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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, ladies and gentlemen, and welcome to the Q2 FY '3 Earnings Conference Call of IIFL Finance Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Rajesh Rajak, Chief Financial Officer. Thank you, and over to you, sir.
Good day, everyone. I'm Rajesh Rajak, Chief Financial Officer. Thank you all for joining us on this call. On behalf of the entire team at IIFL Finance, I would like to extend best wishes for Diwali and a very prosperous new year ahead to all of you. On this call, I'm accompanied by Mr. Nirmal Jain, our Managing Director; Mr. Monu Ratra, CEO of IIFL Home Finance; Mr. Venkatesh N, CEO at IIFL Samasta Finance; and Mr. Kapish Jain, Deputy CFO and Head Investor Relations. I'll hand over to our Managing Director, Mr. Nirmal Jain, to comment on the economy and the group's overall strategy and plans. Over to you, sir.
Thank you, Rajesh. And I think all of you had a good Diwali. And I wish you and your family and loved ones a very healthy somewhat new year. So to begin with I think India's metal [indiscernible] fundamentals are very strong. India stands out as the bright spot in a gloomy world. I mean this is where investors can expect visibility of earnings growth, political and economic stability, favorable demographics. And something that is not talked about much is the fact that India leapfrog the rest of the world to build the best-in-class digital infrastructure for 1 billion people to ride on.
And the sector that is most impacted and is crucial for economic growth is [indiscernible]. India has come a long way on the agenda of financial inclusion, still finance and credit [indiscernible] 7 billion. All the banks large network still is not able to reach out to all needy borrowers. And there's a growing realization among the policymakers that banks and NBFCs have to work together to achieve the goals of financial inclusion quicker. And fintechs have a role to play as well.
But there are thousands of fintechs that have mushroomed all over. So there's no winner that there'll be a high mortality there. RBI [indiscernible] reported guidelines to [indiscernible] systemic issues by unbilled credit products from nonregulated entities. In fact, RBI's timely intervention is the biggest shot in the arm for fintech industry. And the orderly growth of fintech will facilitate breakthrough innovations and solutions for credit to the masses.
And our PM said it very rightly a few days ago that fintech will lead to financial revolution. Coming to IIFL Finance, I think we are in the sweet spot to seize the opportunity and participate meaningfully in India's financial inclusion drive. Besides in-house team driving digital innovation and innovative solutions, we have brand, balance sheet and branches. I believe that we are the cusp of [ anticipated ] growth opportunity, and we augment our organic effort to acquire new customers through partnerships such as open money and very recently just money to reach out to the underserved customers and access their data with consent for instant growth.
We continue to look for alliances and innovative partners. And for balance sheet, we continue to partner with banks through core lending and direct assignment. Last quarter, our core lending book grew 22% quarter-on-quarter. This quarter, I think is a watershed quarter in my opinion because our depreciative strategy of [indiscernible] on one hand and the partnership on the other hand is getting vindicated by the performance and perceptible potential. Our vision is to be the most respected loan bank in India, our innovation with quality growth, customer centricity and not only meeting but exceeding all the stakeholders' expectations.
So last quarter, we achieved a healthy profit growth, but more importantly, we also improved our asset quality. And we reduced our gearing further. And this quarter, we have taken the standards even higher. We have added a section with business and financial details of all group entities, namely the holding company, the NBFC IIFL, the housing finance company and the micro finance company as well separately and [ we continue to show ] how they are consolidated in the reported numbers. So thank you. With this I hand over [indiscernible] who is our Head of Investor Relations.
Okay. A brief highlight...
Rajesh will continue -- Rajesh Rajak is continuing.
Our IIFL Finance's profit after tax, free noncontrolling interest for the quarter was the highest ever at INR 397 crores, which is up 36% up on a year-on-year basis and 20% up quarter-on-quarter. This was driven largely by volume growth and lower credit costs. We recorded pre-provision operating profit of INR 685 crores during the quarter, which is again up to 23% up on a year-on-year basis and 2% quarter-on-quarter. Loan AUM grew by 25% year-on-year and 5% quarter-on-quarter to INR 55,302 crores.
Our core products grew faster at 28% year-on-year and 5% quarter-on-quarter to INR 52,221 crores driven mainly by home loan, gold loan and microfinance loans. Our noncore loan AUM, primarily construction and real estate financing shrank by 9% year-on-year in line with our strategy. 95% of our loans are retail in nature and 69% of our retail loans are PSL compliant, which is excluding gold loans, which are not classified as PSL loans under extant RBI regulations. The large share of retail and PSL-compliant loans are of significant value in the current environment where we can sell down these loans in today's long-term [ distances ].
In line with the capital optimizing strategy, 39% of our AUM is either assigned securitized or under coal ending as of September 2022, which is up from 35% during the same period last year. During the quarter, IIFL Finance tied up with South Indian Bank and [indiscernible] Bank for core lending of gold loans and Indian bank for business loans. During the half year, we added over 450 branches and over 4,000 employees. As a result, cost-to-income ratio has increased to 43% from 40% last year, but this paves the way for accelerated growth in the future.
Annualized return on equity for the quarter just ended as is at 20.4% and the annualized ROA is at 3.4%. Our capital adequacy ratio is at 21.7%, which is well above the [ statutory ] requirement of 15%. As a result of the improved credit profile of the company, our quarterly average cost of borrowing declined 3 basis points quarter and from 29 basis points year-on-year to 8.4%. Gross NPA stood at 2.4% and net at 1.2% as at September, which is down from 2.6% and 1.6% (sic) [1.5%], respectively, from the previous quarter. Our provision coverage on NPAs is now 147%, which is up from 137% in the previous quarter.
Earnings per share for the quarter, not annualized, stood at INR 10 per share, which is up 30% on a year-on-year basis, in line with the increase in profit. And book value per share is at INR 215.2, which is up 41% year-on-year. A brief update on liquidity. [indiscernible] we raised approximately INR 3,800 crores in debt. And in addition, we assigned loans worth INR 3,500 crore during the quarter. Our cash and cash equivalents and committed credit lines from banks and institutions of INR 8,191 crores were available as at the quarter end adequate to meet not only the near-term liabilities, but also to fund the growth momentum.
We have a positive ALM, whereby include cover or exceed expected outflows across all buckets. Our net debt-to-equity ratio is at 3.1x, which is down from 5x as of September '21. IIFL Home Finance, a subsidiary, received INR 2,200 crores from Adia in August 2022, thereby boosting the net worth of IIFL Home Finance by more than 80%. This will help the company consolidate its competitive position in the affordable housing finance market in India, which has tremendous long-term growth potential.
This also gives us 1 quarter to tap the growth opportunity in the housing segment. With affordability index at a decade high, we believe that [ we can generate it will be delete customer with margining up ]. The total equity of the group now stands at INR 9,480 crores. IIFL Finance has entered into a partnership with ZestMoney, which is India's leading and fastest-growing digital EMI checkout financing platform to offer credit to potentially millions of new to credit customers. Through this industry close partnership, IIFL Finance as a dedicated partner will get access to a new customer base on this norm and play a crucial role in driving financial inclusion for a large section of people in the country.
A little bit of digital updates. We continue to focus on digitization and analytics to improve customer experience and enable a convenient one-stop shop for [indiscernible] investment needs. During the previous quarters, we had mentioned about DIY, digital initiatives for disbursement to WhatsApp and My Money. More than 60,000 customers have been onboarded to date under these initiatives. During the quarter, the DIY disbursements were 352 up 36% quarter-on-quarter.
Our gold loan at home initiative, which started approximately a year ago, also saw a significant traction with disbursement increasing 118% year-on-year to INR 227 crores during the quarter. So IIFL loans app and My Money app has been increasingly used by customers for various transactions and thereby giving customers ease and convenience. We have more than [ 3,000 ] average active users, monthly active users across both these apps. With this [indiscernible] come to an end update, and we can now open the floor to questions. Thank you.
Sir, before we could go ahead, sir, there is a slight disturbance which is coming along with your voice.
Okay. Is it better now?
Yes, sir. Much better. [Operator Instructions] The first question is from the line of Harsh Shah from L&T Mutual Fund.
Just first question is on the opening remarks that Rajesh just said. You had mentioned that your overall cost of fund has gone down. Can you just explain how?
Harsh. So it's 2, 3 things which are responsible for this. Number 1 is we have bought back approximately $100 million worth of our overseas bonds and replaced them with low-cost rupee financing under [ ECB ]. So basically, we have had a gain on that. And if you remember, our second lot of buybacks, were done at a lower than part also. And increasingly, what we are seeing is our off-balance sheet funding, which is loan assignments, which was 35% last September has now become 39%.
So that also gives us significant advantage because the direct assignment because of the stronger asset comes in at a lower cost of funds. So it's really a combination of all this. Also some of the micro finance approximately a year ago got upgraded. The credit rating got upgraded from A+ to AA-, which is, I think, probably just 1 or 2 MFIs in the whole country to have that rating. So it's really a combination of all these factors that have contributed to the stable cost of funds till now in a rising rate environment.
So if I just remove the co-lending and off-book funding that you get, like I'm just referring to a PPT in which you have given [indiscernible]
As a primary thing the dollar bonds are very expensive because the full year hedge cost was about 10% actually. [indiscernible]. Was it 11%?
11%.
The dollar bond that we raised in February 2019, in the wake of liquidity crisis. So what happens is the hedging also, as we repay the dollar bond, we can remove the hedging also. So the total cost comes down significant I mean. As I said, it's like kind of cost that we can [indiscernible] even if we didn't have [indiscernible], we save money.
And Harsh, the entire bond is any ways due for maturity in April '23, we have adequate liquidity to repay that. And with that slightly higher cost borrowing going off the books, we should see more stability in the forward-looking [indiscernible]
Given in opportunity, we'll probably try and buy back the entire thing [indiscernible].
Understood. Understood, sir. And second question is, you've done some small accounting change this time. You had mentioned it in your P&L, that co-lending -- sorry, the spreads on co-lending has been now classified under nonfund based. So can you just help us understand how that works?
So, I'll -- so in case of co-lending, suppose we are [indiscernible] and banks basically their share is 9%. So then what happens that the [ accrued ] for every -- so in the quarter, supposing the total interest is 15%, the difference basically goes as a non-fund income because assets are -- okay. So on the 20% component, it will account for 15% interest in interest income. On the remaining 80% account of component what banks have the 6% for the quarter will go as nonfunded income. So when we just started, the entire thing has been taken as interest income, but now we are trying to adjust it because of the -- if you understand the underlying assumption that the -- because 80% assets are not on our books. And the risk [indiscernible]
20% will go into interest income and rest 80% spread will go into nonfund based.
All right. And now the core earning is becoming significant, it might be visible. But the remaining 80% the difference of the excess interest or our share will go as nonfund income.
Understood, sir. And just last question from my side. I mean, AUM growth, you have been quite vocal of maintaining at current run rate, plus/minus a few basis points. But considering how strong your ROA was in this quarter, do you think for the balance of at least H2, you will maintain it? Or is there also further scope of increase in this ROA?
I think we should be -- we should target to maintain it given the fact that there will be upward pressure on interest cost also and liquidity has tightened significantly in the system now.
Understood. And has there been any changes in your OpEx strategy? Because even OpEx as a percentage of asset has been inching upwards. OpEx as a percentage of total AUM.
OpEx as a percentage of total AUM has gone up because of the branch experiences that we have done are very aggressively, and that has continued through the [Audio Gap]
I'm sorry. [indiscernible]
So -- but it's now going to plateau.
Sorry to interrupt, sir we couldn't hear you. Can you please repeat your last line?
No, I'm saying that the OpEx has gone up significantly because we had a large number of new branches, almost 400, 500 new branches going -- commissioning in last quarter, the full impact of cost comes in this quarter. But going forward, it should plateau and should start coming down as we slow down the pace of branch expansion.
The next question is from the line of Sukriti Jiwarajka from [indiscernible] Capital.
Congratulations on a strong quarter. Congratulations Kapish on joining the team. My first question is on gold loans. So -- and this is one of the core business -- core segments that you highlight for growth. And while the sort of price competition that we saw last year between NBFCs has abated a little bit, you do see banks especially HDFC Bank saying that now we want to expand gold across our branches, let's say, Maharashtra we want to take gold from 1,500 branches to 3,000 branches in the next 2 years.
So this will impact. And there has been a -- we've discussed it in the past, where you say that the banks can't do gold loans like NBFCs can. But when a large bank comes and says that we want to expand consumer gold loans to so many more branches and have the gold value every day in the branch. It will impact you in one of 2 ways, either growth or the sort of the 15% to 20% yield that you earn in gold today because [indiscernible] we do it at 13%, 12%. So what do you think about that? Am I seeing this wrong? And if yes, then how would you counter that?
I think your point is valid. And that is what is seen in the gold loan business [ results of ours ] of gold loan companies as well. So if you see our growth is very modest, given the fact that we expanded our branch that was 40% in the last 18 months. But quarter-over-quarter, we have been able to manage just 4% growth. So either you compromise significantly on yield or your loan growth will be muted because of intense competition from banks. But if you look at last 10 or 12 years history and what happens at many times, we have seen this that NBFCs and fintech basically they jump in because optically, it looks like [indiscernible] very high and very attractive for a relatively 0-risk kind of business.
But typically, gold loan operating cost is maybe around for a relatively mature kind of a business of the loan AUM. So it's not that the margin or any interest rate of 16% to 18% exorbitant. But either from a bank's balance sheet, I don't know how they do accounting, but if you do it then properly people discover. Also, it's very vulnerable to fraud and robberies and many other things. But now a little -- if you go back 6 months or 12 months, then most of the banks are scrambling for retail assets and loan growth.
And that is the time probably most of the banks also jumped into this. But this is a small ticket loan item where the growth is not so rapid. I guess already what we're seeing is that many new fintechs and NBFCs that were doing the loss leading kind of price offer, like [indiscernible], which means around 6% or 7% per annum. They've already withdrawn. So I think that the sense has already started to prevail in terms of the [indiscernible] in terms of banks also. We can target the regions and geographies which are not easily accessible to the banks even now at least a new branch to focus will be on that.
It's a neighborhood business. Like supposing nobody works from [indiscernible] gold. So we will work on our strategy. And we are also working on a strategy to make sure that the cross-sell [indiscernible] increase through these customer base significantly. But your point is valid that the competition is intensified and banks are becoming very aggressive impact on the yield and the growth.
Got it. Got it. The second question is on the assignment income. Now this INR 48 crores of assignment and co-lending. Have you divided this anywhere between how much is from assignment and how much is from co-lending?
Maybe as a good point, maybe for next part of the start or maybe we'll figure out how we disclose it separately. But at this point in time, what happens is that even in the gold lending or even in assignment the -- okay, maybe we have divided into the upfronted portion, the NIM portion and then the amortization and the fee portion. So we will work on these numbers. But at this -- I mean, right now, I don't have [indiscernible].
Yes. So the declining trend is probably because a lot of the upfront is turning into amortized. I think that would be it. Correct?
Yes. Can you repeat please?
No, I'm saying there was a slight declining trend in overall income from [indiscernible].
I think the declining trend is understandable because in co-lending, we are not upfronting anything, doing interest as it is received every quarter. But in case of assignment based on India's accounting policy, you make some conservative estimate and because the fiscal opening balance in upfront. I mean basically, we end up upfronting the discounted value of the income. So as we move forward to co-lending more and more, the upfronted portion will keep reducing and the flow of interest income on our gold business will decrease.
Got it. Got it. Makes sense. Makes sense. And also the write-offs this quarter, we didn't see anywhere in the PPT. Maybe I missed [indiscernible].
Write-offs and the provision for losses, the loan losses provisions and write-offs are all together in that amount of INR 196 crores.
What is the write-off?
So we don't have any write-offs as such.
Are not significant. INR 58 crores.
So INR 58 crores is write-off in total.
Sorry. Let me confirm.
No, I think the amount is all included in the [indiscernible].
Okay. Also sir, you just mentioned to the last -- the person that came before me had this dollar offshore bonds have been replaced, which was a reason for the cost remaining where it is actually going down a little bit. How much of today's borrowings now are these dollar offshore bonds? And how much are you looking to replace over the next few quarters, years? And what sort of cost of funds advantage can we get from that?
So dollar -- there are 2 types of dollar exposure that we have, and therefore, are both [indiscernible]. So one is a dollar bond issue that we did, which is kind of a public offering kind of issue where you open -- get the bid and do that. So that was about $400 million that we did in February 2019, out of which about $100 million or maybe a little more than...
$130 million...
$130 million we already bought back. So the outstanding would be $270 million maybe [indiscernible] around $270 million is the outstanding out of that issue. And then there are [indiscernible] loans, which are -- which you really can't repay because you can buy back. See, these are the listed bonds, these $400 million that we did in Feb '19. And the listed bonds, you can try and whenever the market -- if you see the yield on all the emerging macro bonds has gone up, good quality banks also are available at a very attractive dollar yield. So this $400 million, $130 million we have bought, $270 million is still outside, which will tie the buyback if you don't that we have to repay in April 2023.
Okay. Yes. I have one more question, if I can. So I see business loans had a particularly good quarter. The growth run rate went up. NPS came down. You also provided more for this book. There was an arrangement with open last quarter. How do you -- is this something now that you would say this is in your sort of core growth segment? Because traditionally, you saw the [indiscernible] home loan gold loans and MFI as your core segments. Where is business loans? How do you think about it in terms of growth? And what are these? Are these really -- are these term loans or are these working capital loans or are these [indiscernible]
This is a core segment for growth for sure. So I think we'll have 4 core businesses, which is home loan, gold loan, microfinance and business loans. And within business loans the larger loans, we target the property against the quality of property and the smaller loans we look at unsecure. Now typically, all the loans basically that all term loans, and we really don't do OD or overdraft like banks do. But these terms loans are also taken by these businesses for working capital requirements, primarily from -- unsecured loans, we are planning for [indiscernible] requirement.
So if you look at the ticket size of our loan incrementally is around -- the unsecured loan will be around INR 4 lakh, INR 5 lakh. And all put together, the ticket size has been coming down, the INR 61 lakh in the last quarter. But incrementally, it's around INR 10 lakhs to INR 20 lakhs. So what has happened historically, we had a larger lakh. That business will discontinue. So quarter-after-quarter, you see that business coming down.
And so these are all small businesses like shopkeepers, traders, these freight operators or these -- or sometimes some of these self-employed professionals or people who are on a self-employed, non-profit business. All the people who are running any kind of business, and these are typically small businesses. So that is what we'll be targeting as a core growth [indiscernible] and open partnership and all the many other partnerships that we look for in this kind of business.
You're [indiscernible] doing unsecured in the business loan segment today?
Yes, unsecured, secured [indiscernible] again, but yes, we are doing unsecured also. So if you see the quarter 70 is a split of 75%, 25%, 75% is secured and 25% unsecured in the [indiscernible] currently.
And in the disbursement?
It's still -- okay. You know what happens disbursement unsecured may be slightly more, but the tenor is shorter. So probably no -- in terms of the portfolio, it's 75%, 25%, disbursement may be sort of 2/3, 1/3.
The next question is from the line of Anusha Raheja from the [indiscernible].
Just wanted to understand how do you see the [indiscernible] coming of the [indiscernible]?
Sorry, your voice is not clear, Anusha. Can you just be a little -- can you speak again?
Can you please use your handset?
Am I audible now?
Yes.
Yes. Please proceed.
I'm saying how do you see growth panning out for balance part of the year?
Balance part of the year growth [indiscernible]
Like so far, we have seen a really good...
Yes, the balance part of the year is -- should be equally good or better, but there's no reason for -- I think we should be able to sustain the growth and margins both. And right now, the environment is looking very positive in terms of demand for credit and the banks willingness to partner. And the economy is doing well. So actually, most of the businesses are coming back on track and they take business loans as well as gold loans.
Even in a real estate sector, the interesting thing is while the interest rate might have gone up, but it does not slow down because builders have kept the nominal prices down or they are not increase the prices. So because they are also have then the [indiscernible] sell and liquidate. So we are seeing good demand for all businesses. Microfinance also has picked up very well. And the entire industry has picked up very well in last quarter. So I think it looks like the outlook for the next 2 quarters as well.
Okay. And what were your margins in Q2?
Margins?
Yes. What were the margins for the Q2?
Are you saying net interest margin?
Yes, net interest margin for the spreads?
Is around 8%.
It's around 8%. And what are the incremental yields and the cost of funds if you have that numbers with you?
So the cost of fund, as Rajesh mentioned, that we've been able to bring it down in the last quarter by a repayment of the high-cost dollar bonds. So they are flattish. It is not that there's not [indiscernible] basis point decline. The yield on an overall level has gone up because interest rates have gone up also. So the portfolio [indiscernible] 5% for the quarter compared to 15.3% 30 basis point increase in the yield. And in the cost of funds, what is the decline?
Decline was about 10 basis points.
Around 10 basis point decline there. So margins have improved by 30 basis points that way.
Okay. Okay. And just one last question. On the OpEx side, in the last 1 or 2 quarters, [indiscernible] quarter we have seen a sizable amount of [ card ] expansion. So going forward, any outlook on the OpEx side? What are your plans to roll our branches in terms of employee expenses, any kind of guidance there on the OpEx side?
So see, branches that we -- I mean, the operating cost would be [indiscernible] because our network has become much bigger. And so last quarter, quarter-over-quarter, the OpEx [indiscernible] No, I think that 4% to 5% is something that can continue for a couple of quarters. And [indiscernible] I say, '23, '24. We will have to take a call on the strategy that we continue to our branch expansion or slow it down. Now that again depends on the business environment because if you feel more confident and more positive, then we can continue to expand the network and still maintain the return on assets.
So then you to expand the network. But at this point in time, it might be to -- it's not going to come down significantly, but it won't increase in any rapid number also.
The next question is from the line of Deepak Poddar from Sapphire Capital.
Many congratulations for the great set of numbers. Sir, I just wanted to understand more on the credit cost front. Now excess provisioning that we had been doing for the last couple of quarters driven by the RBI policy. So we are through with that [indiscernible]?
So actually, are pretty close to our guidance and whatever we have spoken that in terms of credit cost is coming down. We'll continue to -- continue the trend on a relative basis, relative to the portfolio or relative to the loan book. So I think we are on the right track there. If you see the more INR 35,000 crore, INR 36,000 crore loan on our book, INR 35,000 crore plus. And for a quarter, if you take 50 basis points, it's [ 135 ]. But I think our credit cost this quarter is INR 196 crores. So I mean, we are pretty close. So guidance is -- it is to actually [indiscernible] anywhere between 150 to 200 basis points in a year. And I think over the next 2, 3 quarters, we should move towards that. I mean we are moving towards that but we should be there.
150 to 200 basis points [indiscernible] costs. And this number is built on your on-book's AUM, right, not on total AUM?
Yes, this number is on book AUM, not on total AUM. So what happens is that we have to worry about on-book AUM only and not on the total AUM.
The next question is from the line of [ Kishan Taveri from MK Investment Managers ].
Sorry to harp on this, but to the earlier question on gold lending, when this 80% of the book gets transferred to banks, a, I understand that the whole risk also transfers from our book to their book, if that's correct. And, b, is that [indiscernible]
Yes 80% [indiscernible] Go ahead.
So in which case, the accounting of income will then be similar to what we do for assignments?
No, there's a difference because see...
[indiscernible] book it on -- we sort of amortize the income over the life of the asset which has been transferred.
Exactly. So here, it gets amortized over the life of the [indiscernible] And whatever we do is based on the India's Accounting and auditors and guidance, I believe that all the company do a similar way. So what is happening in the case of assignment, suppose you have a 7-year loan. And say you're going to make a margin of 10%. So what do you do? You'll basically say 10% for 7 years, you discounted at present value, then you reduce the operating cost. And they'll say 7-year say they [indiscernible] using that 7-year might get repaid, then you take only for 4 years. And you discount and you reduce the cost and then you upfront it.
But in case the co-lending doesn't work like this basically is that you'll accrue 10% every quarter, every year as it comes.
And the 8 that you pay out, you will account as the expense over there. And in the other income you would [indiscernible]
No you don't have to [indiscernible] because it directly goes to them from the customer. So money from their [indiscernible] go to the respective partners. Or we collect on behalf of the bank as in agent and give it to them.
Okay. And just last clarification, in which case you -- in the other income, you will account for only that spread, the differential?
That is right. On the 80% component or 90% or 70%. Now in co-lending also this percentage varies.
The next question is from the line of [ Darshan Pandya from Fintrust Capital ].
Congratulations Sir on those good numbers. Sir, my question is on the microfinance segment. It is contributing around 12% to the AUM. And we have seen year-on-year growth of 49%, and we have come in from probably INR 840 crores in FY '18 to INR 6,000 crores of AUM in FY '22. So do you see this number more getting up contributing more to the revenues? Because the market opportunity is very big, as you have mentioned in the investor presentation. And we are putting up well. So where do you see this number going up Sir?
So this year, growth is basically because of the lower base of last year, because last year, not grown. In the last 2 years have been a little. And so we -- in a way catching up. And obviously, we expanded the bank debt growth. So I think that we would like to be a meaningful player in the industry. So we are amongst top 10, but we'd like to be amongst top 5 or top 3 for sure. So business will grow. I mean the 49% or 25%, 30%, that is all a matter of -- depending on how the new business is. But our objective is to grow a little faster than the industry, not too much faster and not too slow.
And sir, also something on this gross GNPA and NNPA [indiscernible]
About the micro finance or overall business?
Yes, about the micro cap.
So incrementally, we are seeing a good quality assets. And the -- so okay, GNPA and NNPA will come down in this business unless something which are unforeseen on [indiscernible] happens again.
Okay. And any specific sectors that we are giving up loans to microfinance segment?
No, not really because we have branches in the suburbs of [indiscernible] as well as rural areas. So privately, they go to -- and these [indiscernible].
The next question is from the line of [ Nikhil Agarwal from [indiscernible] Investment ].
Can you hear me?
Yes. Yes, we can hear you.
Congratulations on a good quarter, Sir, I have one question on the investment book. So our investment book has added another INR 48 crores in this quarter. Can you explain, sir, what is the detail of this incremental investment book? I mean in terms of [indiscernible]
Sorry, can you repeat the question, please?
My question is on the investment book. [indiscernible] [ INR 1,400 crores ] of investments in this quarter. Can you explain the terms of this investment in volume collections repayment data [indiscernible] recovery that we can get this investment book?
You are talking of INR 1,400 crores book?
Yes, yes. So INR 1,200 crores has become [ INR 1,400 crores ] right now. So we have had another INR 1,400 crores [indiscernible] .
Actually, we've got a Andhra bond of INR 500 crores, which is part of our liquidity, Andhra state bonds. And then there are [indiscernible] some assets that have been transferred to ARC and there's AIF. So all these assets are valued every quarter based on their recoverability [indiscernible]. And mark-to-market wherever [indiscernible] provided for. So we get them valued and rated every quarter by -- the auditors look at it. And I think [indiscernible] also do [indiscernible] also does assessment and based on that we provide from mark-to-market. So value that you see is all recoverable.
Okay. And what is the interest rate and the return we can expect in this book? Because a lot of this book is also containing the AIF and the CRE book, which we have [indiscernible]
[indiscernible]
[indiscernible] I think that was [indiscernible]
I mean broadly I think you can say that around -- for various increments of 7% to 9%.
Is there any further details that you have on the book in terms of the asset qualities in the [indiscernible] ?
I think -- okay. The real estate assets that were transferred to AIF, they are doing better now because the environment is improved and quality of the real estate part of it has improved. Even in the ARC assets, we had a reasonably good recovery in last quarter. So in a way, I think as the economy improves and the real estate sector improves, the asset quality is improving.
Got it, sir. I have one last question on the microfinance book. Sir, this quarter, again, we have seen some very high provisions similar to last quarter. And I think last quarter, we had mentioned that a huge part of the restructured book had come out of restructuring. So how do you see this [ pattern ] going forward? Because the ROE in the business is now quite low, the half year ROE. So [indiscernible]
Yes. As I said last quarter also, that microfinance we have pain. And the call that we took last year of giving moratorium and restructure [indiscernible] as the book comes out of that, we are seeing that the -- there are a lot of [indiscernible] there. And we, of course, take write-off in microfinance because [indiscernible] considered as you are fully provided of that. I think this -- and therefore, the microfinance ROE is additionally low to a historical trend as well.
I think this will continue for another 2 quarters, and we'll start tapering off and -- probably no, I think we should be able to see a [indiscernible] next year.
ROE [indiscernible]
[indiscernible] our target is to have 20% ROE. And this is as of now depressing it, but we are working on it, give us 2 more quarters for this.
The next question is from the line of Jigar Jani from Edelweiss Wealth.
Congratulations on a great set of numbers. My question is on the Stage 2 assets that -- especially in the gold loan side. So starting from Q4 onwards, if you see Stage 2 assets on the gold loan side, they have gone from 4.9% of the gold loan book to almost crossing 11% now. Any particular pieces why we are seeing this -- such a sharp rise especially gold loans on the Stage 2 side? Even on an overall basis, that has pushed up our stage 2 assets from 5.5% in Q4 to almost 7%. So any color on that why there is such an increase?
Also same is [indiscernible] partly in home loans to some extent, not as sharp as gold loans. But quarter-on-quarter, we are seeing increases in Stage 2. Thanks.
So the stage 2 in the gold loan has gone up from INR 662 crores to INR 843 crores quarter-on-quarter, partly because of the book growth is partly even the festival time and in this time, sometimes the collection is a little bit delayed. So what -- I mean, there's some psychology in customers in the industry, the way they operate that they try to collect it on the -- they know that 90 days is allowed kind of thing. So you see the stage 2, but normally -- typically because there's a gold correct and the risk to the customer also. So they don't go beyond 90.
But it's just question of collection efficiency and putting a little bit more pressure on the system to track it carefully. But it's gone up a little bit with the book also with maybe some bit of collection delays. And typically, people know the customer loan would default [indiscernible] with us. There are some technical -- some cash flow, [indiscernible]. So we give some -- so normally, people don't [indiscernible] till the 90 days to get [indiscernible] account. Customers can be sometimes [indiscernible]. But your point is noted that -- I mean, it's something which is -- thanks for bringing it to our attention, but that's the reason.
Right. And for home loans also is the same case? I mean [indiscernible]
Home loan is a slight increase in the book growth also. So I don't think there is any [indiscernible], that's what you're talking about, right? [indiscernible], but it's not very significant. [indiscernible] Yes, the book is much larger. Right.
So is it possible to share the one [ DPD ] plus for the home loan growth?
Maybe for all businesses. Right now, we don't have it. But yes, I think I note the point that whether we should have one [indiscernible] is a separate listing. And home loan is broadly around 1,300 [indiscernible].
1,300 Okay. Okay. Okay. Understood. And just last, if this early indicators of Stage 2 go up, say, this is only for our own book, which is on book, but I believe similar performance would be replicated on your assigned book or your co-lending book. So does it impact your ability? Or are there any repercussion from the asset quality or credit cost side for us? I know it's fully risk of. But on the co-lending side, are there any clauses where if there's a quality we donate especially for books that we have originated, we need to provide more or share more of the risk, something of that sort?
So now the quality and the -- these are all within the [indiscernible]. So at this point in time, I don't see any stress or any challenge there because this is something which is -- I'm not worse than the rest of the industry or the -- our banks, their own portfolio typically. So that is how we look at it.
[Operator Instructions]. There is a follow-up question from the line of Anusha Raheja from [indiscernible].
Sir, what are the results that you'd be expecting from your AIF book on CRE book was sold to AIF given the fact that the real estate sector has been improving. What are the basically terms of profit sharing there on that side?
So I think until we fully redeem the book, which may be another 2, 3 years, it will be very difficult to take any guess on that. So at this point in time, it's a very difficult question. See what happens if there are 10 investments there. Some will do very well, some will not do so well. And we'll discover the entire thing when the full book is liquidity completely. So another 2 -- maybe 2, 2.5 years.
Okay. And you said that you have still $270 billion of bonds on your book currently, which are high cost. So those bonds might come up for repricing in this business? So in that case -- I'm sorry?
These bonds are fixed rate bonds.
Fixed rate bonds. Okay. So I mean, whenever you redeem that probably that is also replaced by lower cost, so you might have a benefit of margin expansion from that as well.
That's right. Absolutely right. Because this $270 million is still -- we are building in terms of cost. So I think -- I mean, we do that, there will be some cost of funds advantage there also.
So that might come for in next fiscal FY '24?
Yes, maybe up mostly in fiscal '24.
Okay. and [indiscernible]
[indiscernible] small buy back. But otherwise, they will come primarily in fiscal '24 only. What is happening, the bondholders also are not selling because they know that within 6 months they get the full money so why sell it at discount. And so we don't get liquidity on the -- in the market. And then there's no track record that we have bought back most of the [indiscernible] liquidity buying back. So I think it will come around -- well it will come somewhere in F '23.
Okay. Okay. And [indiscernible] to your accounting treatment on co-lending book, if you can just elaborate more on that?
Anusha, I want to clarify, to everyone. This is not a change in accounting treatment. The accounting has always been the same. [indiscernible] For the presentation purposes, we have only reclassified it from net interest income to nonfund-based income, don't need any funds on this. So the accounting has been consistent, as we also explained on this call, is that we take the margin on that 80%, which is the bank share. And that was given the interest income. Now it is included in nonfund basis come. So it's only a reclassification, not a change in accounting.
Yes. [indiscernible] in the analyst presentation, but there's no change in accounting.
The next question is from the line of [ Tushar Sarda ] from Athena Investments.
I wanted to understand the valuation basis for selling 20% stake to RDR. When I compare it with other listed housing finance companies, it looks very cheap. So if you can share your thoughts on this.
So I think a very difficult question to answer, but -- so what has happened is that the listed companies when you compare, there are ones that are outliers valued significantly higher, but must be a long [indiscernible] be valued much lower. If you really look at the valuation for what we got and based on [indiscernible] historical book value, I think it was at maybe 3.5, 4x times kind of thing. [indiscernible]
[indiscernible]
So I think -- but if you really look at the entire housing finance [indiscernible] , there are 1 or 2 companies where the valuations are higher, that is one; secondly, what happened to be very candid, there was also overhang of the parent company's valuation; and thirdly, all the -- if you look at our track record, there all they have basically made a significant multiple on that investment. And we generally [indiscernible] deals, we want to be something on the table so that the investors have a good exit. Similar [indiscernible], all of them have made a lot of money on our investments.
The next question is from the line of [ Sharat Sing from Lavernon Capital ].
Just a clarification on the earlier question on the call projection that we might have to provide on the co-lending book that we originate. So did you say that the banks have not asked for [indiscernible]. So in future, they might or there is no such thing here?
There's no such thing possible actually as per the RBI policies and guidelines. See, what happens is the banks take any default protection, and they can't claim as a private sector asset because RBI is very clear [indiscernible] loans and the risk are due the bank. Secondly, the risk is priced in. So I won't give a price also and the risk covered also. And so the way all these transactions happen, they are without any recourse in terms of risk.
And structurally, there are no other way to do this based on RBI policy also. See, why RBI encourages co-lending because banks have a balance sheet and ability to take risk. If the risk has to be taken by a PFC then why would you -- then the whole purpose is defeated.
As there are no further questions, I would now like to hand the conference over to Mr. Kapish Jain for closing comments.
Thank you very much, [indiscernible]. Thank you very much, ladies and gentlemen, for joining us for our quarterly results call. It was a very entertaining discussion with all of you. And for any further query that you wish to have, please reach out to us separately, with the Investor Relations team, and we'll be happy to connect and answer all your queries. Thank you, have a great day, and happy Diwali to all of you.
Thank you. On behalf of IIFL Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.