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[Audio Gap] Please note that this conference is being recorded. I now hand the conference over to the management. Thank you, and over to you, sir.
Good afternoon, everyone. On behalf of team IIFL Finance, I thank all of you for joining us on this call. I'm Rajesh Rajak, Chief Financial Officer; accompanied by Mr. Nirmal Jain, our Chairman; Mr. Monu Ratra, IIFL Home Finance CEO; and Mr. Venkatesh N, Managing Director, IIFL Samasta Finance Limited. I'll hand over to our Chairman to briefly comment on the economy and the group's strategy and plans. Over to you, Mr. Jain.
Thank you, Rajesh, and good afternoon to everybody, and welcome to this call. So after a long time, one feels very excited and very happy about talking about the economy. So economy seems to be firing on all cylinders. As you know, consumption is picking up. I mean, anecdotally you'll find that restaurants and planes are full, but also jewelry stores and retail malls are seeing very high footfall. And also all the numbers and leading indicators saw a very strong recovery. But what is more important and heartening is that we are seeing a very strong recovery in the CapEx cycle. And primarily because the commodity companies have got such strong cash flows that many of them are able to deleverage and even announce expansion plans with internal accruals.And as we know that the CapEx -- the large ticket CapEx comes from the commodity companies and not from the other companies. And this has happened after a long time gap. If you have heard the commentary of many capital goods companies, they are showing that the order inflow is significantly higher than what it was even a quarter or a year ago. And also, we are seeing that exports have picked up. Our technology software exports and also others are doing much better. And all this has been helped by the policy framework which government has been working on.As you know, that the large -- the biggest problems or the issues of telecom are resolved. PMAY scheme has taken off. Tax rate for new manufacturing is 15%. GST has stabilized. So all these factors put together with the infusion of money that happens during any crisis is showing a strong recovery. And we believe that, that recovery has a cascading impact because when you see our CapEx in 1 large sector, it goes on over years, creating demand and jobs. And that income basically spends in other sectors. And we see that cycle at least for the next 3 to 5 years should remain strong.Now coming to NBFC sector, from IL&FS crisis to COVID, the sector has seen many upheavals and trials by fire. But as with the investor [ loan -- ] that survival is stronger and the survivors in the sector seem to be emerging stronger, but there are a few more interesting developments that have taken place in the sector, primarily caused by COVID and the crisis that we have seen in the last few years. One is the credit market has always been under penetrated but now the demand is becoming visible and addressable. It's becoming addressable with technology because the digital technology, the widespread expansion and use of UPI and digital payment, availability of data and a lot of alliances that are taking place and making this market access easier. And many technology companies or many finance companies are involved in innovation, which will open of the market and maybe reduce the cost of doing the small ticket retail loan in a way that was not possible or not thinkable even some time back.Also the bank partnership in terms of direct assignment, securitization as well as colending is now becoming much stronger. In fact, when we are talking to banks, what we are hearing is much stronger and much more positive than even what we would have expected or thought about. Even the Finance Minister, RBI, everybody is aligned and everybody seems to be in consensus that the best way to penetrate credit to the underserved segment of the society as well as underpenetrated geographies seem to be a partnership model of banks and NBFCs because what NBFCs can deliver in a small credit need segment, the small ticket loans or even micro finance loans, is far more efficient than what banks can do. And these are the areas where the customers the banks are not able to reach. And therefore, everybody is now -- and banks are flushed with liquidity. I mean they're getting deposits, but they are not able to lend significantly.The large ticket private sector CapEx that I talked about, large corporates are able to tap the market directly, either the foreign market or local market. And therefore, going forward, that probably will see a larger and larger part of the balance sheet credit being shown by the retail borrowers and that is where the partnership will make a lot more sense. And as the economy is doing well, the NBFC sector is very well placed, and the liquidity has also eased. And we have seen that liquidity ease for the sector for the survival for the well established companies is very well. And now even our liquidity is higher by almost INR 2,000 crores than what it was a quarter ago. So this is a great time to better growth, and that is what we are doing.Branches are core to our growth strategy because our gold loan and microfinance businesses for them, the fulcrum is [ bright ] from where in case of gold loan, we can store the gold. And for all of the products, it becomes the face to the customer, and it becomes a very efficient mechanism for collection. And of course, we use technology as much as possible, but branches cannot be wished away. And in case of gold loan, in particular, customer wants to borrow in 5 minutes and also take back her jewelry in 5 years in case they want to -- when they're paying the money back.Technology and the innovation is the key. And I'll just take 1 example of WhatsApp that we launched. So there are many players who are generating leads on WhatsApp, but what we are doing is a little different. We are not generating leads but we are doing intact underwriting process as well as disbursement on WhatsApp. In the first 10 days, without any advertisement or promotion, we got more than 60,000 leads. And what is interesting is that there are quite a few fraud cases also that we've been able to catch and the -- basically, this technology is very different from what many other people are -- other fintechs are trying because when they put an app in your mobile phone, they have been able to access a lot of personal data, including where the customer is moving around physically, all the apps, all the contact list. And that basically intrusion in privacy a lot more than what is required. Many customers sooner or later will resent and understand the issues with that. The WhatsApp model, we ask transparently to the customer, what are the documents that we need. And the model that we have been working on seem to be now stabilized and working well. And that is what customers appreciate and that is why the strong word of mouth referral and organic lead flow stronger than what we would have expected.So when we plan growth strategy for next 2 to 3 years based on our assumptions about the economy sector liquidity, other than technology and branches, we are also investing in people. Since last year, we have added almost 6,000 people and in last quarter alone, we added 2,700 people, that's net addition. So this basically a number of hiring would be this plus whatever people have left us. So this is something which is again unprecedented and a very strong -- and these are [ entirely ] that people are talking about, job losses and our problems inflicted by COVID, but we are seeing a great opportunity, and we have been able to hire good quality people as well. So we invest in branding also around with that, and our campaigns are there that maybe as a regional channel. So when you look at our last quarter results, there are 2 things that I would like to bring to your notice. One is that our operating cost obviously has gone up significantly. On a year-on-year comparison, it has gone up by almost [INR 90, INR 94 crores.]Significant part of it is the new people that we hired, like 6,000 people added since last year and also salary increases that have taken place during this time period. But all above that, also the branch setup costs and the new branch initial costs. And other than that, we also invested very aggressively in technology.Liquidity. As you have seen that we almost increased our cash on the balance sheet by INR 1,800 crores, liquidity is up by almost INR 2,000 crores. That obviously has a negative carry in the cost, and there is a slight adapting impact on our NII or the net interest income. But this is a small cost to pay to make sure that liquidity is comfortable, and we are prepared for growth. But broadly, we've been able to maintain our margins in ROE. And with this, I hand over to Rajesh and I'll come back for the Q&A session later. Thank you.
Thank you, Mr. Jain. I'll just take all of you through financial highlights for the quarter. So IIFL Finance's profit after tax was INR 292 crores in quarter 2 FY '22, up 37% year-on-year and 10% quarter-on-quarter, driven by volume growth and lower credit costs. We recorded pre-provision operating profit at INR 582 crores during the quarter. We have significantly expanded our distribution network by adding approximately 350 branches and 4,000 employees during the current financial year.Our loan AUM grew by 8% year-on-year and 3% quarter-on-quarter to INR 44,249 crores. Our core segments grew at 15% year-on-year to INR 40,851 crores. The CRE portfolio has reduced in line with our retail strategy. 94% of our loans are now retail compared to 89% as of September 2020. 69% of our retail loans are PSL compliant, excluding gold loans, which are not classified as PSL loans as per RBI. The large share of retail and PSL-compliant loans are of significant value where we can sell down these loans to raise long-term resources. In line with our capital optimizing strategy, 35% of our AUM is assigned to securitized as of September 2021.Accordingly, our non-fund base income comprised 37% of the total income for the quarter, up from 32% during the corresponding quarter in the previous year. During the quarter, we also tied up with Central Bank of India, Punjab National Bank, DCB Bank and Shivalik Small Finance Bank for colending of gold loans, home loans and secured business loans. Our cost-to-income ratio rose marginally to 40% due to expansion in our physical and digital footprint. Annualized return on equity for the quarter stood at 20.5%, driven by an annualized return on asset of 2.8%.Capital adequacy ratio was 25.9% and Tier 1 stood at 18.3%. They are well above the statutory requirement of 10% and 15%, respectively. Total capital adequacy ratio of home finance was at 30.7% and micro finance stood at 21.9%, respectively. Our average cost of borrowing declined 33 basis points year-on-year to 8.7%. Our GNPA stands at 2.3% and NNPA at 1.1% as of the quarter end. Collection efficiency has improved significantly -- impact of the second wave has been much milder as compared to the same in the first wave.As per Ind AS accounting, provision coverage of NPAs stood at 175%. During the quarter, IIFL Finance and IIFL Home Finance's long-term credit rating from both ICRA and CARE upgraded from a AA outlook negative to AA outlook stable. The credit rating from CRISIL was already at a AA outlook stable. IIFL Samasta Finance Limited long-term credit rating also got upgraded from CRISIL A+ outlook stable to AA minus outlook stable. And from ICRA from A to A plus outlook stable.During the quarter, we raised INR 3,717 crores through term loans and refinance. And in addition, loans of INR 3,655 crores were securitized or assigned during the quarter. Our cash and cash equivalents and committed credit lines from banks and institutions -- that is, total liquidity -- was INR 6,379 crores as of September 30, 2021. We have a positive ALM, whereby inflows cover or exceed expected outflows across all buckets. Additionally, we raised INR 843 crores by way of public issue of long-term secured bonds in the month of October 2021. IIFL Home Finance had also had a subordinated debt public issue and it raised INR 656 crores in the month of July.Now for some digital updates. We continue to focus on digitization and analytics to improve customer experience and enable a convenient one-stop shop for customers' credit and investment needs. We are the first NBFC in the country to launch end-to-end instant unsecured business loan journey on WhatsApp derived from customer onboarding to disbursement. Within 10 days of launch, we have disbursed over INR 4.5 crores under this initiative. Our investment in digital innovation has started giving results. Till date, we have also disbursed INR 43 crores of unsecured business loans via MyMoney app. We also went live on the account aggregator model to help customers and better underwrite small enterprises securely. For home loans, we integrated with WhatsApp for better customer engagement on post-disbursal customer queries. And the gold loans, we launched a co-branded prepaid card with ICICI Bank. We have also tied up with Google Pay for lead generation during the quarter. IIFL loans app continues to be increasingly used for various transactions by customers. We have almost 2 lakh average monthly active users on the app for the month of June.And that brings an end to the update. We can now open the floor for any questions, please. Thank you.
[Operator Instructions] The first question is from the line of Yash Agarwal from JM Financial Service.
Congrats on a good set of numbers. A few questions from my side. In your assigned book and securitized book, what percentage credit risk is basically -- is left on our balance sheet or the whole credit risk lies on the bank's balance sheet?
So in case of assigned book, the whole credit risk lies in the bank's balance sheet. In case of securitized book, there is typically 5% to 7% of credit enhancement given by way of bank fixed deposits. So that was a credit risk lies on our books because bank is different to that if your losses are more than what were agreed upon.
Got it. Got it. So the assigned book completely, it's on the bank's balance sheet, right?
That's right. And securitized are largely limited to the bank [indiscernible] that we've given it to them for a guarantee. So it is typically about 5% or 10% of the portfolio.
Sure, sir. Also I was just looking at the standalone and consol numbers. So I believe we did a stand-alone profit before tax of INR 240 crores, INR 244 crores. IIFL Home Finance, I think, as per the paper disclosures, did INR 197 crores. So if I add that, that's about INR 440 crores profit before tax. So where did we lose the INR 70 crores? Did we lose it in Samasta microfinance completely?
What happens here is that there is that the securitization is done through a trust. And that actually when the trust closes that money gets transferred as an assignment income, and that is where it is -- so actually, there is 1 trust of securitization that we closed in the last quarter. And I think that is an adjustment that has come.
Got it. So the whole INR 70 crores is not ...
We what is happening is that we have done this actually one off transactions where the bond issuer [indiscernible] and this is complicated transaction, which has been done about 2, 3 years back. We have wounded down now, and we have closed the trust.
Got it. Got it. Okay.
But that's the only contra entry because that income gets recorded here.
Sure, sure. I understood. I understood. Got it. Got it. And my last question is in terms of incremental disbursements, what is the run rate currently? And what sort of loan growth incrementally are we looking at for the rest of the financial year?
So if you look at disbursement, then last quarter, gold loan, we did about INR 5,000 crores disbursement, but there are quite a few prepayments also. So the loan growth book was [ about ] 2%, 3%. I think this part will accelerate. In case of home loan, we did disbursement of about INR 1,600 crores, which I think will grow significantly in this quarter again. The peak in the last year was about close to INR 1,800 crores. I think we should be near peak across that. Business loan is completely mostly digital now, and there also our disbursements were INR 500-odd crores in last quarter. That should also grow well. Microfinance also disbursement in the Q1 at as sort of hit trough but now they recovered from almost around INR 236 crores to INR 1,070, a 4x growth in disbursement in microfinance in the last quarter. And that momentum seems to be continuing.
So can we see like a 10% to 12% growth for the residual part of the year?
Yes, easily. I think the loan growth -- the loan book will grow by that much in the next 6 months for sure.
The next question is from the line of Saptarshee Chatterjee from Centrum Portfolio Management.
Sir, my question is on the business loans. If I see the Stage 2 assets, it has come around INR 1,000 crores last quarter to around INR 1,500 crores. And provision coverage is close to around 9%. So I just wanted to understand how comfortable we are on this business loans part. And secondly, on our overall asset quality, is it like the peaks have been there and now going forward, slippages are going to come down? Just wanted to know your views.
So in business loans Stage 2 has gone up marginally. It's INR 1,152 crores now compared to INR 1,059 last quarter. Hello?
Yes, yes, Yes. And the PCR on that book, how comfortable you are?
The provision coverage is quite comfortable. I think we have been providing aggressively for the likely losses or whatever. So if you see our restructuring [ issue, ] and we have taken a significant provision this quarter also. And actually, business loans are impacted by the economic activity. So what has happened is the first quarter, if you know, I mean, you remember that April, May was almost completely shut down. And then those people in the -- after 3 months, they become or after 2 months we get into Stage 2, Stage 3, but things are now recovering. So as we speak, I think we should see a very strong recovery in the next 6 months in the business loans segment.
Okay. Good. And in the gold loan segment, we see that the ticket size, I think, has increased around 50,000, 55,000 to close to around 70,000.
Yes. So 50,000, 55,000 last year, but last quarter was around 65,000. So with the gold prices going up, our ticket size has increased across the industry and also yield has followed a little bit because we are also now focusing on a little larger value -- a customer from a higher income bracket. But when you say 59,000, that is last year's average. But if you see last quarter, it was close to 65, it's gone up about 65, 67. So it's gone up marginally from there.
So incrementally, generally, also we are focusing even on the larger ticket size clients also for gold loans, right?
See as the gold prices for the last 2 years have gone up. So for the same gold we probably get a little more money also. And incrementally, you're right that as we become -- the new branches and the customer segment is also improving a little bit.
And any guidance you want to put for next 2, 3 years on the credit cost side, sir?
No, it's difficult to put any guidance on that because we -- but under the circumstances, if you see economy improves, then your credit cost and loan loss provisions should go down. The similar thing that we spoke about, say, in the first quarter, but nobody in Jan, Feb. But nobody knew at that point in time that in April, May wave 2 would be so brutal and so quick. So that, again, impacted our first quarter performance and the [ GMP ] we're trending in now. So unless there's something unforeseen like COVID or anything else, things will improve significantly.
Congratulations on good set of numbers.
Thank you.
[Operator Instructions] The next question is from the line from Chirag Sureka, from DSP Mutual Fund.
This is Vivek Ramakrishnan. Congratulations on a solid performance. I was looking at the collection efficiency numbers and I noticed that microfinance has in fact, actually done really well despite the fact that across the industry, it doesn't seem to have done well. So just wanted to know, is there any segment which has performed very well for you, which is contrary to the industry? And just completing the question in terms of SME business loans, even there you've shown a strong pickup in collection efficiency and you are optimistic. I just wanted to know, given the state where things are, there are some businesses that have completely shut down. Are your customers in good shape? And do you expect this 94% to go up in the next quarter?
They are good questions. So collection efficiency basically includes the billing for the month and the overdue amount as well. So supposing that last quarter and we had a 30-day overdue, 60-day overdue will also become part of the money to be connected. And there, the money connected will be accounted as that, and therefore, you see collection efficiency being higher. But even then the GNPAs are trending up a little bit. But in micro finance, I just want to clarify 1 thing, which is very important. We restructured a significant amount of our portfolio. So almost 38% of our microfinance portfolio is restructured and customers have been given more time.Now there's a call that one has to take that it is not to save GNPA primarily, but more to make sure that -- these are small customers. Imagine micro finance customers are taking INR 25,000 crores in loans, and they are depending on small activities on the value. And when April, May things are completely shut down, obviously, they will be impacted. Now you can declare them GNPA, their credit score goes down, they find it difficult to borrow again, and you also have a problem. So we took a conscious call. And if you noted last quarter, we restructured INR 200 crores of microfinance portfolio. And this quarter, we again restructured INR 176 crores of portfolio. But unlike large ticket or other restructuring, here, the customers are given 3 to 6 months moratorium. And then we expect them to start paying from next quarter. So microfinance industry across has been impacted. But the only thing is that whether you give restructuring and more time to customers or not is a conscious call that every company can take differently.
Okay. Okay, sir. Sir, then 1 follow-up question. 3 to 6 months, you don't even collect interest is it? Or do you collect any interest or anything because people will be going to the collection centers and so on, right, to keep in touch with the customer?
Yes, it is collected. And this is capitalized. This is also not collected. They also collect it after the moratorium. [indiscernible] The income activity, income generating activity is completely disrupted -- what happened in April and May, then we don't expect them to have any cash flow to pay the existing. So we are restructuring, giving them more time.
Absolutely. So you're just saying with the opening up, they'll bounce back. That's pretty much what you're saying, right?
Yes. So what happens is that the installments remain the same, they are given more time. So what we think is that -- and this is our last year also, last year after the COVID wave in August, September when things became normal, most of these people, they basically came back and they started becoming good customers. So there's no point -- so what we thought is that rather than beginning the GNPA, that we will do restructuring. And our restructuring microfinance is relatively significant.
The next question is from the line of Deepak Poddar from Sapphire Capital Partners. Deepak, May I request you to speak a little louder, please?
It's better now?
Yes.
I was just reading about IIFL Finance now on their colending pact to more than double its loan book in next 3 years to about 1 lakh crores. So can you throw some more light on it? And what sort of metrics we are looking at maybe in 3 years in terms of ROA and credit cost? So that would be quite helpful.
So I think 3 years time doubling is about 25% compounded growth broadly and that is what we are looking at. In terms of ROA, I think we'll maintain our current levels and our ROA can improve slightly. We should -- as the competition becomes intense, there can be slight pressure on the yield. There can be upward pressure on cost of fund also. We should be able to make it up by better cost-to-income ratio as we established our expansion plan and those new brands has become productive. So there are so many divergent factors which should be at play. But broadly speaking, I think we should be able to maintain and slightly improve our return ratios.
Okay. So you said maintain or maybe 2.5%, 3% is the range we are looking at in terms of ROA?
I think return assets should be around 2.5%. So I mean it's been 2.7% in the first half, but broadly say around 2.5% to 2.7% is a good number to look at. Sorry?
No, no, sorry, sir, please continue, sir.
And return on equity of about 20%. That is what our targets are internally.
So even at a scale of maybe INR 90,000 crores kind of AUM, we are still looking at ROA maybe 2.5% to 2.7% range, right?
Yes, because our product mix will remain similar and so our ROA should remain at those level but may improve a little bit. But as I said, that, it is very difficult to make any forward-looking statement because there are so many divergent forces at play.
Absolutely, absolutely. That's quite fair. And sir, secondly, you did mention that the second half 10% to 12% loan book growth is one, one can envisage. So that effectively will mean that this year, our AUM will grow by only 10% to 11%, right?
Our AUM will grow by 10% to 12% this year, yes, you are right, broadly maybe in the next 6 months because the first half, there hasn't been any growth as that. We should look at our core segments, say if we look at last 5 years, our total loan AUM has grown at a CAGR of 16%, but the core segment or the product that we really want to grow and we have to focus on from future, that CAGR has been 22%. So the next 6 months, I think will be 10% to 12% AUM growth is a good number to look at.
Understood. And sir, just the last query on the credit cost, you did mention in the last quarter conference call that the last quarter credit cost would be a good benchmark, like 2%, 2.1% like for the rest of the -- do we still maintain that?
So actually, this quarter, again, we are little bit hit by the rollover of the lockdown in the first quarter. Hopefully, we should be to maintain that and improve it [indiscernible] period cost.Right now, if you see, our provisions loan book is around 2.5% in the second quarter, which was around 2.2% in the half -- full half, [ we did in the period. ] I think, yes, we should be able to maintain in that range and we should be able to improve actually, our internal target to bring it down further. Historically, before COVID, the credit cost for 10 years would have averaged around 1% or a little bit less than that.I think in a steady state scenario, once out of everything, the impact of moratorium restructuring [ at least this year, ] then we should be back to those levels. It might take another 2, 3 quarters at least.
Steady state 1%, right, in 2 to 3 quarters?
Yes, but I think to reach steady state will be still some time away.
[Operator Instructions] The next question is from the line of [ Navneet Bahia ], an individual investor.
Congratulations for your results. I have 2, 3 questions. First one is on Slide 22. There's a provision release of INR 173 crores. I just wanted to understand how is this accounted for? Is it included in your operating profits?
It is included in, sorry?
In your operating profit, sir?
No. Basically, it gets adjusted. So there is a provision and the write-off -- basically, we get into the not the profit, but whatever we call it, but it can be a write-off and so write-off obviously will not get into the profit. So that basically includes write-off as well as recovery. Basically, that is profit. But this is a cycle actually. You keep providing some part of that which is recovered more than what you have provided for.
Sir, just to understand it correctly, in your P&L, you provided for INR 210 crores.
That's right.
In Slide 22, you've written INR 210 crores is the provision and release is INR 173 crores. So the net increase is INR 37 crores. So I just wanted to understand...
There are many assets which reached a very high level of provision, then it's better we write them off, but our right to recovery can reduce. So that is how the book is being done.
I absolutely understand that when you recover, it's good. But how is it treated in your P&L? Is your...
P&L gets INR 210 crore hit. The [Indiscernible] get into the balance sheet actually. So the provision carry forward is INR 1,347.
So the INR 173 crores is not included in your PPT, if I understood it correctly.
No. It's not included in PPT.
Perfect. That's my question. Second, sir, on your cost-to-income ratio with your increased focus on digitization and your investments over there. How do you see your cost-to-income ratio, which is a 39% right now, trending over, say,the medium term? What's your aim to take it into?
So we have set up 350 branches in the last 6 months and maybe 230 branches in last quarter alone and added almost 4,000 in [ about 6 ] months. Now we have further branch expansions planned. This is a slowdown in terms of quarter-over-quarter, but -- and earlier branches are being productive. So you see that in the longer term, we should be able to be around 33% to 35% as cost to income ratio on a steady-state basis.
Okay. So with increased digitization, let's say, over the next 3, 4 years, the lower end of 30s is what we would aim to get to?
Absolutely. Firstly, we'll stop the branch expansion when the branches start becoming productive, then the cost to income ratio goes down.
But if we keep seeing growth, you'll always want to keep expanding your branches, right? That would be a continuous activity?
Growth has been particularly faster in last quarter and last, a lot of things in pipeline, so we are just continuing. But yes, some bit of expansion will continue, but it's just relatively [indiscernible] organic growth.
Understand, sir. And sir, my last question is on your GNPA ratios, while your collections and everything has improved across your various verticals quite drastically, but your GNPA ratios have moved up over last quarter overall as well as within the various divisions. So I just wanted to understand why would that happen?
As I said that, okay, the collection [ addition ] basically amount collected would also include the 30-day, 60-day and all the overdues. And it has inched up a little bit, maybe a more increase in microfinance has gone up from 1.8% to 2.4%. As we discussed that microfinance has been 1 industry that has been more seriously impacted by this, followed by [Indiscernible] unsecured portion.So [indiscernible] it happened because of 2, 3 reasons. One is that last year's restructured cases or moratorium cases would go out of [ midterm ] in the last quarter. And of course, the collection will happen there also, but they can be slight few basis points decrease because of that. Then the second wave in fact will hit you after 90 days because people who got disrupted in April, May they're shut down. They start within the installment and 3 months later then becomes GNPA. So these are the factors.
Understand. So if nothing happens over the next 3, 4 ,5 months, this should again stabilize or maybe even reduce over the next couple of quarters, right, if I understood correctly?
Exactly. That's how it should happen. So nothing, no surprises in terms of COVID or anything else or disruption in the economy, then obviously this should come down.
[Operator Instructions] The next question is from the line of Mudita from Abakkus Asset Managers.
Just 1 question. Sir, what would be the quantum of business that would we expect from these branches? And what would be the breakeven time for this branch?
So typically, we breakeven branches, I think, good breakeven in 6 to 9 months or maybe up to 12 months. The gold loan branches scale up for a period of time. So a mature branch may have INR 7 crores, INR 8 crores, INR 10 crores of principal outstanding. But even if they reach about, say, around INR 2 crores or so, which is in less than year, then at least on the year they start breaking even. And I mean at the unit level it's about allocating the actual cost. So our endeavor is to make them breakeven in less than a year's time. But 9 to 12 months is what we can take us up good benchmark for their breakeven.
Next question is from the line of Amit from 2point2 Capital Advisors.
So on the new branches, you've added almost 300-plus branches in the first half. So going forward, what's the plan on branch expansion?
So we -- as we said about a couple of quarters ago, in March, we got approval from RBI. So our plan is to set up probably 700 new branches. And I think almost half of it we have done, 350, 360 are done. So maybe next 2, 3 quarters we'll set up another 300 to 400 branches, 350 branches or whatever.
And of this 350 branches that we have set up already, how many of them are also gold loan branches and omni or microfinance focused branches?
So around 250 would be gold loan and 100 branches from micro finance.
Okay. Okay. And if you look at your gold loan growth at least in the last few quarters, so while the branch expansion has been fairly strong, the gold loan growth has not been that strong. So in fact, the per branch gold loan AUM has been coming down. So what's the thought on where this number should stabilize?
So first quarter was disrupted. In the last quarter, we saw that many people were waiting for that or the sort of prepayments and also the pickup has been -- so the new branches will start delivering over a period of time. And last quarter, I think there were some actions of the old cases as well as some of the prepayment of some of the loans. And I think the new branch contribution we have not seen yet. But as we go along, that will happen over a period. It's a slow process. It will happen over a period of time quarter-to-quarter.So last quarter, I think, it grew gold loan book by 3%, but that also despite options and prepayments, which are all pending for a long time with our customers are waiting and they got it done. So hopefully, that growth that we talked about, which is about 10%, 12% over 6 months is what we should look at.
Okay. And can you -- what are the quantum of auctions that have happened in Q2?
They happened at local level, actually at district level. I won't have the number right now, but we can just file it out. Around INR 500 crores.
INR 500 crores, okay.
The next question is from the line of Tejas Mehta from Omkara Capital.
A few questions. Number one. You raised a lot of liquidity in the second quarter, which is lying on the balance sheet. What will be -- what's the reason for raising so much liquidity? Is it to make sure that the balance sheet remains pretty liquid and solvent? Or are you seeing a lot of growth coming in the second half?
Actually last quarter, see, what has happened is that in the last 2, 3 years, there will be a liquidity start and people are getting -- and last quarter, actually, many applications, which are pending with banks, they started clearing it and you don't want to say no. One, secondly, we thought that we had set up so many new branches and even if there's a little bit of negative carry in cost to pay, you should feel comfortable even if slight accident in the economy or system, you shouldn't worry about it. So that is how we have boosted our liquidity reserves.
Got it. And what's the cost at which the liquidity has come out to? What was the cost of liability?
8.5%, 9% depending on the tenor.
It's more or less similar to the cost of...
What we get is about 2.5%, 3% of bank fixed deposits are liquid funds. So it's almost about 5%, 6% negative carry on annualized basis on the excess liquidity that we have. But what it does is that it gives you peace of mind in the sense that you have to expand. You don't have to hold back branches that [ don't know ] that the liquidity is tight so go slow kind of a thing. You have to make sure that for the next 6 months, you shouldn't worry about growth. That is what the thought was.
Right, right, correct. And so on gold loans, what's the kind of tonnage that we hold against the loans that we have on the book?
What is the kind of?
The tonnage, the tonnage of the gold.
Tonnage gold, I'll give you the tonnage of gold actually, 1 second.
42.
42 tonnes of gold is there in our vault.
Got it. And the other question, it's quite intriguing that your gold book is very well spread between South, North and West versus the traditional gold loan players, which are largely south focused more or less. What sort of pockets are you identifying in these new geographies that is helping us to spread our wings so fast in these new geographies? As in the behavior of the customer or anything that you would like to highlight here.
So relatively, we are underpenetrated in the south. And secondly, we do a lot of research and the data analytics team and our fintech that also works is on identifying the areas, which are bottom up from the district to small town to villages, based on -- so we do a lot of modeling on that. Based on our historical experience, the current loan book of various products, whatever data we get. And the pattern of growth over next 2 to 3 years. So I think it's a process. So that team works on identifying locations for growth.
Okay. Okay. All right. And 1 more question on...
We can target to breakeven quicker. So if you breakeven 6 to 12 months, that's really, to my mind, a very good achievement.
Yes. Because to operate -- operationally gold is a very tough business generally to do. You need a vault in almost every branch that you're operating and then ability of separating the true gold from fake jewelry or many times, we have heard of robberies, stuff like that. So there are a lot of [ allergies ] in this business and spreading into new geographies, which are -- which may not be as tried and tested can have business challenges later down the line. So just trying to understand what sort of risk management in place do we have so that we don't have a very major accident.
So we have a lot of internal system process security. Many times, the most of the branches that we are newly setting up are also in the vicinity of branches that we have. So because we already have spread all over the country. So we have some understanding of geographical areas. So we are going based on that knowledge and understanding. So we are not lending into any geography that is completely alien to us.
Right. Okay. Okay. Got it. And just a last question on your strategy to reach INR 1 lakh crores, right. So is it going to be like a bank relationship driven core lending? What kind of sell downs are you looking to do? How will you manage capital to grow so fast over the next few years? If you can just throw some light on that.
So I think what you are saying is, right, that the bank co-lending model will be one of the key drivers for our growth. And so we have -- as we said, the branches are core to our strategy because the businesses that we do, they require physical presence and particularly the storage of gold. And banks are also looking for retail assets, particularly those that are backed by high-quality collateral like home loan or gold loan or those are surprising sectors and meet the social objectives. So we are working on that strategy, and I think our growth will be given by that.
Got it. Any bank tie ups that you would like to highlight for this strategy?
No. So I think we tied up with many times and Central Bank of India, ICICI Bank, Standard Chartered, even DCB and all these new banks that are starting -- Punjab National Bank -- that will be very exciting.
So basically, you originate and then just answer the loan to the banks and you basically get a cut over the period of the loan is exactly the strategy?
Yes, strategy, but the way it was is that you sit down with the bank, goes through the credit policies. They also -- and then originate the loans that are in line with their credit policies because they will be [indiscernible] 80% of their books. Then you set up the workflow and you set up the process, then check them. Then you integrate the system, then you test it, pilot testing and then you scale up over a period of time.
So today, we have about 35% of our loans as securitized and assignment. When you hit a number of INR 90,000 crores to 1 lakh crore, what sort of number are you looking at given that co-lending will be a key strategy?
50% of total book, [ all ] parts.
[Operator Instructions] Next question is from the line of Tejas Mehta from Omkara Capital.
Just a couple of more questions. One is on the residual book of commercial real estate that we have. What's the strategy over there now? Are we looking to grow that book again? Or we will continue to run it down?
So no, we don't want to grow that book. So what happens in CRE book, there are very clear -- there are 2 types of loans that happen. One is loan between -- banks do which is construction finance, where the money is given only for the purpose of construction and not any other purpose like a land purchase or against the control of land for takeout for other projects or whatever. There is not many NBFCs doing that, [ so we get some land ] and we have stopped completely. But having said that, when you see this portfolio, then there are some projects which are synergistic or strategically good for our home loan business. [ Mostly we are online ]. Yes, maybe you can talk about that strategy, that's how do we -- you look at CRE portfolio growing from here, what kind of loans we would like to take.
Yes. So hereon, we would -- as you know, in home loans, we are in the affordable category. So we would like to do construction pure-play construction finance with all the approvals are in place, they are adjusted, which will complement our retail strategy. So these would be typical where you can expect 70% to 80% inventory would have -- inventory of below INR 75 lakhs. And this has a great potential to grow and that will supplement our retail loan growth as well. So these are the kind of loans we would like to do going forward.
But essentially the book will remain small because large ticket loans will not be done. And obviously, this book will become relatively much less riskier because in your financing construction [ affordable, ] you really don't [ have ] too much of credit-related risks. As a percentage, I think [indiscernible] will be to bring it down to less than 5%.
Got it. And sir, more light on the home -- yes, more light on the home loan book, as in can you just throw some light on the profile of the customers, the salaried versus self employed. You have given the breakup of self employed of 39%, salaried 61%. Can we look at your book as more closer to some competitors, like say [indiscernible]?
The question is that out of salaried, how many are informal salaried and formal salaried or what kind of -- [ Rajesh, ] you want to talk about it?
Yes, sure, sure. So as you can see, our average ticket size is about INR 17 to INR 18 lakhs. Yes, it is -- you are very right when you say it's a bit akin to something like a kind of [indiscernible] kind-of portfolio. It's very similar to that. And these would be the sense of people where people are buying properties, typically ranging from, say, INR 15 lakhs to anything above INR 35 lakhs to INR 40 lakhs. So the people from the salaried side would be people who will be working in the blue-collar jobs or the ones who are working in the retail setups, which are there and where we -- fair amount of our portfolio has a documented income coming because that's how the whole economy has grown. So yes, this is very much akin to a [indiscernible] kind of a profile.And we also stress a lot on the CLSS subsidy. So far, we've been able to give subsidy to nearly 50,000 people worth INR 1,200 crores. So these are people who are buying first time homes, and they're also fairly eligible for the subsidy as well. So that's the kind of a segment we operate in home loans.
So you will typically be operating on the outskirts of large cities, is it?
Absolutely, yes. Very true.
Got it. And if you can take me through the ROA breakup for home loan book if that is possible?
It should -- may be off the cuff not there. But yes, as the home loan is concerned, the ROAs, typically, we are able to garner somewhere around 1.5, around kind of 1.5 to 1.7 kind of an ROA for a stand-alone home loan book.
And the leverage on the book would be about 12 lakhs or 11 lakhs, 12 lakhs. The assets to equity leverage will be about 11 lakhs to 12 lakhs?
No, no, no. We are at about 6, 5 to 6.
But then we also assign. So ROE multiplication will be not only from leverage, but also from the securitized and assigned assets.
Yes, correct, correct.
30%, 32% is the side book.
30%, 32% of same book, okay. And your ROEs would be what range then in that scenario?
ROE is about 20% of loan also separately.
Yes.
Okay. So you maintain an ROE profile similar in most of the segments essentially ?
Yes.
Yes.
Micro finance last 2 quarters we were badly impacted. So -- but other than that, we maintain that -- our target is to have ROE of 20% plus.
Right. And so 1 more question on the asset quality side. You mentioned that, as in the presentation mentioned INR 770 crores is gross NPA and then another about INR 1,290-odd crores is your restructured book. So if you add the 2, it's about close to 7% of the loans, which are basically stressed while you have mentioned that you have made almost a full provision on the entire fees. What sort of recovery do you see in the do you see in India? So far, do you see more slippage -- chances of more slippage in the second half?
So I think all indicators are that recovery should be better than the slippages. And as against INR 768 crores of GNPA provision of 13.7, the restructured book is less than 4%. So I think we are fairly covered and the recovery is now should still [ have ] been passing through a long period and things have been bad or things have been uncertain, volatile. Hopefully, in the next few quarters will be more stable and recovery, then I think our recovery should be very strong compared to industry peers.
Yes. My concern is more to do something like a gold loan book or a microfinance book where usually the recovering is delayed by a couple of quarters, then it's more or less a write-off situation for those loans, and if you give a moratorium and everything, it still becomes very tedious and tough.
If you go by last year's experience and things recover, this was not the case, maybe there are exceptional cases. So in a normal circumstance people have not paid for a quarter, obviously it will be difficult to recover, but people have not paid because of disruption caused by COVID, which is very clear and visible then obviously, things are different. In case of gold loan, what happens is that you have gold. So you can auction and recover the money. So your loss default is almost negligible or 0.
How much gold would we have sold in the last quarter and the first half?
So we said it's about INR 500 crores.
You sold about INR 500 crores, okay.
Because these are pent-up and pending for a long time. So I think last quarter was about INR 500 crores.
[Operator Instructions] As there are no further questions, I will now hand the conference over to the management for closing comments.
So thank you all the participants. And I also take the opportunity to wish all of you, your families and loved ones a very, very Happy Diwali and a safe Diwali and a very prosperous new year ahead. Thank you so much. And if there are any more questions or queries, you can always be in touch with our Investor Relations or our finance department. Thank you so much, and have a good day.
Thank you very much. On behalf of IIFL Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.