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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the IIFL Holdings Limited Third Quarter Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the management. Thank you. And over to you.
Good afternoon, everyone. On behalf of team IIFL, I thank all of you for joining us on this call. I'm Prabodh Agrawal, Group CFO; accompanied by Nirmal Jain, our Group Chairman; R. Venkataraman, Managing Director; Sumit Bali, CEO of IIFL Finance; and Karan Bhagat, Managing Director of IIFL Wealth Management. I'll now pass the mic to our Chairman to comment on overview of the group's strategy and plans.
Thank you, Prabodh. So our outlook, primarily that we can take a quick look at the economy in the sector and then come to our plan of strategy. So in terms of economy, many times there are several groups that have been made stronger by a [indiscernible] they'd be here and in fact in the recent times, they are very frequent. And obviously there are uncertainties related to election. But in this cloudy period, if we look at the macro fundamentals, they're getting better. So as oil prices are lower that ought to help us -- our macro fiscal [indiscernible] current deficit, and in terms for increase in interest rate and as well as currency, and we have seen that the headline numbers have been fairly positive. Also domestic investors continue to invest, which has not been a situation of panic. The [indiscernible] can vary little bit, but at least the governance of uncertainties and volatile environment around that, domestic investors continue to believe in the capital market when supported. Even from foreign investors' point of view, as we are seeing that China's growth has slowed down to the lowest in the last 30 years. And in terms of the investment that we make in a year because only large emerging market economy that can absorb investment, so from foreign investor's point of view. And even I've been meeting few of them, I think with regardless of what is outcome of elections, India will continue to attract capital from foreign investors as well as domestic investors. So in this background, I mean the next few months may be uncertainty because of elections, but the overall outlook for the economy remains fairly positive and stable. So coming to our businesses, last quarter was challenging quarter. It was a declining quarter in terms of media trial by fire for attacks to our risk management policies security policies. And I think once the dust settles, men will be separated from boys. But if I look at middle -- medium to long term then all our businesses have very strong positive outlook. I do not think anything has happened which is basically, in fact, structurally and otherwise growth prospects of our all our businesses. So as you know that our businesses are now clearly divided into 3 segments and they will become clear [indiscernible] very, very soon. So we have IIFL Finance where our focus for growth, as I stated in my earlier call, our last few quarters has been affordable home loans, gold loans and small ticket business loans, and that also includes microfinance, which is for a much smaller -- again there is a focus on income relating activities where we call the business in. Liquidity, last quarter as all of us know has been challenging, but I think given our credibility with investors that are [ new to the secondary ] assets, as well as the maturity profile of our liabilities, we have had a comfortable transition. And in fact, many [indiscernible] have reduced our CP significantly down to 10%, which that is liquid assets that we keep at any point in time on our balance sheet. We also do not see any significant challenge engaging our long-term resources or medium to long-term and continue to grow our businesses as usual. You will notice that our real estate sector has been challenged, and the -- we have seen that there is a spike in gross NPA for our large ticket real estate consolidated financials, candidly because now the recognition norm is 90 days. So even if there are small delays and auditors insist to classify them as non-performing, and more importantly, in the last quarter because of the chaos and panic, we assumed that many end users or the buyers of both -- for this project, they differ or they get delayed in payment. But we very strongly believe that our collateral is good in each and every case, and we should not suffer any losses. So as things recover, I think most of the results will be back on track and become normal, because we haven't seen any challenge in terms of quality of promoters or quality of the financials that we have funded. But the reality of the realty sector is that gross NPAs for the time being here is fine. For our Wealth business, Karan is with me, he'll talk more about it. But with IIFL, we have made a decisive move towards a net revenue model and we are to lead the industry transformation. And the initial response of our clients has been really exciting and very overwhelming. Our securities business, again is a bit more technical, and in FY '19 we have activities that have lower [indiscernible] maybe they continue like that, unless we see that the capital market significantly changes. But for the time being, the securities business is volatile and has suffered a significant setback. But our focus remains on becoming more efficient in terms of cost and trying to move digitally and online as quickly and as much as possible, and also [ early loading ] as possible. And just a very quick update on our reorganization that you know is back as scheduled. So [indiscernible] was done in December, and now we have a final hearing with NCLT sometime in middle of February, so next couple of weeks. And then from there, they will proceed with requirements, we should receive them in a couple of months. So with this, I hand over back to Prabodh who will take you through line items and then we'll have Q&A. Thank you.
Thank you, Nirmal. Our group net profit was INR 220 crores in third quarter FY '19 down 12% Y-o-Y and 27% Q-on-Q. For the 9 months, net profit was INR 869 crores, up 18% Y-o-Y, and net profit after minority interest was INR 664 crores, up 18% Y-o-Y. In the NBFC business, loan India grew 33% Y-o-Y to this INR 36,400 crores; it was flat on Q-on-Q basis. Profit after tax, completed as Ind AS grew by 6% Y-o-Y to INR 108 crores, it was down 33% Q-on-Q. Our Tier 1 CAR stands at 17.4% and total CAR at 20.7%. Primary drivers of our AUM growth are small ticket home loans, which grew by 49% Y-o-Y; gold loans, which grew by 57% Y-o-Y, small ticket MSME loans which grew by 56% Y-o-Y; and microfinance loans, which grew by 205% Y-o-Y, the last one coming off a small base. On the other hand, construction real estate finance, LAP and Capital Market loans will continue to have declining share in our portfolio. In home loans, our focus remains primarily on small ticket loans to the salaried and self-employed section. The fastest-growing segment in home loan is the affordable home segment of Swaraj loans with average ticket size of INR 13 lakh. Swaraj loans accounted for 23% of our home loan disbursement in third quarter and 15% of closing home loan AUM. Our Swaraj product is specially designed to support the informal income segment in fulfilling their dream of owning a home. As of 31 December, 2018, we had over 7,800 approved housing projects, up nearly 1.5 fold from 5,500 approved projects a year back. 55% of home loans were made through these approved projects. We expect that this approach will reduce our operating and [indiscernible] cost going forward for our housing finance company. IIFL Home Finance has been a significant player in the Pradhan Mantri Awas Yojana – Credit Linked Subsidy Scheme. To date, it has provided benefits towards 19,500 customers and disbursed subsidies of more than INR 450 crores. The company is also expanding its footprint and currently has over 110 branches across 17 states. The customer base for our [ SSC ] has crossed 72,000 this quarter. Retail loans including consumer loans and small business finance constitute about 85% of our loan book. Another strong characteristic of our loan book is the large portion of loans that are compliant with Reserve Bank of India's priority sector lending norm. About 53% of our home loans, 54% of LAP, 83% of CP, 42% of [ SEB ] and nearly all of our MFI loans are PSL compliant; in aggregate, nearly 47% of our loans are PSL compliant. Our average cost of borrowing rose by 31 basis points Q-on-Q, and 56 basis points Y-o-Y to 9% in third quarter. Incrementally, our borrowing costs rose by 75 to 100 basis point due to the statutory conditions in third quarter, presenting things are improving funding cost has declined materially from third quarter level. In a rising interest rate scenario, we are in the position to commensurately reprice our loans. 46% of our loans are on a floating-rate basis. In the last 6 months, we have raised our home loan rates by 90 to 100 basis points, LAP, construction finance, commercial grades, gold relatively rose by 150 basis points and Capital Market loans by 200 basis points. Our NIM was at 7.1%, expansion of 50 basis points Q-on-Q and 5 basis points Y-o-Y. 89% of our AUM comprises of loans that are secured and about 11% of loans are unsecured. We believe our AUM is well balanced with some scope for the share of IBC and unsecured assets to go up. We currently have 1,862 branches, primarily for our HFC gold and microfinance businesses. Consolidated gross NPA and net NPA, recognized as per [indiscernible] and provisioned as per Expected Credit Loss [indiscernible] Ind AS. The gross NPAs stood at 3.7% and the net NPAs at 1.5% of loans. The NPA ratios appear highly -- sorry, the NPA ratios appear higher, partially because the loan book has declined 11% Q-on-Q due to portfolio sell down. Besides NPAs will go up across Tier 1 categories including real estate finance, Capital Market CV and SME. Under Expected Credit Loss provisioning in Ind AS, provisioning coverage on Phase 3 assets stood at 60% and on standard assets at 181 basis points. Return on assets for 9 months of FY '19 rose at 2% and return on equity was at 16.4%. Some update on liquidity. During third quarter, we were able to halve the share of commercial paper in total borrowing of IIFL Finance, from 24% in end September to 12% in end December. In value terms, our selling CPs came down from INR 8,353 crore to INR 3,995 crore during the quarter. Our funding mix is well diversified, including 16% from NCD, 5% from sub-debt, 39% from bank term loans, and NCD finance, 28% from securitization or assignment and 12% from commercial paper. Following the tenures of ordinary bonds raised from CBC earlier last year, we have initiated discussion with several other institutions to raise long-term funding. We have received good response to our public issue of NCDs. The subscription amount has crossed INR 1,100 crores, and we plan to close the issue tomorrow. We have a positive ALM, whereby inflows cover or exceed expected outflows across all our bucket. On the asset side, our loan book has a relatively short maturity pattern with 25% of loans having maturity of less than 6 months and 39% of loans having maturity of less than 12 months. We had liquid investment and sanctioned and undrawn credit lines totaling INR 3,750 crores in end December. A little bit on digitization. We have continued our focus on digitization encompassing every aspect of customer loan journey. Of the total INR 9.12 lakh loans disbursed in third quarter, 99% were onboarded digitally. We are focused on back end process digitization through multiple innovations as well as partnerships, helping us achieve process efficiencies. IIFL loan apps had 169,000 downloads in third quarter with 27,000 net new additions. IIFL loan app is extended to personal loan customers, allowing customers to pay their EMIs and service their loans immediately. On analytics, we have continued to deploy advanced analytics and machine learning techniques for customer life cycle management from usage of credit scores in credit decisioning to portfolio optimization to increasing customer loyalty and managing collection risk, vis-a-vis, combination of predictive coding and real time dynamic modification. And as corporation efficiency is being targeted via [indiscernible] analytics, [indiscernible] expansion and [indiscernible] productivity are elevated. Win back across all -- win back and cross-sell continue to be strong drivers of reduced customer onboarding costs. A multiproduct, multichannel cross-sell framework that [indiscernible] propensity as well as behavioral risks associated with exposure. Continuing with holistic approach towards fraud and anomaly detection from pre-disbursal to post-disbursal state, we've developed the fraud application scorecard for the [indiscernible] finance portfolio. This scorecard is capable of assessing risk for customers with a bureau footprint as well as those who are new to credit. Now coming to commentary on wealth management. IIFL Wealth PAT computed as per Ind AS was at INR 79 crores or our asset under advice management and distribution have grown 11% Q-on-Q and 25% Y-o-Y to reach INR 1.61 trillion. We added 40 bankers during the quarter, taking the total number of bankers to 398 to further drive the growth momentum. We now have presence in 26 locations and 9 geographies. IIFL Wealth offers a broad range of production services to participate in largest share of the client wallet. This includes financial product distribution, advisory, brokerage, asset management, credit solutions and estate planning. Net new money collected in third quarter FY '19 was INR 2,633 crores, AIF assets have grown 23% Y-o-Y to INR 14,255 crores. IIFL Wealth Management, which offers loan against securities and margin funding to high net worth clientele reduced its loan book by 23% Q-on-Q to INR 4,748 crores, mainly due to conscious effort to derisk the business by recalling [indiscernible] loans and [indiscernible] non-core assets. Coming to capital markets. IIFL Capital Markets is largely comprised of retail broking, institutional broking and investment banking businesses grew its YTD net profit by 5% Y-o-Y. During the quarter, our average daily cash turnover was down 15% Y-o-Y to INR 1,183 crores versus 3% Y-o-Y de-growth in exchange cash turnover. Our average daily total turnover, including F&O, was up 10% Y-o-Y to INR 16,370 crores. Our NSE market share in the cash segment was around 3.5% and in total around 1.5%. We are continuously enhancing our offerings on digital and mobile platforms for retail customers in our broking business. Our mobile trading app, IIFL Markets, has had over 2.3 million downloads. Presently, about 48% of our retail broking customers trade through the mobile app. We completed 12 transactions in investment banking in the year-to-date and have a substantial pipeline of deals in various stages of evolution. With that, we'll now open the floor for Q&A.
[Operator Instructions] We have the first question from the line of [ Ragan Haria ] from [indiscernible] Stock Broking.
So first my question is on this securitized book of INR 9,060 crores, so how much of it is in the true sale or the direct assignment from it and how much of it would be in our book, which will be the securitized part?
So out of INR 9,068 crores of total of book, INR 1,677 crores is securitization and about INR 7,380 crores is the direct assignment.
Okay. And that direct assignment, so this number for this quarter would be how much, if we just want the securitization plus direct assignment for the current quarter?
It's about INR 5,200 crores.
Okay, okay, okay. And would your interest income have any -- because I think under Ind AS you account everything in the current quarter itself? So how much would that component be in the interest income line?
It's about INR 45 crores.
Okay. All right. And second question, it was on Nirmal's commentary that a large part of the ALM adjustment and those things are done. So further in this, I believe that maybe a quarter more and most of that should be over. So what would be the incremental lending rate and the incremental borrowing rate for the NBFC as a whole once these adjustments are over?
No, sir, adjustments are over last quarter itself. So right now the width that we have is fairly stable and we can continue the same way, which is between around 10% to 15% of our total borrowings. But now the interest rate, again that depends on environment, which is something, again there's crisis or there's a crunch [ interest rate as well ]. But most likely indications are that interest rates are headed southwards. So we don't see any reason to further increase the interest rate or do anything, at least at this point in time.
Okay. Okay. I get it that borrowing cost is a variable. But on the yield side, we have generally been at 14% to 15% kind of a blended yield. And if I take into account all the yield hikes that we have taken, should we still be able to be in that 15%, 16% kind of a range in terms of yield? I understand borrowing costs be probably high last through next quarter when things are better.
No, I think -- so you can see [indiscernible] and our yield [indiscernible] what we are saying, so around 15%, so it's around 14.5%, so 14.5% or 15% is what our yield will continue to be. So that's what [indiscernible] but yes, even putting 14% to 15% is a range that we look forward to [indiscernible].
The next question is from the line of SivaKumar from Unifi Capital.
Sir, can you give some more granular sense on the stress in the construction real estate segment of your NBFC? So as in what gives you comfort that most of this stress won't translate into a kind of write-off kind of situation?
Yes, certainly last quarter was an extraordinary quarter, when you move the entire lending facility for real estate [indiscernible], and that was even more aggravated by even the homebuyers that they're putting their properties are -- they're dealing with an environment of very uncertain chaos, people just wait and watch. But I think things are getting better and I believe it's a matter of time that we should see that will bounce back. I don't see any long-term problem with the sector. It's just question of liquidity crisis, it is a little -- temporarily [indiscernible].
Okay. So then your comment on the operating expenses which have been trending at somewhat elevated levels over the last 2 quarters. Last quarter it was -- I'm talking about the NBSC space, wherein last quarter it was about INR 279 crores, and this quarter again we are seeing an elevated cost of around INR 298 crores, so what is leading to this higher cost structure?
Yes. So we have been expanding our branch network fairly aggressively, so you see that our branch network has gone up to 1,862. So we continue to expand and add people in our home loan and microfinance businesses, and that is adding to the cost. And then you look at operating percentages, then whatever happens at the loan book on a quarter-to-quarter basis has been flat. And so obviously they seem to be more elevated. But it's online is our strategy for growth, so as we have said, that we'll expand out the network of branches, which is basically service our home loan, business loan and microfinance, the segments of the business.
So will this expansion continue, sir? Is there any number you are working towards?
So actually number, is very difficult to put a number because -- but the pace may slow down little bit in terms of the number of new branches that we'll add. But it is really -- it's not possible to put a number to this. I mean, definitely, I can't say it will continue forever, but as I said that the pace will slow down little bit in -- by next quarter.
Right. And with regards to your cost of funds, I think it's about 8.8% for the 9 months. Maybe you can give me the incremental cost of funds for the immediate preceding quarter. But your retail entities, you have priced them between 9.5% to 10.5% and a INR 2,000 crores NCD should bump up your cost of funds, right? If you're able to secure [indiscernible]...
[indiscernible] so our cost of funds [indiscernible] long-term, short-term. And there's the entity that we are raising, they are for 5 years and 10 years. But this -- incrementally, this was as [indiscernible] higher cost of fund has gone up in line with industry. But whatever incremental [indiscernible] we are doing, this entity is line with that. Maybe, Prabodh, do you [indiscernible] numbers?
Yes, so no, our average cost of borrowing has gone up by 31 basis points Q-on-Q. And for the third quarter it was at 9%, that's the average cost of borrowing for NBFC. It has gone up by 31 basis points Q-on-Q and 56 basis points Y-o-Y. That's the average. Incrementally, as I said, the costs have gone up by about 75 to 100 basis points, and there has been a commensurate rise in our lending rate also.
Great. And how was it in Q4?
Q4 was 9% -- sorry, Q3 was 9%.
So how it is panning out this quarter?
This quarter, the costs are actually -- incremental costs are already down by 100, 150 basis points compared to the peak borrowing rate that we saw in the month of October and November. For example, CPs are borrowed at 10% but incrementally, now we are able to borrow at something like...
8.6%.
8.6%, we are able to borrow. So that's just one indicator. Then similarly, now home loans are also easier to get and the rates are also not much there. We would have done our near direct assignment at say 9.5%, 9.6%, now incrementally we're able to do at 9.15%.
Okay. Yes, the next question is with regards to the Wealth business, we see a steep drop in the fee based income, in spite of the fact that your AUM has grown by 11% Q-on-Q. So what led to this steep decline in fee-based income?
So the fee-based income has declined primarily because of 2 reasons. One, obviously there is a slowdown in [indiscernible] activity for the last 3 months. Post the IL&FS fiasco, and in general because of volatility in the market environment, a lot of investors are sitting on the sidelines to invest new money. So even though the new floors are extremely good and strong, the postponement of the investment activity is fairly high. So those clients are wanting to keep the money in liquid funds and safer debts funds rather than investing it immediately into the market. So while the asset growth continues, on a Q-on-Q basis the decision to invest gets kind of postponed a bit. The second is already even within that mix of investment [indiscernible] fixed income side compared to the equity side. But we see a mix of our gross global investment for the last quarter, compared to a typical average quarter, where we see 50% to 55% of the money going into non-AAA debt. Last quarter would have seen 72% to 73% of our investment going incrementally into AAA or better debt, or AAA sovereign debt, and only 27%, 28% of the flow is going into non-fixed income. Obviously, that has a impact on the year, because AAA debt as well as primary sovereign funds, we end up making a substantially lower fee income. So it effectively leads to a little bit of slowdown in activity itself, and second the mix of the activity also has been relatively muted towards a more risk free approach. That's actually the reason for the decline in the fee income [indiscernible] strong.
Yes. And what about the IIFL-ONE strategy, how will it bring down the yields?
So necessarily, it doesn't bring down the yield, okay. So essentially, IIFL-ONE is more an advisory mandate as opposed to running a broker-dealer distribution mandate. Now while the advisory mandate itself is going to be getting a yield of less than an average of 0.5%, we've just launched it round about 2 months back. Our response has been excellent. As we speak, we would have promoted already round about INR 6,500 crores to INR 7,000 crores of our assets into IIFL-ONE or similar and an average attention of 0.5%. Now what we need to keep in mind and what is very critical to understand that we are looking at here is the following: typically in a broker-dealer spoke distribution model, you end up earning commissions on these transactions and not on the whole portfolio. Now typically in a year, a client does not end up transacting more than 20% to 25% of its portfolio with us. As far as the advisory fee goes, that is being charged on the whole portfolio. So while earlier we were able to get, let's say on an average of [indiscernible] Quarter on 20%, 25% of this portfolio, here you're able to get 0.5% on his full portfolio. So there is really no impact on the yield, and it is much more sustainable, because of a lot of [indiscernible] assets also end up getting the advisory fee. However, it needs -- it's a process, it needs changes at the back end in terms of technology. We need to maintain multiple portfolios for the client, as opposed to maintaining 1 portfolio. As clients gradually change, they want part of their portfolio to continue in the broker dealer setup, part of their portfolio to move into IIFL-ONE. So it's a change which will not happen overnight, but we are confident it'll take place over next 6 to 12 months with a much more hectic pace. And the impact on the retentions actually might end up being slightly more positive over the next 12 to 15 months, as being -- as opposed to being negative, because we end up getting your advisory fee on full portfolio as opposed to getting a transaction fee on a part of the portfolio.
Okay. So any number you are working with as to how much of the portfolio would you want to migrate to IIFL-ONE?
[indiscernible] we just launched it 2 months back, so I don't want to really give look that crystal clearly that much into the future. But the response over the last 45 days has been excellent. And honestly, if you personally ask me, out of the incremental share we are getting in terms of new assets coming to the firm, we have seen nearly 1/2 to 2/3 coming in the form of IIFL-ONE. In terms of the older assets, I think we should we be able to move around about, like 25% to 30% over the period of next 15 months. So I think by the end of the current financial year, we would be hoping to be around about at least INR 10,000 crores to INR 12,000 crores under the IIFL-ONE platform. And potentially, at least 4 to 5 [indiscernible] number by the end of the next financial year with an average retention of 50 basis points.
Okay. So I take it that this 75 bps that we are seeing for the 9 months is more of an aberration, right? As and when the market actually picks up, you would actually go to slightly higher levels closer to FY '18?
Yes. On the growth -- on the distribution side, but it is obviously a function a little bit of the mix of the investment, right, between equity and fixed income. Last quarter is pretty much in terms of planned activity and aversion to risk, pretty much comparable, last [indiscernible] number, only the first, second quarter of 2013. We've seen the risk aversion from clients being as low as where it was in last quarter, last only in 2013. It may continue for another quarter, given the fact that the elections are around the corner. But it will come back sooner than later because the flows are continuing and the money for the moment is lying in liquid funds waiting for a better opportunity or for more clarity, and therefore, less volatility.
Okay. And second, squeeze in a last question. What is the impact of the upfront commission regime in mutual funds?
So upfront commission regime in mutual funds for us, long -- we have moved to trail our mutual funds maybe 1.5 years, 2 years back. So it's already kind of there in the book. There is just small minor impact for the [ CR ] change which is going to be round about close to 7% of our mutual fund income. And our mutual fund income as a percentage of our overall [indiscernible] is around about 12.5%. So around about 7% to 8% off 12.5%, okay. So around about close to 1% of our revenues, 1% to 1.5% of revenues is impacted because of the change in mutual fund fee [indiscernible]. This is already getting dissected from the last quarter onwards. So we have a mutual fund trail income of around INR 130 crores, INR 140 crores a year, which [indiscernible] around INR 110 crores to INR 115 crores to INR 125 crores.
The next question is from the line of [ Ankin Gupta ] from [ Bamboo ] Capital.
Yes, can you give a little more details about this, that real estate portfolio that is the income-straight? How many members are in [ this trade ] and what steps are you taking to recover [ bank ]?
So I don't think that they're in here. There's a -- it's not, I think, even a crisis at this point in time. But I didn't have the precise numbers of how many people end up [indiscernible]. What happens is that many a times, some of the builders [indiscernible] delay. And basically, they've come back on track very quickly. But provided -- and the only benefit that one can do to them [indiscernible] people start talking about general. So as I said that the underlying credit quality is solid and good. And my belief and our belief is that it will get better this quarter, over the next quarters, that most of these builders of the projects are good, yes.
Okay. Any [indiscernible] ...
There is -- an action has to be taken. We do that, in fact there is [indiscernible] these cases are very few and far between.
Okay. Any specific geography where you're seeing the stress building up or [ the NPAs get shorter ]? And are this loans to the realistic [indiscernible] targeted towards a premium segment or the [indiscernible] number?
So finally [indiscernible] is coming from the premium segment, but primarily at Bombay. [indiscernible] the sense that the main Bombay and a little bit of [indiscernible], but I think that these 2 are the primary contributors.
Okay, okay, okay. And secondly on the home loan book, we have been seeing really sharp [indiscernible] growth rates, and overall the industry is seeing a lot of activity and lot of competition. So can you elaborate more on how is the competitive intensity? And our growth rate has been in very [indiscernible] any reason for that? Any specific -- apart from this affordable housing book itself, we are seeing lot of competition, any comments on competitive dynamics for this sector?
So I -- this is Sumit Bali here. So on the home loan side, I think we have a good niche going for us in the affordable segment. And that is where we are also seeing competitive intensity has weakened a bit, and our belief is that post this crisis of liquidity in the Q3, we will see better times for some established [indiscernible] just promise of cost before rate. But we still believe that the growth rate we have on that are sustainable. We are similarly in line with the affordable home loans, also looked at multiple LAPs. So early day today but I think it's a differentiated book of [indiscernible] and I think that's another product being sped up. So while on the [indiscernible] speech, I think the whole integrated story of looking at small developers who are moving in -- who are building affordable homes, most of them have large number of [ APS ]. So finding some of these good dealers and also have -- of course we have [indiscernible] of getting [indiscernible] play here and we have confidence that the [indiscernible] will be good. And we do see some space being vacated by some competitors, and we hope to benefit from that.
How much [indiscernible] do you see for home loans going forward in, let's say, FY '20?
So we are also in a bit of a time where liquidity situation is what it is, it is in front of us. So at first in the last quarter, I put in results and you can see the results and some of the borrowings coming through. I think we should be in a decent growth rate from about 25% to 30% for the quarter and next year also we should be in good, sustainable.
Okay. And then overall on the NIM side, if we can now reach the [indiscernible] you've been able to maintaining earnings at this level and that the proportion of retail is -- portfolio in our overall loan portfolio is increasing. So like what gives you confidence that our NIM should be maintained at this level?
So if you see Page 13 of our presentation, and if you see the growth rates on home loan, microfinance, MSME, I think these are businesses which are growing at very healthy pace. All are higher that our current NIM. Home loan, as I said, year-on-year metric is the slightly below that, but we have seen great transmission happening on the entire book, so there we should really see the book which is there. And so given that 3 out of the 4 products are higher than the current NIM and are going higher than home loan rate, I think we should be able to maintain the NIMs.
Okay, okay. And overall, from an overall portfolio perspective, in about 2, 3 years down the line, the retail book as a percentage of overall portfolio, they didn't see that going down there?
Pardon, can you repeat the question, which percentage you say?
What I am saying is our overall loan book, what percent for like over the next 2, 3 years, like how much do we intend -- what is the mix of retail and wholesale book in our overall loan book portfolio, let's say 2, 3 years down the line?
So if you look at our book today, it is 89% secured, 11%...
85% is retail.
85% is retail, 11% is unsecured. So going forward, I think over the next couple of years, the attempt should be to keep -- move around [indiscernible] on the secured side and 20%, 25% on the retail side. That's the journey we are progressing for.
Okay, okay. And last question on the wealth management side. Can -- next -- like the yields coming down to almost like 25 basis points this year, do you see some improvement with IIFL-ONE coming in, in FY '20?
I think yields are unlikely to go up beyond 75 basis points, [ Sumat ]. I think the steady yield really to target would be in the region of 75 to 80 basis points, with a plus/minus 5 basis points [ reduction ]. And if you see a very, very -- if you see a really good environment, you could see a 10, 15 basis points; or a bad environment, 15 basis points impression on the other side. But I would be very surprised if it goes too high beyond 75 basis points.
Okay, okay. 75 basis will be the new base for us in terms of even, let's say the market improves, it might have some improvement. But that might be depending on the market conditions?
Yes, so I think 75 basis points [indiscernible].
Okay. And any -- let's say, the market improves, the equity market improves, so that loan -- AUM growth rate might improve as well, and improving sentiments?
Well, growth, I think from where we sit and see the market right now, I think if I take out the -- either the growth in assets of all in assets because of the mark-to-market movement, I think domestically, we should be targeting INR 20,000 crores to INR 25,000 crores on a yearly basis. It will not be exactly symmetrical on a Q-on-Q basis. But I think domestically on growth of round about INR 25,000 crores a year on net basis is a number I think is definitely, definitely achievable even for the current -- even for next year.
The next question is from Nischint Chawathe from Kotak Securities.
Just on the assignment income, how much loans did you assign this quarter?
Since I gave you this number, it's INR 5,200 crores total, all securitization/assignment that we did. I think all of this about INR 700 crores, INR 800 crores -- INR 750 crores-odd we have done in securitization balances all assignments.
But on this almost INR 4,200 crores, all that you booked as upfront income was INR 45 crores. So how should we really think about this?
It is always a reversal also of the previous deals that we have done. This is the net amount.
And the gross could be like how much?
[indiscernible] net amount is this INR 45 crores.
Sure. Okay. On the wealth side, are there any concerns on the last book? I believe you have kind of unwound the book to a very significant extent this quarter. Should we see further unwinding in the [indiscernible]...
So we're only booking unknown risk which is not close to our wealth flags. So we're not really [indiscernible] involved in any significant way. [indiscernible] shared wealth clients did not have a significantly large relationship with us on the wealth management book, their side is fairly unknown number. Otherwise as a book, we -- as you see, we are massively unlevered. It is this level of [indiscernible]. We practically have on a net basis zero CPs. So our ability to expand the book is very high. However, we want to only and only use the book as a conduit to facilitate our wealth business as well as our investments on the -- as a sponsor to the alternative investment fund business. Otherwise on a stand-alone basis, we really don't want to expand that book.
Sure. Just if you could give some insight in terms of the asset management side of the business. I believe you're having some disclosures on the breakup of asset, et cetera. So maybe in terms of some plans, how we should see revenues playing out?
Yes, [indiscernible] that's one side we're extremely excited about. Within the asset management business, obviously there are 3 or 4, 5 mandates which we are on. So as of now, our larger focus has been on the alternate investment fund side of the business. There we've seen the AUMs grow nearly to around about INR 14,500 crores, INR 14,600-odd crores, growing at a 30%, 35% over last year which is a significant number, purely because of the fact that we are coming from a large base last year. Last year was [indiscernible] INR 7,500 crores, INR 8,000 crores [indiscernible]. So that's something which we are fairly excited about. Within that, we are running 3 or 4 different kinds of strategies, which includes everything right from private equity to listed equity, to private credit to real estate funds. There we had a fairly successful track record for the last 6 to 7 years. We have recently closed real estate fund 1.5 months, 2 months back all over [indiscernible] liquid. We've brought participation from 4, 5 large institutions across the world. We recently also won a large mandate to manage money for a large university in the U.S. on a segregated management fund basis. So all that [indiscernible] put together on the alternate asset management side has moved to around about INR 24,000 crores. We also recently got our [indiscernible] License for our [indiscernible] Singapore entity called [indiscernible] Capital. Then we complete an acquisition of a small fund with an asset base of $80 million. So these are the broad activities we are focusing in the really alternate asset management space. The PMS and the mutual fund business continues to be relatively small for us. We're as of now not looking to expand the mutual fund space, apart from a couple of [indiscernible] massively. The larger part of our [ leadership ] has within asset management will continue to be in the alternate assets as well as the segregated management [indiscernible]. And that's where we believe we will be able to seek our net retentions around the 65, 70 basis points after accounting for all the direct distribution points.
In terms of revenue can you give some sense, this quarter, what was the revenue contribution or any color that you could give on this?
Yes, so we can -- approximately the revenue contribution for this quarter would be around [indiscernible] number [indiscernible] would be in the region of INR 45-odd crores for the quarter.
Sure. Just moving on final...
[indiscernible] so this would be broadly INR 24,000 crores into 60, 65 basis points. Yes, so around about INR 140 crores, INR 150 crores annually, so around about INR 40 crores on a quarterly basis is the run rate we are running at right now.
Okay. Sure. Finally just moving on the broking business, you reported a quarter-on-quarter decline in cash bucket volumes of something around 10%, 11%. So just trying to kind of understand how should one be thinking about it. Very interestingly, 5Paisa, which was kind of a part of IIFL sometime back has reported like a 19% volume growth in the tax segment. So I was just wondering as to how should one be thinking about it, is the market moving towards the 5Paisa kind of a model, or -- and how would this company then post-separation layout?
So I think this segment of the market is moving towards discount brokerage. And you will see that -- how quickly [indiscernible] emerged as the larger player [indiscernible]. But I have a feeling that there is still -- so what will happen is the market will get divided in 2 parts. So the asset investors and, of course, starting from wealthy [indiscernible] who basically look for individual and personalized service and advice. And they realize a few basis points of cost is worth the advice and also the services they get. So on one end you see that incremental growth is coming from -- as I said, but as the whole story plays out fully, I think the account brokers will have [indiscernible] market share. But then there will still be a market, a significant segment of the market that will remain [indiscernible] starting from [indiscernible] basis, quickly gathering the market which was the -- these are very DIY kind of customers who prefer to do things on their own and why should they pay the full service brokerage.
Sure. And IIFL will remain focused on full service model?
Yes, absolutely.
The next question is from the Viral Shah from Credit Suisse.
Sunil Tirumalai from Credit Suisse. I have 2 questions to Karan. I just wanted to know that the presentation on Slide 22 is kind of different from what it used to be earlier. I just wanted some reconciliation. So the top left chart, breakup of wealth management assets earning up to 100%, is the breakdown of the previous slides 1.6 lakh crores? Is that right or is there something excluded from that?
No, [indiscernible] of 1.6 lakh crores.
Right. And over to the right hand side, breakup of AMC assets sit within this?
It's [indiscernible].
Okay. It's your AMC but you categorize this...
Yes, so the double counting which is reported which is on top of [indiscernible] the 1.16 lakh crores. Yes, so there will be 14. So our total asset will be 174, so [indiscernible]. Yes, so if I look at -- so the total asset will be 174, but off that INR 14,000 crores of our asset management assets have been distributed by the wealth management. So we knocked that off.
Okay. So out of total of INR 25,000 crores, INR 14,000 crores distributed in cost.
That's right. So that's why it's not processed and the net number is 1 60. [indiscernible] double [indiscernible].
Understood. And the second question, yes, so I mean you mentioned about how we are seeing investors put money in fixed income funds from equity funds. But is there a risk to that as well? I mean with not just market risk but even credit risk becoming an important factor for it?
Actually -- so, okay, as a firm, we have very, very low exposure to credit funds as a whole. I think our larger exposure is in the [indiscernible] to AAA funds as well as more asset based. Our exposure to open ended credit funds is extremely, extremely low [indiscernible]. But when I said last quarter this category is low, I meant including credit funds in there. So there's hardly any new [ opportunity ] into credit funds. So what really is [indiscernible]. Yes, in that sense, we got classified into 2 broad asset classes for the last quarter. The first asset classes, AAA, and within AAA, only 6 or 7 names. And everything else is quarter, [ positive, non-positive ]. So when I say 72% of the trades are debt, I'm only meaning this world, 72% of the trades are in this part. Everything else which has got a credit element to it, including debt, sits in the remaining 28%. So the remaining 28% is not only equity, it could include equity, it could include credit funds, it could include a AA plus insurance, it could include a private credit risk. So all of that is in the remaining 28%. 72% of the money is going into either AAA fixed names or AAA sovereign.
Right. And how do you read the market, does this -- going forward, is it going to remain like this or worsen from here with recent events?
Sunil, I -- from what I'm seeing from our client portfolios, no, all the new money, we've brought in a lot of new clients, we've brought over the last few months. Even today as I talk, more than 85% to 90% of the portfolios are sitting in practically [indiscernible] waiting for a better time to deploy. Or at best, sitting in AAA and sitting aside. So with that sense, the level of activity is dropping. I personally, don't see it changing massively before the elections at least. I think that, that kind of a broader slowdown in activity might continue at least until the election. And after that, obviously, [indiscernible] or we need to see some more clarity or definite conclusive view across the world in terms of some volatility falling off. Because otherwise, I really don't see the mindset in terms of investments changing rapidly within the next 30 to 60 years.
Right. And lastly, the -- did I get it right that your -- you said that the overall retention yield of 75 basis points, which is fund based plus non-fund based, that should remain in this range of 75.
Yes, indiscernible] there is obviously -- it's an estimate, it could be minus 5 or plus 7, 8 because the advisory model will throw off its own vagaries and challenges over the next 1 year. But given my test marketing and the fact that we moved INR 7,000 crores in the last 2 months, last 45 days actually, I think it's a -- based on those data points, I think it's a fair enough estimate to assume the 75 basis points is [indiscernible]. But what you have to appreciate is that 75 basis points is dependent on any kind of retrospection or dilutions the manufactured is zero. So it's actually reduction with the -- we have a cost [indiscernible] direct clients, and ultimately [indiscernible]. So effectively, in a sense, we are kind of killing our [indiscernible], but redirecting our clients to, even for alternate plans to come into direct plan. So the ability of those -- of that retention to stay becomes very, very high, and practically non-dependent on the manufacturer.
[Operator Instructions]. The next question is from Ashwin Bhalla with HSBC.
This is Ashwin Bhalla in for HSBC Asset Management. So my question is regarding the asset quality. So you refer to the real estate part, but even if I look at the other segments, you've seen asset quality deteriorate quite sharply, like for instance, CD, your net NPA has gone up from 2.9 to 4.4. So any color on that in terms of the geography or any segments there which has caused that [ step ], because other players in that segment have not reported. And also on the real estate asset quality itself, I just wanted to check because affordable liquidity situation, kind of big responsibility. But wouldn't a lot of that just have flown in the 0 to 90 bucket in the last quarter? And so I mean is that full effect sort of yet to play out because some of that 0 to 90 will also now flow into the NPA bucket in the current quarter?
So specifically in the commercial vehicle, it wasn't really a challenging quarter. And historically, you've seen last year, also the last quarter [indiscernible] current quarter [indiscernible]. This quarter I think couple of things happened, I think, a, a lot of vehicle we had in stock could not be sold because typically, they depend on some other smaller NBFCs to fund [indiscernible] which due to the credit tightness was not helpful coming. So this [indiscernible] this kind of volumes also were down in the last quarter, so that's also [indiscernible]. We are hoping that this quarter, the numbers of CDs would come down.
And on the real estate?
Yes, so real estate, I've already spoken couple of times on that, that the last quarter was an extraordinary quarter in terms of liquidity and the state of real estate. But we are confident that real estate is going to get us back and the tightness we are seeing will reduce and the NPAs in real estate [indiscernible] in the next few quarters will come down to that level.
Okay. And just one question on the...
So again, this is not an accident, not a crisis and another set of new [indiscernible] nobody has studied that. But in the normal [indiscernible] there's things that today [indiscernible] last few week and I think it gets better. So and that's what we are hoping.
Just one additional question. In terms of the availability of funds from, let's say the banking channel, how has that been? Like how much of incremental lines would -- you've got sanctioned let's say during the last quarter and up till now? And also like how do you see that path of that and what's your [indiscernible] bank lines for that?
So banks are focusing on securitizing. So what they are doing is their incremental mutual funds [indiscernible] do so buy assets from NBFC. I'll let Prabodh add some more details on that.
Yes, so we have, as I mentioned in the call, we have sanctioned an undrawn credit line of close to INR 3,000 crores. So we have actually got -- this is a combination of time [indiscernible] for direct settlement as well as for term loans. So we have some various [indiscernible] banks, pension lines of -- for [indiscernible] for our home loan, for our commercial vehicle, SME, et cetera. So that's a pretty large pipeline which will fill up next quarter.
The next question is from the line of Megha Hariramani with PI Square Investments.
Yes, my question is on the Q4. How does that look like? I mean, do we see any pressure in the next quarter? And second on the IIFL Wealth, how do we plan to expand or probably grow this vertical? I know you've been answering a lot of questions on this, but just in a nutshell, if you can say what are we focusing on and how do we see the income on the advisory side or on maybe other income, fee income that we get, how do we see that expanding?
So I think expansion on the wealth management side is essentially going to be a function of 2 or 3 things. The first function of expansion is essentially going to happen through deep [indiscernible] because it is beyond the top tier cities. And we're seeing a lot of traction in the last 6 months in these cities. So for example, [indiscernible] we've seen massive traction build up. And I think a large part of the wealth which is specifically being, I guess informally invested in [ ICBs ] or in fixed deposits or in real estate, so it's finding its way into financial assets [indiscernible]. Second, across and irrespective of all the chaos and mayhem in the market, the quantum of new money coming to be invested continues to be very, very strong. Even now on nearly unlisted [indiscernible], a couple of transactions in 15 days were not people -- exhibited businesses are ending up with a large amount of capital in the second reform. So that money continues to be fairly large. And we continue to have close to around about 70% to 75% incremental market share where we're in charge of the, I guess the lead managers, lead lenders or at least a large manager of the money for all these cases. Currently I think, as I said [indiscernible] asset management side I think that's a business which for us can, over the next 18 to 24 months, grow 3 to 4 points from here. There, obviously, our investment is required in identifying the right people to manage the right strategy. So in that sense, [indiscernible] coming in over the last 6 months have enabled us to grow that business well. And as we build out that business, we also recently closed a private equity fund of around INR 1,000 crores. A couple of [indiscernible] great managers, specialists managing properly second [indiscernible]. The first one, we had a great experience, both in terms of the government and [indiscernible]. So those are strategies which I think will continue to do extremely well. In terms of advisory, as I said earlier, I think overall the end of [indiscernible], the average fee on a consistent basis will be higher than under the broker distribution model. But as we stated, 9, 12 months to kind of play out before it [indiscernible] can be 75, 80 basis points.
Okay. And the first question was on Q4, how do we see the next quarter? Will it be under pressure as compared to the last year March quarter?
So take the [indiscernible] activity and [indiscernible] and like last 2 days, [indiscernible] was affected. But on the whole, I think last quarter was extraordinary in terms of [indiscernible] dip in the market. So we think this quarter should be definitely better than the last quarter. I think they are not general [indiscernible] used to be if people bought it back, but still space will be staying more positive.
The next question is from [ Syel Shah ] Edelweiss Asset Management.
Firstly on the [indiscernible] side, this quarter we have added about 40 [indiscernible] and in the last 1 year we have added about 70 to 80 [indiscernible] but our implied cost is going down year-over-year. Can you put some light on that?
Yes, so this year [indiscernible] this quarter [indiscernible] the addition is 29 because of the initiation of wealth advisor.
Yes, but whole year it was 70 to 80 [indiscernible] look at the number. And then our cost is -- year-over-year is going down, so...
Okay. So there is -- in large [indiscernible] cost because of the relative bonus provision available. It is a function of the incremental profit book breakeven coming down.
Okay. And sir, our PAT also falling on the real side, it's about 15 to 18 these few quarter. How do you see that going forward?
So I already addressed that mostly through the call. But that is a function eventually of the broad retention and margins on both the funds base as well as on the sales side, so it is largely a draw down from the fact that the retention on asset sales in the region of 60, 65 basis points as compared to 75 to 80 basis points in the previous quarter.
So how do you see that going forward?
So as I said, I -- the level of activities largely benefits through an extreme position, as extreme as the previous quarter with 70%, 75% in AAA and AAA bonds only. Then the [indiscernible] tend to be muted, but it's something which is once in a blue moon. Last I saw it in the second quarter of 2013. This may continue for another quarter or so. But as long as the net flows continue to be positive, the retentions bounce back sooner than later.
Okay. On our asset quality front, this quarter there has been [indiscernible] about [ 150 ] this quarter-on-quarter, and [indiscernible] come from real estate and CD financing. What -- where do we see it going forward? Are we expecting the [indiscernible] is likely to continue or what would be the -- our call on that?
So overall, I think again through the quality of the said real estate has been -- has seen a very challenging quarter. But underlying assets are good, and [indiscernible] or some of these things also have external dependency in terms of getting sorted out. [indiscernible] retail businesses like CD, et cetera, and sensing bigger times ahead. We do see fourth quarter being the [ worst ] quarter of the last few years. So that's how we look at it, the Q4.
Sir, could you quantify a number of [indiscernible] that have been [indiscernible] in this quarter?
No, I think -- so we have lots of -- the number of [indiscernible] are quantifiable here.
Okay. Sir, lastly on the credit cost, this quarter [indiscernible] last year, we had enough costing very [indiscernible]. How do we see [indiscernible] FY '19?
So, sorry, I lost your question. Calculated cost is high.
Yes, credit cost is [indiscernible] mainly because of [indiscernible] in the year, but how do we see the Q4 FY '19 and FY '20?
No, I think if you look at our credit losses, then there is, what is it, 1%?
[indiscernible]
And is that for the full year?
No, for the quarter
For the quarter. Given the profile, so what happens that if you really look at SME and other product category, there the credit losses are high, but they are made up by higher yields as well. So it might taper off because, as we have -- the last couple of quarters have been difficult. But maybe the longer term, if you see our historical trend here in the data [indiscernible] 80 basis points or whatever, you can see that [indiscernible] is plus/minus 20 basis points [indiscernible] should come back to.
Due to time restraints, we'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you so much. Thanks everybody for being on the call, and if you need any more information regarding the business, please feel free to get in touch with our Investor Relations. Have a good day, bye-bye. Thank you.
Thank you very much. On behalf of IIFL Holdings Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.