets within the on which we continue to earn. This has to sustain and grow as we keep growing our assigned book and the co-lending book. You know, that's the key strength of our balance sheet and the financials, you know, because there's a flow of income where we are not blocking any risk, we are not taking any risk, or we don't have any capital block, and it'll be a sustainable income till the assets fully mature.
Okay. Thanks so much. Wish you all the best.
Thank you.
Thank you. The next question is from Vivek Ramakrishnan of ESP Metrofund. Go ahead.
Good evening. Sir, I'll ask on the business loan segment, where after a long time we've seen sharp growth in disbursements. It's, I think, around INR 970 crore in the last quarter. The collection efficiency has also been the best we've seen in a long time. Does that reflect the fact that, you know, you mentioned the positive macro view? Does it reflect that, you know, the business loan segment is kicking up pretty well and you're confident to grow the business? Also, I wanted to ask in the context of this, you know, your the loan book is about INR 5,886 crore, out of which, I mean, INR 345 crore is NPL and INR 256 crore of restructured loans.
Do you expect that the 6.6% is probably peak GNPA level and you expect that to come down and with the restructured book performing well? Thank you.
Thank you. Vivek, very much, you know, I think what you are saying is very wrong. The SME, MSME segment, we are seeing a very strong recovery with the economic recovery. The asset quality from here should improve significantly. We have seen what you are saying is absolutely right, that the traction last quarter has been very positive. Hopefully, the numbers will be reflected in next few quarters in this particular segment of business. Also, our DIY model now is getting very established in terms of quality of credit, delinquency, and growth. Overall, business loans should do well going forward.
Excellent. Just one, the AUM I noticed was INR 7,000 crore and the loan book was about INR 580 crore. The balance would be amounts that have been assigned to securitize, right?
That's right. Absolutely right.
Okay. Is the performance difference really improves significant in the sense that would the new numbers be even better than that going forward?
Yeah, numbers will be better. See, as things improve, we'll be able to even assign more. See, what happens in assignment, you have first of all three months or six months seasoning. After that only you can assign. If there's a slight delinquency then obviously no bank will take it. Banks will take only assets which throughout the seasoning period have been performing well. The assignment basically will improve as the quality of book improves. The assignment is small part of the total book in the business loan segment, but over a period of time it can become as significant as home loan and gold loan also.
I assume the collection efficiencies are getting better as things are improving.
Absolutely.
Sir, congratulations and all the best to IIFL.
Thank you.
Thank you. The next question is from Vikash Agarwal of Credit Suisse. Please go ahead.
Okay. Thank you, Mr. Jain, for giving me the opportunity, and thanks a lot. I missed the early part of the call, so maybe I'm not sure if this question is answered. I actually have two questions. One is I wanted to understand if there is any challenges you are facing, given the recent Omicron wave and, you know, in the current quarter. That's one question. The second question is I wanted to understand a little more on the co-lending side. Obviously there is some announcement which has come in terms of positioning, but what's the most business that you are seeing under this model? What's your target in the next year or so? And how does them impact your assignment strategy?
I mean, why would the bank choose a co-lending over assignment, which you quite proactively do?
If you can, you know, share some thoughts on that would be helpful.
Good. Thanks. What was the first question?
Omicron.
Omicron. Yeah. Omicron has been impacting December and the beginning of January. We were very worried, but thankfully it has not impacted much. I think people have you know the business momentum continues and more or less you know people are reconciled to the fact that this is spreading rapidly, but it's not fatal and not something very serious. Omicron is not a big threat you know. This is my understanding and more or less it's behind. It should be like you know it should completely you know from here on I think things should be better. That has not impacted much. Speaking about co-lending and assignment, that's a good question. I'll tell you the difference. In case of assignment, it's a transaction by transaction.
Banks will come and say, "Okay, this quarter we want to take your assets, so they'll evaluate INR 500,000 your assets take." The advantage and disadvantage both. The advantage is banks will take it when they need liquidity, but the disadvantage is that banks also don't have continuity of asset flow because they also plan their balances, so they should know how much retail assets they're going to get from this channel. From our point of view also, the co-lending works better because, one, there's no seasoning. It happens at the origination. Two, it's a continuous process, so you don't have to really worry about the transaction consummating.
You know that, okay, under the partnership model, you only have to keep 20% of on the book, which you can easily do through your retail earnings, and you don't have to worry about liquidity, you don't have to worry about risk. Obviously the challenges are that every transaction, it has credit placed by both the institutions, bank as well as NBFC. Technology, your processes, your workflow, everything has to be very smooth. Resources are required from both sides. Longer term co-lending is a good model because the risk assessment is happening at origination, and both the partners know that this is how liquidity and asset flow will happen. Banks also know that, okay, we can expect so much of assets from this co-lending partner.
They also plan their liquidity and balance sheet, and we also plan. You know, as the partnership becomes deeper, it becomes easy for, you know, both parties to work. The challenges are that you have to set system, every transaction has to be approved. In case of assignment, they'll set up a team, they'll go through a bundle of assets, choose what they like and take. So these are the, there's a difference. I don't know whether that answers your question, Vikas.
No, it does. It does to some extent. Maybe if you can also elaborate on, you know, what sort of sub-sectors you have in this co-lending model in terms of disbursement, income profiles or even the financial assets. I know these are, this may not be very, you know, hot topic, but any preliminary thoughts on, you know, what sort of different amount or which products are you targeting more on the co-lending model?
You know, I think, as you said that because these are unprecedented, we probably are doing co-lending at a scale for the first time. I think next year, almost half of our disbursement, the total overall disbursement of the company can be through co-lending model. That should be our internal target.
Okay. That's very helpful, Mr. Venkataraman. Thank you.
Thank you. The next question is from Ashwin Kumar, Rupal Subramanian of HSBC. Please go ahead.
Hello. Are you listening?
Yeah.
My first question was on the co-lending model. I believe you mentioned that you did about INR 850 crores of disbursement in the home loan segment through co-lending. When you say 80 out of that only, you know, 20% will be on your balance sheet, right? I mean, if that's the way to understand-
Yes.
this number.
Yes. Yeah. That's how it.
When you're mentioning in your presentation INR 1,600 crore disbursement, that also includes INR 800 crore participated.
Yeah. That includes INR 800. Out of that INR 600 grow on to bank. Basically INR 1,000 million from your book.
Right. The other thing is that, so this disbursement which you've done that will show up in the assigned portion or, I mean, like you're saying on balance sheet, off balance sheet, you know, mix which you have, which you've given in the presentation. The remaining
Comes from our balance sheet. This is part of loan AUM. Yeah, it'll be part of assigned assets. Will be part of loan AUM, but will not be on our books. 80% will be part of assigned assets.
Okay. One more general question on the co-lending model. The customer segment here would be sort of similar to the customer segment which you otherwise lend to or, I mean, considering that, these are, I mean,
The way it works is, when we negotiate with banks, we say that these are the customer segments that we target. Broadly, they have to be in agreement, then only the whole thing will take off. Having said that, when we source a loan, we have an option. Supposing we like the credit, but we say that it's not fitting into the co-lending criteria given by the bank, we can keep it in our books. Not 100% of loans that we source will be co-lend. We have certain policies and the bank has certain policies. Whatever fits into their policies, we give it to them. The remaining, if we are comfortable with the credit, we keep on our books.
Okay. Just one additional question here. The loans that are lent through this model would they have sort of a higher like risky turnaround time as compared to the loans that
No, because see, the way practically it is happening is that RBI has also allowed that we disburse and then you know, if the bank is doing the co-lending, we work like the agent, and we get money reimbursed by the bank and then loan as is. Customer signs a tripartite agreement where the option is with us to allow 80% of the loan to go to the bank. Then, the bank, it may take a day, two, or a few days or whatever, and if they approve, then they take it from the beginning, and for one or two days the interest adjustment is done. Otherwise, it does. As the customer is concerned, there's no delay.
Okay. The customer will have a different interest rate, right? Like if co-lending
No, no.
It might be at a lower.
Customer interest rate remains the same. Supposing customer's interest rate is 10% and co-lending arrangement with bank is at 8% for theoretical reasons, then we collect interest at 10%. We give bank 8% share on 80% because we are bank's agent. The remaining interest is with us.
Even on the 80%?
Supposing I'm charging 10% to customer on $100 bucks, which is INR 10, right?
Right.
On 80 I'll pay 6.4 to the bank and 3.6 I'll retain in my books. In terms of accounting, what will happen is that on 22 will go as interest and the remaining 1.6 will be part of assignment income or part of other fee income.
Right. In essence it is very similar to our assignment income.
The operating cost is to our account, so obviously, you know, the, that's how the economics work.
It's very similar to assignment transaction in the way it works except that we won't hold it on our books for a seasoning period and all that.
That is correct. It's very similar to assignment transaction. Here, like, every loan, you know, gets, and in assignment is a bundle, and in assignment what happens that the bundle is rated by agencies, rating agencies. Here it's a loan by loan.
Thanks. Thank you. Thanks a lot for that.
Thank you.
Thank you. The next question is from Ray Bohanda of PCT Securities. Please go ahead.
My friend, give me five minutes. I'm on a
Hi. Thanks for the invitation. Just wanna have two housekeeping questions. One is actually because we are just starting to cover IIFL Finance and can we just have a quick one as to who the IR is, his or her name? Secondly is what is
Ray, we can't hear you properly. Could you please repeat the question?
Thanks for that.
IR name.
IR name.
Higher name?
IR.
IR is Anup Verghese, our IR.
Mail ID is IR at IIFL.
The mail ID is IR at iifl.com. Simple to remember, ir at iifl.com.
Yeah. Who is the person? Am I sharing his name?
His name is Anup Verghese.
Verghese. Okay, thank you.
Anup Verghese.
Okay, good.
We'll circulate the mail also.
My second question on whether this meeting will be recorded for later on if I would like to replay?
Yeah, it's recorded actually.
Okay. Is the transcript on the website?
Yeah, the transcript is there on the website. It will be put up on the website.
Okay, good.
In a couple of days.
Thank you so much. That's all I, yeah. Thank you so much.
You can share Q&A on the website and we'll send you a link also.
Awesome. Thank you so much. Thank you.
Thank you, Ray. Have a good day. Thank you so much.
Thank you.
Thank you very much. It appears that we have no further questions, and I would now like to hand the call back to Mr. Nirmal Jain for some closing remarks.
Thank you everybody for being on the call. If you have any more queries or clarifications, questions, please, get in touch with our investor relations or CFO's department. Thank you so much.
Thank you very much, sir. Ladies and gentlemen, on behalf of NTS Stock Broking, that concludes this.