Edelweiss Financial Services Ltd

NSE:EDELWEISS

Earnings Call Transcript

[Operator]

Ladies and gentlemen, good day, and welcome to Fourth Quarter FY '22 Earnings Conference Call of Edelweiss Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Priyadeep Chopra, President, Edelweiss Group. Thank you, and over to you, ma'am.

[Priyadeep Chopra, executive]

Thank you, [ Indira ]. Good afternoon, everyone, and a very warm welcome to our earnings call. We hope you and your families are well. Today, we have with us on the call Mr. Rashesh Shah, Chairman and Managing Director of Edelweiss Group; Mr. Himanshu Kaji, Executive Director and Group COO; Ms. Ananya Suneja, CFO, Edelweiss Financial Services Limited; and Mr. Ashish Kehair, MD and CEO of our Edelweiss Wealth Management business.

We hope you've had a chance to review the investor presentation, as well as the addendum on our wealth management business that we filed with the exchanges on Friday. During the discussion today, we will be making references to them. Please do take a moment and review the safe harbor statements in our presentations. 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 hand over to Mr. Rashesh Shah to begin the proceedings of the call. Thank you, and over to you, Rashesh.

[Rashesh Shah, executive]

Thank you, Priya, and a very good afternoon to all of you. Welcome to this earnings call for the quarter ended -- in the year ended March '22. First of all, I hope you and your families are keeping well. I think, for everybody, FY '22 started in a challenging way, improved and also ended in a fairly challenging way. So it was in all, I think, a very interesting year. Q1 saw COVID wave 2 in India, which was really a very weak period, and I hope all of you and your family were fairly well in that. It was a very tiring phase for India.

Q2, Q3 saw some overhang, but started -- but things are coming back to normal. And Q4, obviously, with the Ukraine war and the geopolitical escalation and inflationary pressure is what it has been. And so I think even though COVID overhang is still there, I think we are starting this year, FY '23, with what it appears to be that COVID is at least behind us. Of course, there are a lot more challenges in front of us, including inflation and -- but I think India, as a whole, and we'll talk a little bit more about it, is a lot better place than it was in the last few years. One of the things we talk about in India is the government, balance sheet and the tax revenues are very strong. The Reserve Bank of India balance sheet is fairly strong, the bank's balance sheet is very strong and the corporate balance sheets are very strong.

The only balance sheet which have got slightly impacted in COVID has been the household balance sheet, where households had to borrow to just keep up during the COVID time. But outside of that, I think corporates and banks have the healthiest balance sheet that we have seen for quite some time. At Edelweiss, our focus has been on building resilience. As you know, last 3, 4 years have been challenging, but we have also used these years to become stronger, make the balance sheet stronger, but also make the organization stronger by restructuring, and we've spoken about that and we'll speak a lot more about how we are restructuring the organization going forward. And we want to be strong enough so that will shield against short-term disruptions and continue to focus on creating long-term value through our businesses.

We are now structured out 8 businesses, as you would have seen, in the presentation, and each of those business has got a lot of growth opportunity around it, from NBFC, to housing finance to AMC, to ARC, to Life Insurance, to General Insurance, to Wealth Management and Alternative Asset Management. All of these businesses have a fair amount of growth opportunity, and all of them have done very well, except Credit businesses where we continue to scale down as part of the stated policy of bringing down the wholesale book and growing the retail book, but mainly through co-lending, and we have made a lot of progress on that. So I think this year, we saw steady performance across all the businesses on the stated objectives, and we have culminated in ex-insurance profit after tax of INR 405 crores for the year from INR 104 crores for the quarter.

So overall, consolidated PAT is also healthy INR 42 crores for the quarter. Still, we have a long way to go towards our aspiration for the next few years are, but given the restructuring and the scale down in the Credit business, this is a fairly good achievement in this quarter. 4 years ago, Credit business accounted for almost 80% of our profits, as the wholesale Credit business scaled back post-ILFS, and we also decided to go asset light. We have to rebuild our profitability through different vectors rather than the credit vector. So as I said, consolidated profit at INR 42 crores for the quarter and INR 189 crores for the whole year. Our Board of Directors have approved a final dividend of INR 1.20 per share, which, along with the interim dividend, will take the total dividend to INR 1.45 per share for the year.

This year also saw an interesting milestone for us where our customer reach is now at 5 million. We have reached about 50 lakh customers across all the businesses of Edelweiss. And this is a 20% growth on a Y-o-Y basis. But this has also helped us grow the customer assets. And because as we become asset-light, our customer assets is one of the most important parameter that we watch, and we now have total customer assets of INR 3.6 trillion, and it has shown a growth of 30% Y-o-Y for FY '22. Our balance sheet is strong. The businesses are well capitalized. And our 3 stated priorities for the year, which was EWM value unlocking process, which is underway; the reduction of the wholesale book, which both, I think, reduces the size of the balance sheet, but also unlocks a lot of equity, which is embedded in that business, almost 30%, INR 3,000-odd crores of equity is embedded in the wholesale book; and the third was to scale up Asset Management and Insurance.

And on that, there has been very good progress in this year. Both our Asset Management businesses and both our Insurance businesses have shown significant growth. This year, we also sold the remaining 9% of our Insurance Broking business in this quarter to Arthur Gallagher. And the other 4, 5 highlights for this quota, which are there in the investor presentation, I just want to spend a couple of minutes on them. One is significant improvement in asset quality. What we are very happy about is, in spite of COVID wave 3, in spite of all the changes, all the challenges in the economy, our credit book now there's a GNP of 2.5% and NNPA of 1.8% on March '22. If you remember, last year, our GNP was 6.7% and NNPA was 5.8%. So in spite of the book growing because the denominator has come down, we have brought down the NNPA from 5.8% to 1.8%. This, I think, is a similarly big achievement for this year.

Our total provision cover is also now at 189%, which was 70% last year. And we continue to be very conservative and proactive in provisioning and impairment as we have seen over the years. Our item 2, after asset quality, is the customer franchise, continues to scale up well. We have invested a lot in digital ecosystem, synergistic partnership. And as I said, our customers are now 5 million customers, added almost 1 million customers in this year. And our mutual fund doubled the customer base, wealth customers grew at 22%, General Insurance saw a 20% growth and our customer assets are at INR 3.6 trillion. On the digital ecosystem, our mutual fund has one of the shortest transaction journey. Our General Insurance business, which is [ conceived ] as a fintech business, has also invested a lot.

And across the board, including in retail, credit, co-lending partnerships we have done with State Bank of India, Central Bank of India, Standard Chartered Bank, and this has also been a very gratifying achievement. Though in co-lending ending its early days, the numbers are small, but we expect our credit, retail credit business is to grow a lot in partnership with banks. So rather than reborrow from banks and online debt, with co-lending, we will be giving loans to our customers and using the 80-20 model for partnering with banks. Item 3, we have a robust balance sheet, a very well-capitalized business. All our Credit businesses have capital adequacy of more than 25%. Our DE -- consolidated DE is now at 2x, which at the peak about 4, 5 years ago was about 5x has come down to 2x, and we have liquidity of about INR 5,500 crores, which is 23% of the borrowing.

And our 3 priorities, as I said, scale down credit, wholesale credit asset, demerger of the wealth management business and scaling of asset management insurance has done well. I think NBFC, as I said, asset quality improvement, a big one, and the partnerships with banks and especially with Central Bank of India, wherein this year, we have disbursed INR 100 crores in the MSME book in partnership with them. And we're also in advanced stages of discussions with State Bank of India, IDFC Bank. Our MSME retail collection are at 96% for March quarter. Even on housing finance, we have grown quite a bit. In fact, profit has grown 2.5x. We have a lot of equity in this business. But as we have not grown in the last few years, now scaling up will be the vector for driving profitability. Collection efficiency were actually more than 100% provision covered is more than 77%.

And we securitize more than INR 850 crores portfolio in this year, a key other achievement in housing finance has been the co-lending partners of its State Bank of India and Standard Charter Bank. Mutual fund has had a big growth in profit, but more than that improved market share of 50 basis points. It's a very competitive business. Our rank of AUM for the industry at the start of the year was 15. At the end of the year, we are at 13. So we have improved quite a bit in our ranking also. And our share of equity AUM for this year was 23%, which was, I think, phenomenal. And equity AUM. Earlier, we had Bharat Bond and all, which was the vector for growth, but for FY '22, the mutual fund has grown with equity AUM. Alternatives, asset management also has strong growth in profitability, and we are currently in fundraising mode for 3 of our funds. And we hope that in this year, we close these 3 funds also.

And we have, in ARC, we continue to focus on building our retail capabilities. Wholesale, we have been a leader. But in this year, even in retail, we have a large market share. We had robust recoveries. We covered INR 2,700 crores in this quarter in ARC and INR 6,900 crores for the year. And this is, collectively, over the last 4 years, this brings our recoveries to more than INR 30,000 crores. So the key point of our -- the key focus of ARC is recoveries, and we continue to be very strong on that. ARC has a very, very strong balance sheet and a lot of liquidity. Both our Insurance business have been -- have had a very strong year, and Wealth Management, which is a stand-alone business, getting demerged in this year, has now assets under advice of more than INR 2 lakh crores, 30% growth Y-o-Y, strong financial performance for this year. And as our borrowings have improved, the loan against share book has grown by 95% on a year-over-year basis.

So I think with that, we continue to be very unexciting in terms of what we are achieving because we want to be very, very steady. We want, over the next 4, 5 years, to continue to grow value, continue to unlock value and the 8 businesses we have, each of them, have a very strong platform, has strong track record. All these businesses are more than 10 years old, but now have a lot of growth ahead of them in the next 10 years. We do think that this is, from a macroeconomic point of view, the coming year FY '23 is going to be a slightly difficult year with inflation, interest rates expected to go up, liquidity tie [ foreigners ] selling in India. We expect it to be a challenging market for financial assets, both equities and bonds. But things like real assets, like real estate and infra assets, those will do well. A lot of our funds are focused on that.

So we do expect that value of real assets will go up because they are linked to inflation, while equity markets and bond markets will see challenges and headwinds as we have already seen that. So at a macroeconomic level, it's going to be a challenging year. Fortunately, at a microeconomic level, India is very well-poised. The company's balance sheets are strong. Economic growth is coming back. Employment is also scaling up. And all the measures government has taken on digitization and the India stack and a lot of that is going to drive growth. We are seeing very robust income tax collections for the government. So I think at a micro level, very strong environment. India is very well-poised, but there will be macro headwinds. If you look at last 4, 5 years, the macro environment was very benign by the microenvironment. Banks had huge NPAs. Corporates had a lot of borrowings growth was coming down.

Last few years was a story of good macro, bad micro. I think the next 2 years is going to be bad macro, but good micro for India. And on that, I think India, Indian companies have always done well. So the Indian story of the corporate India is what we think is going to be there for the next few years. For us, this year the focus will be completing the Edelweiss Wealth Management demerger and listing, which is expected to complete by Feb. '23. Demergers should happen by December and listing by Feb. '23. Continue to scale up our asset management Insurance business. We continue to make our businesses very independent. They now have their own balance sheet, their own governance, their own boards. And each of the 8 businesses on their own are now very strong and very well-positioned within the marketplace to grow.

One important part is steady reduction of wholesale. We expect to reduce the wholesale book by another INR 4,000 crores in this year ending March '23. And by March '24, it will fall by another INR 3,500 crores. The current wholesale book is about close to INR 10,000 crores, which will slowly come down over the next 3 years. And that will make our balance sheet stronger and release a lot of equity. So I think to end it, strong balance sheet, comfortable liquidity, scale of retail businesses, asset-light model are the foundation for our growth ahead.

So once again, thank you all of you for your patience, for your support in the last few years, and we will now open for questions, Priya.

[Operator]

[Operator Instructions] We'll take the first question from the line of Arun Malhotra from CapGrow Capital Advisors.

[Arun Malhotra, analyst]

Congratulations on good set of numbers. I think majority of the businesses are moving in the right direction. A couple of things, Rashesh. One is the asset [ reconstruction ] business has done exceedingly well. Is this a steady number which we can extrapolate going forward or there will be lumpiness in this?

[Rashesh Shah, executive]

So I think on ARC, if you see, we continue to have a fee income of about INR 800 crores a year, and now we have an equity base of INR 2,500 crores. If you see the equity of ARC business, is INR 2,500 crores. It's a good business. We expect to make ROAs of about 6% to 7%. Unfortunately, the gearing has come down. 3 years ago, the business was geared 3x, now we are gearing is only about 1x. So as a result of that, we should make about 10% to 12% ROE on that business.

And it's not just our ARC. All ARCs are facing this issue. It's a good ROA business, but clearing up that business because the banks don't lend to ARCs, they were dependent on bond market. And after ILFS, the bond market has also become unsteady and the long-term borrowing, because ARCs need 5-year, 10-year borrowing, so we still have some borrowing. But I personally think ARC will be geared 1:1, and will make about 6% to 7% ROE.

So if you make 6% ROA and you have geared 1:1, you should make a 12% ROE. So 10% to 12%, if you see is what we're averaging. I think that will remain. And as I said, the last part of the profit, almost 65% to 70% of our profit comes from the capital and the fee income that we get. So that is [indiscernible] study.

[Arun Malhotra, analyst]

Sure. Second is on the NBFC. What do you -- what would be the focus going forward? I know we are going to make it more granular. But have we tightened the credit process now so that we don't repeat the mistakes that we have done in the past? That's one.

And also I would like you to comment on the excess liquidity, which we have on the books part 2. And lastly, one more. We have been one of the top most brokers. You have been a very astute investor. Our stock has not done anything for last 10 years. Is the management concerned about it -- are we really looking at it that way that there has been no return for the shareholders?

[Rashesh Shah, executive]

Yes, I will answer all of them. I think, I hope I remember all the questions. I envy my colleague, Ashish also, I forgot to mention, Ashish Kehair, who runs the Wealth Management business, and he's also on this call. In this quarter, we added addendum on Wealth Management, because I think as that business has become large and getting listed on its own, there was a lot of investor interest in understanding that business specifically. So is there any queries on that Ashish, who's also on this call?

I think I'll try and on the NBFC, obviously, a lot of the -- if you see, we've been doing retail like mortgages and SME for last 10 years. We have not had any stress in that in spite of COVID and ILFS and all that. So I think our retail NBFC has been fairly steady. Wholesale, obviously, there were a lot of asset quality issues. About 70%, 75% of that was mainly because projects got stalled, there was not liquidity available. And basically, the developers or the projects were weekly funded. So those obviously were the learnings we have had. A large part of that also became an ALM problem. So if you look at the wholesale credit business, the credit cost, which was expected to be 2% ended up being 4%. So that was obviously a setback, but a 2% per annum credit cost is what you expected on the wholesale book. Actual experience was about 4% and slightly more than that on the Wholesale Credit business.

A lot of that was also ALM-related, because you had to repay your loans while your projects were stuck and the developers are not paying you. But fortunately, as real estate is improving, housing market has improved. A lot of the projects we have, the underlying collateral is there. And that's why if you see after last year, we have not had to take any impairment for the last 4 quarters. So I think on the wholesale side, as we are moving more and more to asset management model, where you have holding power because a lot of this requires holding power. You can't have a 3-year loan that you have to repay and you have 3-year loan to develop. Because the 3 becomes 4 or 5, you might still make your return. So I think the learning on the wholesale book has been, yes, underwriting, some weaker projects were funded, some weaker developers and maybe the counterparties were there. That was what we learned.

Credit cost was higher, which can be adjusted in the pricing. But I think moving it to an asset management model, which is what we have been doing for [indiscernible] book has been 1 learning. Our Retail businesses continue to do well. But we have decided that we have a lot of equity. So our Credit business, we have INR 3,000 crores equity currently allocated to the Wholesale business, another INR 800 crores to the Mortgages business and another INR 500 crores, INR 550 crores to the SME business. So the Mortgage and SME business has got adequate equity and has a lot of growth, especially in the co-lending model. So there, we will continue to invest. We have done a lot of work on technology, and the co-lending partnerships we have with State Bank, with Standard Charter Bank, with Tata Housing, all of that has underscored that our underwriting and collection on the retail side has been underscored by a lot of partners.

Wholesale, we have had a lot of learnings, both on the underwriting, but on the format. I do believe that wholesale credit business is not a right business for any bank or NBFCs. It is a much better business for AIFs and funds who have the holding power and the long-term flexible capital on that. So I think that's your answer on the NBFC. As I said, I may not remember all the questions. The other you asked about the stock price, we do acknowledge that last few years. So if you look at it on a 10-year basis, obviously, NBFCs or financial services have gone out of fresh and then come back. We also paid a fair amount of dividend in the last 10 years. But last 4 years, our earnings have come down. Our balance sheet has come down. The gearing from 5x has come to 2x. And we are here to make a call on whether we protect the balance sheet or we protect earnings.

And we have had to protect balance sheet for obvious reasons, as I'm sure you'll understand, our earnings have had deteriorated in the last few years. Now fortunately, the trend is that we are repairing earnings. And I've seen that there are 2 ways of valuing the company, the stock price, either the intrinsic value, which may be a long-term private equity investor, somebody who has a 10, 20 horizon, can take a call on that. But unfortunately, the markets don't have enough information on that, which I acknowledge or on earnings or market growth [ fancy ], so 3 years ago, NBFCs were very fancy. They were trading at 3x book value. Now most NBFCs and even banks are at book value or below book value. Because somewhere, I think credit growth has gone except for a few exceptions, I mean, for most of them, the excitement around NBFC business has come down as credit has come down.

But along with that, our earnings have come down, and we are confident as we repair our earnings, as we grow earnings, the underlying value is we've been building value. We have not yet converted a lot of the value into earnings. That is the job of the management. So next 4, 5 years, we remain committed to not only convert the intrinsic value we have built into earnings, but also -- and grow the value, but also unlock value. Because as you can see, even now, about 45% of the company is still held by insiders, and we have another 5 or 6 core large investors from external investors who own another 25% of the company. All of us collectively are very committed to growing value and unlocking value. But the precursor to growing value is to building value, which is what I think if you look at most of the parameters on customer addition, AUM. We are doing all the right things. We hope those right things get converted into earnings and post earnings. As we have demonstrated with Edelweiss Wealth Management, we remain committed to unlocking value.

[Arun Malhotra, analyst]

Sure. That was helpful. And lastly, you have passed a resolution for raising funds in the form of rights QIP. Any thoughts on that?

[Rashesh Shah, executive]

I think this is just an enabling resolution. We don't expect to raise any equity money. As we said, we are only 2x here. We have a lot of equity out there. We have just taken the enabling resolution for any instrument because we have, as you can see, some borrowings, which we have to roll over. So every year, like last year, we, I think, repaid about more than INR 8,000 crores, INR 9,000 crores and raised only INR 3,000 crores, INR 4,000 crores. So every year, we are repaying more than we are raising, but some rollover we have to do. So we have given a slide which explains all the borrowings we have at a group level. So we expect that we will, in the next 3 years, go towards 0 debt at the holding company at [indiscernible] level. But some we have to roll over. So we've just taken an enabling resolution. I personally don't think we will need to borrow more than INR 500 crores to INR 800 crores in this year.

[Operator]

Our next question is from the line of Chris Kumar, an individual investor.

[Unknown Shareholder]

So I just have 1 question. So you've spoken about value unlocking in your investor presentations in multiple occasions in the recent times. Can you please throw some light on what are the plans on that front?

[Rashesh Shah, executive]

So I think the first one we have is on Edelweiss Wealth Management that we have shown, also the insurance broking that we sold to repay debt at the Holdco level, which is also, because that is also building value. I think our -- what we have done is the 8 businesses, including Wealth Management, each of them has become independent. And we remain committed to either IPOs or demergers in the coming years to unlock value in those businesses, which is the Life Insurance, General Insurance, Housing Finance, NBFC, ARC. Each one will have their own controls, like, for example, currently, as per RBI rules, ARCs are not allowed to IPO. They are not allowed to be listed. So we have to find our own way of unlocking value in that, either through dividend payouts and whatever else that business has strong earnings.

But I think through either dividend buybacks, as well as demergers and IPOs, these are the 4 vectors we'll use. And as we said, our idea was to make the businesses stronger, which I think we have done in the last 2, 3 years, convert that into earnings and value creation. And then unlock the value by actually unlocking Edelweiss Wealth Management, we have demonstrated the first example of that.

[Operator]

We'll take the next question from the line of Harshil Solanki from Equitree Capital.

[Harshil Solanki, analyst]

I have 1 question. In your presentation, you have mentioned that you have reduced 30% of the wholesale assets in the past 2 years, but are projecting a 60% reduction over the next 2 years. So I'm trying to understand what will you do differently to achieve this?

[Rashesh Shah, executive]

When that 30% was over INR 18,000 crore book, while now the book is only about INR 9,000-odd crores. So 60% is about INR 6,000 crores. We've been reducing the book by about INR 3,000 crores to INR 4,000 crores every year. So in this year also, we expect to reduce it by INR 4,000 crores. So INR 10,000 crores should become INR 6,000 crores, and then we hope to reduce another INR 2,500 crores, INR 3,000 crores in FY '24. So I think, as we said, every year, we are reducing it by INR 3,000 crores to INR 4,000 crores. And at the peak in 2018, our total wholesale book was INR 22,000 crores, which has now come to INR 10,000 crores. So we have in the last, say, 4 years, reduced about INR 11,000 crores in that book.

[Operator]

We'll take the next question from the line of Mahavir Jain from [ Astran Advisors ].

[Unknown Analyst]

Congratulations on good set of numbers. I had a question on the Mutual Fund business. So your Mutual Fund business has seen strong inflows, especially on the equity front in the current year. However, there is increased volatility in market due to global macros. So how do you see the impact on the mutual fund industry in India, as well as Edelweiss ARC?

[Rashesh Shah, executive]

I think the growth we have seen in the last 2, 3 years, maybe will get tapered, but I still think there will be growth. Because as you see, I think SIPs have reached about INR 12,000 crores, and I think there is an increased commitment to SIP base investing and all that. In our case, we have a good portfolio. I mean, our 3 main platforms in our mutual fund business. One is equities, which we have grown in this year. Other has been our ETF on debt, the Bharat Bond alone, which we still think, especially as bank interest rates and all. As inflation goes up, the bank deposits may not be as attractive. And ETF, especially Bharat Bond, has been a replacement. It is a substitute to bank deposits for a lot of investors because it's -- I mean, for retail investors, it's almost overnight liquid, and you get 100 to 200 basis points more on an after-tax basis on the Bharat Bond then you would get in that.

So we continue to think, as inflation goes up Bharat Bond will become more attractive to FDs. It cannot be a bond itself might not be great, that attractive. But I think FD to Bharat Bond should be also a good vector to continue to grow. And our third has been the balanced advantage fund, which we think in this volatile times, the balanced funds will do very well, because I think investors will want some certainty of steadiness with growth. Because it's not going to be that the equity markets will go down. There will be increased volatility. But we do think India corporate earnings and all will go up. So there will be some equity upside sporadically. But overall, I think this year, even if we see -- it will be a single-digit growth for the mutual fund industry, which is not bad after the last 3 years of more than 14%, 15% growth. I think a single-digit growth for AUM, for the mutual fund industry is not bad. But our 3 planks equity, balance and Bharat Bond, I think we have some positive drivers in all of them.

[Operator]

[Operator Instructions] We'll take the next question from the line of Ankit Agrawal from Yellowstone Equity.

[Ankit Agrawal, analyst]

First one is, what is the monthly disbursal we are currently doing for NBFC and housing balances businesses?

[Rashesh Shah, executive]

So currently on the NBFC for this quarter, and it has been mainly SME because we don't do any wholesale disbursements anymore, so NBFC for this quarter was closer to at INR 200 crores for the quarter. And we can do more, but we want to do it in co-lending partnerships. So we are allowing the partnerships on co-lending with Central Bank and all to keep on stabilizing, but it's growing by 20%, 30% every month, the co-lending disbursements out there.

So I think on the NBFC, we are at about close to INR 200 crores a quarter. And on housing, we are at about INR 350-odd crores a quarter. Our idea on housing is to go to INR 1,000 crores a quarter, and on NBFC to grow to about INR 400 crores a quarter.

[Ankit Agrawal, analyst]

Okay. And when you say a quarter, you mean monthly run rate?

[Rashesh Shah, executive]

Yes, divide it by 3. Basically, you can divide by 3. Because what happens in the quarter is also get bunched up. So we look at quarterly disbursements rather than monthly. But when I say INR 350 crores to INR 400 crores a quarter, it's about INR 100 crores to INR 120 crores a month on housing.

[Ankit Agrawal, analyst]

Right. Okay. Okay. And just on the BMU. Where does that sit -- like is it part of the stand-alone? Or is it spread across the businesses?

[Rashesh Shah, executive]

The BMU is stand-alone. It's more the Holdco. And what has happened in last few years, we have borrowed money at the Holdco level we have in the last 3, 4 years of the liquidity crunch kept about between INR 2,000 crores to INR 2,500 crores at the Holdco level for use of the business is underlying and make sure that we never had any liquidity crunch, which could be a lot more damaging. And some of this borrowing was expensive. So because it was expensive borrowing, a lot of that borrowing expires in FY '23 and FY '24. There's a lot of this 3-year, 4-year contracted borrowing we have taken.

So that is largely while the Holdco is. And the Holdco also has the basically corporate and BMU also manages the liquidity and treasury for itself, and also makes investment in the operations of the Holdco, which oversees the businesses and all. As the businesses grow, the dividend income and all will start coming in. Currently, we are not yet pulling money out of the businesses as yet.

[Ankit Agrawal, analyst]

But the stand-alone entity does not have anything apart from BMU, right?

[Rashesh Shah, executive]

Yes.

[Ankit Agrawal, analyst]

Okay. And the gain from the sale of insurance booking business, that would have booked in BMU?

[Rashesh Shah, executive]

Yes. That was booked in BMU.

[Ankit Agrawal, analyst]

Okay. Okay. So basically, the liquidity cost and other fair value changes offsetted the gains from the sale of insurance bookings?

[Rashesh Shah, executive]

Yes. As we have said in the past, Ankit, I think the excess liquidity and the extensive liquidity that we are holding at the Holdco was annually costing us about INR 300 crores. And we are hoping of INR 300 crores a year, and we're hoping it will come down by INR 25 crores every quarter as we go forward as we repaying borrowings and all that. And we had to do it because unlike others, we are not a big corporate house. So we had no group company to fall back upon, if you needed INR 300 crores, INR 400 crores because of any shortfall. So we, in '19 and '20, which we decided to hold this extra liquidity at the Holdco at the BMU level.

[Operator]

We'll take a next question from the line of Vishal from Real Value Securities.

[Unknown Analyst]

This is very good numbers. I was going through presentation, and I had 3 questions on credit side. So significant improvement in asset quality, what are the factors trading to this? And how much that can be contributed to wholesale and retail? And are we going to see same improvement in coming quarters or also or we will say it gets [ steady ] now?

[Rashesh Shah, executive]

So I think on the whole -- on the credit side, as I said, retail has done very well. So retail has been steady. The improvement you are seeing from last year where NNPA was 5.8% has come to 1.8% has been largely on the wholesale side because of 2, 3 reasons. On wholesale, we, in 2021, we proactively provided. We, I think, accelerated a lot of our provisioning. So you might see some other NBFCs still having provisioning [ GAC ] coming in. We have -- we actually upfronted all of that, provided for that. However, the underlying portfolio, especially housing and real estate, is doing well. So recoveries are strong. And as the recoveries are coming, the NPAs are improving. In fact, it's very commendable because the -- usually, when a book is shrinking, your NPAs go up. They don't come down. And in this year, though the credit book has [ shoved ] that NPA has also come down, because a lot of the NPAs that we had, we have been able to recover or make them standard.

Because a lot of these projects are good projects, unfortunately, '19, '20, everything got stunted because of liquidity and then COVID and all. So as the projects are coming, I think real estate is doing well. Housing is doing very well. So we expect to not have any asset quality issues. So I think as the book is shrinking, 1.8% NNPA should be as good as it gets. So if our NNPA is around 2%, we'll be -- continue to be satisfied with that.

[Operator]

Our next question is from the line of Hitesh from Citibank.

[Hitesh Dhawan, analyst]

Thanks, Rashesh, for your inputs, especially on the alternative side. I understand that this is a focus area for the group. But the AUM for FY '22 increased only by about INR 500 crores. And given the macro conditions that you've hinted in your presentation also, should we expect an increase in H1 '23? Or you think that the focus will be more on deployment?

And if you could just add an outlook for profitability and scale that you envisage for this business.

[Rashesh Shah, executive]

So as you know, the alternate AUM, the alternate Asset Management business, AUM is not like mutual fund. It doesn't come every month. It takes about 1 year, 1.5 years to close a fund. So we have 3 funds under closure right now, our [ stress ] credit fund #2, [ ICF 3 ], as we call it; our [indiscernible] #2; and our credit plus fund. So we expect to close 3 funds in this year. We did close almost about INR 9,000 crores, INR 10,000 crores a year before. So unfortunately, in alternative asset management, you might have 1 year where you will have AUM, which is -- you will add INR 8,000 crores, INR 10,000 crores of AUM. I would say in this business, along with AUM, investors should also look at their deployed capital, because the deployment of capital is an important one because AUM is only that you have raised of INR 8,000 crores fund.

And that INR 8,000 crores fund will get deployed over 3 or 4 years. So that is an important vector to also look at, that how much have we deployed in this year. I mean, in that sense, this year, all asset management has been fairly good. We have been able to deploy a fair amount of capital, also exit a fair amount of capital. So that has been a good performance on the alternate asset management side. I think we have a total AUM of about INR 35,000 crores, out of which INR 25,000 crores is deployed. So that has been a good growth in this year. I'm just looking for the number on alternatives for this year, we had a 25% increase in our fee paying AUM, because when we raised an AUM of INR 8,000 crores, we only earn fees when we deploy the money. So if you raise INR 8,000 crores and deploy INR 2,000 crores a year, your first year INR 2,000 crore is fee-paying AUM.

So in this year, our fee paying AUM is now INR 17,600 crores, which is a 25% growth. And we had deployment of INR 4,900 crores in this year, out of which INR 1,650 crores were deployed in this quarter. So I think the fee paying AUM is the one I look at the most. So we then would have growth in AUM, but the fee paying AUM is at a 25% growth, and that is also reflected in the increased profit after tax for the alternatives business.

[Operator]

Thank you. Ladies and gentlemen, we will take that as a last question. I would now like to hand the conference back to Ms. Priyadeep Chopra for closing comments.

[Priyadeep Chopra, executive]

Thank you, Rashesh, and thank you very much, everyone, for your time today. Please feel free to write to us at Edelweiss Investor Relations for any questions or any other additional information you may need.

Once again, thank you for your time. Have a great week ahead and stay safe. Bye-bye.

[Rashesh Shah, executive]

Bye, everybody. Thank you.

[Operator]

Thank you, members of the management. Ladies and gentlemen, on behalf of Edelweiss Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.