Good day and welcome to the IIFL Finance Limited Q4 FY20 earnings conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to the management team for the opening comments. Thank you. Over to you.
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 Nirmal Jain, our Chairman, and R. Venkataraman , Managing Director, Sumit Bali, CEO, and Anujeet Kudva , CRO. I will now pass the call to our chairman to comment on overview of the group strategy and plans.
Thank you, Rajesh. Thanks and welcome to all the participants and investors. We have equity as well as debt investors on this call. I think I won't take much time on COVID-19 because everybody has lots more information on this, but one thing is sure that nobody knows what's going to happen in future. The uncertainty was never higher, and nobody has a vague or clue also what's going to happen. Under these circumstances, we still have to plan for future. At this time, I think we have done a lot of internal brainstorming and a strategy discussion even at board level. In our presentation, I'll just take you through the few slides which are different and which can be a completely business model, which can be game-changing, which can be life-changing for the business. I'll take you through the thought process that we have.
If you already have presentation with you, these are I'll be covering from slide 20 to slide 36, even if you don't have it, you can just listen. Today, in terms of risk, as I said that the future is so uncertain that everybody has no clue how and when things will sort out. On one hand, we have a virus and pandemic which is going to pan out in a way which nobody knows today. On the other hand, you have response of Government of India as well as RBI, where till now they have provided for some liquidity. The number of schemes have been announced. Many a times when they announce schemes and the way they get executed, there's a lot of lapses in terms of the intent and the way execution happens.
At the same time, there is nothing that government has done till now to make up for loss of income of MSME or very small businesses that'll be impacted. Maybe in terms of risk, if you look at the worst possible or a worst-case scenario, there are five major risks that we have identified. One is that the slowdown and the recession or depression, whatever you call it, in the economy, which is quite possible, can cause a significant deterioration in quality of assets. In terms of business loans or the real estate projects as well as maybe to some extent home loans can get impacted by this. Two are NBFC liquidity crisis which has been there for now 20 months. Things got little better in between, but they again deteriorated. Today, the banks are risk-averse, and they perceive MSMEs to be risky businesses.
The NBFC liquidity crisis may not have an easy answer or easy solution. Many times when government pushes liquidity ease for a month or two, and then something can happen, and again it can get into a crisis. We are in a sector where liquidity problems can be continuous or perennial, and one has to really take that into account. Third is the negative sentiment about financial sector has impacted the stock valuations, and obviously that limits our ability to raise equity. Even with significant dilution, we can raise small equity, which is not going to solve the problem.
Number four is now it's going to be uneven playing field because as we have seen that not only in NBFCs, even with banks, the money or the deposit is flowing into a handful of banks, maybe one, two or three, or maybe four like State Bank of India on a large base. I mean, they are the largest bank. They almost about 20%, 25% of deposits are with them now. There are 800% increase in the month of April. If this kind of risk aversion and polarization continues, there will be handful of banks and maybe very few NBFCs that probably will have the liquidity and money. Some of those are getting money at very cheap rate, and there are many other NBFCs that are finding it difficult to raise any liquidity. This kind of uneven playing field can happen.
The fifth is as the lockdown continues for a very long time, people are working from home. There are operational information technology and cybersecurity, and all kind of risk. These five risks that are major risks that we talk about, let's not lose sight of opportunities. In fact, there's no crisis which has I mean, at least in the history of mankind, there hasn't been any crisis which did not have opportunities hidden in them. One is the entire digital technology and e-everything, whether it's eKYC or eSign, e-documentation now is getting accelerated. Having invested a lot in digital technology and been pioneer in many of these technologies, we are quite excited by this. The paperless, physical presence-less loans disbursements, all those things can now become possible. Although technology existed, but there was reluctance, there was resistance to adopt it wholeheartedly. These things are changing.
Two, banks are getting huge liquidity. We have seen that eight and a half lakh crore of surplus bank money is with RBI. They're just earning about 3% or maybe 3.25% or 3.65%. Currently, obviously, they can't continue this kind of scenario for too long because their margins will be impacted. Obviously, they'll have to find, even if they go about the lend to NBFCs, they will find retail assets. In the economy, we aren't seeing too many wholesale assets or wholesale projects asking for funding. If they need retail assets, and they don't have the last-mile connectivity with the customer, then companies like us with huge network will be there in demand, and we can source assets for them. Our third opportunity is unanticipated cost-saving opportunity. When people work from home, what we've seen in last couple of months, you save a lot of costs.
People are working. Sometimes their productivity is higher because 20%-25% of time they were losing in commuting between rooms. It also allows you to do delayering and create a flatter organization because, obviously, people think that 10 people may need a team leader. When we realize that people working from home on a remote basis are telecommuting, and all those things can save a lot of cost. Fourth is that as I know the consolidation which will happen because of these kind of, as I spoke about polarization of the funds as well as the confidence in the trust, and there'll be capital constraint which will cause capacity contraction because many smaller NBFCs and many smaller private sector banks also may find it difficult to continue the lending operations. Therefore, those who survive, they will have an opportunity because on the supply side, we'll see contraction.
Whereas on demand side, as things recover, hopefully expansion will again start. The fifth thing is that people, what we've seen in last couple of months, at least in our group company, that a lot more money has started flowing in the mutual fund stock markets, and many new customers have started coming to the market. Actually, hypothesis is that people are uncertain about future. They start spending less and saving more. This is a great cross-sell opportunity for companies like ours where all our branches are also named as loans and investment center, where we get a significant referral fee from the group company for cross-selling investment and mutual funds. In this kind of scenario, what do we do? In fact, the new business model that we want to work on.
It's a pun intended, but is also named that we want to build a COVID organization. The COVID, CO stands for capital optimize and VI stands for value innovation. It's a capital optimized value innovation driven organization. Let me broadly what it is. We own the customer but sell the loan. We have a revenue model which is rising stream of spread income or the difference between the yield or the rate at which we have sold the asset and the rate at which we charge the customer and also the cross-sell income because we own the customer. In fact, many of you who have been tracking the company would know that almost 40% of our loan AUM is already sold to banks. This is something, if we work on this business model, we can take it to what our target would be to 75%-80%.
The remaining money can be just funded by internal accruals. Now we own a real asset portfolio which is now down to 12%. We want to ring-fence it, just be the sponsor for the fund or an SPV and plan release capital. This work we started earlier, but unfortunately, because of the COVID-19 disruption this thing has got a little delayed. As soon as things get normal, we want to complete this project. There are quite a few funds who are interested and we are the attractive yield. Of course, IIFL can be the sponsor for these kind of fund or SPV. Maybe broadly we target. These are things which are anticipated, but at least we say we keep a nine-month target to forge bank relationships, align the workflows, integrate technology, and work out this complete new business model.
When we say capital optimize, what does this mean? IIFL has a branch network of 2,377 branches. 430 were set up in last one year, which again, throughout the year we had liquidity problem, but we were convinced about the retail credit in this country, and we kept growing. In 25 states, 600 cities and towns covered. We can leverage our network to source the retail asset and banks get relatively superior quality of asset, not only because of our network, but because of our expertise and understanding of the business and priority sector retail assets also. It becomes a win-win relationship, and this is something that we can do with multiple banks.
It's a capitalized NBFC which owns the customer, and we can do rapid technology integration because all banks have technology systems which are taken from large technology companies, or some of them are proprietary component. Our advantage is that we have scaled a people team, and all our technology is in-house, and therefore it gives us an advantage to integrate and be flexible. When banks are acquiring assets using NBFCs, they are very keen. We have seen in last 18, 20 months that there's a bidding war of assets all the time because they are flush with funds, and they don't have retail assets. There will be direct assignment of loan assets. RBI also announced on-lending scheme where they just fund us, and that becomes priority sector for them. We originate assets and give to them.
There is a refinancing available from NHB, SIDBI, and NABARD, and also co-lending which has not taken off. There's another model which is at the origination itself, we can give to the banks. In a way, you act like an agent, but it's not a DSA agent, but it's lot more than that. Because what you're doing is that you're doing credit underwriting as per bank's guidelines and banks parameters, but also you service the customers, you do the collection, and throughout the life cycle of the customer, you are engaged with the customer. Of course, we have redesigned to meet the requirements of each and every partner bank. This is the capital optimized model that I was talking about. In terms of value innovation, we just focus on a few products that are at core, home loan, business loans, and gold loan.
We already have 4 million customers. If we focus on this, then we achieve scale. Now also, we have seen that the flexible staffing work from home can save cost. We have invested a lot in digital technology and automating the processes, so that gives us a cost advantage. From customers' point of view, we become one-stop shop. We can offer him all the loan products at the best way because we have a relationship with the bank where we can get them for a high credit score customer, the best possible rate. We have a lifelong engagement with the customer and we can sell multiple products to them. As I said, investment product expertise is there in the group. We have a unique moat in loan origination and loan collection. There are many startups who have come and thought about this business model.
We have been there for more than two decades in the industry, and our physical network of such large number of branches gives us direct contact with the customer and understanding of how actually the credit underwriting standards are being implemented. Our digital presence through website and app is also very strong. There are millions of people who use our app and website. We have a proprietary technology, which is patented, which works and gives a very high level of security to the business. We have invested over the last three years. Even our gold loan branches don't have any PCs or cables or wires. People work on mobile. They are very well controlled digitally, and there are centralized paperless processes. This is a moat that we have and loan origination, collection, all that we can do. This business model is very ambitious.
is something which is in a way revolutionary. What is our dream and how ambitious this is? If I can summarize what our dream can be to achieve in three years' time in three words. It may sound outlandish. It may sound very ambitious or even abominable, but if it works really well, we can become a debt-free NBFC. Even if we don't achieve 100% of our dream, even if we achieve 80%, 60%, we would have created a completely different business model, and which is so capital light. I started my career in Hindustan Lever, and I can understand and appreciate the pleasure and fun of working in a business where you don't need capital to grow the business. That's the business model that we want to work on. Now I'll very quickly take you through the liquidity where only liquidity we talk about?
One more section that we have added because there's a lot of concerns about the real estate projects that we have. We appointed JLL and PwC to do a diligence in last quarter on each and every project, and we appointed few more agencies to do it on a continuous basis. We have included certain analysis based on stage of project completion, the target segment, whether it's affordable, mid-income or high-income, the geographical distribution, the developer track record, and also sensitivity to price fall, which can happen because of COVID and resultant slowdown in the economy. If you really look at very broadly as we can go through the slides, I won't take much of your time, but 92% of projects which we finance are residential, and therefore our vulnerability to commercial price fall, which is now feared more, is much lesser.
60% of our projects are in advanced stage of completion, and these are the project-by-project details if you hover. 76% of projects are affordable, where the unit value is less than INR 50 lakhs in most of the cities like Bangalore, Hyderabad, less than INR 1 crore in Delhi and Bangalore, Kolkata, but in other cities less than INR 50 lakhs, and in Bombay less than INR 2 crores. There's a classification of affordable housing. Suburbs of Mumbai and Gurgaon, which have been high-density regions, they account for 52% of our funded projects. 93% of developers that we funded have more than 10 years of successful track record.
97% of funded projects, even if we provide for, say, 25% fall in the real estate prices of Mumbai or commercial prices fall by 20% or correction like this, they will also have a cover of more than one time for our loan and interest there. This was a little bit of deep dive into the real estate project that we have. I'll hand it over to Rajesh, our CFO, to take you through a little more granular details of our finances, and then we can open it for Q&A. Thank you.
Thank you, Nirmal. I'll just give you all a brief update on the business liquidity and the COVID impact and other sections. On the business side, IIFL Finance net profit was INR 216 crores in the fourth quarter, up 16% quarter-on-quarter and flat on a year-on-year basis. Net profit for the year was INR 756 crores, up 8% year-on-year. This is excluding one-time impact of COVID-19 provision of INR 211 crores net of tax. A deferred tax reversal of INR 50 crores and gain on divestment of CV business of INR 94 crores in the previous year. Loan AUM grew 9% year-on-year and 5% quarter-on-quarter to INR 37,951 crores. Core segments grew faster at 12% year-on-year to INR 32,773 crores. Retail loans, including consumer loans and small business finance, constitute 88% of our loan book.
Our Tier 1 capital adequacy stands at 13.6% and total capital adequacy stands at 18.2%. Primary drivers of our AUM growth are gold loans, which grew by 47%, and microfinance loans, which grew by 49% year-on-year. On the other hand, construction and real estate finance and capital market finance declined on a year-on-year basis. In home loans, our focus remains primarily on small-ticket loans with salaried and self-employed sections. The fastest-growing segment in home loans is the affordable home loan segment of Swaraj Loans, with average ticket size of INR 13 lakhs. IIFL Home Finance has been a significant player in the Pradhan Mantri Awas Yojana CLSS scheme. Till date, it has approved benefits to 38,300 customers and disbursed subsidies of nearly INR 900 crores. Another strong characteristic of our loan book is the large proportion of loans that are compliant with RBI's PSL norms.
About 63% of our home loans, 48% of business loans, and 91% of 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 borrowings at 9.4% for the quarter remained flat QoQ, and for the year, rose by approximately 40 basis points. We added 430 new branches during the year, taking the total to 2,377 branches. Consolidated gross NPAs and net NPAs recognized as per RBI's prudential norms and provisioned as per ECL method prescribed in Ind AS stood at 2.31% and 0.97% as of 31st March. This was against 1.96% and 0.63% as of 31st March 2019.
Provision coverage, including standard asset provision under Ind AS norms on Stage 3 assets, was 128% for the quarter. Coverage excluding the additional provision made for COVID impact stood standard 88%. Return on assets for the year was 2.2%, and ROE was 16.9%, excluding impact of one-off items. A brief update on liquidity. We raised INR 1,169 crore through term loans and refinance from banks. During the quarter, we also raised $400 million or INR 2,855 crores through our medium-term note issue. We continue to have nil exposure to commercial paper. Our funding mix is well diversified, including 28% from NCDs, which includes subordinated debt and MTN issue, 35% from bank term loans, refinance and NHB refinance and working capital finance, and 33% from securitization and assignments.
We completed securitization and assignment transactions amounting to INR 2,308 crores in quarter four compared to INR 2,382 crores in quarter three, INR 3,721 crores in quarter two, and INR 4,595 crores in quarter one. We sold down both PSL and non-PSL loans in five product categories, including home loans, LAP, SME, gold and m icrofinance to public sector, private and foreign banks during the year. A brief update on COVID impact. As of 25th May, 2020, 58% of our consolidated book was under moratorium. An additional provision of INR 282 crores was made based on increasing probability of default by 20%-25%, depending on the product for all retail products.
For wholesale products, we have increased PD and LGD across all customers based on a detailed case-by-case analysis. As lockdown starts to lift and as and when RBI and government measures start reaching end customers, we expect things to start improving.
Brief update on digital. We have continued our focus on digitization, encompassing every aspect of the customer loan journey. During the quarter, we launched one-click digital personal loans to help customers with a good track record with their short-term funding needs. We are also offering our existing home and gold loan customers top-up loans through an end-to-end digital process. 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 monthly active users on the app and have maintained ratings of 4+ plus on Android and iOS app stores. Analytics. In analytics, we continue to drive the use of credit decisioning engines, artificial intelligence and machine learning through behavioral collection and fraud scorecards.
This has continued focus on cross-sell and win-back, with our analytically driven gold loans win back generating strong volumes for both gold business as well as group wide products. During the quarter, we also increased our efforts to campaigns related to promoting digital collections and digital disbursements. That brings an end to the update. We will now open the floor for questions and answers.
Sure. Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets when asking questions. Before we begin, we'd like to inform participants that in order for the management to be able to address questions from all participants in the conference, please limit your questions to three per participant. Should you have a follow-up question, we request you to rejoin the queue.
Ladies and gentlemen, we will wait for a moment while the question queue settles. To ask a question, please press star and one. The first question is from the line of Prasheel Shah from CapGrow Capital. Please go ahead.
Hi. Could you throw light on how you reached this COVID provisions of INR 282 crores and some steps that you would have done for your business segment apart from the real estate?
When we did our COVID provision, we did a detailed analysis of our retail portfolio. Within the retail portfolio, we increased our PDs by about 20%-25%. When we looked at our wholesale portfolio, we did a case-by-case analysis. There, again, the PDs and LGDs were increased to give impact to the amount of stress which could likely arise due to the COVID.
What about your business loans, the small business loans?
Within the small business loans, we increased the PDs by 25% for the unsecured debt to factor in perhaps increased future probability of defaults.
Okay. Could you also share what percentage of your business loans or microfinance would be in the essential services? Could you give us some idea of what kind of loans you have given in the business loans and on microfinance?
Business loans are pretty granular. These are mostly sub 15 lakh loans. These are also covered under the CGTMSE scheme from SIDBI, and the yields are close to about 19%-20%. Overall, the book comprises 2/3 of loan against property and 1/3 against business loan. Your second part of the question was on microfinance. That's largely for income generation activity for the self-help groups comprising of women.
Okay. All right. I have a question on liquidity front. On your slide number three, you have said that you have bank equivalents of INR 1,900 crores and undrawn credit lines of INR 3,500 crores.
The INR 3,500 crores as of 31st March,2020 that slide explains that. The INR 2,200 crores in slide number 29. As of 25th May.
Okay. All right.
Some of the kind of lines would have been used to repay the loans outstanding in April and May.
Okay. Basically you said timeline is different.
Yeah. As of 25th May and chart number 30 as of the financial year 31st March.
Okay. Thank you. I will come back into queue if I have any further questions. Thank you.
Thank you very much. The next question is from the line of Barun Agarwal from Factorial. Please go ahead.
Hi. Thanks a lot for your time on this call. I wanted to take you back to slide 29. Can you please run us through the various potential scenarios in it with respect to both the MFs, insurance and the banks and FIs ? How do you see this panning out? In addition to this, would also be useful to get some scenarios from you on the asset side. I'm basically looking at your net funding situation and how do you see that panning out given the moratorium which is there in the book? Nobody has full visibility on when the lockdowns, et cetera, will end. What are you seeing and how are you sort of looking at it? Thank you.
There is a lot of uncertainty about whether NBFCs are getting moratorium or not. The NBFC has been representing to government as well as RBI. Several representations have happened because it becomes very unfair that RBI makes a blanket announcement so that all NBFC customers can take moratorium, but NBFCs don't get moratorium from their principal lender, banks. Most of the banks now I think are looking at moratorium positively. Some of the banks have agreed. Some of the banks are in the process of it. What we have done in this chart is that we have separated the loans which are due to banks and when I say FIs, they are institutions like NHB who will also follow probably the same pattern.
There are loans repayments to mutual funds and insurance companies where the bonds and NCDs are maybe the public issue to public. The bottom blue chart is something where we don't see any moratorium possibility, but the upper part is basically loans which are due to banks where I think most likely scenario now is that the moratorium will be given. If you look at, say, for July, for instance
We have INR 286 crore due to, say, mutual fund and insurance companies, and we have INR 1,271 crores. It is accumulated. Maybe INR 1,271 crores minus INR 286 crores is what is due to banks. That is where we are likely to get moratorium. If you really look at it, if we get a moratorium from the banks, and it's likely, then our liquidity will cover even beyond December 20. If we don't get any moratorium, it might be up to September still now, whatever we have or anything in between. These are just how this happens.
Obviously this assumes zero inflows from the asset side, right?
Zero inflows from asset side, but okay. We have operating costs for running the business. Even with the year budget, we are also have a growing concern. We are also continuing to give some new loans. For hypothetically, if we stop disbursing new loans and we only collect EMIs and collections from existing loans, how much will be collecting INR 250 crores. On a net basis, we'll have INR 250 crores-INR 300 crores coming from EMIs, even after moratorium.
Your ongoing costs are per month?
Fixed cost is around INR 70 crores, INR 80 crores. Maybe a little bit lesser than that.
Okay. That's very useful. The other question that I had is with respect to the various schemes that the government has announced. It was starting with the TLTRO, et cetera, which didn't really have the desired impact, then they have announced subsequent schemes. Can you give us some sense what could be the impact on you as an NBFC? I'm not talking about your eventual customers, as you as NBFC, how are you looking at it? Thank you.
I think there are a lot of liquidity schemes and we as an NBFC are reasonably well placed because the one scheme is only for A A and lesser or not for AA A. We are AA- stable rated, we obviously came to benefit from that. There are number of schemes. There is a TLTRO, and there are INR 30,000 crore liquidity finance for NBFCs for three months, but might get extended. Why they gave us three months? Because to meet the moratorium equivalent. Then there is a INR 45,000 crore of another scheme which is partial guarantee in a different format where earlier partial guarantee was only for the pool or where we are selling certain assets to banks, but this can be even for bonds or securities issued by NBFCs.
On top of that, there's INR 3 lakh crores of MSME working capital loan which can be guaranteed. There also our existing customers where we give an MSME loan, we can give them some 15%, 20% additional loan and that cover loan or the last mile loan is guaranteed by the government. There are quite a few schemes. Their final guidelines are coming. Of course, we have more TLTRO. All these things put together, I think there's a very positive that in next few days or next few weeks, we should have some good liquidity coming from banks and from other institutions.
Do you have some kind of very rough ballpark numbers? I'm not tying you to any particular number, but what sort of Just like you have very nicely elucidated in the chart 29 about various liabilities. Is there any sort of range you can give us on what additional sort of direct benefit you can get from this? I'm excluding the INR 3 lakh crore MSME working capital guarantee scheme because that probably goes to MSMEs directly. As far as you are concerned, is there any scenarios you can give us? Thank you.
Yeah. From all these schemes, we can get, it depends because we really don't know how banks are going to process these applications. Maybe up around INR 2,000 crore, INR 2,000-3,000 crore we should get. On top of that, we also have the normal applications which are about on lending as well as term lending which is in the normal course. I think our target will be raise maybe INR 5,000-6,000 crore in the next 4 to 6 weeks and keep that kind of buffer in case. I mean, that is the scenario that we try and work for so that we can continue to grow our book and feel comfortable with that.
Sorry, just to understand that what you mean is that this cash and undrawn line question that you have INR 2,200 crores, you would hope to get it up to INR 5,000 crores-INR 6,000 crores in the coming weeks. Am I right to understand that?
Yes. INR 5,000 crores-INR 6,000 crores. Yeah. You're right.
Thank you so much. I'm done.
Thank you.
Thank you. The next question is from the line of Anitha Rangan from HSBC Asset Management. Please go ahead.
Yeah, hi. Just a few questions here. As of now, you said that 58% of your customers have availed moratorium. Once the moratorium is off, by when do you expect that 100% will be restored? Say between August to December or August to March? When do you expect it to be restored?
This figure is as of end of May. Our sense when we reach out to our customers specifically.
I think they are sitting on liquidity, but they want some kind of opening up. I think once this INR 3 lakh crore reaches the end customers, you will see that number of customers who avail moratorium will reduce significantly. Gold, we've already started seeing activity, which is picking up gold now the LTV is historically low as the gold price has gone up. We expect gold will probably after three months, sometime at the end of three months, the situation should be pretty close to normal. Microfinance would take anywhere around three to five months is our sense. By sense, I think two quarters from now, we should see about 80% or so of normalcy returning on the collection side.
Okay. You spoke of that you also have to do some kind of disbursement. Is that part of your contractual obligation for the money which you have to disburse, or it is even normal course of disbursements?
We have some disbursements linked to construction home finance. Given that construction also would be delayed, that also would get delayed. I think we don't have too much of sanction or undisbursed line. There may be some in the real estate book, but very insignificant.
Could that be your disbursement, which you have to do, especially when it comes to construction finance per month?
There's a home loan. Other than that, supposing you bought a home for INR 25 lakh, we give you INR 20 lakh loan. Say the building is under construction, with every slab we keep paying. We have to keep, let's say we give an 80% loan. With every installment that you pay to the builder for 80% comes from the lender. These kinds of things are very small. They are not very significant compared to our total book.
Okay. Just one more. Out of this INR 1,169 crore which you have financed in Q4, how much would be refinance of let's say, once the existing term loans are over and you get that substituted with a new loan or working capital refinance, and how much would be new, fresh sanctions from, say, new banks or completely new term loans?
I think I didn't quite get your question. Are you asking how much is renewal and how much is fresh?
How much is fresh loans? Yes.
I don't have that information right now. I think most of it is fresh.
Okay. Just one final question. What are your thoughts on securitization? You have been doing securitizations in a very robust manner until Q3. What are your thoughts there? Q4 you haven't been able to do because of COVID situation and so on.
Mostly, securitization transactions consummate towards the end of the quarter. Unfortunately, in Q4, suddenly came this COVID on 20th of March, 2020. The transactions in the pipeline got little delayed. We could still complete a few, I think now most of the banks are trying to work completely digitally and even without physical visiting. I think they will gain momentum as things open up. Normally what happens with securitization transactions, they'll have rating agency rating, or sometimes they have auditors who basically audit, and sometimes they do random checking of KYC files and the borrowers. All these processes, they work in a normal environment, but they're slowed down because of the lockdown.
Okay. All right. Yeah. Thank you.
Thank you. The next question is from the line of Sivakumar K from Unifi Capital. Please go ahead.
Yeah. Thank you for the opportunity. With respect to the home loan segment, what would be the salaried and self-employed bifurcation?
58% of the AUM is salaried, 42% is self-employed.
Sir in business loans, you said 2/3 are secure while 1/3 would be unsecured. Is that right?
Yeah, that's right.
Okay. Sir, what is the rationale for giving a moratorium by default? Because that seems to be the reason why we are seeing a higher number or higher percentage of the AUM getting into moratorium. Have you extended this moratorium till August again by default?
We have asked the customers for opting in, so we have given them a choice. That's the protocol we are following. The number we said, 58%, is as of May end. For the next quarter, we get to know in about two weeks' time.
Okay. Within business loans, is the moratorium higher in the unsecured part, or is it equally distributed between secured and unsecured?
It's slightly higher on the unsecured part.
Okay. We see that in terms of GNPA business loans has again spiked this quarter. Is that structurally worrying you in terms of how the asset quality has been performing over the last few quarters, business loans?
When you look at it, A, even before the COVID, the economy was soft. Post that, there has been further impact. Now, given that 2/3 of the book is collateral backed, which roughly runs at about 60 odd percent of LTV, and we assess cash flows on the customer while giving loan, though it is on the past situation. Again, the 1/3 business, which is a business loan, is a higher margin business. This is a business where there will be some pain in times to come because these are loans given for generation of income. Last two odd months of closure of business activity would result in some pain in this segment. We are also watching it closely.
This INR 3 lakh crore, which is roughly 20% of the entire outstanding, once it reaches the customer, it will help them in restarting the business and ease the cash flow for them because it has a staggered repayment schedule. We'll have to wait and watch as to how things open up, how much time it takes to get to normalcy. Given that we are 2/3 of the books secure, one-third having higher margin, we are not unduly worried on this front.
Okay. The entire AUM of business loans would qualify for that INR 3 lakh crore scheme?
Yeah.
Got it. Finally, one question on the construction finance book. We see that it has increased by 2% on a sequential basis. The understanding was that you would actually bring it down over the next six months. Should we actually expect increase in the construction finance book going forward?
There are some disbursements that happen based on where the pending approved amount is there and disbursements happen with the approval and with the program. What I know is that the collection got impacted in last 10 days, and many of these installments become due in the last 10 days, and that is what has impacted this. It is unlikely to rise. Actually, with some resolution of some projects getting kind of moved , it could have fallen, but for sudden lockdown and things that came, it stands still. Under normal circumstances, it should start tapering down.
Sir, what is the yield for the gold loan book?
19.6%.
Okay. That's it from my side. Thank you, sir.
Thank you. The next question is from the line of Shubhranshu Mish ra from BOB Capital Markets. Please go ahead.
Hi. Thank you. Some of my questions have been answered. My question is about the gold loans. Have we offered moratorium to our gold loan customers?
In case of gold loan, the branches are closed for more than two months. They just opened. Normally moratorium becomes automatic because even if customer wants to pay, say, digitally, but he won't do that till he's getting his jewelry back , he/she . Almost 82% of gold loans, if you see the slides, they are in the moratorium. As the branches open now last one week and last, we have seen a lot of traction on this. Almost 90% of our branches are open. Customers are coming back hopefully the moratorium will go down now actually, as many customers will just pay their interest or release their gold also.
No, my only question there is that how can we offer moratorium on gold loan because moratorium is only to be extended on term loans and not on bullet loans. Gold loan is a bullet repayment loan. As per the RBI regulation, you can't offer moratorium on gold loans.
First of all, gold loans have multiple products. It's not necessarily has to be term loan or a bullet loan because many billings are repaid in a monthly installment also. In this case, I don't have any restriction on bullet loan versus term loan. Most of our gold loan customers are also small businesses. They basically take a loan against the quantity of gold.
I understand that. Gold loan, the understanding is that it's a bullet loan. RBI clearly mentioned that the moratorium is to be extended for a term loan and not to a bullet loan.
Bullet loan is also term loan. I don't think bullet loan is to the exclusion of term loan. Term loan can be paid in a bullet manner or can be paid by EMI installment. Many times even when we borrow from banks is a term loan but paid bullet. Bullet loan is a part of term loan.
Okay, sure. What is the outlook on the gold loans as we go forward into FY 2021? What kind of growth?
Very positive. Gold prices are holding up high and as people need working capital to start their businesses because they're impacted by this. I think gold loan outlook is very good.
Sure. Do you see a volume-led growth or a value-led growth?
Both.
Sure. Thank you.
Thank you. The next question is from the line of Lucinda Zhou from Allianz Global Investors. Please go ahead.
Hi. Thank you for the presentation. My question is pretty similar to Anitha. It has been answered previously on gold loan. Just that I would like to understand also the percentage of AUM under moratorium for this gold loan is actually pretty high as compared to one of your peers who have already announced results. Can you understand why? Is there more or even less people paying via online apps? How do you see that?
Do you think the company has a less than 10%? Can you please share with us?
They mentioned that gold loans under moratorium is not a lot. It was an article on Bloomberg. Then they mentioned that more people are willing to pay gold loans because it's Also, they do other loans as well, right? More people are willing to pay gold loans than other loans because the LTV ratio is pretty low. On top of that, they do not want that interest to grow on as well.
No. What you're saying is right, this is covered under moratorium in this period because the branches were closed. Branches were shut, by default, they got into moratorium. What happens is that in our case, most of the loans we collect interest on a monthly basis, we had to put them in moratorium, most of the customers would electronically agree for that. As I said that since last one week, branches have started opening all over the country again, we are already seeing there's a footfall of customers coming back and paying interest and paying. As maybe next few months, you'll see that the moratorium percentage in gold loans will go down significantly.
My next question is regarding your cost of funding. You mentioned about cost of funding as of end of March. In the last two months, alongside the worsening of the COVID situation, we've also seen some onshore funds being closed. Can we get a sense of how it's affected your cost of funding, and also in terms of the ability to access the market?
Cost of funding has remained stable. In fact, last year was 9.4%. When we get refinanced from NHB and other institutions, we get them at a very good rate. Banks also, although they've been little, there is a bit of the entire decision-making process has been stalled. Most of the banks have been waiting for the clear indications from government and RBI about who's going to underwrite the risk. It's not that they have said no. Fact of the matter is that new loans have been very slow in last two months. We have raised some money, but not enough. As we speak and what we are seeing is that since last few days, last one week, or maybe little more than that, most of the banks have become positive. They started looking at the proposal.
They started sending queries to us, and it looks like, it appears that in next couple of weeks, we'll see good flow of money coming as new loans.
Just to add to that, last quarter, 9.4% also includes the cost of funding for the MTN program, which was higher, and that is an important diversification and to our main issue. Overall, as banks constitute larger and larger funding portion, the rates should be going down going forward.
Okay. Thank you. Yeah, that's all I have.
Thank you. The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Good afternoon. Very good presentation. First of all, a strategic question. In terms of origination, whether it's origination institute, do you feel that you face any resistance because banks have already put in their infrastructure and they have the physical infrastructure, this getting a product from another institution is something that there's the internal resistance, and that's why it's not taking off? Related to that is in terms of the home loan business, it's a long tenure loan, and NBFCs are generally not able to get over three years, four years at the very best. Is it best that this business moves to AAA-rated organizations and banks?
Come again. What is home loan, you're saying?
It's a long tenure business. When you give a home loan, it's a 15-year loan or a 20-year loan. NBFCs typically don't get that kind of tenure unless it's NHB refinancers or one of its related bodies. Is it best if this business actually moves more to AAA organization and banks, receiving a lot more of home loans and keep it on the books?
Okay. Let me answer both parts of your question. First is that banks are expanding their infrastructure to give loans to SME and they can source on their own. If they could, INR 8.5 lakh crore is a hell lot of money for banks to have a negative carry and put it back with RBI at a reverse repo rate. Also, the short-term G-Sec rate has fallen below even reverse repo rate now, the six-month G-Sec. The fact of the matter is that no bank would like to carry liquidity and earn less than their cost of funds, obviously, if they could lend. This country is very large and the last-mile connectivity, number of people, like company like us employ 18,000 people. If somebody has to replicate that kind of loan origination, probably need as many people.
You can be say 5% more or less efficient, but you need 18,000 people to replicate what we do. We got 2,300 physical locations all over the country, obviously. The fact of the matter is that the network, whatever banks have and NBFCs have, NBFCs loan in the system is INR 25 lakh crore, which almost like, we are talking about $30 billion. NBFCs as a network is very large and also banks are a large network, but they still can't reach out to every thing. There is no bank that is willing to buy assets from NBFCs. They try to do as much as they can. Imagine, they obviously can't double or triple their man power strength overnight. That is one. Secondly, housing finance going to AA A.
No country, no economy, no system you can have only AA A because it has to be normal curve because the country, there are different types of risk assets, and everything needs to be financed. Imagine, even the banks, that's what I was saying, that if there's a polarization and there are only two, three or four entities remain. How many AAA entities are there? Maybe one, two, three, or whatever. A country as big as this can never achieve a $5 trillion economy. Also, what happens is that most of the customers won't qualify for this. The 90% of borrowers, I guess, won't be AAA in terms of their credit score or whatever. Most of them still repay their loans and they meet. Let's start from the corporate borrower.
Whether they want to have funds for projects and expansion, you have to talk about MSMEs who want to borrow for their businesses or individuals who want to borrow for personal needs. If you restrict to AAA, that will give you some data points. Out of CRISIL's 10,000 rated companies, only 1.5% are AAA. 98.5% are not AAA. I think it will be a disastrous situation for the economy.
No, I won't belabor this point. What you're saying is logical in the sense that if you look at even the NPA of a bank in terms of its NBFC loans or sorry, in terms of its SME loans versus the NPAs by a private sector bank or an NBFC, it's much lower. It's a logical progression. Somehow, I hope that progresses. Home loans, what I meant was this search for liquidity, meaning do the green side of that curve because you are in a situation of NBFCs getting abundant liquidity. I think that's the story of the moment. I like your COVID strategy, which makes it a capital light model. I'll move on to the next question in terms of the.
About liquidity from NHB, whether HDFC Limited takes refinancing from NHB or we take it, we get it at the same rate. It's based on the underlying portfolio, not based on the rating of the housing finance company. Our portfolio is very affordable. Some of the loans we have got at 5.5%, 6% also based on the underlying portfolio.
No, I agree. In the sense that there will be that component of regulatory trends. In fact, in TLTRO also, we believe that the regulators, if the NHB-SIDBI should be kind of bound, are going to play a bigger role than anything else. More or less, and again, I just want to hear your thoughts on that. In terms of home loans as well as microfinance loans, there's been a jump in gross NPLs. I wanted to ask whether, is it because we are instituting salaried and non-salaried segments and urban and rural microfinance?
I think there is an industry-wide impact. One is that the 30 days and 60 days delinquent assets on 1st March got classified as this, but many of them under normal circumstances would have got resolved. The culture, and this is how industry has evolved, that people know that up to 90 days is not NPAs and they might stay between 80 and 90 days, kind of a thing. Secondly, even before COVID, there has been a bit of a slowdown in the liquidity curves down overall. What we are seeing is an industry-wide phenomena. Having said this, we fare far better than the industry averages or the peers group. If you put in a tabular format and look at the deterioration in quality of assets of our company and the others, you'll find that we've done much better.
In MSME, our GNPA has gone about to 3.5%. The banking sector is around 15%. For the Mudra loan, it's more than 20%. If you look at the average ticket size of our loan, it is more comparable with Mudra loans INR 4 lakh, INR 5 lakh loan typically. The median size of the loan I'm talking about. Again, it's a process, which is the credit management process, and also your collection infrastructure. There is our branches, your young people who go and collect small and checks also follow up. Your digital infrastructure in terms of how do you digitally engage customers and make sure that our collections happen. Your underwriting standards, which use a lot of analytics. There are many things that go into this.
Sure. Vivek, you also had a question on microfinance. Microfinance, the increase primarily is accounted by what happened in Assam. We stopped doing business there. We have an insignificant about 2% portfolio there, but there was an issue there and also in the Mangalore region in Karnataka. Those two impacted it this quarter. Rest all, most of the book is for income generation to rural customers. Therefore, we are fairly confident that this set of customer always had very good intention to pay, and they're very resilient even in the face of floods, cyclones, they've come back. This time around, the disruption on the economic side is not too severe in the rural areas. We are fairly confident that as and when teams can operate, meet customers, this segment will also recover pretty quickly.
Thank you, Sumit. That was very useful. The last question, since your COVID strategy is kind of as tricky p utting it like a Dilscoop in cricket, let me ask this question. In terms of, RBI has come in support of banks in a big way. I mean, when one bank face problems, they told, please don't take a deposit away from other private sector banks. NBFCs have never got that kind of support. Is it possible that also that you might look at a banking strategy going forward? You have said that, of course, only few banks have gotten deposits, but by and large, it seems more stable than an NBFC model.
No doubt about it, actually. We will certainly evolve into a bank, and opportunity will be there to have a very new age, new era bank, which will be far more digital, far more customer-centric, and much more lighter, not only on capital but on cost also. We look at the opportunity and we can buy. In a way, based on our COVID strategy, we work very closely with banks, and meet the bank's credit standards, the bank's processes, then the transformation will be easier for us.
Perfect. Thank you very much. It was a very good presentation, and good luck.
Thank you.
Thank you. The next question is from the line of Kush from Mahindra Mutual Fund. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Two quick questions. Firstly, just to reconfirm, IIFL Home Finance announced INR 15 dividend?
Yes.
Yeah. I just wanted to understand the rationale and its first increasing equity in Home Finance.
IIFL Home Finance?
No, Home Finance.
Home Finance, yes. IIFL Home Finance is a subsidiary of IIFL Finance.
Right.
The dividend comes to the parent company, and the parent company has already announced dividend in the month of March.
No, right. I just want to understand the rationale of first infusing equity into Home Finance business, and then taking out 35% of the equity the next year in dividends. Just wanted to understand the rationale.
Okay. I'm not very sure of these numbers of 35%, because the dividend payout is around 15%-35% as per our dividend policy, one. Two, the track record of dividend also helps. What you're saying is a logical question, but the way it happens is that when you go to banks, when you go to LIC, when you go to NHB, say in that application, these formats were designed years ago. They're looking at a track record of profit and dividend.
You have to build a track record of dividend.
Okay.
That is one. Secondly, Home Finance is more than 50% of our business. In the parent company, whatever dividend we have been giving, we don't want to reduce it. It's better that we get dividends from the subsidiary company in the proportion of profits made, rather than the entire dividend going only from the standalone, which is actually now a smaller business in the entire group.
Right. My concern was in FY 2018 as well as in FY 2019, we had nothing. IIFL Home, I think, hardly announced anything. In FY 2019 itself, I think? .
No, it's a good observation. As long as outside shareholders are concerned, the dividend which is given by IIFL Finance matters. Internally, that can be given out of dividend received from subsidiary company or out of standalone profitability. As we have seen that the subsidiary businesses like microfinance and housing finance have become larger, so we have to upstream the dividends so that we can maintain our dividend track record at the parent level to the extent of the shareholders.
Okay, thanks. Next one, for the RE book, what I understand is around 61% of our book has opted for moratorium. Just wanted to understand, what percentage of the balance 39% would be in natural moratorium?
No, because everybody doesn't have to opt for moratorium. It depends on how the whole crisis is unfolding. Actually, on 31st March, only 11% were under moratorium, but now in last two months, some more have opted for moratorium. By the way, we are recovering.
Just to answer that, the balance book what we are talking about is that all our RE loans are interest payable quarterly, so there was no moratorium on that. That continues to be true for the balance book. The only ones which have opted for moratorium is, as we mentioned, 20% subsidiaries. The balance continues to pay interest.
Okay. Thank you.
Thank you. The next question is from the line of Sneha Sarawagi from Barclays . Please go ahead.
Hi. I just wanted to know what could be the % of digital collections you had pre-COVID, and what is it now?
During COVID, it was 100% digital collection actually, because physically nothing was working from 20th March till very recently.
Prior to COVID?
Prior to COVID, our business loans, home loans are more or less fully digital with our direct bank transfers from the customer. Very small part will be cash collection. Home loan only works in the area where we can have physical collections near the borrower.
We know that it was digital collection.
20% of home loan is digital and 80% is physical. We are making a very concerted effort to increase this 20% to a significantly higher number, by incentivizing and educating the customer.
Okay. Thank you.
Thank you. The next question is from the line of Aswin Balasubramanian from HSBC. Please go ahead.
Yeah. Hi. Just wanted to understand the difference. My first question is on the liquidity slides. There are two slides which is here, 29 and 30. One is on debt repayment schedule and the other is on ALM. I'm just looking at the outflow numbers in the ALM slide versus the repayment number which are mentioned on slide number 29. I'm not able to understand the difference between the two.
Repayment slide is up to December 2020, it's just about six to seven months. The AUM slide is for five years and longer.
Right. Again, if I look at, let's say, outflow in the next six months, that shows us about INR 6,300 crore in slide 30. In slide 29, if I look at let's say till November 2020, that is only debt obligation. That doesn't take care of any operational cost and other cash flows that we'll have.
Okay. There may be small difference there, but I think there are five year and more slides. You look at only the six month component, then it may be more corresponding with the other slide, which is as of December 2020.
Okay. That is outflow, which is-
It's only debt payment. It won't take into account dividend, expenses, operating costs or other things.
Okay. This outflow which you have mentioned, does that include securitization also?
Yeah, that's right. The full liquidity slide will have a securitization outflow also, but that we collect from the customer and give it to NHB. There'll be inflow, outflow both.
Right. I just want to understand on this securitization piece, given the customers have opted for moratorium and let's say, particularly in some of the short-term loans, like gold loans, which we have securitized. How does it work? Do you have to repay the bank or the holders?
No. When we assign the loan securitized, cash flows, whatever we get from the customer, that only banks will get. There is a bit of a confusion on this in terms of how the pools will get rated or whatever. The securitization comes under SEBI's purview. There has been some clarification. As far as we are concerned, somebody who assigned the loan as good as bank loans. If customer pays banks, get it. If customer doesn't pay, banks won't get it.
Okay. Got it. My other question was on your capital. Your overall capital adequacy has come down to about 18%. Earlier it was excess 20%. Any reason for a sharp decline in the past quarter?
Yes. There are only a couple of things that have happened. One is that the few securitization transactions also got delayed, postponed, and so you see a sudden increase in the AUM and the loan on the balance sheet. Secondly, the investment in subsidiary has knocked off. We have some room to rationalize and optimize there, whether it's the equity debt or the guarantees given. One is that with the business growth impact come down, the dividend payout also happens in the last quarter and also there's a huge COVID provision. The normal surplus which gets added is also low. All these things put together are impacted. The profitability for the quarter is very low because of the COVID provision and there was a dividend outflow. On top of that, the securitization project got delayed. All these things are combined for this to come down to 18.2%.
Okay, got it.
It will improve a little bit based on our plans and target. It should move up as things get normal.
Okay. Why would that be?
You have internal accruals that get added. Dividend we pay in March quarter. The assignment
Securitization part will still persist, right?
Yeah, will persist. That basically will take certain assets off the balance sheet. As I said, that certain subsidiary company investment also will try and structure in a manner. As I said, that last quarter was extraordinary because there was sudden disruption. The internal accruals, the securitization and rationalization of subsidiary investment, all these things will help us improve the capital adequacy a little bit.
Just again on securitization, we want to understand, going forward, do you expect banks and other players to participate enthusiastically? Because given the moratorium and worry on the underlying assets itself in terms of repayments, would they be more comfortable lending on balance sheet as compared to taking the pools?
If you look at two things. One is that they are not able to adequately lend on balance sheet. Today they have a huge surplus liability and shortfall of assets. That's why they put such large amount of money with RBI at reverse repo rate . Two, their own track record in collection credit is not so good, particularly for the smaller loans and their NPAs are higher than the industry. Three, this is not one rule applies or one size fits all because there are some NBFCs where they have a track record and where they have comfort. I would like to believe that they'll be more transition.
If you look at our last eight years track record of assignment and securitization, then our losses have been lower than what typically CRISIL or any other rating agency would estimate or where banks would directly estimate and take into account in their pricing. It's again, it's a rolling thing. We will build comfort and confidence over a period of time and they'll do this. Our COVID strategy is that rather than doing it post facto, we'll get into some alliances with the bank where we do it simultaneously as we originate loans and don't have even wait to build the assets and sell it. We'll align our credit policies, processes as if we are working for the bank and originate only assets which banks are willing to take. That 100% of assets can be given to them.
Hopefully, that's what we're negotiating with a few banks. Work out an arrangement where there's a clear understanding at the time of originating itself that this loan is to be given to that bank.
Banks are very happy. It's very profitable for them. See what happens, their CASA and cost of fund is very low. Today they don't have much appetite to do wholesale corporate lending. How will they build assets when they're getting deposits? They need retail assets. They are doing their best, but they can't do on their own much. It's a win-win proposition that way.
Yeah. Thank you. I understand that. Only concern was that given the current situation where there are moratorium and so on also being given on these loans. Given that scenario, they might go cautious probably.
Yeah. You're right. I think, still these things get normalized, the things may not take off so quickly. To that extent, as world gets normal, we can expedite this.
Okay. Thank you.
Thank you. The next question is from the line of Ashwini Agarwal from Ashmore Investment Management. Please go ahead.
Hi, Nirmal. Thank you for a very detailed presentation. I have three questions. One is the Ti er 1 capital. I know you said in your opening remarks that right now, even if you do a very large dilution, you will be able to raise a very small amount of capital. I am assuming that raising equity is out of the question.
If you do stress testing and you look at yourT ier 1 capital at 13.6%, you have very little room for error. Have you had conversations with your large institution shareholders like CDC or the others of probably a convertible structure or something which might give you access to Tier 1 capital? Maybe not at the current depressed prices, but if need be, you might have access to it. Have you had some thought about that?
Yeah. Fairfax and CDC, both we are in regular touch with. That is there on our mind. As I said that maybe last quarter was a little bit of an exception in terms of Tier 1 going down in this manner for the reasons which I have said in my response to the earlier question. Okay, 10% is the threshold and internally we want to keep at least safety of 13%, 13.5%.
You are right that we don't have much room here. We're very conscious and reviewing all the options that can be convertible, it can be perpetual bond, it can be that also qualifies as Tier 1 or it can be all other options and as well as structuring in a manner that we can assign more and release the capital. I agree with you, Ashwini, that we are very mindful of this. We are looking at that very carefully.
Okay. Second question is that moratorium, which was a very small number as of 31st March for obvious reasons, has now grown to 58%. What was the progression? As time has progressed and lockdown has gotten extended, are more and more people opting for moratorium?
I think that's right. As lockdown was getting extended, see, most of our customers are small businesses. Small to medium. Initially they were not, many customers were wanting to say, okay, a couple of weeks we'll manage it. Let's move ahead As you got lockdown two , lockdown three, lockdown four, the moratorium has increased. Because their sources of income are struck, I think they're forced to take this.
The reason I'm asking this is that when you look at many of the commercial banks who've also reported over the last few weeks, they've kind of given out morat numbers for April end and they're in the ballpark of 30%, either from 25%-35% for end of April. In the conversations we've had with them, most of them are saying that they haven't seen any increasing incidents of moratorium, principally because people don't want to incur the extra interest cost. Especially in the case of a bank where they feel that they may be treated slightly differently as compared to a well-behaving loan. You've not seen that. You've seen a continuous increase in morat requests.
Ashwini, you see the two components of our business is gold loan and micro finance. They have tilted the balance and that's why what is applicable for banks may not be applicable for us because these two businesses account for almost around 35%-37% of our total portfolio.
Here the moratorium rates are quite higher about 70%-80%?
Yeah. 98% of microfinance is moratorium. If you look at reducing any microfinance companies, then you understand the microfinance component of ours. We don't have customers like Ambani or the Reliance or Tatas or whatever. The microfinance is 98%, gold loan is 82%. Weighted average looks tilted. As things open up, these are also segments which bounce back fairly quickly.
Okay. Last question, I got confused.
Our working is not less than, but the balance is skewed because of micro finance and gold loan component.
Right. I have a question relating to slide 34. There are two tables there. Micro market prices and project mix. The top table suggests that bulk of your principal outstanding in your real estate is towards affordable projects. If I look at the bottom table, you have 11 projects where the micro market prices are in excess of INR 21,000 a square foot. Which accounts for almost about INR 1,500 crores of principal outstanding, which is 39%. The two tables don't seem to tally, or at least I couldn't understand what they mean.
Yeah. Ashwini, this is Balaji here. It's a very simple explanation for that, is that the INR 21,000 per square foot i s on carpet, this is one. Secondly, these are projects which are in Mumbai, which are essentially these smaller one BHK kind of units and so on. Therefore, in Mumbai, anything which is under net about INR 1.5 crore or INR 2 crore qualifies under affordable to a large extent, and these are mostly in the suburbs. Therefore, even though the first report on a carpet price looks a little higher over there, but the box price is fairly lesser. Therefore, it does qualify over there in Mumbai. We do have about two or three projects which are also there in the western suburbs like Bandra -Khar, which have already established something like 78%, 80% sales. Which are a little on the higher side.
When the supply is in a constraint in Bandra-Khar kind of suburbs in the western suburbs of Mumbai, we have never failed to deliver over there.
Okay. Last question, over the last three, four weeks with this whole migrant labor reverse flow accelerating in such a big way, do you think the stress on your residential projects, say real estate projects, could get worse?
Well, I would think that there would probably be a temporary stress. Why I say temporary is that ultimately the migrant labor are coming because of want of opportunity to earn money. Given that opportunity is very limited in the places where they come from, it's a question of time that they have to come back, because under whatever schemes the government has, MGNREGA and all that, the amount of money they can make is a fraction of what they would get here. Also one thing, what I see also what is happening on the ground is that developers are providing for accommodation and labor camps which are far superior to what they were earlier to attract them back. I see that temporary lasting not more than maybe about three to four months.
You are right there, for three to four months, the impact will be there.
Okay. All the best.
Three to four months cost and all. It impacts the cost and because it's all escalating.
Yeah. Sir, thank you, and all the best.
Thank you so much. Really appreciate it.
Thank you. Before we take the next question, we would like to inform participants to please limit your questions to two per participant. The next question is from the line of Harsh Agarwal from Deutsche Bank. Please go ahead.
Hi. Thanks for the call. I think it's a very good presentation, and thanks for the transparency and being so upfront with numbers. Appreciate that. Two questions from me. One was, can you give a sense of how many of the bank loans you've been able to get moratorium since the RBI direction came out? Just a rough sense would be helpful, I think. Secondly, even your cash and undrawn lines have declined a fair bit from 31st of March till May. I mean, just curious to get a sense, is that mainly because the bank loans were not under moratorium and you were likely repaying the bank loans? What else, if anything, led to the decline in the cash and undrawn lines in the net? Thanks.
No, you're right. The earlier moratorium was not there. We have been repaying. We almost ended up paying INR 2,400 crore of bank loans and bonds due till that. Only very recently, like the money that was due last two, three days of this month, today, yesterday, we have started getting some confirmation of moratorium. Moratorium was not available, and we did not take any chance in terms of rating because banks are not confirming moratorium. We don't pay, and somebody can suddenly report as a default, which can cause a lot of problems. Although we were always in touch with the banks. This clarity has emerged only about a week ago when State Bank of India said, and a news article came that okay, SBI has now agreed to give moratorium to NBFCs.
Even today it is a little vague, but at least what was the circumstances in March end and April. Even in April end, we had large repayments. Till about 15th May, for sure there was no moratorium available. After that, now I think moratorium is not as blanket and as everybody's, but still, I think most of the banks are now considering moratorium, and hopefully almost all the banks have now agreed. That is why we have separated the outstanding which are likely to get moratorium and not moratorium, both in our debt obligation.
Got it. Thank you.
To add to that, a lot of the lines and cash has been used to pay off NCDs during April and May, for which obviously moratorium is not applicable. Those are to the tune of approximately INR 800 crores. Those were repaid on time during April and up to now.
Okay, makes sense. All right, thank you so much.
We have given the latest liquidity as listing also because the environment is so fluid and volatile. We thought that let's keep investors abreast with up-to-date information.
Yeah. Thank you.
Thank you. . The next question is from the line of Amit from 2Point2 Capital. Please go ahead.
Yeah. Hi. There was an announcement about the auditor's intention of resignation. Can you provide a bit more color on that, like whether the auditor has already resigned or this is something that will be discussed at the next board meeting? Whether it's preferable to have a change in auditor at this current point of time, given the uncertainties in the market. Thank you.
Thanks, sir. In yesterday's board meeting, Deloitte has given their intention to resign because they feel that such fees that are being paid and proposed by the audit committee and board are not commensurate, and the expectations is not increase in certain percentage but manifold increase. While I don't have any official documentary thing on this, but it looks like that most of these Big Fours and last year, I think 150 resignations and there were quite a few companies facing similar kind of problem. They're basically directed by their global parent. They're increasing fees manifold. They're trying to add the risk premium into it. Some of these Big Fours have been involved in some of the entities in the financial sector, NBFCs, banks that came under a bit of a lot of stress and default and things like that.
I have a feeling that they're trying to restrict or relatively balance and therefore downsize their practice in BFSI space and balance it because I think over a period of time, BFSI became very large component, disproportionately large component of their audit practice. These are circumstances. Under ideal circumstances, we would have done this. Now, when in COVID, we are trying to put lot of pressure on cost optimization, cost containment. Certain salary cuts including me and all senior people have taken it. We don't want to have something which is outlandishly increase in the fee, which will be very exorbitant. We've been negotiating with them. It looks like that the expectations are way too high than what probably we can reasonably meet. The board will take it up on 5th, we have a quarter meeting, where we'll look at all the proposals, everything.
This last year's balance sheet and everything, that audit Deloitte is going to sign and they're going to complete. There's no confusion, no doubt about that. Even if we part ways, it'll be very amicable and we can re-engage if the circumstances be, but for the time being, it looks like that their fees are not tenable.
Okay. Thank you very much.
Thank you. This is a call that board has to take, so whatever I am saying is indicative, but I really can't talk on behalf of the board.
Thank you.
Thank you.
Next question is from Aman Shah from Jeetay Investments. Please go ahead.
Hi sir. Thanks for your disclosures. Sir, I have one question on extending to some previous participant's question on gold loan moratorium. When you compare to a South-based peer, the gold loan is like some 90% of the customers have opted not to take moratorium, while you are looking like 90% have opted for moratorium. Both the numbers look at very extreme ends. Would you be able to actually explain what would be the reason since this actually?
While I agree, Aman, you would like to explain what it is with the competitor. Sorry. Our understanding is, I think, every gold loan NBFC runs different schemes in terms of attracting customers. One of the popular schemes which a lot of other NBFCs run is around rebate schemes, which essentially means that you have a bullet repayment and which towards perhaps 11-month or 12-month tenure, and then as Sumit was saying earlier, you start getting rebates on the loans. Essentially, those are schemes where eventually customer repayment is an elongated one. This wouldn't have come. That's why perhaps the moratorium figures are low. Most of our portfolio is under monthly repayment schemes. Where, based on that, we see a larger number of customers, and because branches also under lockdown until about a couple of weeks back, that's why the numbers are higher.
Now as branches have opened, I think a lot more customers are coming forward to repay, and we should see this number trending downwards.
If you collect monthly, there are advantages and disadvantages. The advantages are that credit discipline is maintained, and secondly, the loans become assignable because as per RBI guidelines, you can assign only if you have collected three installments for a short-tenor loan or a six for a long tenor, and they both default. I think we have been assigning gold loans also in a fairly significant manner. Secondly, in case of a bullet repayment, obviously, unless the bullet is falling in this time period, you really don't have to do anything because loan is not falling due on you. Suppose I have a yearly scheme or a two-yearly scheme, then maybe only about 8% or 9% will typically fall during the year in a month's time.
Other fellows falling due, I don't have to talk about moratorium also because the loan is not due still.
Thank you. The next question is from the line of Rocky Andaya from Lion Global. Please go ahead.
Hello. Thanks for the very informative presentation. Just two questions. First one is, given the moratorium that you need to grant your customers, how will it impact the ALM situation? You're a positive ALM, right? For the next maybe six months, what's the ALM situation with the moratorium that you're granting to your customers? The next question is. I think you bought $15 million of the dollar bonds on April. Is there a plan to increase more or to buy more U.S. dollar bonds going forward? Do you have any approvals from RBI to do such things? I think that's all from me.
We don't have approval from RBI. I think until we have approval from RBI, we really can't do any buyback more, but $15 million we did in the month of March. In terms of moratorium from bank. If we are getting, say, the moratorium from bank, then obviously, the ALM improves. If you look at the chart that we've given, even if we don't get moratorium from the bank, it will also our ALM for next few months is taken care of. Obviously, we can securitize and raise more funds. If the moratorium is corresponding from the bank, then ALM is not impacted as much.
Okay. Just to clarify, if you don't get moratorium from the banks, you will have basically negative?
Yeah. That will dip into our liquidity or the reserves that we keep. We have provided for that. Even if we don't get moratorium from banks, we can sustain our operations and liquidity for the next six months at least.
Okay. Yeah. Thank you.
Thank you. The next question is from the line of Rajeev Agarwal from DoorDarshi Advisors. Please go ahead.
Yeah. Hi. My first question is on the gold loan segment. You seem to be quite bullish about it, and some of your peers who have reported their numbers also seem to be very bullish about it. Are you seeing increased competitive intensity in that space? How is that impacting the business?
Competition, I think, has been increasing in the space, I think it's a very steep learning curve in terms of to get everything right from testing the gold to getting the right kind of customers to storage, security and getting the product yield, everything. Actually, we have been building this business over a period of time. Also, this business traditionally has been done like a consumer business with advertisement marketing. If you see, some of these gold loan companies always use celebrity models to create the brand awareness. I don't know if you noticed that we also signed up Rohit Sharma, the cricketer, has become our brand ambassador. It becomes like a consumer product business that in local area you create the brand awareness. It's competitive, and I think in India, any growing business will have competition.
We would like to believe that we have been doing this business for 10 years so we are much higher on the learning curve in terms of understanding the nuances of this business is very important. Competition is there, but we are not overly concerned about it.
Got it. The second thing is, can you talk a little bit about total amount of disbursements you would have done from end of March till sort of the May 15, where you have reported your ALM? I still have the question around how the ALM or the total cash and bank lines have come down from more than INR 5,000 crore to INR 2,200. Just wanted to see how much of that is driven by the disbursements that you have done.
We have as I said, INR 2,400 crores of bank loans we have repaid. INR 800 crore of NCD we’ve repaid . Broadly that's the reason. Most of these repayments were due in 31st March and April, they have been repaid.
Sorry. How much was the disbursement you found by mid-May?
Disbursement was pretty minimal. I just said. Do you have the disbursement number? Rajesh, do you have disbursement?
Okay. While you're checking that, one more question from my side, and that is, if I look at your assignment income, the assignment income seems to be pretty good around 5% of the amount assigned.
Sorry. Can you repeat?
The assignment income, the percent of assignment income as a percentage of assigned assets is around 5%+ .
Right.
Is that something that is sustainable?
Yeah, that's quite sustainable because more like gold loan or our business loan businesses have higher operating costs and higher margins. This would be sustainable. The total disbursement would have been little less than about INR 100 crores kind of thing approximately.
INR 100 crores in the last one and a half months.
Yeah. Maybe slightly less than that also in the month.
Okay. Those were my questions. Thank you.
Thank you so much.
Thank you. The next question is from the line of Abhiram Iyer from Deutsche CIB Centre. Please go ahead.
Yeah. Hi. Thank you for taking the question. My query actually pertaining with respecting the loan increase that you were talking about. You mentioned that you're targeting to raise around INR 4,000 crore-INR 5,000 crore in the next four to five Sorry, INR 2,000 crore-INR 3,000 crore in the next four to five weeks. Do you have any sanctions which have been granted, or are we still in preliminary things in terms of releasing funds?
There are various stages, actually. I would say that there are confirmed sanctions, otherwise we draw the line of sanctions. There are various stages. Maybe I would like to believe this too, for the entire NBFC sector, not us alone, that they've been waiting for a clarity and guidance from government and RBI about the credit guarantee, the liquidity scheme and all those things. This has just been very recent. I think that in next few weeks, we'll see good amount of business there, but nothing much has happened last fiscal.
Got it. Coming to the liquidity, are there any cost rationalizations that the company is planning, like is there any cost-cutting measure or is there any branch closure measure that the company is thinking about?
Cost-cutting, yes. Branch closure, no. We also have not reduced number of people also, and more or less our employee strength in March end and April end is similar, maybe 1% or 1.5% difference. The high-cost people have taken a salary cut. We are trying to rationalize the branches, minimize the cost, including travel, and we are trying to cut down on the marketing activities which take place at local. The salary bill has been brought down by 10%-12%, the operating cost, we are trying to bring them down by 30%, 25%- 30%. There's a lot of work is happening on that front also.
There's great opportunity to rationalize cost in this kind of environment and with the new revelations that have happened about how much people need to travel and where people can work from, and what kind of productivity we can target. I think a lot of effort is happening in cost rationalization.
Got it. The last question is actually pertaining to the assigned assets. I'm sorry, is there a way that I can see with respect to the previous years how the assigned assets work and how the income works? I see that there is a chart provided on page 13, but that doesn't sort of correspond to whatever the historical assigned assets are and the income that has been provided are.
That is included. The assigned assets AUM. If the assets are not repaid, then it is based on the assets.
Just understanding, the INR 575 crores that is being mentioned and the 5.8% yield income that is being mentioned, that is on the base of the INR 9,700 crores that is being given by assigned assets.
Absolutely right.
Okay. That INR 500 crores will, if this assigned assets remains constant, that INR 575 crores will come in every year.
Absolutely right.
All right. Thank you.
Thank you.
Sorry. Just one more question. You have mentioned that there are INR 2,200 crores of cash and undrawn line are any of then lien marked ?
Come again?
You mentioned that there are INR 2,200 crores of cash and undrawn lines . Are any of them lien marked?
No.
Okay. Those are not lien marked.
Not at this stage. T his is not anything which is lien marked.
Okay. Got it. Thank you very much.
Thank you. The next question is from the line of Ramesh Jhaveri from JNG Holdings. Please go ahead.
Good afternoon, sir. Thank you for the opportunity. Can you just throw some light on the gold loan PTC, which are not to the banks, but to the retail customers. How is the yield over there for our company since you offer some higher buffer in terms of security as well as some personal promoter guarantee also? I'm just trying to understand this product.
No, we don't have any promoter guarantee product. We don't have any loan against shares which has promoter guarantee.
No, not loan against shares. Gold loan PTC.
Oh.
Gold loan Pass-Through Certificates I'm referring to.
Yeah. Tell me.
In that, basically how is the yield compared to the assignments that you've given to the banks?
Gold loan PTC may be slightly higher, but as a part of our strategy to diversify and have a different sets of investors and providers of money, we are working on this. Here we ended up giving about 10%+ , maybe around that range. With banks, probably we work at 9%.
How big is that in the total assignment?
What, gold PTC?
Yeah.
Not very significant. Maybe it's not even 4%- 5% also of our total assignments. It will be less than that. I don't have numbers, but not big bucks.
Just one question over there. Suppose if there is some, in this specific instrument of a PTC, if there is some higher delinquencies, would that affect the rating of that pool and in turn would affect the whole pool, right?
In gold it is unlikely to happen because historically delinquencies have been low and you always have option to auction the gold and repay the loan. The defaults and delinquencies are very few and far between.
Okay, sir. Thank you.
Thank you.
Thank you very much.
Thank you so much.
That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.
Thank you so much. I think we have taken long. We are very happy to answer more questions. If you have, you can email it to our investor relations manager, Pooja Kashyap, and she'll be very happy to respond. Take care. Thanks.