Edelweiss Financial Services Ltd
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Ladies and gentlemen, good day, and welcome to the Edelweiss Financial Services Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Ms. Ramya Rajagopalan, Senior EVP, Corporate Development. Thank you, and over to you, ma'am.
Thank you, Raymond. Good afternoon, everyone, and a very warm welcome to our third quarter earnings conference call for the financial year 2021. Today, we have with us on the call, Mr. Rashesh Shah, Chairman and CEO of Edelweiss; Mr. Himanshu Kaji, Executive Director and Group COO; Mr. S. Ranganathan, President; and Mr. Sarju Simaria, CFO of Edelweiss Financial.We hope you have had a chance to review the presentation that we have filed with the exchanges. During the discussions, we will be making references to it. We do hope also that you will take a moment to review the safe harbor statements there. We will be making some statements today that may be forward-looking in nature and hence may involve certain risks and uncertainties.With that, I will now hand the call over to Mr. Rashesh Shah to begin the proceedings of the call. Thank you, and over to you, Rashesh.
Thank you, Ramya, and a very warm welcome to all of you. Good afternoon on this third quarter FY '21 call, and good to have a lot of you back. I just have a few opening remarks, but as you know, what is the more interesting part of this call is the question and answers. So I do enjoy the queries that many of you post, and I do look forward to interacting with all of you. But thank you very much for being here. I know there's a lot of fireworks going on in the market, in the India-England cricket match and all, so to take time out on this call, we are all truly grateful for that.As you know, the India's environment has improved a lot since we spoke last. I think the last quarter has been an amazing comeback quarter for the Indian economy. And we have had a very turbulent period for the last couple of years, and this seems more like a beginning of the end of the turbulent period. For us at Edelweiss, this was a quarter as per the plan that we had started off with. We ended up with an x insurance profit after tax of INR 2 crores, but many pockets of strong growth in our businesses. And this is a quarter where actually our diversified business model has been highlighted once again. So friends, today, I want to talk about 4 things: our balance sheet, asset quality, growth and profitability. We have a lot of details about individual businesses in the investor PPT we have. We have a lot of data out there, but these 4 are the most important aspects of our strategy. So the first, on the balance sheet. As you know, since we are a diversified company, it is not 1 entity. We have close to 10 business entities in which we run our businesses. Our focus was on strengthening the balance sheet for the group as a whole, but for individual companies also, and our whole focus has been on consolidation, fortification and strengthening. First was liquidity. So all the entities are at very comfortable liquidity threshold as well as the group as a whole. We're currently carrying liquidity of about 21%. I know liquidity has become unimportant in the last 3, 4 months as the environment is improved and liquidity has become easier, but I think since last 2 years, we've been focusing on that. The idea is to now ease off on excess liquidity slowly and steadily by using it for growth. A lot of liquidity was being held up for emergency use rather than for growth in the last couple of years, especially after COVID.Also at the group level because -- as we have spoken earlier, one of the areas we have is the balance sheet management unit, the corporate BMU unit because we are holding more than INR 2,000 crores of excessive liquidity, which is like fungible capital to be used by anybody in the group. Because when the crisis started, we made sure that we had enough capital in the businesses, but also at the holding company level that was available to any business, if they need it. Fortunately, this insurance was not used by anybody, but it was good to have this insurance in the last 2 years that all the businesses have an assurance of those fungible, flexible liquidity available by the corporate, if they needed it. This obviously is expensive liquidity, and as we have spoken earlier, it is costing us about INR 250 crores to INR 300 crores a year. As things stabilize and as we close our PAG deal on EWM, this holding excessive liquidity cost should also go away. And we will now start easing off on excess liquidity and use it for growth.On equity, our capital adequacy ratios for all the credit-based businesses are very strong. We are more than 25% capital adequacy in all the credit-related businesses. We range from 25 -- from 24% to almost 38% in all our businesses. As we have become more independent in each of the business and made them ring-fenced, some businesses do have excess capital, but that is all right because we want to make sure that, that capital can be used for growth. However, the group level debt equity ratio has come down to 3x. At the peak, we were at 5.2, which seems like a long time away. But we are at 3x, and we have more than INR 8,000 crores of equity. And as you know, with the stake sale in EWM, the equity will only go up. So all the businesses are ring-fenced, well-capitalized, independent, and that gives us a huge leeway for growth because now each business can grow on its own. And we have -- in our investor presentation, each of the business, how much equity they have, what stage of growth they are, we have elaborated that. We also have some equity in our NBFC, which we raised from CDPQ, and from -- in our Edelweiss Wealth Management business from Kora, Sanaka, a lot of these equities currently in the form of compulsorily convertible debentures, but we're also paying interest on that. Actually, even that interest is costing us about INR 130 crores to INR 140 crores a year. But as they get convert, this interest cost saving will also come. So I think the last 2 years have been a very, very different year where liquidity and the cost of liquidity is still hanging heavily, but as environment is improving, it should start getting lower. So capital adequacy, very strong. Your insurance businesses also have strong solvency ratios. So they are growing very well. We still have maintained very high levels of solvency out there.On asset quality, the environment plus the degrowth of the last 2 years did put a lot of pressure on asset quality as all of you are aware. But now, I think, we are fairly well provided. Our wholesale book is fairly marked down to appropriate number. We're still being very conservative in accruing yield. So on a wholesale book, especially accounts where there is a lot of workout required, we have marked it down, but we are still not accruing yields on that. And our approach is that -- though the projects are viable and the collateral will make sure we get repaid well. As these projects become live and they go towards completion and then generating cash flow, we will start booking yields in that -- at that time only. So I think in the wholesale book, profitability is about a year to -- a year away, but the impairment and the markdown has been done. In fact, we are fairly well provided for. Our current provisions that we carry are more than enough, and we hope that as environment is improve, we should get some flowback that comes back on the provisions that we have made.Our retail credit portfolio has performed very well throughout the COVID period. We have about 3.5% Stage 3 assets in the retail portfolio. Collection efficiency is now at 93%, and we have had no interest reversal in this quarter because we have always accrued interest very conservatively. We've also not used up any COVID provision, and overall, we expect that, I think, as economy improves, a lot of the provisioning we have should get released as the project gets completed, but the important part on the wholesale book is going to be workouts. The third thing I want to talk about, friends, is about growth because after balance sheet strengthening and asset quality, the other important part has been growth and all businesses, except credit and ARC, has been growing. And for obvious reason, credit had not been growing. And in ARC also, we made a call to focus more on recoveries because, as you know, between 2014 to 2018, we acquired a lot of assets. Last 2 years have been focused on recovery. I expect, even this year, we'll focus on recovery and maybe we'll start acquiring fresh assets about a couple of quarters down the line because I think there is a lot of liquidity, but our idea was to prove that we are strong on recoveries. For example, in our ARC, we have recovered about close to INR 21,000 crores in the last 3 years. And in this quarter, we have also had more than INR 2,000 crores of recoveries in our ARC. So I think we'll start a new round of acquisition in a couple of quarters. We've also spent time investing in Asset Management and Wealth Management to build capacity. On the retail credit, this was a good quarter. We disbursed INR 215 crores in retail credit in Q3. So disbursements have picked up. At the peak, we used to disburse between INR 700 crores to INR 800 crores a quarter in our retail credit book, which had gone down to almost about INR 40 crore, INR 50 crore. We are now up to INR 200 crore, and we think heading back to INR 400 crores, INR 500 crores soon should be possible. We have lots of liquidity in our housing finance company, and we are seeing a lot of growth out there as you are seeing in the environment.In the Wealth Management, we have had very good growth, 22% growth in Assets under Advice. Alternatives, while I think leadership position had been strengthened, we raised more than INR 8,800 crores in the current year, which is more than $1 billion, and that has been the highest ever. Our mutual fund has been -- has had a very good year. In fact, 2020 was one of the best years for a mutual fund. In the last quarter, Q3, our fund saw a net equity inflows of INR 1,000 crores. As you know, we are very big on the bond ETF with the Bharat Bond. But even on equity inflows, we saw the net equity inflow of INR 1,000 crores in comparison to about INR 46,000 crore outflows for the industry as a whole. So in a quarter where industry had INR 46,000 crores of equity outflows, our mutual fund had INR 1,000 crores of inflows. And both our Asset Management businesses have started becoming profitable now. So as you know, our Wealth Management business became profitable about 3, 4 years ago. Now we want the Asset Management business to start contributing to profitability. And 4, 5 years down the line, insurance businesses should also start contributing to profitability. Our insurance businesses have grown well. They are very -- they have a strong digital backbone and both our Life Insurance and General Insurance has been industry-leading growth, not only in the last quarter, in the last year also.Our corporate book is fairly well provisioned secured. As I said, we carry about 164% of provisions, and we have more than INR 3,000 crores equity in this book on INR 8,000 crore book. We are slowly going to release this equity as the book comes down, and we do the work out on this loan, and that equity will be used by the SME to grow the business. But both in our housing finance and SME, our focus will be on an asset-light model where we are going to be partners with bank. So even now, our credit book composition continues to be 51% retail, 49% corporate, and about 10% of our retail book is AUM, which is -- it is something we securitized of about INR 1,500 crore. Going forward, that will grow, and we want to make sure that we have a good balance between on balance sheet assets as well as off balance sheet through securitization. So this is our growth plans as we go along. Large part of our book is collateralized, only 5% of the book, about INR 750 crore, is unsecured. Otherwise, everything else is secured credit in our portfolio -- in our credit portfolio.And the last thing, friends, is about profitability. Obviously, last 2 years have -- we have taken a hit on profitability, but our Wealth Management has been scaling up profitability fairly well. They've reduced the assets they have, but in spite of that, the last quarter has been a good profitable growth for them. They still continue to be in investment mode, and they're balancing investing and profitability at the same time. Our ARC profits have been good, but the balance sheet has been deleveraged. From a peak debt to equity of 3:1, they are now about close to 1.5:1. So as we have got a lot of recoveries, we have delevered the balance sheet, which has brought down profitability as a whole, but ARC continues to be in a good place with clocking about INR 350 crore to INR 400 crore pretax profit per year. Our Asset Management profitability, as I said earlier, has started to kick in. Retail Credit profitability will kick in from this year onwards as we start growth again because though, we had scaled down the disbursement, we had kept them -- the retail team and all. So as we start scaling up disbursement, I think profitability on that will kick in and you will start seeing that. Two areas of work in profitability required after debt are our corporate book and the BMU. As I said, corporate book ECLF will become positive from '23 onwards. We are making sure the current pressure is largely because of nonyielding of the loans. But as we work them out and release the credit exposure in that, this will start improving. And on the balance sheet, as it complete our restructuring, we have now really restructured. We -- last 2 years, not only have we managed the environmental crisis, but we also restructured the group completely. And part of the cost of the BMU is the restructuring cost, the excess liquidity that we are holding to make sure all group entities have enough access at the group level and don't have to depend on each other. And that has also allowed us to make sure our restructuring is very positive. And we think as this gets completed, even BMU should come to profitability.So the other focus items have been the transaction with PAG on the stake sale of EWM. It is progressing as per plan. We are waiting for all the regulatory approvals to come in. Quite a few of them have already come in. A few more are remaining, and we expect to consummate that soon. And then we will continue with the plan to demerge that business and get it listed as an independent business. And as part of our focus of getting ready for the future, we have also built a lot of cost efficiency. COVID was a good opportunity to make sure by reduction of branches through work from home, using technology, we have achieved cost reduction of 27% in Q3 as compared to FY '20 average. So a fairly good opportunity to even bring costs down and become more efficient. So all in all, the quarter was as per our expectation. The foundation is strong. The businesses are now independent. They have their own capital, governance structure. Most businesses have done well. Credit, especially Retail Credit, will start showing growth and profitability. And FY '21 is a reset year. Our journey from FY '22 towards profitable growth and unlocking value for the shareholders will start. And lastly, we think a large 4, 5-year growth cycle for India has started. So fortunately, I think, as I said, this is the beginning of the end of a turbulent period for the -- for India and for the financial services industry. It's also heralding a new era of growth for India and very similar to maybe what we saw in 2003 and 2004, whereafter a long period of sideways and null and lot of asset correction -- asset price correction, we started seeing growth. I think the same kind of ingredient seem to be there -- the government actions, the RBI action seem to be propelling growth. And this time, we think India's growth will be investment-led. It will not be consumption-led, it will be -- India needs lot of investment because almost last 8 years, investments in the economy have been very low. And our Asset Management, Wealth Management business are very big. We'll be beneficiaries of that, especially our Asset Management business, which depends on credit strategies, we have all the credit strategy funds from performing credit to real estate credit to infrastructure yield funds. A lot of them will see a lot of traction. We have INR 30,000 crores of assets under management, out of which only about 50% is deployed. The balance 50% is dry powder, and we are seeing a lot of opportunities to deploy that. In fact, the IL&FS crisis and the turbulence in the NBFC and the mutual fund industry has created a lot of opportunities for AIFs and credit-led strategies in a fund format. So we are happy that we have managed to -- the last 2 years, managed to grow, managed to invest. Even though the last 2 years have been very turbulent, but the foundation has become strong for all our businesses. And our ambition of making sure there is enough capital and liquidity and growth runway in front of them augers well for us. India's return to growth is very, very encouraging. And we just have to remember to be patient and keep on making the foundation solid, which is what we have done in this quarter before we start growing again. Because this is not for the next 1 quarter, this is for the next 20 quarters, the opportunity that is there. And I think being a diversified financial services company, all the businesses are fairly well-poised. And wherever there was -- headwinds were there or problems were there, like in the corporate book, they've been identified ring-fenced and also are being managed well.So with that, once again, thanks a lot to all of you for being on this call, and I do look forward to having some questions and interactions with all of you. Thank you very much. Over to you, Ramya.
[Operator Instructions] The first question is from the line of [ Lokesh Jain ] from [ Praveen Jain Family Office. ]
Hello. Am I audible?
Yes, sir.
Yes. I have a couple of questions, sir. You have repurchased INR 650 crore worth of bonds from the market. My question is, how are you going to account for the principal and interest amount?
I'm not an accounting expert. I think maybe our CFO can answer that. But our idea of purchasing because we have a lot of liquidity, we have enough liquidity for the next 2 years. Of course, this is more short-term liquidity as compared to doing more home loans, which are 5 and 7 years, but -- so we are buying back bonds, which are maturing in the next 2 years. And my impression is that these bonds get canceled when we buy them, but our CFO can answer that. Sarju, do you want to take a shot at this?
Sure.
Himanshu, Sarju, do you want to try and answer, how do we account for the bonds that we buy back?
Hello. Hello, can you hear me?
Yes.
Yes, Sarju. Yes.
Yes. So I was saying, Rashesh, basically, you are right. This gets coalesced on both the sides. We will not be paying interest to yourself so it gets netted off. So our own bonds get noted off.
Okay. So one more question from my side. When are you likely to get into profits for your Life and General Insurance business? Because I suppose, it has been 5, 6 years for the period the business has been running for.
I think the Life Insurance business, we expect it by -- it's again a function of growth. I mean, unfortunately or fortunately, the Insurance businesses as such that in the early years the more you grow, you will keep on making a loss and then the growth hits a particular point after that. So in the Life Insurance business, the average has been about 9 to 10 years. We will complete our 10 years in 2013 -- '23, '24. So we expect to start becoming profitable there. And the General Insurance business is only 3 years old. We are in no hurry to get to profitability. We want to invest in the business. We are -- we have invested about INR 300 crores in the business in the last 3 years. We'll invest another INR 300 crores in the coming 3 years. So about -- average investment of INR 100 crores a year is what is required for that business. But we already are seeing more than about 50%, 60% growth. Plus, it's a very digital fintech-led business, which is -- we are acquiring more than 0.5 million customers a year. So it's truly the most retail of all Edelweiss businesses. So we are in -- these 2 are still in investment phase, I would say, for the next 4 to 5 years, and we will continue with that. But the average investment in this will be about -- approximately INR 100 crores, INR 100 crores every year for each of the business. So about INR 200 crores a year is what the expectation would be, which 2, 3 years ago, when we were making pretax profit of INR 1,000 crore and INR 1,200 crore, it amounted to 20% of that. As our profits have come down, this looks a large number, but I think in the overall sense, this should get back to normalcy. And the next 4, 5 years, we are actually very keen to invest, especially in the General Insurance business. We're seeing a huge amount of innovation, traction in that business, and we are truly very excited. As you can see, there are a couple of slides on that, but in the coming quarters, we'll be happy to speak more about those businesses.
The next question is from the line of Aditya Jain from Citigroup.
Could you talk about the NPA ratio adjusted for the Supreme Court standstill?
So I think on the Retail, we are -- because we are not looking at NPA so much, we are looking at Stage 3 assets. So I think in the wholesale book, the Stage 3 asset is about close to 10%. It's INR 8,000 crore book. And in the Retail book, it's about 3.5%. So we now look at Stage 3 and provide it accordingly because NPAs are not important anymore. Because even if you don't call it NPA, under Ind AS, you have to call them Stage 3. We have done about, I think, 8 or 9 accounts. We have done the restructuring on the wholesale side under the DCCO and all. But on all these accounts, we have made sure that whether NPA or not, we are well provided. Because one thing you should understand that now NBFCs have to follow Ind AS, which is about impairment and mark-to-market. Even if it is not an NPA, there are a lot of accounts we have which are not NPA yet, but we have provided on them because there is expected impairment also.
So both 10% and 3.5% are ex of standstill and -- just going from that, and secondly...
No, no, no, but it is -- you can assume it is ex of standstill because the standstill applies only to NPA. The standstill does not apply to Stage 3. So NBFCs, you'll have to call them Stage 3 even if they couldn't call them NPA.
Got it. And for the company overall, so can I take -- I guess it relates to a clear breakup of the loan book. Also if it was there, it would help. Absent that, if you could just tell us, for the company overall, what would be the GS3 and the overall provisions that we have, not by entity, but the total INR 1,000 crore provisions.
So I think our total credit book, which is there because it is for the credit book, is what I have said. And for the company as a whole, this is the total credit book. Maybe offline, Ramya can give you a breakup of under the different asset classes because now we have gone to an entity model. So all our companies -- all our entities, ECL Finance, Edelweiss Housing Finance, ERFL, ARC, they all calculate their ratios and publish them independently. So -- because Edelweiss as a whole is not an NBFC. We are a diversified financial services company, and we have a lot of like our -- in the Wealth Management, we have a loan against shares book, which is about INR 1,500 crore, the margin funding book. But earlier, we used to classify that as part of ECL Finance, now it is independent inside the Wealth Management business.So maybe offline, Ramya can give you the breakup of all the loans, but we don't see Edelweiss as one consolidated NBFC. In fact, that was a mistake that happened in the last 2 years. We are a holding company, a diversified company with 10 businesses underneath that. And the idea is to look at whatever asset quality, NPA ratio of each company independently because like, as I said, the loan against shares book is in the Wealth Management, housing finance is in Housing Finance, wholesale book and SMEs in ECL Finance, so all of that. Yes?
Got it. So a follow-up. On the wealth side, there is an increase in OpEx and a decline in PAG this year, Q-o-Q. If you could help understand what has driven that?
Yes. I think, 2 things. So I think one is, as you know, to get ready for the PAG transaction and the demerger because we also want to demerge this business. There has been a lot of restructuring that has been done, and there has been cost on that restructuring. Also a lot of entities have been aligned. So I would expect this quarter and the next quarter also about -- at least about INR 12 crores, INR 15 crores per quarter will end up becoming restructuring cost for the next 2 years. And lastly -- and last because the last quarter onwards, the economy has come back. The businesses are growing again. We have started building capacity. We have started giving incentives and all that so that I think -- because that business is growing very well, and we want to continue to invest in that.
Right. Sir, last thing from my side. On the home loan -- on the EHL entity, we've reported a loss. It seems to be due to higher provision. If you could talk about which segment and which part of the loan book and maybe which industry in terms of end market are we seeing issues? And how large those issues are?
Actually, these are not large. This was the first quarter after the Supreme Court -- after the moratorium ended. So we were expecting a spike, and we have actually conservatively provided for that also rather than work towards any restructuring or anything else. A lot of this is in the self-employed segment. As you know, housing finance is focused on salary and self-employed and affordable housing. So this is in that. It is what we expected. It is as per the model because in August, when the moratorium ended, we expected a spike in this quarter. And hence, we have very conservatively provided for that.
So this would be within LAP, I assume. If you could tell the share of LAP within the overall loans, it would be how much?
In the housing finance company, because of NHB rules, you have to be more than 51% home loans, and that is what we are. Maybe Ramya can give you the exact breakup, and I think we can publish that in the -- in EHFL. But I think it's about 55 home loans and 45 LAP is what I would -- I knew last. And as per the NHB rules, we have to be 51% home loans.
The next question is from the line of Chandra Govindaraju from Ashmore Group.
Sir, I was looking for Stage 2 number for wholesale book and retail book. Could you please provide that?
I don't think we publish Stage 2 at all. We only publish Stage 3 as a matter of policy. So -- but I think if you can look at provisioning, you should be able to calculate. That is what I have been told. But we don't publish Stage 2.
What is the total provisions that we have against wholesale book and retail book in terms of crores?
So again, I think provisions as well as you should look at impairment because we have written off also quite a bit. And you know, 2 quarters ago, last year, we wrote off quite a bit also because, again, in -- I think we all need to understand that NBFCs, it is about -- not just about provisioning because this is not an NPA regime anymore, this is provisioning and write-offs also. So I think collectively, I don't know, Sarju, if you have the number handy of how much is provisioning, and how much we have written off. I think you should look at both of that. Because in the Ind AS regime, a lot of the -- because a lot of loans we give also in the form of bonds, and you just mark down the bond. So you don't provide for that. You don't call it NPA and then provide for it, you just mark it down.
Understood. And in terms of BMU, how soon you think you will get to profitability?
So as I said, we currently are holding about INR 2,200 crores to INR 2,300 crores of excess liquidity, which we decided in this crisis period to hold it at a group level so that it is available to anybody, ARC. Because if you remember, 2 years ago, ARC had still not got the recoveries on Binani Cement, on Essar Steel, all of that. Including wholesale also, we had no idea. Then COVID period happened. So we decided that we will hold some excess liquidity at the Holdco level. So we borrowed money in the market, slightly expensive money because this is all Holdco, fungible, long-term money, but we said, this, we can give it to anybody. And this was the cushion that we built, which helped all our businesses grow about their business because really worrying and trying to figure out if they have a INR 100 crore, INR 200 crore, INR 500 crore shortfall in a particular quarter, the group was always there to provide that to them. So this was the main drag on the BMU that we have had. And as you know, this -- only last quarter, things have improved. So you can't just switch off the liquidity automatically. But expect over the next 2 quarters, a lot of this will get out of the way. And I think BMU should get to at least breakeven again, and that is what it should be as we have restructured all the businesses. So part of the BMU cost is also the restructuring as we are providing equity capital, doing cross holdings are being removed, all of that is going on. So I would expect another 2 quarters. As I said, the 2 main entities where we have to solve the profitability, one is BMU and one is ECL Finance. ECL Finance will come to steady state growth profitability in the next 4 quarters -- after the next 4 quarters, and BMU should be in the next couple of quarters.
Got it. Got it. One final question. On the Asset Management business, if we look at the PAT to AUM, right, one off the -- we are standing at -- in high-teens level. Should we see improvement from here on? How do you see the PAT to AUM for the Asset Management business?
Yes. I think in the mutual fund, we are still growing. And in the mutual fund, almost half our assets are in ETF and other half are in non-ETF. But as I said earlier, a lot of our equity assets are growing. On the alternative side, it is currently low because we have been deploying money. We have only deployed 50% balance. We are deploying now. And in Alternatives, the way it works is, when you deploy money, your profitability improves. But when you exit, you get the carry income and the profitability improves even further. So I think we should get to, I think, yields of about 20, 25 basis points collectively for mutual fund as well as for the Alternative business in the next 4 to 6 quarters. As I said, Asset Management is just coming into profitability. It is just in the last about 1 year, 1.5 years that it has turned profitable. And -- but we have accumulated good assets, I think INR 40,000 crores in the mutual fund and INR 30,000 crores in Alternatives is INR 70,000 crores. If I remember, about 5, 6 years ago, this was not even INR 7,000 crores. So in the last 5 years, we have gone from INR 7,000 crores to INR 70,000 crores. The profitability will kick in. And I think in the next year onwards, you will start seeing uptick on profitability the way we saw it in Wealth also.
The next question is from the line of Anitha from HSBC Asset Management.
Just wanting to know when you said that liquidity is easing, in your specific circumstance, can you just tell us what kind of response you are seeing from the market and from the banks when you say liquidity is easing?
I think the amount of liquidity we are carrying, one; b is, we are able to borrow. In fact, for the first time in the last quarter, we have said no to some of the bank loans because of cost reasons. I must admit, last 2 years, we are -- all of us were happy just taking whatever loan you've got at whatever cost. Now we are starting to also say no to loans because of the cost reasons and all. As I said, even in our P&L, we are seeing the burden of excess liquidity. We are able to borrow. We did a retail bond issue in January, actually end of December, early Jan, which was supposed to be INR 100 crore plus INR 100 crore. And this was more like testing the market, and we got a huge response. We collected more than INR 240 crores. So I think we're seeing a fair amount of traction. As we are saying, now the focus is on deployment, both in our Asset Management, we have about INR 14,000 crores, INR 15,000 crores of dry powder that we wanted to deploy. In our ARC, we have a lot of liquidity. We are trying to prepay some of the loans in ARC also. In our NBFC and HFC, we've been buying back bonds in the market. We are getting a lot of, I think, liquidity and now the focus is on disbursements.
Okay. Just specifically, this BMU entity of yours, is it Edelweiss Rural and Corporate entity, right?
Yes. It's a Holdco entity, yes. I think we have about 3, 4 Holdco entities that we are now collapsing into a CIC as part of the restructuring. So about a year ago, we got the CIC approval from RBI. So now slowly everything will get folded. All the holdings of the group company will get folded into CIC.
Okay. Okay. And this entity also has like about INR 2,000 crores to INR 2,300 crores of, I think, bonds which are maturing in the next couple of months, right?
Well, if it was in the next couple of months, we would have bought it by now. No, they are not maturing in the next couple of months. I think we have some bonds around in the third -- in the fourth quarter of this calendar year. And in fact, we are holding all the liquidity for that also, and that is also hurting us. We are trying to buy back the bonds. So if there is anything in the next couple of quarters, if it is -- we are very happy to buy it back. We have enough liquidity on hand for the next 12 months of whatever repayment that we have to make.
Yes. Okay. Just one more question. For wholesale book, you have mentioned that you have about INR 2,000 crores to INR 3,000 crores of repayment or asset sales, like cash coming in the next quarter. So being like -- largely, you're expecting like repayment or you're expecting like asset sales from -- asset sales through ARCs or your own ARCs and so on?
No. I think now the ARC sales and all have slowed down. To be honest with you, a lot of these are actually -- a lot of these projects, which were either marginally viable where we're stuck and needed more money, frankly, 5, 6 months ago, there was no outcome for that. It was on a standstill basis, but now on all these projects, some new developers are coming, some refinancing is happening, some new investors are coming in, and we are seeing a lot of progress on this project. So I think a lot of these projects will either get refinanced or a new developer will come in and complete that or you'll get new investors who will provide the last-mile funding to get them done. As you know, we had stopped doing very aggressive last-mile funding, and we had made sure that these projects are not overly dependent on us to keep on providing money to complete the projects. They have to be able to raise external money. A year ago, it was not easy, but last 4, 5 months, a lot of these projects have been seeing a lot of traction. In fact, our 4 to 5 projects, we already have seen exits and refinancing and all happening already now.
The next question is from the line of Prasheel Shah from CapGrow Capital.
Yes. My question was regarding to what one of the previous participants had asked. So you're not willing to disclose the Stage 2 numbers, but can you just give a comment on how it is doing compared to maybe last year or a historical average of last 2, 3 years?
See, I think almost every credit book as compared to last year, we've been doing well. So I think because there has been a significant improvement in the economy as a whole and the financing available, a lot of the real estate projects were not suffering from lack of collateral or the projects also not being viable. They were suffering from not having last-mile funding, and that has definitely improved a lot. And that is why, as I'm saying, there are new investors coming in. There are new -- there are a lot of new developers coming in to complete the project. So things have definitely improved. And as I said, for us, as an NBFC, I think more than Stage 2, Stage 3 is important because that is the one that we identify -- we provide for. In the wholesale book, actually Stage 2 is a misnomer because either it is Stage 1 or Stage 3. There is, unlike a retail portfolio where you can model the portfolio, in a wholesale portfolio, it's very hard to model. Each account is very specific and very idiosyncratic. So I think Stage 3 becomes very important. And you have to make sure that account is -- even if it becomes Stage 3, you're provided for it, but you still recover the money. Because in a lot of these accounts, like even Stage 3 that we have, we think recoverability is still high. There is very high level of recoverability, but it will become -- it becomes Stage 3 because it is an impaired asset or a stressed asset, and you have to provide for it. In fact, we have seen that in our ARC business also, a lot of assets, which the banks and all had provided for, actually gave them very good recovery. And we are seeing that. I mean, we used to see a lot of ARC cases, the recovery amount is higher than the current carrying value for the banks or the NBFCs and all. Because the way our entire both NPA and the impairment Ind AS works is, you end up overproviding when the impairment is identified and then you recover if there is good collateral underneath that. And as you know, because of our ARC, we are experts in recovery. We have done, as I said, more than INR 22,000 crores of recovery in the last 4 years. So the way it follows is, if there is stress, there is impairment, then you have to take either a markdown or a provisioning and then you recover. But on an average, you should have marked down enough so that your recovery is higher than what you've marked it down with.
And you said, your wholesale book was INR 8,000 crores, right?
It is INR 8,000 crores.
So then...
Our total book is about INR 15,000 crore, about 51% is retail and 49% is wholesale.
And on the -- so...
The only thing I can tell you is, in this quarter, Stage 2 assets have only gone up by INR 60 crores from what it was the quarter earlier.
And my next question is regarding to the provisioning and the markdown, which you were just speaking about. So on the existing book of INR 15,000 crores, what provisions do we carry?
Himanshu, Sarju, do you have the exact provision number?
We'll give it to you later.
Yes. As I said, for us, more than provisioning, it's the markdown that is more important. Because in an Ind AS environment, provisioning doesn't -- in fact, provisioning is a lot easier. If you see that slide which is there that IRAC norms versus what you actually provided, we have consistently provided more than the IRAC norms. Because I think we're all getting used to the new regime. But I think, especially for wholesale, the Ind AS regime is very, very, very different from the NPA regime. For retail, NPA and Ind AS regimes are fairly similar, but for wholesale, they are very, very different. So in that slide, we have given the provision number, which is against -- on Slide 11, if you see, our Ind AS provisions are INR 714 crores in that Slide #11 in the presentation. Had we followed IRAC, it would have been INR 222 crores.
Okay. And so my next question is again, so how much would we have -- so you said in the last -- 2 quarters back, we did heavy markdown. So in FY '21, how much markdown plus provisions we -- the company would have done?
I think my estimate is the markdown and provision for these 3 quarters would have been close to INR 200 crores or so. It's an approximate number. But again, in the annual number, we will give you for the whole year in the fourth quarter.
The next question is from the line of Jeetu Panjabi from EM Capital Advisors.
Rashesh, quick 2 questions. One, in the budget, the regs on insuring changed. Does that make us want to do something in terms of -- with Tokio Marine, any change in the stake holding?
So we have 3 businesses in insurance. One is insurance broking, where now under the new FDI norms, 100% can be held by the foreign partner. Currently, Arthur Gallagher owns 30%. They valued the business about 2 years ago at INR 240 crore, and they put in 30% of that as an investment in the business -- in the insurance broking business. Now the rules have changed, and they can own 100%. And the business also, I'm happy to say that in 2 years, has almost doubled in profitability in the industry. So that is one business where the partner can go up to 100%. Our other business is Life Insurance where we own 51 under the new rule, which is proposed. It still has to go through the parliament. And our idea is that we will do whatever is right for the business. So if a partner comes and can invest more in the business and let the -- help the business grow faster, well and good. As I said, we have x amount of investment appetite. For both our General Insurance and Life Insurance business, we expect to invest INR 100 crores a year over the next 3, 4 years, and that we have already provided for we have the money for that. But if the business can do better and can grow faster with a higher stake of the partner, we are always more than happy to consider that.As you saw in the Wealth Management business also, we were happy to give 51% stake to PAG because for us, it is more about value creation and then value unlocking rather than keeping control because all our businesses anyway are run independently. There is no one Edelweiss control over the business. So a lot of businesses have their own investors, their own partners, their own Boards. Now they have their own balance sheet, all of that. So our idea is to create business. And over last 25 years, we have consistently created value, like I spoke about the General Insurance -- sorry, the insurance broking business, this is a business we started 12, 13 years ago. And about 2 years ago, Arthur Gallagher invested INR 240 crore. And this is a business we've created very organically, slowly and steadily, brick by brick. And the same thing you will see in our ARC business. In the Wealth Management business that PAG is valuing the business at INR 4,400 crores, we have collectively invested only close to INR 120 crores, INR 130 crores in this business, but we also invested 20 years in that business. So our idea is, if any business can grow faster, create more value for our stakeholders, we are more than happy to consider any structure as allowed under the -- as under the rules. And FDI rules are becoming more and more favorable. We think insurance is a big growth area. The more capital you can pump into insurance, I think the next 10 years will be a big insurance growth in India, both Life and General Insurance. And we are happy that we are very well positioned in the business. We are still small. We are still very small, but I think the kind of growth we have seen in the last 8, 10 years in our Life Insurance business and in the last 3 years in a General Insurance business, has given us a lot of confidence that the only constraint to this -- both these businesses is your ability to invest. And if you can get partners who can invest more, then we are happy to look at all structures.
So retail lending side, is there a thought process? I mean, we can see the home finance is obviously scaling up. But is there a thought process on the next-gen digital lending and other stuff that's been happening out of the market? Is there a thinking around that? Is there a plan to scale up or do something there?
Yes. I think there are increasingly going to be 2 kind of NBFCs: One, I think will be bank-like, who will have big balance sheets and will have a lot of assets and all that, and who will -- may also have cost of funds advantage because they are promoted by a corporate house or a large bank or others. So they will be bank-like. They will compete with banks. A bank will give a home loan at 7%, they will also give a home loan at 7%. Then there will be others who will be bank partnered. And in that, actually, in our ARC also, we have shown that we have good partners with bank. In the last 2 years also, I think we have done good partnerships with banks on both SME and on home loan. And we have been working actually for the last 1 year, and a lot of this is very tech-led, but it's not purely digital. So it's not only fintech, it's a combination of physical and digital. You still do some of your origination. See, if it's a loan under INR 5 lakh, INR 10 lakh, a digital origination works, but any loan more than INR 5 lakh, INR 10 lakh, there is some physical origination required. And then you have all your underwriting and customer experience processes, which are all digital, and then your servicing can be a lot more digital. So I think you have combination of both, but your recoveries will then be still be offline and will be physical. So I think that is what we -- our partnering with banks with and our idea is currently out of our total retail book of about INR 8,000 crore, only about INR 1,500 crore is under AUM. The INR 8,000 crore is on the balance sheet. We think going forward, we should have a good mix, which will be about 60/40 on the books and off books kind of a -- because we have no desire to grow the balance sheet, but we have enough equity. So our housing finance business now has more than INR 800 crores of equity in EHFL. Edelweiss Housing Finance has INR 800 crores of equity. Edelweiss Retail Finance has close to INR 500 crores of equity. So we have a lot of equity. If we continue to use this equity to grow and partner with banks that then we don't need to raise equity at all, and we can just keep on growing organically. And we think a good digital-led, but with a little bit of physical model and a little bit of the balance sheet that you can bring in, gives you a strong advantage to get to about a 15%, 16% ROE kind of a model. So this is a business that can grow at 18%, 20%, can give you 15%, 16% ROE, and that is what we want to do on the credit side.As you know, we have got credit. We've got wealth management. We've got asset management. We've got insurance businesses. So we have 4 pillars, and each of them are in different stages of growth. But in credit, we have not only enough equity in housing and retail, but we will release more out of the wholesale book because there is INR 3,000 crores of equity already residing in the wholesale business, a part of that will come back every year.
Thank you very much. We'll take that as the last question. I would now like to hand the conference back to Ms. Ramya Rajagopalan for closing comments.
Thanks, Raymond. Thanks to all of you for having found the time to participate in our call today. Please do write-in to us at Edelweiss Investor Relations in case you have -- in case you need additional information on any aspect of the discussions we had today. And we look forward to seeing you again next quarter. Thank you so much.
Okay. Bye-bye, everybody. Thank you.
Thank you very much. On behalf of Edelweiss Financial Services, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.