Thank you, Aman. A very good day to all of you and Welcome to the earnings call of quarter two fiscal 2021/2022. I hope all of you and your families are doing well and are safe. We enter into the 20th month of the COVID era, the worst public health crisis of our generation. It is heartening to hear from various health experts that India has reached the endemic stage of the COVID-19 pandemic. Vaccination has gathered pace, and all of us have adapted to the new normal and learned to live with the virus. The threat of third wave seems to be receding. The rebound in the country's economic activity has gained traction in the last couple of months. It's elicited by the ebbing of infections and near total lifting of restrictions with a sharp pick-up in the pace of vaccination.
Various domestic as well as international rating agencies have indicated that they expect India to post strong economic growth in the coming quarters. Supported by favorable economic policies of the Reserve Bank of India, as inflation is expected to remain within RBI's comfort zone. The resurgence in the real estate sector continues its momentum with residential projects across major cities achieving record sales during the quarter. Housing sales in Q3 calendar 2021 recorded a whopping 92% year-on-year increase in the top eight Indian property markets, with strong sales being recorded across price segments. Property registrations in Mumbai, India's costliest property market, recorded ten-year highs in September and October 2021. Overall residential sales in top eight Indian cities exceeded the pre-pandemic 2019 average quarterly sales by 4%. As per a Knight Frank report, unsold residential inventory has come down sharply.
Markets such as Chennai, Hyderabad and Kolkata have even seen prices increasing marginally during the quarter. Real estate developers too have regained confidence, with residential project launches in quarter three calendar 2021 recording a 90% YOY increase, with micro markets of Hyderabad, Bangalore and the National Capital Region showing year-on-year growth in units launched of 660%, 193% and 119% respectively. Overall, residential unit launches in top Indian cities in quarter three calendar 2021 exceeded the pre-pandemic 2019 quarterly average by 6%. This, coupled with just an 11% mortgage to GDP penetration in India, presents a beautiful opportunity for the company to grow from here.
Even the commercial office market, which had been in doldrums ever since the beginning of the pandemic on account of work from home practice adopted by most companies, has started to see a gradual recovery in this quarter. Quarter three calendar 2021 has been the strongest quarter of the year, with 12.5 million sq ft of office space transacted. It is a 168% growth on YOY terms, and which is 83% of the average quarterly volume transacted during 2019, the pre-pandemic year, which incidentally was a record year for office transactions in India. Among the larger markets, transacted volumes in quarter three calendar 2021 in Bangalore and Chennai have even exceeded their 2019 quarterly average.
Thus, one can now say with full confidence, and this is being echoed in commentaries of various industry experts, the recovery in the country's real estate market is strongly underway. I firmly believe that the next decade will be extremely good for the real estate sector in the country. I will now cover the headline numbers for the quarter. I request you all to refer to the earnings update that has been sent across. Please firstly refer to slide three. As at the end of September 2021, our loan book stood at INR 64,062 crore, with assets under management at just over INR 77,000 crore. Now, from second half of FY 2022, expect the AUM to stop degrowing, which it has been, and to stabilize and eventual growth of AUM to begin from FY 2023 in line with the guidance given earlier.
Our capital adequacy at the consolidated level stands at a comfortable 31.2%, of which tier one capital is nearly 25%. Our net debt to equity has further moderated to just 3x . Profit before tax for the quarter was INR 390 crores, registering a 5.5% quarter-on-quarter growth over INR 369 crores of profit before tax in the last quarter. Profit after tax came in at INR 286 crores, which is a 1.7% quarter-on-quarter growth. The company's profitability has now stabilized for the last six quarters and is showing a trend of growth quarter-on-quarter.
Post the change in our rating outlook to AA with stable outlook by CRISIL, as well as with ICRA, our incremental cost of funds have also started declining and in the quarters to come should start supporting profitability. Our cost of funds stand at 8.3% with book yields at 10.8%, enabling us to earn a spread on book of 2.5%. Moving on to now slide four, please. Here we have detailed our performance on various important financial metrics. The management's unwavering focus continues to maintain a fortress balance sheet through capital adequacy, liquidity and asset quality. In terms of capital adequacy, we are one of the best capitalized housing finance companies within our peer set, with a capital adequacy of 31.2%. We are also among the least geared.
The strength of our balance sheet has resulted in the revision in our credit rating outlook. The company is now focused on getting an upgrade to AA plus and is taking all strategic and operational steps to try and ensure the upgrade in the coming quarters. Our asset quality has shown great resilience despite a period of acute macroeconomic stress brought about by the COVID-19 pandemic and the resulting lockdowns. Our gross NPAs stand at 2.69%, down from 2.86% in the previous quarter. We have strengthened our balance sheet to effectively tackle all potential future contingencies by shoring up provisions on balance sheet to INR 3,153 crores, which is almost 4x of the regulatory requirement and equivalent to a healthy 5% of our loan book and 152% of our gross NPAs.
We have provided 4x of regulatory requirements, 5% of our loan book and 152% of gross NPAs. This high provision cushion places our portfolio in a strong position to negotiate any macroeconomic uncertainty stemming from the second wave or a possible third wave. Our stage two provision coverage, which is specific provisions towards stage three, stand at 43%. Net NPAs are down to INR 1,179 crores from INR 1,487 crores last quarter. Among the various regulatory forbearances given by the Reserve Bank of India and the Government of India, we were allowed to restructure loans. We've had to restructure loans of only a paltry INR 96.7 crores, equivalent to only 0.15% of our loan book under the Resolution Framework 1.0 and 2.0 combined.
Under the ECLGS framework, we have disbursed top-up loans of INR 176 crore till the end of September 2021. Our collection efficiency has also normalized to nearly pre-COVID levels. Thus, our strong provisioning pool, seasoned retail portfolio, practically no restructuring, strong demonstrated recovery capabilities will ensure that the asset quality and gross NPAs should remain in a range of 2.5%-3.5%, and credit costs should come in in a range of 100-125 basis points for the full year, as has been guided earlier. Moving on to slide five. Here we have given an update on the elements which are at the core of our retail asset-light model. Over the past 2.5 years, we have been on a path of consolidating our wholesale loan book, largely through loan sell down transactions and structuring transactions.
However, as was highlighted in the last investor call, with the uptick in the real estate cycle, we are witnessing strong sales transaction in residential real estate projects of our wholesale borrowers, and hence are witnessing strong collections in escrow accounts of these projects. Having spent over $1 billion on a gross basis on construction to ensure that the projects of our wholesale borrowers get completed, now we are at a situation where most of these projects will get completed over the next six to 18 months, which from a consumer perspective is the sweet spot since consumers are looking to buy completed or near completion projects. Thus going ahead, we expect in line with what we have seen in quarter two, wholesale book reduction will be more via the more normal self-liquidation route, that is through sales and collections.
Over the past three quarters, we have continued to expand our branch network in tier three and four towns, and we've already this year opened around 18 technology-enabled smart branches, which puts us well on track to add around 50 branches in tier three and four cities by the end of fiscal 2022. Moving on to the most important aspect of our strategy, in which we've also made the most considerable progress, which is the asset-light model. While we had been speaking about the asset-light model over the last 18 months, and we had a lot of naysayers, we were focusing on ensuring that each relationship that we enter into has a strategic objective being fulfilled by Indiabulls Housing for our partner. We are confident that fulfilling a strategic objective while presenting a portfolio with sustained asset quality will make the model highly self-sustainable.
This has enabled us to enter into certain key relationships with specific banks and financial institutions. I'm happy to update that just in the month of September, which is in one month, 30 days, we were able to, under the co-lending model, disburse retail loans of INR 325 crore with various partners. Since then, disbursements have continued to gain further momentum month-on-month, and the uptick being witnessed in the residential market should allow us to grow this to about INR 500 crore by December and INR 800 crore, this is just co-lending and not the overall lending, by March 2022. All of our co-lending relationships are now in place with seven banks and financial institutions, namely HDFC Limited, Central Bank, Yes Bank, Punjab National Bank, Indian Bank for co-sourcing home loans.
RBL Bank, Central Bank of India, Canara Bank, and Punjab National Bank for sourcing secured MSME loans. These partnerships enable us to cater to a wide spectrum of customers across geographies, ticket sizes, and yields and thus go behind the entire market, which was not a scenario even when we were triple A rated. This is the widest product spectrum that we have ever had in our history. We are thus firmly on track to disburse over INR 1,000 crores of retail loans through co-lending in the current quarter, which is quarter three fiscal 2022, which will represent roughly 1/3 of our retail disbursements. I will now cover the third pillar of liquidity and ALM management in some detail. On slide eight, we have given the details of the monies we have raised since H1 fiscal 2022.
We have raised a total of INR 12,186 crores through various institutions across instruments and tenors. This includes INR 2,800 crores of five-year term loans. Around INR 4,400 crores of loans between one and three years. We also did a public issue of bonds for the first time after five years, raising around INR 800 crores, which amounted to almost 4x of the base issue. Further, through securitization and loan sell-down, we've raised around INR 2,700 crores. In addition to this, we raised INR 1,500 crores of equity and quasi-equity capital through FCCB issuance and sale of our remaining stake in OakNorth Bank, where we exited completely, earning an IRR of 48% over our investment period of six years.
Our funding program, as is evident from the details shared with you, is on track, is going strong, and is in line with our plan of stabilizing AUM in the second half of fiscal 2022 and AUM growth from fiscal 2023 onwards. As at end of September, Indiabulls Housing had a liquidity buffer of over INR 10,000 crores, which split between unencumbered bank balances of over INR 8,000 crores, bank deposits of around INR 1,500 crores, government securities of INR 500 crores, and other liquid bonds, mutual funds, et cetera, of INR 760 crores. We continue to run a liquidity buffer north of 15% of our loan book, which is our strategic goal. Moving on to the topic of ALM management. We had a, so to say, a hump in September 2021, which had caused a lot of naysayers in the market to practically write us off.
It's a large bond repayment of around INR 7,000 crore, plus regular bank loan repayments. Not only have we successfully repaid these monies through proactive management of ALM, we in advance repurchased around INR 4,500 crore of bonds by May itself. We have moved ahead and as we shared last quarter, we've continued with the voluntary creation of reserve funds for the next, so to say, large repayment of $350 million equivalent in May 2022. We've already contributed 50% into this reserve fund and will contribute another 25% next quarter, thereby in advance putting in 75% via the lender repayment trust. With whatever we are doing, we are doing in accordance with the extant RBI guidelines. We have fully hedged the principal portion of these bonds.
As INR 2,730 crores of the total liability, which is going to come due, we will have INR 22,047 crores of reserve funds created by then. This proactive management of ALM underlines a strong capital position and comfortable level of liquidity, as well as the management mindset of prioritizing balance sheet strength and liquidity, along with ALM management over everything else. I'm sure it will provide comfort and confidence to all stakeholders and further strengthen the company's credentials. Our ALM is published on slide seven, and we have provided quarter-wise detailed ALM on slides 23 and 27. Moving on to slides 12 and 13. During the last quarter, we had laid down objective targets for the company over the next 10 years to improve upon its operations so that we adhere to ESG best practices.
I am happy to report that we have started taking operational steps within the organization, as well as with partnership with external parties towards achieving these goals. To enable all stakeholders to do an independent review of the company's sustainability initiatives, we have enabled a link on the company's website, which details all the steps being taken by the company towards achieving its ESG objectives. We will continue to update this on a quarterly basis and also provide to you a third-party opinion on the exact status of where do we exactly stand on our various ESG objectives. That concludes the update for the quarter. On the whole, we feel that these are exciting times to be operating in the real estate sector, which is now at the cusp of a decade-long upcycle.
The Indian economy is on the path of resurgence, and the real estate industry has links to about 250 ancillary industries, and being the second-largest employment generator, has a huge role to play in India's growth story. As an important cog of the financial system and with its ability to reach out to a vast cross-section of the population and diverse geographies, NBFCs assume a very important role in ensuring an efficient financial intermediation system, which facilitates adequate credit flow, especially at the last mile to each and every segment of the society. The regulator has recognized the role of the NBFCs, and as a measure to effectively regulate NBFCs, RBI over the last 18 months has overhauled the regulatory framework for NBFCs. As per our understanding, the regulatory overhaul is largely finalized now.
I must say, we don't expect the regulations as we read them to have any onerous effect on the operations of the company and believe that the newly introduced regulations are several steps in the right direction. We are in the process of adopting and adapting our operations. For example, we are appointing joint auditors, moving on from a single auditor. We are also, along with Grant Thornton, who would be the internal auditor, building a new internal risk-based framework. On the technology side, we have started the process of migrating to a core banking solution, which will continue to run as a parallel initiative to the various user interface initiatives we have been taking over the last five years. We've already started a process where there is a direct transfer of data happening on a monthly basis to the regulator in line with banks.
All of these changes, which have been brought about by the regulators, are welcome changes and in the long term will strengthen all NBFCs and specifically Indiabulls' housing operations. At this juncture, I would like to reemphasize our clear strategic goals while remaining focused on continuing to maintain a fortress balance sheet and strong liquidity. Our strategic goals would remain to continue to grow the co-lending arrangements with our banks to reach INR 1,000 crore a quarter co-lending led disbursal in quarter three. We've already achieved a balance of 2/3 of disbursals of assets on our balance sheet, which subsequently get securitized and the balance 1/3 directly as co-lending. The recent RBI regulations around securitization are clearly helping to this end, and this would continue to remain number one area of strategic relevance to the company.
The second area would remain a focus on now stabilizing the AUM in the second half of fiscal 2022 so that we can start growing the AUM from fiscal 2023 onwards. That would result in us reaching our targeted ROE of 15% by fiscal 2024. While maintaining a spread of 2.5%. We are not a mass home loan player. We would continue to remain focused on our niche segments in both home loans and retail LAP/MSME loans. Now that the tech-enabled retail lending platform has stabilized, select members of the senior management team can spare time to use the second half of fiscal 2022 to operationalize the AIS for builder and real estate financing in partnership with the Global Fund.
I'm quite hopeful that by the end of the second half, this will be operationalized such that FY 2023 onwards, this will contribute as an additional revenue stream, which will meaningfully contribute to our return on equity of 15% by FY 2024. Most importantly, I want to continue with the evolution on the governance front that both Indiabulls Group and Indiabulls Housing had started around 2.5, three years ago. You may be aware that the group's exit from the real estate development business is at the very last leg. The founder's stake has declined to an insignificant portion, percentage now.
We've already completed the migration at the board level, and now we are taking steps which will further institutionalize the company from a control and management perspective, which will effectively result in a moment where we can say this changes everything as far as Indiabulls Housing is concerned. To conclude, the management is fully focused to take advantage of these exciting times. The macro is in our favor after a long, long time. The hard work done by the team makes us extremely ready to take full advantage of this opportunity. I am quite sure that fiscal 2023 onwards, the growth will come. Fiscal 2024, we will get to an ROE of 24%. As we pursue these goals, philosophically speaking, as Sadhguru says, "The day is but a piece of time that lets us live and die.
This day let us live and live totally." In continuing with this, we are fully focused on today, but we are preparing the organization for tomorrow. Thank you. Now we are open for questions.
Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star then one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Anyone who wishes to ask a question may please press star and one. The first question is from the line of Abhilash Iyer from Deutsche Bank. Please go ahead.
Yeah. Hi. First of all, sir, congratulations on a good set of results in these trying times. I had a couple of questions, if you don't mind. The first one was on your strategy on running down the CRE book. Basically from if you look at, say, the proportion of the AUM over the last two quarters and this quarter as well, it sadly remains same in terms of breakup between CRE, you know, SME and the retail book. So, do you have any, you know, guidelines or, you know, flags that you're setting in terms of goals so that this proportion will be reduced in the future?
Yeah. At this point in time, you will appreciate that, you know, while we've been running down our CRE book, we've also been disbursing a lot of money into that book to get it into the sweet spot where consumers will buy. At the same point in time, we had scaled down our retail disbursements through fiscal 2020 and 2021, and we started growing them. We have now reached a level where, you know, retail disbursements are growing faster than the retail rundown. These percentages will remain sticky for a little bit, but on an absolute value basis, we are looking to reduce the wholesale book by 33%. I think the evident change in these percentages that you're looking out for should be visible from quarter four onwards.
Got it, sir. This 33%, what's the targeted sort of timeline for this?
Within this year. March 2021- March 2022 on an absolute basis, we will look to run down the wholesale book by about 33%.
Perfect. Thank you. The second question that I had was on the liquidity that you just mentioned. Is there a breakdown between, you know, cash, investments on your books and, you know, other bank balances? Just to sort of understand the difference between, you know, the INR 10,000 crore that's mentioned here and close to around INR 17,000 crore that's on the balance sheet, if I look at-
That would include investments which are not liquid. It would basically include investments which we cannot liquidate on a T+1 basis. Whatever we can liquidate, such as GSEC, mutual funds, et cetera, we count as liquidity buffers.
Okay.
If we have invested in an AIF or in an ARC or in junior entities and all of that we cannot count as liquidity and therefore those are excluded.
Got it. The difference in cash and you mentioned it to be around INR 8,000 crore available for liquidity. It goes to, you know, INR 9,700 crore on the balance sheet. The difference specifically for cash, could you share that's what's driven by?
Yeah, I'll have to check that with my colleagues. Ramnath, could you please?
Yeah. I can. The number you mentioned would be about INR 10,900 million.
Yeah.
We have, when we put in the ALM, we both from borrowings and from cash and investments, we have deducted what we have put in the reserve fund. Right. Effectively that's it. The INR 1,362 we have put in the reserve fund already. In the ALM, you know, we have adjusted that already.
Perfect. Thanks. Thanks a lot.
Welcome.
Thank you. Our next question is from the line of Craig Elliott from NWI Management. Please go ahead.
Good evening. Thank you for the overview and congratulations on your great results, especially the robust balance sheet aspect. There's been a tremendous progress over the last, you know, year and a half. Looking forward, would you please provide a little bit more color on these new kinds of tech-enabled mini branches , what they look like? Seems like they're in areas that are sort of underserved or underbanked. What are some of the advantages and experiences that you're seeing so far with that aspect of the strategy, please?
The basic genesis of our thought process is that, you know, while India is going to grow, at least in the near term, it's going to be more a consumption-led growth. Private CapEx is missing. Private CapEx is not coming back in a hurry. The government is quite focused on ensuring GDP growth. Starting calendar 2022 onwards, there are several crucial state elections, which will then, after a couple of years, culminate into the national elections. The next two and a half years there is going to be heavy emphasis on GDP growth. Given that, we strongly believe that the government will have no option but to continue to spend on infrastructure.
As it does continue to spend on infrastructure, we believe that the pace of growth of smaller cities will be far greater than the pace of growth of a Mumbai or Delhi. Seeing that, the historical issue as far as smaller cities is concerned is that if you run a high-cost operation, despite the pace of growth, just the number of loans that you can do in those cities does not make economic sense unless you run very, very low-cost operations. We've been able to, by digitizing the entire journey for our employee as well as for the customer from a loan processing perspective, reduce the running costs of these branches to a mere INR 100,000 a month.
These are small 150 sq ft branches with two people and nothing. We basically source and the entire processing happen elsewhere. Thus, we ensure that there is no risk of fraud, there is no credit dilution, but at the same point in time, our cost to income remains within control and we are able to penetrate into territories which otherwise would not be making economic sense to be catering to. Given the fact that a lot of money today is being spent on roads, on power, on electrifying more and more locations, on making sure that manufacturing is coming to India, a lot of these locations are seeing much heightened economic activity as compared to the past. We are trying to basically make the most of it.
That's broadly the framework with which these cities or these small towns are being targeted, and branches are being opened and business is happening here. I hope I clarified you.
Yes, very much so. Thank you.
Yeah, thank you.
Thank you. The next question is from the line of Renov Tanrupal from Religare Enterprises. Please go ahead. Renov, your line is. Audio is breaking. Request you to please use the handset and
Hello, can you hear me? Can you hear me?
Yes, we can hear you now.
Yes. Actually, congratulations for great Q1 numbers. In co-lending model, if I understand it correctly, you have a certain interest rate and the co-lender, that is the SBI or anybody, say HDFC, have a certain rate of interest and the borrower gets a blended interest rate. Is that understanding right?
That is correct.
That is correct. If our interest rate is it limited or in other co-lending interest rate scheme or are we charging more interest rate?
We will-
I don't understand.
Our revenue streams are the following.
Yes.
We will charge a higher interest rate such that our rate will be higher than the blended rate and significantly higher than the rate of our partner.
Mm-hmm.
That is one revenue stream. The spread that we make on our rate versus, you know, our cost of funds, that is one revenue stream. We will typically get the processing fees.
Right.
For around 90%-93% of our borrowers, we will be able to sell to them at least one insurance policy.
Right.
In due course of time, we will be able to sell them at least one more insurance policy. To about a third within a two-year cycle, we are able to sell three policies.
Okay.
Insurance fee income and the spread that we earn, plus the 80%, which is on our partner banks or partner financial institution, we will be earning a management fee, which will range from anywhere between 70-200 basis points per year for the residual life of the loan.
Right. That will take care of our cost of operations, collection and everything.
Yeah. Our cost of collections and operations, fortunately, we're in a product where bounce rates are in the handle of 5%, 6%, 7% is not that significant. A large part of that is our profit.
No, no. I was saying that management fee that will take cost of operations throughout the life because it will be 70-year loan.
Yeah. No, that 70 basis points we get every year, 70 basis points. We don't get 70 basis points every year or 200 basis points every year.
Right. Is anything in the regulations which stop us from securitizing our 20%?
No, we cannot securitize our 20%. That 20% has to remain on our book.
Okay. Sir, if I do very rough math, the ROE of this model will be very high, right? Once it scales up.
The ROE of this model will be high. It has to scale up. The ROE of the securitization model is even higher because you're able to do loans through segments that we understand with our specific exposure to self-employed, et cetera, which may not be acceptable to our partner banks without any seasoning.
Mm-hmm.
Now, as you may have realized, which is what I alluded to, that the recent RBI regulatory changes as far as securitization is concerned, has basically done two things. One, it has brought Indian securitization guidelines to be at the same level as most developed markets. It has covered each and every type of securitization situation. It has also brought in an element where you can reduce the minimum holding period, you can reduce the minimum retention of risk basis credit rating, et cetera.
Right.
All in all, for a player like us, the minimum holding period is six months. If we hold a loan for six months and then securitize, that's the highest ROE, and the next highest ROE is to co-lend. Which is why I said of our gross disbursements, we will do that in or continue to do that in a ratio of 2/3 and 1/3. 2/3 have said that we originate, hold it for a minimum holding period, and then subsequently securitize. The balance 1/3 we co-lend, which is, from this current quarter, expected to be at a run rate of INR 1,000 crores growing steadily.
On a blended basis between these two products, with a little bit of help from the real estate platform that we are setting up, we should be able to get to a 15% ROE by fiscal 2024.
Okay. Right. Our target is INR 2000 crore for eventually.
Yeah.
That is the-
Yeah.
Right. Perfect. Thanks a lot.
Thank you.
Thank you.
The next question is from the line of Rishikesh Oza from RoboCapital. Please go ahead.
Hi, sir. My first question is, how should disbursements numbers look like in H2 of FY 2022 and going ahead in FY 2023?
We should be looking at doing about INR 4,000 crores of retail disbursements in quarter three and around INR 5,000 crores of retail disbursements in quarter four. About INR 9,000 odd crores is what we will look to do on a gross basis. They're split 2/3, 1/3 between what we will originate and subsequently securitize, and 1/3 that we will do upfront securitization.
Okay. Going ahead in FY 2023, how this will pan out?
This should grow by about 30%.
About 30%. Okay. Okay. Also, sir, you indicated the credit cost for, you know, FY 2022 around 100-100 basis points. If you could indicate what it can be for FY 2023, will it be lower than that or around?
Yeah, we expect that to be 700 basis points.
Sorry?
700 basis points.
Okay, 700 basis. Okay, no problem. Thank you. Thank you.
Thank you.
Thank you. The next question is from the line of Mahendra Kanakia from M3 Capital. Please go ahead.
Good evening to everyone. Thank you for the opportunity. Am I audible?
Yes, sir, you are audible. Good evening.
Yes, good evening. Yes, in the Q1 call, Mr. Prashant Sridhar of FDIMF asked that the stage 2+ 3 is almost 35%. Seems to be high for HFC. Mr. Banga answered clearly, without any doubt, indicated that in order to keep high provision, it is necessary to keep borrower in stage 2 + 3. Also answering to another caller, Mr. Banga said that we have, through this provision, paid a very, very good base for very steady compounding over eight-10 years. A provision of INR 3,153 crore is 4x of regulatory requirement. All this indicates that management and board have created very high provision which is not factual and truthful. Moving of earning is not right and not fair to the current shareholder.
Company has understated earnings by INR 2,364 crores, overstated provisions, and understated shareholder equity by that amount. Company must reset the finances to show factual and truthful earnings.
Sir, I appreciate your suggestion, but you will also appreciate that it is the management's responsibility to manage all stakeholders. Shareholders are extremely valuable stakeholders, but we have other stakeholders to also manage, which includes rating agencies, lenders, et cetera. When management takes decisions in consultation with the board, it's usually done keeping all stakeholders in practice. I would strongly disagree with some of the words that you have used. We are strictly compliant with all of the applicable guidelines. Keeping in perspective the fact that we are going through very uncertain times, management strongly believes that having management overlay provisions is the necessary thing to do. Therefore, we would continue with the practice of having high provisions at least for this period of high uncertainty.
which is why we are clearly communicating to shareholders as to what the expected gross NPA range is to be, you know, hopefully, and we are also guiding as to what the credit costs would be. I'm sorry if you felt otherwise, but this is the collective decision of the management and the board in consultation with our auditors. Thank you.
Thank you. Mr. Kanakia, please join the queue for any follow-ups. The next question from the line of Manu Agarwal from HCLTech. Please go ahead.
Yes, sir. Good evening, everyone. Am I audible?
Yeah, good evening, sir. You are audible.
First of all, I think these numbers are really good, and I really appreciate you guys creating a roadmap of three or 10 years. That's really appreciable. I have very specific two questions. One is regarding the court case which Distribution has put up against us. Why is Indiabulls Group basically not going for quashing it? We investors are feeling little bit uninformed about the case. The second is about the dividend policy going forward. Third is the higher levels of provisions. Would we ever come back to profit columns or what is the policy on that?
Sure, sir. As far as the public interest litigation is concerned, as we have informed via the various exchange updates, it was a combination of several litigations which were attempted against us. Fortunately, the Supreme Court of India has already, in a very similar case, stated that the matter now stands infructuous since the prayer of the applicants was that our books should be looked into. Multiple regulators and other relevant agencies of the government of India have looked into our books, including our lenders, and have found our books to be satisfactory and in accordance, prepared in accordance to whatever are the applicable accounting standards and legal provisions. That said, unfortunately, because of the outbreak of COVID, the courts for the last 20 months have been only taking up urgent matters.
This matter has not come up for hearing. In those 20 months, all of these inspections and audits are over, and it would be the endeavor of the management to, as and when this matter comes up for hearing, to pray to the court to quash the matter since whatever was the prayer of the applicants has already been taken care of. Ultimately, it would be the decision of the courts.
Given the ruling of the Supreme Court and the fact that whatever was the prayer has already been, without the court having ordered anything, government departments having taken up these inspections voluntarily and having concluded them, we believe that the matter stands infructuous, and that would be the stand that we will have in the court. Moving to your second point, as far as dividend is concerned, you may be aware that as part of the overall regulatory overhaul that the central bank has done, it has also now come up with a dividend payout policy for, or a dividend payout regulation for NBFC. We would be pretty much following that and be in compliance with the regulation. On your third point, as far as provisions are concerned, provisions are obviously there for stability.
If at a point in time the company feels that we are in a situation where we are adequately provided or over-provided, and in the near term the risk in the environment has abated, it would be our endeavor to return back to shareholders. We have a 10-year record of having distributed over INR 11,000 crore of dividends to shareholders. It's been the endeavor of management to give back to shareholders as much as we can. It would be our endeavor. At this point in time, it would be very premature and naive on my part to indicate anything of that sort to happen in the near future, given the uncertainties around COVID, around inflation, around tapering of liquidity and whatever macroeconomic volatility it may cause.
These are all big events, and for that we have to be prepared with a strong fortress balance sheet. That is how we would like to approach the near to medium term. I hope I've answered your questions.
Yes, sir. Quite nicely.
Thank you.
Just one thing, actually. In future, if management could really be a little bit more cognizant of the fact that investors are kept in the dark about the call hearings and all. If you could let us know what is happening a little bit upfront, that would be really helpful.
It would be my endeavor, sir, to do so. Right. Thank you. I'll just take one last question.
Yes, sir. That is from the line of Kayur Asher from PNB MetLife. Please go ahead.
Yeah. Thank you for the opportunity, and my congratulations on the continued, superior performance on the asset quality front, even amid the pandemic. I just wanted to understand, some qualitative commentary on what has helped us, outperform peers on the asset quality front. Incremental impact accretion NPA that has been quite measured, be it via restructuring or OTS deals. Our outperformance has been top stuff. Some qualitative commentary around that.
Yeah. Before I come to comment specifically on that point, you know, the two things that I would shy away from or be very reserved from is, one, to think that we used to mistakenly think that banks are our collaborators, are our competitors. Banks are our collaborators and they are not our competitors. The other is to continue to compare ourselves to peers to say that we are stronger or we are better. Every organization goes through its own life cycle on various fronts and therefore, what we are doing, we are probably benefiting from certain things that we have done in the past and certain investments that we have done in the past.
At this point in time, I think, what has helped us is that through the entire liquidity crisis, we started with a strong liquidity buffer, and that enabled us to continue to pump in liquidity into various assets which were under construction. Thus, when the sales cycle picked up, these projects are nearly ready or are seeing progress and therefore the collections are efficient and therefore the developers are not seeking restructuring. That is perhaps something which is helping us, but I am in no position to comment on peers. I believe that NBFCs have done a stellar job in an environment where everybody had written off most NBFCs, especially the NBFCs with no parentage.
For the kind of performance some of our peers have turned out, I believe the industry has done an exceedingly credible job, much beyond even my expectations. The regulator has supported again, which was again much beyond our expectations. All in all, I think all NBFCs today which have survived the onslaught are in a good position. We may have 50 basis points of higher delinquency or lower delinquency. I strongly continue to believe that organizations, the fortunes of organizations are, like NBFCs, are always led on the liability side. All companies which are focused on the liability side over a cycle will rise with capital adequacy levels of north of 20%, which most NBFCs are.
The asset side can cause some short-term volatility, but it cannot take away from the fact that the last mile credit delivery that NBFCs do is second to none. Therefore, if we operate in a collaborative format, it's a win-win for NBFCs, it's a win-win for banks, and it's a win-win for India. On that note, I think we are in a good position, the sector is in a good position, and the country is in a good position. I hope I've answered your question and thank you all for sparing time. Our one hour is over, and I look forward to speaking to you again next quarter. Thank you. Have a good day.