Ladies and gentlemen, good day and welcome to the IIFL Finance Limited Q4 FY 2024 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 this conference, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Kapish Jain, Chief Financial Officer at IIFL Finance. Thank you, and over to you, sir.
Thank you very much. Ladies and gentlemen, thank you very much for joining this call. This is the quarter four earnings call for IIFL Finance. On the call today, we have Mr. Nirmal Jain, Founder and MD of IIFL Finance. We have Mr. Monu Ratra, who is the CEO for IIFL Home Finance. We have Mr. Pranav Dholakia, who is the Chief Risk Officer. Myself, Kapish, and today we're going to talk about the progress of the company with regard to quarter four and its performance, including what's happening on the RBI side. For a complete update on that, I now hand over the call to Nirmal. Nirmal, over to you.
Thank you, Kapish. Welcome to the call to review quarter four as well as the full year performance. Very unusually, this time has been delayed. The result announcement has been delayed a little bit, but there we are. As you have seen, the results of the full year, we have ended with a low AUM growth of 2%. Primarily, there has been a decline in gold over a quarter-over-quarter basis by 5% because March is a peak quarter. Last year, in the fourth quarter, we had a quarter-over-quarter growth of 11% in gold AUM. That impact, obviously, is there on our total growth as well as on the profitability. I think we ended the year on a consolidated basis with a total decline of 6% on the YoY basis in our Q4 profit in the post-tax profit.
On a full year basis, our post-tax profit has grown by 23%. We ended the year on a consolidated profit of INR 1,974 crore, which was a little short of our earlier guidance of INR 2,000 crore for the full year on a consolidated basis. This is prior to minority interest. Now, a brief update on the RBI embargo and then about the macro environment. And then also, I'll discuss certain key aspects of the numbers before I hand it over to Kapish for a more granular and line-by-line discussion. So as you're aware, on the 4th of March, we had an RBI order on basically a cease and desist for the gold loan disbursement and certain other activities with the gold loan business. And the RBI, in the order, stated that they will institute a special audit.
And based on the findings of the special audit, as well as the inspection as they require, they will consider the review and consider lifting the ban. The special audit has completed, and special auditors have submitted the report to RBI. In terms of as far as the company is concerned, we are very confident that we have fully complied with all the regulations of RBI, as well as we address all the deficiencies. Besides this, we have taken several other steps internally in terms of strengthening the organization, hiring senior-level people. A few have joined, and a few more are in pipeline. Also, basically having a much stricter and stronger audit.
We are also in the advanced stages of having concurrent compliance audits along with more standard internal as well as the internal audit which is required to make sure that the compliance has fallen through on an ongoing basis. Also, there are quite a few policy changes, and the board supervision will now significantly be higher. All the alerts and compliance will be updated to the board as well. The board will regularly discuss any exceptions in this to make sure that there is no recurrence of any less than the compliance. So we ought to meet and exceed whatever expectations RBI can have from a regulated entity like us. Coming back to the macro environment, macro environment is very positive. The democratic government is back for the third time, and obviously, the reforms continue.
With the burden of activity that we have seen at the ground level is also very positive. The first announcement has been about affordable housing, which again is positive for our housing finance business. In terms of financial numbers, I think there are a couple of other issues that I want to explain broadly before we, of course, take them up in question and answer if required. There may be more questions on the same. One is about the gold loan NPA because there's a significant spike in this quarter. But as far as the spike is concerned, in my opinion, there is no increased risk for a medium-term or long-term risk in that business as such. There are certain rollover cases. Historically, if the customer account customer has not paid in time, but if the gold value is enough to rollover with 75% LTV, that was being done.
Obviously, that practice has been objected to, and obviously, our auditors have taken our view that those assets or those gold loans have to be classified as NPA. Not only those gold loans, but the linked accounts. So supposing there's a delinquency like this in one account of a customer and customer has taken two more gold loans, then all three have to be classified as NPA. Now, if we have rollover these gold loans, then we also can't go back to the customer and ask him to liquidate or because we can't take that to auction till the rollover period is over. So it's a matter of one or two quarters because obviously, when these cases come up for rollover again, we cannot have this practice which is not fully compliant with the RBI regulations.
But what we intend to do is that once the rollover period is over, then either the customer has to pay or these loans will go for auction. And then wherever customer can arrange for it, they can also get the balance transfer done. So that is about approximately INR 282 crore in the gold loan, and that has resulted in the spike in gold loan GNPA, which I think will normalize in the next couple of quarters. But what is really heartening and what is really positive for us to note is that our loan book, which was around over INR 26,000 crore from the 4th March, has come down a little below INR 16,000 crore currently. And more than INR 10,000 crore of gold loans have been repaid by the customers, and they've taken their jewelry.
And we did not have any case of customer disgruntlement or any asset quality issue or losses. And that actually has been a real trial by fire, which basically testifies that the systems and our credit and financing have been fairly robust. Other than that, I think there's INR 200 crore of loss in the fair value. We had an AIF which was actually expiring tenure was expiring in 1st of June, but the large investors basically opted for in-specie distribution. And those debentures, we also opted for the same, have been sold to ARC. And broadly, there has been a fair value loss around INR 150 crore there. And also, the SRs which we have with ARC have been most of the ARC's valuations of the SRs have been more conservative. And there was almost a write-down of about INR 100 crore there. And there has been some provision write-back.
So broadly, there's INR 200 crore of it coming primarily from the AIF unit. Now, our exposure to AIF is just about INR 5 crore, which is the minimum required as a sponsor. And all other assets have been the units have been redeemed, and the debentures which we received in specie, they have been basically disposed of to an ARC. So with these two, another question which obviously will be there in the investors' mind is how are our disbursements and the growth in other businesses other than gold loans. So we have core businesses, as you are aware. So in the month of March, obviously, because of the sudden shock, the business has slowed down after the 4th March. But in this quarter, home loans have more or less resumed and have become normal.
I think the disbursements in this quarter are expected to be similar to the same quarter last year, broadly in line. However, microfinance still is under a little bit of caution in terms of availability of credit from the banks and the growth that we want to basically have in this. We also want to make sure that this business also becomes foolproof in terms of compliance before we resume the normal growth. So the disbursement in this quarter compared to last quarter last year may be about 50%, and the book may go down a little bit in this quarter as well. In terms of our operating costs, which again, in Q4, since the RBI order came, we were on a growth path. And particularly, our microfinance business was also on an aggressive hiring spree for the branches that were set up in the quarter before.
March quarter typically also is a higher volume and higher cost as well in terms of the incentive bonuses which have been committed on us, which were also paid out. The cost has gone up in the March quarter. Now, when we talk about this quarter, we have not retained any people. Obviously, whatever retention is happening is normal course that has continued even before the RBI order because we are very hopeful that we will be able to resume our business. Even if it means operating costs or operating loss in terms of maintaining the infrastructure, it was very important for us to do that because there are millions of customers with jewelry and ornaments, and they are in the custody of our employees and our branches. Our branches and employees remain as it is.
I must express my gratitude to all the employees because despite this uncertainty, they've been holding the fort with full commitment as well as confidence and faith in the company and the business. They've been servicing the customers because despite the fact that several lakhs of customers have closed their accounts, we did not have any customer service issue or any complaints from customers of any significance as such. We hope that we'll come out of this crisis and we'll have our compliance much stronger as we go forward. I think with this, I'll hand it over to Kapish, and then I'll be back for Q&A. Thank you.
Thank you very much, Nirmal. Once again, ladies and gentlemen, a quick update on our financial performance in light of the embargo that's currently there with the RBI. The numbers are slightly muted. So for this quarter, IIFL Finance profit after tax before non-controlling interest was INR 431 crore, down 6% YoY, and down 21% on a quarter-on-quarter basis. We recorded pre-provision operating profit of INR 990 crore, which is up 30% YoY, and 3% on a quarter-on-quarter basis. For fiscal 2024, IIFL Finance profit after tax before non-controlling interest was INR 1,974 crore, which is up 23% YoY, and pre-provision operating profit was INR 366 crore, up 30% YoY. Talking about the AUM, for the quarter, consolidated AUM grew by 22% on a YoY basis and 2% on a quarter-on-quarter basis to around INR 78,960 crore.
Further, dissecting the AUM, our core product driven by home loan, gold, digital loan, microfinance, and LAP, so the gold loan had a degrowth. Microfinance grew by around an aggregate degrowth by around 25% and 4% Q on Q. The segment now comprises of 97% on a retail book perspective because the CRE book de-grow by around 30%. Our gross GNPA is marginally high at 2.3% for the reason that Nirmal explained earlier. The net NNPA is around 1.2%, which is up by 48 basis points and 11 basis points respectively when you compare with the same period last year. Our street guidance has been 2% of gross and 1% of NPA. We've slightly digressed there, but we're going to come back to those numbers in the soonest time possible. With the implementation of the expected credit loss under Ind AS, our provision coverage ratio stands healthy at around 104%.
And during this quarter, as Nirmal mentioned, the real estate AIF investments were matured, and these assets, along with two CRE accounts, have been transferred to an ARC since there was a higher expectation with regard to recovery time for the ARC. In lending our capital optimization strategy, 36% of our AUM is either assigned or co-lended to our two banks as of March 2024. Going forward, we'll see our relationship going forward in additional products like business loans and home loans to invest further on the co-lending side. The assigned loan books stand at INR 16,488 crore, down by 3% by YoY, and 12% on a quarter-on-quarter basis. Besides this, co-lending assets are at INR 11,639 crore up 64%. Our quarterly average cost of borrowing has increased by 20 basis points by YoY and 6 basis points to 9.13% as of 31st of March 2024.
Now, a brief update on our liquidity position. So during this quarter, we raised INR 5,531 crore. A prominent among them was INR 1,271 crore that we raised through the rights issue. We did. And INR 500 crore that we raised through the NCD that we borrowed in the month of March. Our cash and cash equivalent stands at around INR 6,559 crore. We dedicate for us not just meet our net liabilities, but also to fund our growth as we go forward. We have a positive ALM whereby interest cover will exceed expected outflow across all our buckets. And our NIM stands at 3.7, not considering the INR 1,271 crore that we raised in the month of May. Our annualized ROE for the quarter stood at 14.6%, while ROA stood strong at 2.9%. For the full year, it was 18.4% ROE, and ROA is now 2.4%.
Our basic earnings per share for the quarter is INR 9.8 per share. Fiscal 2024, it was INR 46.3 per share. To summarize, as of March 2024, our capital adequacy ratio for NBFC is 19.7%. If I would have considered the equity base in the month of March, this capital adequacy would have been healthy at around 26%. Home Finance capital adequacy was 42.8%, and Samasta was 24%. So with this, I hand over the mic back to Nirmal for any Q&A that we open the floor now.
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 the touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Once again, you may press star and one to ask a question. The first question is from the line of Dhaval from DSP. Please go ahead.
Yeah, hi. Thanks for the opportunity. I just had two follow-up questions on the opening commentary. First is relating to the fair value impact. Just wanted to understand versus our last valuation, how much was the sort of cut down in our final realization? And just if you can spend a minute more to explain what led to this markdown, given that generally real estate market is doing reasonably well. So just any specific reason for the sort of reduction in the value. So that's the first question. And second is relating to just given that bulk of the quarter is behind for 1Q, if you could just update on the liquidity position as well as on the growth across all the three businesses, how do you see that for the rest of the year?
Also, if you can give some perspective around assignment income, how that is likely to shape up in the current financial year. Yeah, thanks.
Thanks, Dhaval. So the markdown has two components. One is ARC, the securities issues they have, and the second is AIF units that we sold. So in case of ARC, there's a valuation done by SR. There's a fair value which is done every quarter. And so the real estate market is good. That is a fact and a demand in that. But this quarter-on-quarter valuation, they basically take the realization, the flow of interest, and many other things. So how rating agencies do this, I also don't have 100% insight into it. But these valuations are done on a quarter-on-quarter basis. My perception is that given that there's general caution with the regulatory stringency that we are seeing, the people are becoming more conservative in terms of how they value their SR.
But whatever we realize, so we get our component of SR, which is maybe more typically is around 85% in many of the transactions that we have done. So to that extent, this becomes like a temporary thing because ultimately what we realize, the bulk of it comes to you. Most of it comes to you. The second component is AIF, which is where we have again real estate assets. So these units, again, when they are sold to ARC, the typical 85% SRs remain with us. And there again, because we had to do this transition a little quicker in the month of March, and everybody wants to be a little more conservative today than they value these assets. So the fair value has done every quarter.
And we could have let it run the full course till 1st of June, but there was concern about AIF, which RBI has raised several points in time that regulated entities should not have their loan accounts or these assets in AIF. Now, this was a very little bit of a tricky case because RBI regulation said that last 12 months, these assets were transferred three years ago. But when they were transferred, 12 months before that, they were on our books.
Ladies and gentlemen, please stay with us. The management line seems to have disconnected. Ladies and gentlemen, we thank you for your patience. We have reconnected with the management. Over to you, sir.
Thank you. Sorry for the disturbance. So the AIF also has been transferred at a negotiated value. And in case we realize more as the real estate market is good, then that will come as a gain on the SRs that we hold. The second question about growth, as I've said, that the home finance, we are seeing that the growth is the disbursements have normalized. They are at a level maybe similar to what it was in the first quarter of last year. Maybe going forward, in the next few quarters, we'll see growth as the environment also has become positive with Prime Minister announcing the reinstatement of affordable housing scheme and the incentives for the same. And I think the third question was about assignment income. So good loan assignments have not happened, obviously, because of the RBI embargo.
To that extent, assignment income will be impacted incrementally because whatever we could have got on this and other income will run down over a period of time. In housing finance, I think assignments will go at normal course. In any case, if you see our last year's housing finance, there was hardly any incremental assignment income, which in our front is almost negligible now. It's zero. It's negligible. Therefore, we don't see any YoY impact there.
Just one follow-up on the first point on the AIF unit. Just these were transacted by 360 ONE for us and were largely sold to private investors. I mean, because I understand the maturity is not involved in this at all.
Okay. So there's no 360 ONE in this. It's a straight away sold to ARC.
Oh, okay. Straight away sold to ARC. And got it.
I think 360 ONE had an INR 1 crore investment originally, but that remains. So there's no change there. But other than that, 360 ONE has no involvement in this.
Just one final thing on the NSE stake that we bought. Any update on that? Have we monetized that in this quarter?
Yeah. So I think that has been bought in this quarter, June quarter. And by the end of the quarter, it most likely will be liquidated. And whatever gain or difference will be accrued in this quarter, June quarter.
Got it. Great. Thanks. And all the best.
Thank you. The next question comes from the line of Anusha Raheja. Sorry, that's Deepak Poddar from Sapphire Capital. Please go ahead.
I'm audible?
Yes.
Yeah. Okay. Thank you very much, sir, for the opportunity. No, no. So because of all this, I mean, our cost has increased this quarter.
Sorry to interrupt, but the line for you is not very clear.
Yeah, it's not clear.
Sir, please go ahead.
Yeah, it's better now?
Slightly better, sir. Please proceed.
Okay. So I just wanted to understand now because of this uncertainty, even our cost this quarter has gone up, right? Even the cost to income is on a higher note. How do we see that, the cost to income in this year, FY 2025? I mean, will it normalize or will it stay at these ranges here?
Yeah. I think the cost to income also okay, there are two. One is the total absolute cost might come down a little bit because although we are not restrained or we are not reducing manpower as such, but the variable component may become lesser with the business and whatever cost control measures that we are taking. But cost to income ratio may remain a little more elevated because our gold loan book has run down.
And obviously, the income that we get, the net interest margin, which we are getting around INR 26,000 crore from March and actually would have grown further in the month of March, will be significantly lower. But once the ban is lifted, I think it will take a couple of quarters or a few months for us to try and get as much and again, our market share as much as possible. But because the income will be impacted, the total AUM is impacted, cost to income will be impacted this year at least for this year negatively.
Correct. Correct. So absolute level, I mean, correct. I think this quarter, it was around INR 1,060 crore, right? So on an absolute level, going forward, maybe it will be around that range, right?
It should taper off a little bit with the little bit of anything variable and whatever we are able to achieve. But it won't be significantly different, but it should be a little lower.
Okay. Okay. And I got that point. And on the gold loan side,
I'm sorry, the operating cost is INR 769 crore. INR 769 crore. That is the number that you're referring to, right?
Yeah. This quarter, it was about INR 1,060 crore, right, on the operating cost.
No, I don't know which number you're referring to.
Yeah, the consolidated operating expenses, right? So the quarter is INR 769 crore.
Yeah, we did.
Okay. Okay.
So it includes growth losses and provisions in this.
No, so it includes those fair value adjustment as well.
No, no. So okay. Fair value is one-off. So I don't think that INR 200 crore we've lost should not come back.
I mean, that is not recurring. The operating cost component is INR 769 crore, not INR 1,000 crore. So
Fair enough. Fair enough.
Fair value, as I explained, that is the one-off thing.
Yeah. Fair enough. I got it. And do we have any kind of understanding on the gold loan side? I mean, will this ban be lifted or how soon will be expected? So any kind of comment would be answered.
Absolutely. No, actually, it's all with RBI, so I don't have any more insight into this. We are engaging with RBI and trying to satisfy and make sure that we meet all the requirements that they have.
Correct. Correct. Fair enough. And I mean, do we want to taper off the growth outlook that we had given earlier in terms of this year, 25% growth?
So what may be the range we may look at right now, given the circumstances?
I don't think at this point in time, we can give any outlook or guidance on growth.
Fair enough.
Since the RBI ban is lifted. So our focus will be on compliance this year and the compliance risk management and control. So there's no guidance for growth that we can give.
Understood. That's fair. Absolutely. I think that's it from my side. All the very best. Thank you.
Thank you so much.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Good afternoon. Thank you. So the first question was on the SRs. What is the total quantum of SRs that we have on our balance sheet? And against them, what are the provisions that we are holding today?
SRs are valued at fair value. The difference, every quarter, the SRs are basically being evaluated. We have SRs for all businesses in terms of microfinance, SME, and construction. I think in the standalone NBFC, it's a little less than INR 3,000 crore.
Okay. In the standalone NBFC, we have total quantum of SRs, which are a little less than INR 2,000 crore.
Less than INR 3,000 crore.
3,000 crore. Okay. And versus this INR 3,000 crore of SRs, how much provisions will we be holding on them?
As mentioned, they are marked down. So you are depending on the valuation that you get.
Okay.
It's a fair value, which is done. So basically, the provision is taken care of the fair value.
Got it. Got it. So secondly, on gold loans.
We have marked them down to almost INR 100 crore.
Okay. So secondly, on gold loans, I just wanted to understand why you have already said, I mean, the board is now in RBI's court. But just wanted to understand, after the special audit was concluded, what kind of conversations do you have with RBI? And secondly, in gold loans, are you taking any cost rationalization measures?
We are having a very positive engagement with RBI. We are taking their guidance and trying to come up to make sure that there's a 100% and highest adherence to their compliance. Cost rationalization measure, I said no because we are a fairly well-trained team and a business that has been built over the last 14 years assiduously. We don't want to do any cost cutting because customers join in our custody, and we hope that we can be able to resume business quickly. At this point in time, I think we are running the entire infrastructure as is. We are doing all the necessary steps required to make sure that we retain all our people as much as possible.
Got it. So in your opening remarks, you suggested, right, that gold loans are a little less than INR 16,000 crore now. This is as of May or as of date?
As of date. As of date.
As of date, they are declined to less than INR 16,000 crore. I mean, has gold loans seen, especially employees in gold loans, have we seen any significant attrition, especially the frontline staff?
There is normal attrition, which has been there historically, but there's no additional attrition that we have seen. So the entire crisis, we've been able to hold back our people and make sure that the customers are not inconvenienced and they are serviced properly. Actually, it's just coincidental that last year we had announced the Golden ESOP Scheme where many of our older and old employees were given three-year bullet vesting ESOPs at INR 10, regardless of the stock price. Obviously, those stocks are significantly demanding, and people expect to build their wealth, and that has been a good retention tool. But other than that, we are engaging with our people, and most of them are old, loyal, well-trusted people, and they have full confidence and faith in the company's business and are able to be still clear of this.
Got it. And so my last question is, again, kind of circling back on liquidity and post-op borrowings. Understandably, you might not have had to borrow a lot incrementally after the gold loan ban. But how is it the engagement with banks or debt market participants going on after the ban? And I think in your commentary or the press release, we said that we are now kind of thinking about more controlled AUM growth. So understandably, until the time this ban gets lifted, it's difficult to really guide on AUM growth targets. But at least are we kind of looking at more moderated growth going ahead, given that you spoke about gold loans will start going only after the ban gets revoked? In microfinance, we are again kind of looking at some calibration. So other than maybe digital loans and housing finance, we are seeing some moderation going ahead.
So I don't want to speculate about growth, and I don't think that it would be right to say it will moderate or not moderate. But what I'm trying to say is that we don't want to give any guidance on growth. And this year, primarily, we want to make sure that our assurance function, which comprises risk management, audit, and compliance, this should become fulfilled. This should become something like an industry benchmark. And in terms of the organizational goals, growth becomes secondary. But that doesn't mean that there's any guidance of a slowdown or acceleration of growth. But the best is that there's no guidance for growth. That is what I would like to put in. Secondly, in terms of liquidity, we have INR 6,559 crore worth of liquidity as of March, which is fairly comfortable. Even today, our liquidity is quite comfortable.
Even before the crisis, we have always been conservative and kept our liquidity, which is enough to cover the corporate liability for the 6-12 months in the foreseeable period. We are not faced with any liquidity issue as such. Even continuing active liquidity is not the challenge right now. But what we need to put together is that once RBI's positive action is there, then we can resume our business.
Got it. So just to sum that up, I mean, suffice to say that if at all we see any controlled growth going ahead, that will not be because liquidity is something that is constraining, is all that I was kind of trying to understand.
I won't put an adjective of controlled growth. But yeah, liquidity is not a constraint for whatever growth we are achieving.
Got it. So that's all from my side. That's all from my side. Thank you very much, and wish you the very best.
Thank you. The next question is from the line of Parin Jhaveri from J&J Holdings Private Limited. Please go ahead.
Good afternoon, sir. Thank you for this opportunity. There's just one question from my side. Can you just elaborate on your comment earlier which you made on microfinance? Thank you.
In terms of what was the comment about microfinance?
Basically, you will see in the book, degrow or basically the disbursements are quite slow.
Yes. Microfinance, basically, microfinance growth has been slower in this quarter, in the current quarter that we are seeing. So microfinance business historically last year had grown much faster. Now, actually, when we talk about growth, growth is either a problem or a solution. But when there's a growth, that can be a source of the problem. And so what I'm saying is that we don't have growth as primary objective this year. Our primary objective is to make sure that our assurance functions are robust, our systems and processes are such that they are completely fail-proof, and they meet absolutely 100% the regulations in letter and script. So that is what the objective is. Now, in microfinance, there are two things that are happening. One is we are trying to make sure that our compliance is strengthened further there.
Two is that after the RBI's embargo, the banks have been cautious in lending incremental credit to this business, microfinance. We also see that as an opportunity to make sure that we make our systems and processes more robust and make sure that there's a reassessment of our control system. So one or two quarters of microfinance will remain slow. That actually gives us an opportunity to make sure that our house is fully robust and properly modern. But that is what my commentary on microfinance is.
Just one clarification here that will be helpful. Is this because of the embargo of RBI for the gold loan business, or there is something to?
So what happens is that, yes, embargo of RBI to gold loan business, the banks have become cautious about lending to all the businesses. But in case of housing finance, we have raised equity capital, and we have fairly robust capital adequacy there. And also, it's an entity which is regulated by NHB as well. And so all the businesses work differently and separately. But microfinance, credit lines have been impacted more.
This would be on the liability side. Because we were hearing some noise of RBI in terms of higher interest being charged. Is that something to do with the?
So in the entire microfinance sector, actually, so yeah, there has been RBI concern about these things. And everybody, I think the association is also looking at it about the interest rate and many other things about the industry. See, this industry long-term has tremendous potential. And it does a very it serves a very good social cause because people at the bottom of the pyramid, even if they borrow at 22% or 24%, what is the current rate typically in the microfinance industry? The alternative, this is my understanding, but obviously, I mean, I don't have any authentic research in my head. But obviously, with our people, with our branches, and whatever feedback we get from our customers, the alternative cost of funding for these customers at the bottom of the pyramid will be significantly higher or complete non-availability of capital.
And even by paying this kind of interest rate, most of them see significant improvement in their living standards. They are like handicrafters, people who are vegetable vendors, or those who are doing certain cottage industry. For them, capital is such a constraint that if some small amount of capital also can basically change their lives. So the industry has a good purpose and a good cause. But there are certain regulatory practices which may get tightened, and obviously, industry and regulator will work together for that.
Great. So to sum it up, do we see AUM degrowth?
In this quarter?
No, for this whole year.
I don't think so. I think we should be able to catch up over a period of time, over the rest of the year.
Like a flattish year for microfinance this year?
I think it will be guidance. But what we have to do is that the industry will grow, will participate in that. This quarter may be slow, but in this quarter, as we get very confident about our assurance, we might be in line with the industry. So it will definitely be guidance, but we really have to see how things evolve from here.
Fair enough. Thank you so much, sir. Thank you.
Thank you.
The next question is from the line of Anand Laddha from HDFC Mutual Fund. Please go ahead.
Hello, sir. Sir, if you can give some more clarification on the value of SR. So what is the gross value of SR at the consolidated level we are holding, and what is the current markdown value of those SR?
I don't have these numbers ready with me, but you can figure out. So what happens in case of SR is I don't think that the concept, the way it was accounting in the industry is that they value every quarter, and they're just like the stocks or any other instrument for that matter, and then you take the value. So many times, value goes up with the accrued interest as well as the gain that is there. But I don't have those gross value and markdown number. But we value at the basic, the fair value, what we get from the ARC.
Okay. But sir, we would at least have the markdown value of those SR we are holding today?
I think it might become very difficult to do that. Because once you have SR and whatever repayment has come, that basically keeps adjusting the value. So the value, the gross value, supposing two years ago, three years ago, we had issued certain SR, there would have been quite a few repayments done over a period of time. There may be small, small repayments every quarter they come. They also keep adjusting the value. And plus, there's a pool which keeps changing over a period of time. So it's not really it is not an instrument which is static because if there's a repayment, energy goes down, and then there's the mark-to-market up or down. So it keeps changing every quarter. And it's a pool. So I don't know. So some of the SR would have been issued last quarter.
Some of the SR would have been issued two quarters, three quarters, one year, two years back. So it's all to segregate and find out gross value will be very difficult. It will be very different for every SR.
Okay. So I'll take that offline. Sir, if you can give some clarification on the NSE transaction we did, sir. It's not a usual business transaction. So at one instance, we are taking a liquidity support from Fairfax or now for our large stakeholder. And at the end of the transaction, we are buying some equity from them. So if you can give some rationale for this NSE transaction.
So as per our interim security policy, out of the liquidity that we have, a small percentage can be put into, say, such as equity, IPO, or other equity-related instruments, but with a short-term objective. Now, this transition was contracted before the RBI order, which is before 4th of March. But I don't know, as a group, we have more than 2% of NSE in various funds 360 ONE and others. And therefore, the approval process is a bit longer. And NSE took a couple of months to approve the transition. But obviously, Fairfax had contracted the trade before the order, and the approval came later. But both the parties were committed to honor the contract. And that's how the transition culminated after the order. And that is when it came to the public as well as the limelight in terms of discussion.
But having said that, as I said, our treasury policy basically is that these equity instruments are only for short duration. So they will be liquidated within this quarter. And so I think, I mean, does it answer your question?
Perfect, sir. Lastly, on the GNPA, sir, we have seen some increase in gross GNPA in the gold loan as well as developer loans. So if you can give some color on the same?
So I think I explained in my preamble that the gold loan, there are rollover cases where earlier we took a view that there's more than 75% of LTV, I mean, cover. I mean, there's no less than 75%. We can take it as a new loan, or we can deem it as a new loan. But auditors have taken a view that that is not the case, and these have to be treated as NPA. But when we are rolled over for the customer, we can't really press the customer for repayment faster. So we have to wait for the rollover period to get over. So in this quarter and next quarter, they'll come back to normalcy. But as I said, in our gold loan portfolio, almost the book has sort of reduced by 40%.
But we did not have any case of a customer complaint or a loss or any other problems that have never touched us. So this is about the gold loans rollover. In case of construction loan, there's one case, one loan of around INR 60 crore or so where there has been one quarter delay in the payment. But we have a fairly strong qualitative cover there. But that has to be classified as NPA because there's more than 90-day delay there. But that will be I don't expect any loss there. But it has tied the CRE, GNPA for the quarter. Because now the book also has become smaller after the ARC transfer. So on a smaller book, that INR 60 crore will also become significant.
Perfect, sir. Lastly, sir, on the housing finance business, at least you don't have any liquidity challenge in that business, and that business can continue to grow.
Yeah. Monu is here with me, maybe you can share your thoughts on it. Yeah, I am.
What is the CEO calling you?
Yeah, I am. So in housing finance, usually, as you know, the Q1s are a big muted because a lot of changes happen. But keeping that in mind, we are very much the way Q1s are. And our disbursements of housing finance business are as usual as they would be in a quarter one. So this was as per our annual plan as well. So we are doing pretty fine there.
Perfect, sir. That's all my questions. Thank you.
Thank you. The next question is from the line of Anusha Raheja from Dalal & Broacha. Please go ahead.
Yeah. Thank you. This is my question. Sir, you had AIF exposure amounting to around INR 1,200 odd crores , which was supposed to get liquidated. So I mean, the loss there is notional or you have booked it? It's a realized one.
No, it is not. Okay. So this loss can be recouped if these assets basically realize. Almost 85% of loss can be recouped because there's a higher realization. Then this SR, 85% share comes to us.
Okay. In Q1, can we expect the normalization in the gold loan NPAs, or do we expect the rise in the NPAs in the gold loans to continue in Q1 as well?
No, I think NPAs or gold loans will get normalized, partly this quarter, partly next quarter. But hopefully, my next quarter, more or less, they will be in line with the historical normal trend.
Okay. And what's the resulting price in commercial real estate loans NPAs?
Sorry? CRE NPAs.
Yeah.
CRE NPAs because there's one loan where the installment was not paid, and it became over 90 DPD. It has to be classified as NPA.
Okay. Okay, sir. Thank you.
Thank you. Thank you, Anusha.
Thank you. The next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Yeah. Hi, Nirmal. Good afternoon.
Hi, Abhishek. Yes.
My question is on the standalone business. In the period where there's a contraction in gold loans and you can't disburse, you'll still be maintaining the infrastructure, the people, branches, all of that. That cost will obviously stay on the books. Is there any alternative business that you are planning to do in the meanwhile, or just how do you plan to use that infrastructure? Or do you just maintain it and wait for the approval from the RBI? What's the strategy there?
No, it's a good question, Abhishek. So we thought and internally we deliberated and debated a lot on this. So one is that the people are still in gold loans while we have tried to train them in unsecured business loans as well as LAPs. And also, they're cross-selling insurance and other products. But because the core is gold, and as we expect that maybe in a short time, we should be able to resume our business based on that premise, we have not disturbed that infrastructure. But what we have done is that we have told our people to engage with customers and track them carefully, service them properly so that whenever business resumes, we can get back our old loyal customers as quickly as possible. So that's the call one has to take.
So in terms of, I don't think we'll diversify in terms of our strategic focus. But the product that we in any case have been doing where we have the core competency, that is where we can use these branches more intensively. Because what happens is that if it's just a matters a few months and you die here, any new business product matter will take a few years to stabilize, go up the learning curve, and get critical mass. So we thought that we'll stay put. We'll do certain cross-check and mitigate the damage. But other than that, we'll wait for the gold loan business to resume.
I was thinking of something like sourcing the gold loan for a bank where you can keep using your customer and you are not disbursing anything the bank.
So I think we can become a business correspondent and source 100% for the bank. That is not something which is prohibited. Now, the challenge is that every integration in terms of process technology is fairly long, particularly with banks. Because even with co-lending, it takes six-nine months because almost the real-time KYC check and provision writing. So what is happening is that we tried to pilot this, but we realized that if the normal business operations will resume, say, in a short time, say, a few weeks, then it may not be worth the effort to change the course because it's a huge effort. And then when the co-lending starts, then we are already tried and tested for co-lending. So we can do all our other activities quicker if we don't digress. That is what we thought is. But we have piloted it.
We have talked to a few banks, and we are still working on it. We are keeping it ready as a backup emergency plan in case there's a delay.
Yeah. Sure.
But the other branches are also different, and that has many other implications in terms of process flow, technology, and integration.
Got it. Got it. And in terms of the RBI conversation, while I understand there won't be any timeline, you yourself might be a little unsure of the timeline. But after the RBI comes back, then how long does it take for you to restart? Let's say whenever they come back.
So okay, we have to negotiate with RBI. So they've been supportive, and they've been helping us understand the issues and how to negotiate. But whenever the ban is lifted, we can come back quickly because immediately the next thing is to start the business. Now, the question is that the bank's credit line, typically, banks also take some time to process the application, which can take about a month to a month and a half. But we already have liquidity cushioning. So the co-lending and many other these transitions can start very quickly, immediately, maybe on the next day or within a week if I had to be maybe a little more conservative. But I think the business will start immediately. So we'll gather momentum as we go along. So within a month or two months, we'll try and get back to the disbursement level that we were.
Within a few months, maybe six months, we'll try and get back. We'll hope or look forward to get back significant part of our market share back.
Okay. Sure. Just lastly, in terms of MFI, so till the time the ban lasts, you expect some liquidity tightness to continue, or can that be independent of the ban and slowly lenders get comfortable and start lending more? How do you see?
It might be financially. Bankers have joined the board, and we also got very market people on the board. And the business model is also under review and making sure that it's robust from a long-term point of view. So hopefully, that business in terms of the disbursement space should pick up from next quarter, and we'll accelerate from there.
Got it. Got it. Okay. Thank you, Nirmal. All the best. Thank you.
Thanks, Abhishek. Thanks a lot.
Thank you. The next question is from the line of Dhaval from DSP. Please go ahead.
Thanks for the follow-up. Just two more questions. First is on this running cost of the gold loan business now. Nirmal, if you can just give some perspective around it. And also, what's the potential runoff that we expect in the next couple of months? So that's one part. And the second is on the NPA and the digital PL book while the book is small. But just any thoughts of I mean, seasonal 4 Q is normally a good quarter. So any specific reason? And are you seeing some bit of pullback in 1Q, or it's?
Why are we getting in 1 Q? First question was, what is the running cost of gold loan, right?
Yeah. Running cost of gold loan and the runoff that is expected in the next couple of months in the book. And the second question was relating to the digital PL book.
We've seen a spike in the NPA in the fourth quarter, which is seasonally good quarter. Just is that getting arrested in 1Q, or it will likely deteriorate further? And what's the course correction that we're taking in that portfolio?
Okay. So gold loan, our standalone running cost is around INR 320 crores, INR 360 crores in a quarter, which is around INR 120 crores per month. But that includes the top management cost as well as business loan. And a significant part of that cost is difficult to separate. So that is one thing. Second thing is about digital finance. That looks at a higher yield and slightly higher losses also. But over medium to long term, I think business still is profitable and generates the required ROI.
Now, in that business, what has happened is that we have, in terms of small ticket business loans, what we are doing is smaller and smaller. As you become granular, your yield goes up or yield is maintained at a higher level, and your NPAs may go up a little bit. So I think that's the character of that business. But what we have done in that business also is that there are certain changes that we have done in terms of the credit underwriting process as well as the ticket size. So what we will see this year is that ticket size might improve a little bit, and the GNPAs will fall.
So if you say from FY 2024 end to FY 2025 end, then our internal business strategy plan is basically to bring down the GNPAs, which are between 3%-4%, to closer or maybe less than 3%, 2.5%, or more closer to that. That might impact yield a little bit. But broadly, I think we should be in line with that. The business will have robust growth this year also.
Understood. Sorry, Nirmal, just on that runoff in the gold book, that's roughly about INR 3,000 crore kind of number per month?
No, runoff in the gold book is almost about 10% per month.
10% per month. Does it accelerate in the rest of the year because of the residual maturity being now relatively lower compared to when we started? Does the principal runoff accelerate as we progress month after month?
Not nearly. Because at any point in time, we have a book which has different residual maturity. So supposing March when we had a pause, so there would have been loans of Feb, Jan, December, and going back. So broadly, there won't be any acceleration in the runoff. But as the book goes down, natural amount of runoff will also go down.
Understood. Just to the question that Abhishek asked around this alternate option, including the BC one that you talked about, at what point do you make up? We decide to sort of move in that direction. I mean, is there a particular timeline that you have in mind around which we think of this INR 120 crore fixed cost that we have largely to reutilize that in other ways and means?
So I think maybe by September, hopefully, if there are so actually, when we initiated RBI and we are taking their guidelines, and they're really supportive in making us understand, and they also understand the problems and the issues that we are going through. So I think what they want is also the compliance is done, then they also want the business to resume and support. So there's no reason to be really pessimistic about this business as such. But still, to answer your question, if these pace of things continue for three more months, then obviously we'll look for or maybe two to three months more, then we'll look for alternate plans which may be a significant cutting cost or the other businesses as such.
Understood. Our audit for FY 2024 will be starting any time, or it's already underway, the RBI audit?
I think the audit cycle is started. So maybe the next year, I mean, FY 2024 audit will start any time. We have no idea on that, but that can start at any point in time now.
Got it. Got it. Thanks.
The cycle starts from July, I think, but I'm not. It's so there are many NBFCs. They take it up from July onwards.
Understood. Got it. Thanks.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Gokul Raj from Bavaria Industries Group. Please go ahead.
Hi Nirmal. Any update on the business loan? Because that's the only one.
Nirmal, the line is not very clear. We're getting a slight echo as well from your line.
Hello, is it better now?
Yes, much better. Please go ahead.
Yeah. I was wanting an update on the business loan because all the other three segments have been updated. So any update on the business loans?
Business loans have many segments. One is unsecured business loan. The second is supply chain financing. And the third is loan against p roperty. On a smaller base, that business has been growing at a normal pace as it was growing in the last quarter. So that business, on a relatively smaller base, will continue to grow this year.
Okay. Because the standalone business, the business loan and the standalone NBFC, has that had a huge impact, or that is continuing as per your plan?
No, the standalone NBFC, the business continues standalone NBFC. And so the disbursements are normal pace.
Okay. Thank you. Best wishes.
Thank you. That was the last question, ladies and gentlemen. I would now like to hand the conference over to the management for closing comments. Over to you, gentlemen.
Thank you very much, ladies and gentlemen, for joining this call and for your patience hearing. For any further queries, you may reach out to the investor relations team, and we'll be happy to address any queries that you might have any further. Thank you very much, and congratulations you too.
Yeah. Thank you so much. Thanks, all the management, for being on the call and your support. Thank you.
Thank you. On behalf of IIFL Finance Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.