Ladies and gentlemen, good day and welcome to the IIFL Finance Limited Q1 FY 2021 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. Now the conference over to the management. Thank you, and over to you, sir.
Good afternoon, everyone. On behalf of Team IIFL Finance, I thank all of you for joining us on this call. I am Rajesh Rajak, CFO, accompanied by Mr. Nirmal Jain, our Chairman, Mr. R. Venkataraman, Managing Director, and Mr. Arun Kumar Purwar, our Chief Risk Officer. I'll hand over to our Chairman to comment on the group's strategy and plans. Over to Mr. Jain.
Thank you, Rajesh, and welcome to all on this call. As all of us know, COVID times continue, and COVID-affected life is still not back to full normalcy. It is really unfortunate for humanity as a whole that such a huge loss of lives and health has been caused, and we pray for the fastest recovery and conquering of this disease. However, having said that, COVID also has thrown up many opportunities for the business. For IIFL Finance, we see opportunities in a couple of ways. One is significant saving in operating costs, and two is completely digitizing and accelerating the digital journey for the customer as well as our back-end processes. The two factors that have driven significant cost saving or can drive potentially going forward. One is the discovery that working from home is very easy, convenient, and can be very efficient as well.
That allows many other organizational and workflow changes, including delayering of the organization with a larger span of control and also centralization of many processes which were hitherto decentralized. Obviously, you'll have a lot more scale economies as you centralize the processes. The second is now there's acceleration of digital and e-everything and acceptance of the same. The paperless, presence-less mode is working very well now and is getting traction. Technology was always there, but I think adoption has increased significantly, and that is what probably can drive or can change the way business is done. This, coupled with cloud and mobile technology, is going to change the operating matrices as we go forward. In IIFL Finance, we have moved all our software applications and all servers to the cloud.
In fact, almost all our key people can operate on mobile devices or tablets, which provides significant mobility and flexibility without compromising on security. As you know, this will require re-imagination and redefinition of most of the processes. What we are doing to start with for business loan is a complete end-to-end digital process. We work more like a fintech company. This can be followed by, we already have InstaHomeLoan product, but all our home loan products or all our lending offices can be fully digitized. Which will allow us to centralize many functions, as I said, and save operating costs. In terms of strategy, what we articulated last time, just to update and look at two aspects, which is growth and asset quality. In terms of growth, there were always concerns about, at least in last 18-21 months, about liquidity.
I'm happy to say that liquidity is easing now. As far as we are concerned, we got about INR 1,800 crore of cash and bank balance as of June end, another INR 1,900 crore-INR 2,000 crore of undrawn line, which is sufficient to meet all our debt obligations, contractual obligations till at least say February 2021. We also don't want to carry more than this kind of liquidity because that has a significant cost. You borrow at 9% and if you have to put your money in liquid or bank at 3%, obviously the cost is pretty significant. Given that the liquidity is there, but the business environment is improving, and we have seen that the disbursements improved significantly in gold loan as the branches opened in the month of June.
In fact, out of our 1,750, 1,800 branches, only 18-20 branches are closed because they are in containment zone. Almost all other branches are open, and we are seeing that the footfall and business is increasing month after month. The way we look at asset growth going forward is we want to originate assets which are all eligible for being taken over by banks. In a way, we complement the banks by originating loans that they would like to have on their balances, but they are not able to do on their own at the terms that we do. All our loan origination credit processes, we have revamped them, trying to make it eligible for banks. We are talking to quite a few banks for alliances and partnerships for co-lending, as well as co-lending and co-origination.
Obviously, in a COVID-affected time, things are not moving as quickly as we would have liked them to. As soon as things become normal, we are hopeful that a few alliances will kick off. That basically will be the model that we wanted to work on. Coming to asset quality, assets under moratorium have come down from 60% to 31% from May to June, and maybe in this quarter we'll see further improvement there. I mean, the moratorium assets will further fall, which is good because when you exit from moratorium, these are the assets where when there are question marks whether those borrowers will be able to pay or not. We are working systematically on that, and in fact, things are getting to normal, maybe a little better than what we expected.
In terms of asset quality, also we have a portfolio of CRE, which is not core, where we have not been originating new loans and we want to taper off or we want to reduce this portfolio. We have been in talks with a few funds or investors, where we can bundle the entire portfolio and be the sponsor or contribute the sponsor capital and have external investors. Even these talks are not progressing at a quick pace because of physical limitations of people to visit and do the diligence. I think in next few weeks, we should see good traction there. With this, I'll hand over to Rajesh again to take you through the financial details, and then we'll open up for question and answer. Thank you.
Thank you, Mr. Jain. I'll give you all a brief update on our business. IIFL Finance net profit was INR 228.2 crores in the first quarter of FY 2021, up 5% quarter-on-quarter and 26% year-on-year, excluding exceptional items of INR 194 crores of COVID provision and INR 70 crores of MTM loss on ForEx borrowings and forward hedge. Our loan AUM grew by 10% year-on-year and 1% quarter-on-quarter to INR 38,335 crores. Our core segment grew faster at 12% year-on-year to INR 33,194 crores. Our retail loans, including consumer loans and small business finance, constitute 88% of our loan book. Our Tier 1 capital adequacy stands at 15.3% and total capital adequacy at 19.3%. A strong characteristic of our loan book is a large proportion of loans that are compliant with RBI PSL norms.
About 63% of our home loans, 48% of business loans, and 91% of our microfinance loans are PSL compliant. In aggregate, nearly 43% of our loans are PSL compliant. 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. Our average cost of borrowing remained flat year-over-year and declined by 10 basis points quarter-over-quarter and stands at 9.3%. Consolidated GNPA and NNPA stood at 1.95 and 0.86 of loans respectively. This is as compared to 2.31 and 0.97 in the previous quarter, that is in the March quarter. Provision coverage, including standard asset provision under Ind AS norms on Stage 3 assets was 183% for the quarter. Even after excluding additional provisions made for COVID, this stands at 101% of total Stage 3 assets.
Return on assets for the year was 2.7% and return on equity was 19.5%, excluding impact of one-off items. A brief update on our liquidity situation. During the quarter, we raised INR 1,005 crores through term loans and refinance from banks. In addition, loans of INR 877 crores were securitized or assigned during the quarter. Cash and cash equivalents and committed credit lines from the banks and institutions of INR 3,745 crores were available as of 30th June 2020. We continue to have nil exposure to commercial paper. Our funding mix is well diversified, including 25% from NCDs, including subordinated debt and MTN, 35% from bank loans, working capital finance, 7% from NHB refinance, and 33% from securitization and assignment. We have a positive ALM, whereby inflows cover or exceed expected outflows across all buckets. A brief update on COVID impact.
As at the end of the quarter, 31% of our consolidated book was under moratorium. This is down from 60% as at the end of May. That is our previous update to you. An additional provision of INR 194 crore was made during the quarter for possible impact due to COVID-19. Digitization and analytics. 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. In addition to the one-click digital personal loans launched last quarter, we launched a one-click online top-up module for gold loans this quarter and are seeing good traction in the same. IIFL Loans app is being increasingly used for various transactions by customers and has been especially beneficial during the lockdown, giving customers ease and convenience of access.
We have about 150,000 average active users on the app for the month of June. That brings an end to the update. We will now open the floor for any questions.
Yeah, any 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 your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the questions you assemble.
Yeah, there are questions, can you start? Ayesha, can you start the questions?
Yes, sir. The first question is from the line of Anita Rangan from HSBC Asset Management. Please go ahead.
Yeah, thank you. Just wanted to know if you can first give some more color on liquidity. In that sense, what are your discussions with the banks or some market participants in terms of getting more financing and so on? Secondly, in terms of the prospectively asset quality, how do you see it go post moratorium? We are at the end of July and perhaps at the end of August, moratorium will be withdrawn. How do you see the situation panning out after that for each of your business segments?
Yeah. In terms of liquidity, all the banks have been more constructive, more positive after June. Now multiple windows for liquidity have opened up. Under government's Partial Credit Guarantee Scheme, banks have subscribed to bond. We had about INR 200 crore bond issue last week. Under liquidity, which is for a short duration, that window has just been opened up. There, I think proposal will be taken up this week or next week. For term loan also, we have started discussion and negotiation with the banks. For the loan assignment, I think we did one transition for about INR 800 crore. We got another few in-principle approval. I think liquidity is, as all of us know, that the liquidity in the system is quite easy at this point in time. Just the flow to NBFCs is now opening up. Maybe the selectively banks are opening up.
I don't think that they would probably open up for all the NBFCs, but they started discussing, they started taking our proposals and discussing the applications and looking very constructive, very positive. My assessment would be that liquidity has eased and will continue to ease from here on. We also have to look at interest cost going down. As of now, the divergence in triple A and double A and other papers has widened to historic high. The divergence has to narrow. One has to look at reducing the interest cost as well. Secondly, asset quality, as far as we are concerned, we don't have any concern on gold loan and home loan. If you look at in the month of June, our collection efficiency for home loan and microfinance both has gone up more to beyond 75%, and for gold loan is nearly 100%.
The only segment that one is little cautious about is business loan, but there also, there is a government scheme where you can have a top-up loan of 20% to ease the liquidity pain. We really have to wait and watch how long the moratorium lasts. Will there be another renewal, and when we exit from moratorium, how things are. As I said in my opening remarks, that we've been able to bring down the loan assets under moratorium from 60 to 30, and I would think that in next two to three months before we fully exit from moratorium, they may be further brought down to anywhere between 15 to 20. That is the asset where there's a risk of exiting from a moratorium and looking at quality. I don't think it'll be a significant impact. It should be manageable.
Okay.
We have taken a lot additional COVID provision in this quarter and last quarter. That should more than suffice.
Okay. Just one more question, if I may. Why has your AUM increased in this quarter? Has there been some additional disbursements in some sections?
Yeah, there have been disbursements. In gold loan and home loan both, disbursements are picking up. They're gathering momentum. The gold loan AUM has grown by 4% quarter-over-quarter. Home loan AUM has grown by 1% quarter-over-quarter. Business loan has been flat where the new disbursements are some equal to say, what has been run down. Even within the quarter, if you look at our disbursements during the month of June, they were almost twice that of the month of May, and April was almost shut, so there wasn't any disbursement in April. I think disbursements are already, we are seeing that they are picking up.
Okay. All right. Yeah. Thank you.
Thank you.
Thank you. The next question is from the line of Luv Sharma from Lombard Odier. Please go ahead.
Hi. Thanks for the opportunity, and thanks for the presentation. A few questions. If you can help me understand on the first quarter, what has been the cash movement, in terms of disbursements which we have done during the entire first quarter, and on the debt repayment side, scheduled and unscheduled debt repayments which have been done, and any moratorium which was availed during this first quarter on your borrowing? Thanks.
Any moratorium? Sorry, I didn't hear the last part. Any moratorium?
Moratorium on your borrowing from banks, et cetera.
Yeah.
That was availed this quarter. Yeah.
Right. In terms of moratorium, we had requested all the banks. Those who did not give, we are paying them on time. Almost all the public sector banks have more or accepted the moratorium on principal. Interest is something that we are paying on time, and the other private sector banks have not accepted moratorium. That also, whenever their installment is fall due, we pay them as and when, in time. If you look at slide 17 in our presentation, that basically adjusts. That is the debt payment schedule based on moratorium given or not given. Now at least picture is clear that there are certain banks that are given moratorium, some lenders were not given. Based on that, if you look at the debt obligation scenario, and with the cash and bank balance that we have and undrawn line, we are covered till February.
The slide 18 is the ALM II , which is based on RBI's submission that we do. RBI, we do for standalone companies. This is a consolidated picture, which basically says a static situation that we are not going to disburse further and we are going to collect only the standard part of it and only the fixed deposits which are encumbrance-free we can take as liquid. Based on that also, we have a positive surplus till five years, and that is what we track. That is about the moratorium and the liquidity part of it. In terms of fresh disbursements, what happens is gold loans are, as we have the branches open, so many loans have been repaid and taken. If you look at only disbursements in last quarter, that they are to the tune of almost around INR 2,500 crores.
If you see the loan book, it is flat. Many of these are their rotation, actually. In gold loan it happens a lot because typically gold loan is for three months, so people keep paying the loan back and there are new borrowers who take the loan. Businesses, except for Mumbai and Delhi, most other parts of the country, we are seeing that in the month of June and July, things are pretty much getting back to normal. I won't call them pre-COVID level, but at least 60%, 70% of that level is happening. Like in home loans, we had disbursed INR 185 crore in the month of June. In a normal month, we'll look at INR 300 crore.
Understood. Would you be able to share what collections have you received, let's say, in the June month, and how is the
Our collection efficiency means what we want to collect and what we end up collecting. On an aggregate basis in microfinance, which is a good news because that is something where we were worried. In the month of June, collection efficiency was 75%. In home loan also is more than 75%, 76%. In gold loan, as I said, it's close to 100%. It was more than 100% but then that covers the earlier month also. Collection efficiency in these three core segments has improved. In business loan is about 52%. This is how the collection efficiency has been. I'm giving you the number not for the quarter, but for the month of June.
Sure. Understood. Okay. Is this efficiency based on the amount which is due to be collected from the customer as of that particular time?
Exactly
has it been adjusted for the moratorium?
No, this is a good question. Amount which is due in that month, but it does not include the amount collected for previous month. Adjusted for moratorium as well. Whatever we bill. If I include the overdues, then it may be more than 100%. I look at it, whatever is due to be paid in the month of June, out of that how much I recover. Normally what happens, this is what the non-recovery gets into 0 to 30, and that gets collected over a period of next couple of months.
Okay.
Actually, this amount what I'm telling you is not considering moratorium, so it's from the total billing.
Okay. It's from the total billing. Understand. Okay.
From the total billing. The month of June, our aggregate collection efficiency was 65%, which is in home loan, we are 76, business loan 53, and microfinance 75. CRE, which is construction and development, was lower at 30%. Gold loan is 189%, but as I said, that included the previous month also.
Okay. Just to be clear again, so that I don't mix it up. Basically, what you maybe selected for business loans, 52% efficiency would mean that if the.
Business loan 53% efficiency would mean all the business loans, how much we are collecting.
Understand. That's basically more in comparison to the, let's say, pre-COVID levels, correct?
No. Business loans we collected 53%, but because of moratorium collection is low. Pre-COVID level, if you look at the month of January, our collection efficiency in business loans was around 86%.
Understood.
In all other segments it's moving pretty close to pre-COVID level. Like in the home loan, typical efficiency will be 95% plus. Right now we are at 75% because 20%, 22% of customers would be under moratorium. Non-moratorium would be pretty close to pre-COVID level.
Got it. Okay. Just one last question from me. On the moratorium you mentioned, so if I compare your slide, even the liquidity table which you have on slide 17, versus the previous quarter slide which you had shared with us. It seems like that there is not been much of a moratorium availed from banks in total. Would you be able to share the exact amount, how much has been availed?
No. Actually, a good amount has been availed in moratorium because in the previous last quarter slide, there was a blue and orange portion. If you look at in the month of July, the total blue was 920 in the previous slide. Whereas in the month of July, it was 1,271. In the month of August, if you see the 1,564 out of which 454 was assuming that all banks give moratorium, that instead of 454, we are having 456 now. Most of the PSU banks, what we had expected, they have given moratorium. There are very few banks that have not given moratorium. What you are seeing currently, the picture is now clear because if the moratorium is given, then the scheduling done based on moratorium.
If not, then we have taken as due on whatever day it falls due.
Got it. Okay. Thank you. That's it from me.
Thank you. The next question is from the line of Amit Mantri from 2Point2 . Please go ahead.
Hi. Can you explain what is the reason for the NIM expansion that we are seeing on a quarter-on-quarter basis? Is that because of the rising share of gold loan?
Yeah, because see, the incremental loans are only gold loans. If you see in the last quarter, the growth has been the incremental loans are only gold loan, and the other components have reduced a little bit. That's the reason you see that the NIM has expanded.
Okay. In gold loans, are the yields likely to go up further as your lending rates are highest is now around 1.83%, which would be around 24% annualized. Would yields continue to go up in gold loan segment?
No, I don't think our lending rates are 24%. I don't know, where have you got the data from?
At the branches, basically, when we check. They said the highest rate is 1.8.
No. I think what happens in gold loan is the customer, basically based on their credit and track record, they get a lower rate also. Supposing you are a gold loan customer and you've been always paying in time, then the rate can go down to 12%, 14% also. On a weighted average basis, we have 19.4%, so it will remain in this range only.
Okay. Understood. What's the outlook on the cost of funds? Has the new corporate capital that you've been raising over the last quarter and also in July coming at a lower rate than your current cost of borrowing?
We are seeing 10 basis points for last quarter, but we expect cost of funds to further go down. You know what happens when the liquidity crisis has been there. People, I mean, many NBFCs and we also were not really haggling or negotiating too much with the banks on interest rate. As we go forward, I think we should be able to negotiate and bring it further down.
Okay. What is the aggregate loan loss provisions that you are now carrying on the balance sheet, including the COVID provision?
It's 182% including COVID, and without COVID, it's 101%. Even if you exclude COVID, we are covering all our GNPA with provision other than COVID, but including the standard asset provision, which is as per RBI norms.
In INR terms, that would be around INR 1,300 crore plus of provisions that we would have, right?
No. In INR terms, we have about INR 700 crore, INR 730 crore or INR 750 crore. It's in that range.
Okay.
No, COVID. Okay, one second. What you are saying is right, actually. 454 is our COVID provision. Put together, I think your number is right, it'll be INR 1,100 crore-INR 1,200 crore, yes, sir.
Okay. Thank you. That's it.
Thank you. The next question is from the line of Sivakumar K from Unifi Capital. Please go ahead.
Yeah. Thank you for the opportunity. Sir, you were giving the collection efficiency segment-wise. I just didn't get the number for business loans and MFI loans.
Business loan is 53% in the month of June. MFI loan is 75% in the month of June. You know, MFI was 0% in April, 3% in May, June numbers are these, that MFI was 75% and business loans are 53%.
Okay. Sir, in the business loans, almost 50% is under moratorium, right?
Yeah. In May, the collection efficiency was only 37%. It's improved to 53 in the month of June.
No. In the sense, if already 52% of the loans are under moratorium, how can you have 55% collection efficiency? Are some of the customers under moratorium paying up?
No. Customers under moratorium, we can collect the earlier dues. What happens is that, if they were in 30, 60 DPD earlier, so those dues are being collected. Some of these people are also eligible for top-up loan under government guarantee scheme. The earlier dues can be collected there.
Okay.
Suppose you are a customer on a moratorium, you applied for moratorium this month, but suppose you have some overdue of March, you can pay that. That is what we try to collect.
Okay. How much of the AUM has got the government-related support, SME segment support?
As of now, we have not done much. It's not significant amount at all. In terms of eligibility, we can disburse up to INR 500-600 crores. That process has just started.
Okay, would you go the full distance? You will reach INR 500 crores or the number will be very low?
Okay, the thing is that even the borrower has to agree, we can't force it. This is a contextual, this thing, both have to agree. Probably not, maybe only a small part of that will be utilized. We will not be able to disburse the entire thing.
Okay.
Some of the borrowers are not asking for it. Some of the borrowers, we may not be comfortable in giving them. Yeah.
Sir, I was just wondering why would the borrower object to that? Because he's in the moratorium, and he definitely needs some cash flow to start the business again, and there's government money which is coming in. Everything is favorable from a borrower's point of view. Why would any borrower object to this?
What is happening is that some of the borrowers have been paying, they have not taken moratorium also, and some of the borrowers, they don't want to increase their debt burden for two reasons. One is either they have a good liquidity, or two, they are not very confident of their business environment. You know what has happened, and this is another counterintuitive phenomenon, but some of the customers say that my business is shut, it's not moving, why do I take more money at this point in time? Let it reopen, let me see how things are, then only I'll take a call on that. Borrower knows at the end of the day, he has to repay that money sooner or later, along with interest. Where the business has not started fully, there also, they don't need money.
Got it. Sir, among the segments, this business loan itself looks to be a very sticky one in the sense the decline in moratorium is the least in this particular segment. Are you approaching collections differently in this segment? What are the initiatives you have taken at your end? Because this seems to be the key to improve the recoveries going forward. Any particular initiatives that you have taken at your end to address this?
No, I think it's a very good question and a valid point. We have intensified our collection effort, and we are in touch with all the borrowers. At least, we think that it's just a question of time. Most of them, basically, as soon as things get normal and maybe in this quarter we'll see a good number of those customers coming out of moratorium or opting out of moratorium. At this point in time, in business loans, we are not disbursing new loan much. Our sales and collections, both the teams are engaging with the customer, tracking them very carefully and trying to see how quickly we can get them out of moratorium.
Right. Sir, in the business loans, can you give some sense as to how much is agriculture related AUM, how much is dairy related, which can give us more comfort as to the recoverability of those moratorium-related loans.
Agriculture related, we don't have much of this thing in the business loan part. Sorry?
Agriculture loan.
Agriculture, maybe rural area, maybe in part of MFI or some part of gold loan. In business loan, there's no agriculture, no rural exposure there.
Okay. Someone indulging in agri related, say, trader, wholesale trader who does agricultural-
Yes.
Who deals in agricultural.
Okay, maybe more involved. 70% plus of those loans will be secured by a property. They're LAP loans. The collateral there is basically covers us. If you look at the loan to value, the collateral is at least twice. 49% is the LTV. There, I think we'll have comfort because in case of a default, you can purchase, you can get the property and recover the money. Typically, we have seen historically, when you have a loan, but the collateral of property, which is with good margin of safety, then your probability of loss is very low. In unsecured, we have been fairly, in last, more than a year, we have tightened our credit underwriting policy. Typically, we are very careful in terms of what is the debt burden ratio and what is the credit score.
if you ask me, as I said, that more than two-thirds of book is with the collateral of property, and one third also, I don't expect any significant risk there.
Right. Sir, would you continue to take COVID-specific provisions in the coming quarters also? You already built a provision of around INR 470 crores, right? Would you continue to do that over the next few quarters?
No, we don't have to. This is as per RBI guideline. What RBI said is that for your moratorium assets, you have to take 10% provision, 5% in March, 5% in June. I think it's done now, so I don't think COVID provision will be required unless RBI comes back and they extend the moratorium and they ask us, but otherwise, it will not be needed.
From your own internal assessments, sir, this 31%, what do you think will be the final NPA that one would expect in Q2?
I think the COVID provision that we are carrying based on RBI guidelines plus the ECL assessment is far higher than what we'll actually need. I don't think our losses will be anywhere close to this.
Right. Sir, one last question on the management transition.
Because of COVID, so I think we are carrying fairly conservative in terms of provision, so we have very high provision coverage.
Right, sir. Sir, on the management transition with the exit of Mr. Bali, are you looking to hire someone in the CEO role, or would you continue in the interim?
I think we are not looking at hiring. Same continues as of now. I'm there in the job.
Right, sir. Thank you.
Thank you. The next question is from the line of Abhiram Iyer from Deutsche CIB Centre. Please go ahead. Abhiram, your line is in talk mode. You can go ahead, please. We would request the current participant to please unmute yourself if muted from the handset. As there is no response from the current participant, I have muted the line. The next question is from the line of Riyaz Mishra from Kotak Mutual Fund. We would request the participants to please limit your questions to the participant. Riyaz, you can go ahead, please.
Good afternoon, sir. Congratulations, first of all, for reporting a reasonable set of numbers in this tough time. I have maybe two questions. One, I think, the part that you've just highlighted about the credit cost. The cost should not be beyond the provisions that you already carry. Is my understanding correct?
Yeah.
Okay. The second question is on the wholesale book. I think you just mentioned that a large proportion of this book, you are trying to put it in a fund format in which you will only invest a part of the capital. I think initially, about two quarters ago, there was a timeline given. By end of December, you expect this book to be moved out. Has that timeline changed? If you can throw some light on that timeline, that would be good.
You are saying December 2020?
Okay.
No. What is the timeline you're talking about?
Yeah, the same timeline. This is given about December 2020, was the initial timeline that was given.
I think, whatever has to be done will happen before December 2020. There are a couple of things. One is, the process has been a little slow, but still, we have adequate time till December 2020, but we are still engaging with clients and talking to them. The second point which is important is that as far as our loan book is concerned, the CRE in particular, what is happening is that the stress in real estate is not something where you can paint the entire sector with one brush, because our exposure is mostly in affordable segment. Actually, contrary to normal or popular belief, because people are getting conservative, we are seeing good traction in some of the projects in the affordable segment. Like, some project in Thane. Even during this lockdown period, there have been good number of bookings as well as inquiries.
We are not in a desperate situation to agree to any terms and get this book out. At the same time, given the fact that strategically, we are not doing any new loans in this sector and we want to emerge as a 100% retail-oriented NBFC, we are working on this. The timelines remain the same. It depends now because so there are two things. One is getting terms which are fair to both sides. Secondly, as soon as things resume normalcy, then people should be able to do diligence because most of these investors would like to physically see the projects or at least maybe some sample of it and negotiate the terms. Hopefully, that should get done before December 2020.
Okay, thanks. That's all I wanted.
Thank you. The next question is from the line of Chirag Sureka from DSP Mutual Fund. Please go ahead.
Hi. This is Vivek here. Just a couple of questions. One around the home loan portfolio. When you say home loan, these are all retail home loans or do they include LAP also? Because of the cost, other lenders are able to reduce cost depending on the ratings and so on. Are you seeing any churn of your portfolio to other lenders, which is happening where the customer gets acquired by other NBFCs or banks?
Home loan and LAP we report separately. If you have home loan, then it's pure home loan. Average ticket size INR 18.6 lakh, and that's about one-third of our portfolio. The LAP is included in business loan. As I said, almost two-thirds of business loan will be LAP. I don't know the precise number, but we can share that also. They are completely different. The average ticket size in LAP also is not very significant because maybe business loan is combined there. Home loan and LAP are separate. Now, to the second part of your question. In COVID, we have not seen significant request for balance transfer to banks. Normally, we are competitive, because our boarded yield, as of now, our portfolio home loan is around 10%, but that comprises of mix, including the segment where we are lending at a slightly higher rate.
Normally, we are fairly competitive vis-à-vis banks and housing finance, although this may sound a little bit of a surprise to many analysts. What happens in home loan, we get refinanced by NHB. We get refinanced depending on the type of loans, even at 7% or less than that also. We can compete based on the segment. There are home loans where we give loan at 9% or sub 9% also, and there are segments where we charge 11% also. Some balance transfers happen, but there's no extraordinary traction there. No extraordinary movement there.
Okay, great. Sorry, one related question is that, the moratorium in the home loan segment, is it more self-employed or employed or is there any characteristic that emerges out of that segment?
Yeah. You are right. Self-employed people relatively have taken moratorium more as compared to salaried people. Although the self-employed percentage in total AUM has gone down to 42, and some salaried people also have taken moratorium. Relatively, it may be slightly higher in self-employed.
Okay, sir. One other question, which I have, the last question, is that are you going to be de-focusing a little on your SME business going forward, in terms of growth is a more secure, higher-yielding gold loan and microfinance loans and de-focusing on the SME loan part? That's my last question.
No, I'm happy that you asked this. We are not defocused, but in the near term, till environment becomes very clear about the business loans, today what has happened is that everybody is uncertain about, nobody knows what businesses will face what kind of cash flow problems when things become fully normal. We are committed to this segment from a longer term perspective. There are two things. In the short term, the disbursements will be slow because we are cautious, and as of now, we are seeing much greater opportunity to expand gold loan, followed by home loans in the affordable segment. As things become normal, we want to do this business completely digitally, and that is what we are building our system, our backend, our processes.
Given that we have gold loan branches and in the nearby area, we have great opportunity to do this business where on a smaller ticket, INR 5,000-INR 10,000, you can get 18%-19% yield, and your incremental operating cost may not be significant because you use your network. It's a great business from a longer term perspective. Next three to six months, we may not do much till we are very clear on the economy and the environment.
Okay, sir. Thanks a lot and good luck, sir.
Thank you.
Thank you. The next question is on the line of Abhiram Iyer from Deutsche CIB Centre Private Limited. Please go ahead.
Yeah. Hi, can you hear me now?
Yes.
Hello?
Yes, go ahead.
Yeah. Thank you for the presentation. First question that I had was on the number of employees. We see that this is reduced by around 700 employees over the last quarter. Is this drop more permanent or is this more of a reaction to the lockdown? How much of these would be in the collections department?
Yeah. 700 people are comprising of all kind of people, but collection department people, I don't think we have reduced much. You know what happens in our normal attrition itself is in 3% to 4% in a quarter. What we have done is that we are not hiring more. Actually, I don't think we have reduced the number of people in collection department. That remains more or less intact. As we digitize, and there are some redundancies that happen in various departments, but this is normal. Even if you see our operating cost, including manpower, has gone down by INR 45 crores in this quarter, and we are targeting INR 200 crores of cost savings in this year without impacting our capacity to lend. This has been achieved without reducing manpower significantly.
The senior level people have taken a salary cut, and that's how you see INR 17 crore reduction in the total manpower cost. 3%, 4% is a normal attrition in a quarter. Only thing is that we have not replaced them.
Got it. Thanks. The other question that I wanted to ask was with respect to the CRE loans. The average loan amount has actually increased by a lot, like from INR 28 crores in March to INR 37 crores right now. Is there a rationale for the same? Is this because interests have started being capitalized, or could you let me know why?
Sorry, come again?
The portfolio average size, the ticket size for CRE loans has increased from INR 28 crores to close to INR 37 crores right now in one quarter. Could you let me know the rationale for that?
Yeah, I know. I think some of the loans have got consolidated, and I don't have a precise breakup data, but I can check that. I don't have the breakup, but I can check that. I think some of the loans would have got consolidated.
Okay. It's a result of consolidation. Okay. Thank you. I'll get back in line.
Thank you. The next question is from the line of Prashil Shah from Capro Capital. Please go ahead.
Yeah. The moratorium book has more or less halved. Could you share how many of your borrowers would have paid the entire installments for the past three months?
Those who have not paid three installments, they come as our GNPA.
Okay.
If you have not paid, then we qualify them as Gross Non-Performing Assets.
No, I'm saying from the moratorium book. People who have exited the moratorium book, how many of those guys would've paid all their installments, how many would've paid partially?
Okay. People opting out of moratorium, that's there, that's not very significant number. I don't have the data, but I can check that out. I don't have the data at this point in time. I know that people opting out of moratorium and paying all three installments, there are few, but not too many.
Okay, all right. On slide basically 17 and 18. You said slide 18 was consolidated and slide 17 was standalone. What's the difference between the two when it comes to the-?
Slide 17 is also consolidated. Slide 18 is also consolidated. Slide 18 is done on the format of the ALM II, what we submit to RBI. When we submit to RBI, we submit for three entities separately. Slide 18 is based on ALM format, ALM II , what goes to RBI is based on that. They've given certain guidelines on how to prepare the asset liability mismatch or matching. There, what they say that you take a static balance sheet as if you are not going to disburse any more, and you're going to recover only the standard loans and not anything else. For other recoveries that are beyond five years, that's how you to prepare that. You're going to take only fixed deposits which are encumbrance-free, which are freely encashable.
Basically, you take care of all your operating costs and operating current liabilities also. That is how slide 18 is done. Slide 17 is nothing but what we've done, forget about everything else. What is our obligation month after month after month, what we are to pay to the banks or any other lender. Based on that, what is the cash we have in hand at this point in time. In slide 17, we don't take any of other current liabilities like rent, electricity or salaries. At the same time, we don't take any cash flow which we are going to receive from even standard assets.
Okay. Coming back to the moratorium part. You said that home loan, 76% collection efficiency was there in the month of June, right?
Yes.
If the collection efficiency, that 76% does that include people in moratorium or does that not include people in moratorium?
That's all the people, including moratorium, non-moratorium. What is not received is mostly non-moratorium people.
Okay. All right. Thank you.
Thank you. The next question is from the line of Lakshmi Iyer from Smartkarma Network. Please go ahead.
I have two questions. My first question is about slide six. When I compare with your previous presentation, I see that your investments have reduced by about INR 500 crores. What are the reasons? That is my first question. Secondly, on the slide 17. Again, when I compare it with the previous slide 17, if you balance, I see that your liabilities have gone down by almost INR 1,000 crores. For example, I can understand in August you get a moratorium from the bank, your liabilities are down by INR 700-800 crores. That should not be the case for December and November because there's not going to be any moratorium. Roughly what you have to pay, whether you look at it in March or whether you look at it now, should be the same. These are my two questions.
No. Can you repeat your first question on the slide six? What was it about the balance sheet?
Your investments were about INR 700 crores in March, and now they're about INR 200 odd crores. What has gone down by about INR 500 crores?
We had government securities which we sold off in this quarter. With March quarter, that INR 700 crore and almost INR 500 crore of G-Sec what we're holding on our balance sheet.
Okay.
That we liquidated. Coming to slide 17. When these banks are giving loans under PCGS, they are asking us to prepay their loan for next six months.
Okay.
What they say is that, "Okay, we'll give you money for 3 years, but whatever is due in next 6 months, you pay us in advance." That is one thing that happens in this environment. Secondly, wherever there's a moratorium, that is also factored into this.
Okay. The moratorium I can understand for August and September.
What we do is, sometimes our bonds, I know, I understand. What you're saying is that why for the January, February month. Sometimes we also buy back our bonds from the open market and we extinguish them. I don't have the breakup of all the numbers, but this could be possible reasons.
Okay. Fair enough.
Yes, your bank, when they are giving you money for three years, they say, "In next six months, whatever is due, you pay us back immediately.
Okay. Fair enough.
Thank you. The next question is from the line of Pulkit Anand from Silverdale Capital. Please go ahead.
Yes. Hi, good afternoon, everyone. My question is about the loan loss. Sorry, not the loan loss provisions, the write-offs, about the INR 88 crores you have written in the statement. Can you give a color on that?
Sorry, INR 88 crore?
88 is a combining of.
88 crore.
See what happens when we do the accounting as per Ind AS, the interest stripping is netted off from the provisions. Out of INR 107 crore or whatever provision that we have, INR 18 crore is the interest stripping part which gets knocked off when you see those reports with the results which are as per Ind AS format submitted to exchange. In the presentation, we include this INR 18 crore interest stripping in other income. This is interest strip on the secured assigned assets.
Okay. Thank you. That was my question.
The only difference between other income and provision, in the results that you see as sent out to exchanges in the format and the presentation that we have.
Okay.
We write a note in the presentation because easier next time.
Okay.
Yeah.
Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you so much. I really appreciate your time and stay safe. If you have any information requirement, you can be in touch with Anup Varghese, who is the investor relations manager. Thank you so much.
Thank you. On behalf of IIFL Finance Limited, that concludes today's conference. Thank you for joining us and you may now disconnect your lines.