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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, and welcome to the IIFL Finance Limited Q4 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the management team for the opening comments. Thank you, and over to you.
Good afternoon, everyone. On behalf of Team IIFL Finance, I thank all of you for joining us on this call. I am Rajesh Rajak, CFO; accompanied by Nirmal Jain, our Chairman and Whole-Time Managing Director; Sumit Bali, CEO; and Anujeet Kudva, CRO. I will now pass the call to our Chairman to comment on overview of the group's strategy and plans.
Thank you, Rajesh. All right. Thanks, and welcome to all the participants, all the investors. And we have equity as well as debt investors on this call. I think I won't take much time on COVID-19 because everybody has lots more information on this. But one thing is sure, that nobody knows what's going to happen in the future. So the uncertainty has never been higher, and nobody has a vague -- or a clue also what's going to happen. And under these circumstances, we still have to plan for future. And this time, I think we have done a lot of internal brainstorming in our strategy discussion, even at Board level. So in our presentation, I'll just take you through the few slides, which are different and which can be a completely -- business model, we can -- that can [ begin standing, that can rely standing ] for the business. And further, I'll take you through the thought process that we have. And so if you already have presentation with you, these are -- I'll be covering from Slide 20 to Slide 36. And even if it goes higher, you can just listen.So today, in terms of risk, as I said, that the future is so uncertain, that everybody has no clue how and when things will sort out. So on one hand, we have a virus and pandemic which is going to pan out in a way that nobody knows today. And then on the other hand, we have response of Government of India as well as RBI. [ As well you know ], they have provided for some liquidity. There are number of schemes have been announced. And [ many lines ] and there are schemes, and the way they get executed, a lot of lessons in terms of the intent and the way execution happens. And at the same time, there is nothing that government has done till now for the -- to make up for the loss of income of MSME or very small businesses that have been impacted. So where in terms of risk, if you look at the worst-possible or worst-case scenario, and then there are 5 major areas that we identify. One is that the slowdown and the recession or depression, whatever you call it, in the economy, which is quite possible, can cause a significant deterioration in the quality of assets. And in terms of business flows or the real estate projects, as well as maybe to some extent, home loan, can get impacted by this. The two, NBFC liquidity crisis has been there for now 20 months. Things got a little better in between, but they again deteriorated. And today, the banks are risk-averse, and they perceive MSMEs to be risky businesses. So NBFC liquidly crisis may not have an easy answer or easy solution. Many times, when government pushes liquidity, it ease for a month or 2, and then something can happen, and again, it can get into a crisis. So we believe we are in a sector where liquidity problems can be continuous and perennial, and one has to really take that into account. Currently, the negative sentiment of our financial sector has impacted the stock conditions, and obviously, that limits our ability to raise equity. And even with significant dilution you can get with more equity, will never solve the problem. Number four is now, it's going to be uneven playing field because as we have seen that not only in NBFC, even in banks, the money and the deposit is flowing into a handful of banks, maybe 1, 2 or 3 or maybe 4, like State Bank of India on a large base. I mean, they are the largest bank. They're almost about 20%, 25% of the volume [ of deposits ], there is [ 800% ] increase in the month of April. So if this kind of risk-averse for [ small business ] continues, there will be a handful of banks and maybe very few NBFCs that probably will have the liquidity and money, and some of those are getting money at very cheap rate; and there are many other NBFCs that are finding it difficult to raise any liquidity. So this kind of uneven playing field can happen. And the fifth is, as the lockdown continues for a very long time, people are working from home, there are operational, information technology and cybersecurity and all kind of risks. So in these 5 risks that are major risks that we talk about, let's not lose sight of opportunities. And in fact, there's no crisis which has -- I mean, at least I still maintain that there haven't been any crisis which did not have opportunities that are in them. Our volume's up. In fact, digital technology and e-everything, whether it's eKYC or eSign, e-documentation, now is getting accelerated. And having invested a lot in digital technology has being pioneer in many tech -- many of these technologies, we are quite excited by this. The paperless, physical presence-less, [ virtual ] businesses and all those things can now become possible. Although technology existed, but there was reluctance, there was resistance to adopt it wholeheartedly. So these things are changing. Two, banks are getting huge liquidity. As we have seen, that there are INR 8.5 lakh crores of surplus bank moneys with RBI that's just earning about 3 -- already 3.25% or [ 3.35% ] currently. Obviously, they can't continue this kind of scenario for too long because their margins will be impacted. And obviously, they have to find -- even if they go on to bank, NBFC, they won't find retail assets because the economy is -- we aren't seeing too many wholesale assets or wholesale projects asking for funding. And these retail assets, they don't have the last mile connectivity with the customer, then companies like us with huge network will be there in demand. I mean, we can source assets for them. Then our third opportunity is unprecedented cost-saving opportunity. When people work from home, their whole -- and what we've seen in the last couple of months, you still have costs. People are working, sometimes the productivity is higher because 30%, 35% of the time, they were losing in commuting with their route. It also allows you to do delayering and create a flatter organization because, in office, people think that 10 people may need a team leader, but then realize that people working from home or a remote business, telecommuting and all those things, can save a lot of cost. Our fourth and last, as I -- the consolidation which will happen because of these kind of, as I spoke about, [ borderline ] and of the front vessel of the confidence, in the trust. And then the capital constraint which will cause capacity constraint, so it will remain, smaller NBFCs and many smaller private sector banks also, will find it difficult to continue their lending operations. And therefore, those who survive will have opportunities because, on the supply side, we will see contractions. Whereas on demand side as things recover, hopefully expansion will again start. Now the fifth thing is I know people -- what we have seen in the last couple of months, at least in our group company, that a lot of money has started flowing into mutual funds, stock markets, and many new customers have started coming to the market. And actually, our hypothesis is that people are uncertain about the future, they start spending less and saving more. Then this creates a possible opportunity for companies like us, where all our branches are also named as loans and investment center, where we get significant referral fee from the group company for cross-selling investment and insurance plans. So in this kind of scenario, what are we doing? So in fact, the new business model that we work on, and it's a -- pun is intended, but it's also a name that we want to build: A COVID organization. And the COVID, CO stands for capital-optimized and VI stands for value innovation. So it's a capital-optimized, value innovation-driven organization. So let me -- broadly what it is. We own the customer, but sell the loan. Then we have a revenue model which is rising stream of spread income, or the difference between the yield and the cost, the rate at which we have sold an asset and the rate at which we [ file ] the customer and also the cross-sell income because we own the customer. In fact, as many of you who have been tracking the company would know, that almost 40% of our loan AUM is already sold to bank. And this is something, if you go out on this business model, we can take it to, what our target could be, to 75%, 80%, and the remaining money can be just funded by general accrual. Now we own asset portfolio which is not bound to [ said portion ], is now ring-fenced it and just be the sponsor to the fund or an SPV and try and release capital. Now this is what we started earlier, while unfortunately, because of the COVID-19 disruption, this thing was further delayed. But still as soon as things get normal, we have to complete this project. And there are quite a few funds who are interested as we are of our objective yield, and of course, as we can be a sponsor for these kind of fund or SPV. So maybe broadly we target now, these are things which are unprecedented, but at least, we can say that we keep a 9-month target to forge bank relationships, align workflow, integrate technology and work out this COVID new business model. So when you say, capital-optimized, what does this mean? IIFL branch network of 2,377 branches, 430 were started in last 1 year, which again, throughout the year, we had liquidity problem, but we are convinced about the retail credit in this country, and we kept growing, and 25 states, 600 cities and towns covered. We can leverage our network to source the retail assets, and banks get relatively superior quality of assets, not only because of our network, but because of our expertise and understanding of the business and priority sector retail assets also. So within the range of the relationship, this is something that we can do with multiple banks. So it's a capital-light NBFC which owns the customer. And we can do rapid technology integration because all banks have technology systems which are -- were taken from large technology companies, or some of them are proprietary component. Our advantage is that we have [ people ] team and all our technologies in-house. And therefore, it has given us an advantage to integrate and be flexible. Now when banks are acquiring access using [ MBL ], they are very keen. We have seen in last 18, 20 months that they have been a leading buyer of assets all the time because they [ have funds to spend ] and they don't have retail assets, so there is a direct assignment of loan assets. RBI has announced [ fund-lending ] scheme where they just fund us and then we become a priority sector for them. We generate -- we originate assets and give it to them. There's also refinancing available for [ when it should be up ]. And also co-lending, which has not taken off. But another model, which is -- as the origination itself, we can give it to the bank, in a way act like an agent. But it's not a [ deals ] agent, but it's a lot more than that because what we are doing is that you have built credit underwriting effort, banks guidelines and extra that you do, but also you service the customers, you do the collection. And throughout the life cycle of the customer, you are engaged with the customer. And of course, we will redesign to meet the requirements of each individual partner bank. So this is the capital-optimized model that I'm talking about. In term of value innovation, we are laser-focused on the few products that are our core: Home loan, business loan and gold loan. We already have 40 lakh, or 4 million, customers. If we focus on this, then we achieve scale. Now also, we have seen that the flexible-staffing, work-from-home can save cost. We have invested a lot in digital technology and automating the processes that gives us a cost advantage. From customers' point of view, we've become a one-stop shop. We can offer them all the loan products at the best rate because we are releasing it to the bank, where we can get them, for our high credit score customers, the best possible rate. We have a lifelong engagement with the customer and can sell multiple products to them. And as I said, investment product expertise is there in the group. We have a unique moat in loan origination and loan collection. There are many startups who have come and talk about their business model, but we have been there for more than 2 decades in the industry. And our physical network of such large number of branches give us direct contact with the customer and understanding of how actually the credit underwriting standards have been implemented. Our digital presence through website and app is also very strong. There are millions of people who use our app and website. We have a proprietary technology which is tablet which works and gives a very high level of security, because in this, we have invested over the last 3 years. So even in our branches, there are any PCs or cable provided, people work on mobile, but they are very well-controlled delivery. And then they have centralized [ information systems ]. So this is the moat we have, and loan origination, collection and all that we can do. The business model is very ambitious. It's something which is, in a way, revolutionary. And what is our dream and how ambitious this is? I can summarize what our dream can be, to achieve in 3 years' time in 3 words, [ get our head around this ], it will sound very ambitious for even larger models, but if it works really well, then we can become a debt-free NBFC. So even if we don't achieve 100% of our dream, even 30% or 80%, 60%, we would have gone and created a completely different business model, and which is so capital-light. When I started my career, [ and this sounds industry ], and can really -- I can understand that, I appreciate, the pleasure in terms of working in a business where you don't need capital to grow the business. So that's the business model that we are going to work on. Now very quickly take you through the liquidity, where -- [ liquidity, you talk about? ] Okay. Okay. One more section that we have added because there's a lot of questions about the real estate project that we have. So we appointed JLL and PwC to do our diligence in last quarter on each and every project. And we appointed 2 more [ SMPs ] to do them on a continued basis. And we have included certain analysis based on stage of project completion; the target segment, whether it's affordable, mid-income or high income; the geographical distribution; the developer track record; and also sensitivity to price fall, which can happen because of COVID and resultant slowdown in the economy. So if you really look at it very broadly, I think you can go through the slides, I won't take much of your time. But 92% of projects that we finance are residential. And therefore, our vulnerability to commercial price fall, which is now feared more, is much lesser. 60% of our projects are in advanced stage of completion. And these are the project-by-project details if you want them. 76% of projects are affordable, where the unit value is less than [ total housing ] in most of the cities like Bangalore, Hyderabad, less than sort of INR 1 crore in Delhi and Bangalore and Kolkata; but in other cities, it is INR 50 lakhs; and in Bombay, less than INR 2 crore. So there's the classification of affordable housing. Suburbs of Mumbai and Gurgaon which are in high density regions, they account for 52% of our funded projects. While 93% of developments that we have funded have more than 10 years of successful track record. And 97% of funded projects, even if you provide for, say, 25% fall in the real estate prices of Mumbai or in the commercial prices will fall by 20% or have a correction like this, then also, they will have a cover of more than 1x for our loan receive level. So this was a little bit of deep dive into the real estate project that we have. I'll hand it over to Rajesh, our CFO, to take you through a little bit more general details of our financials, and then we can open it for Q&A. Thank you.
Thank you, Nirmal. I'll just give you all a brief update on the business, liquidity and the COVID impact and other sections. On business side, IIFL Finance net profit was INR 216 crores in the fourth quarter, up 16% quarter-on-quarter and flat on a year-on-year basis. Net profit for the year was INR 756 crore, up 8% year-on-year. This was excluding onetime impact of COVID-19 provision of INR 211 crore net of tax, a deferred tax reversal of INR 50 crores and gain on divestment of the divestment of CV business of nearly INR 94 crores in the previous year. Loan AUM grew 9% year-on-year and 5% quarter-on-quarter to INR 37,951 crore. All segments grew faster at 12% year-on-year to INR 32,773 crore. Retail loans, including consumer loans and small business finance, constituted 88% of our loan book. Our Tier 1 capital adequacy stands at 13.6% and total capital adequacy stands at 18.2%. Primary drivers of our AUM growth are gold loans, which grew by 47%; and microfinance loans, which grew by 49% year-on-year. On the other hand, construction and real estate finance and capital market finance declined on a year-on-year basis. In home loans, our focus remains primarily on small-ticket loans in salaried and self-employed sections. The fastest-growing segment in home loans is the affordable home loan segment or Swaraj loans with average ticket size of INR 13 lakhs. IIFL Home Finance has been a significant player in the Pradhan Mantri Awas Yojana CLSS scheme. Till date, it has approved benefits to 38,300 customers and disbursed subsidies of nearly INR 900 crores. Another strong characteristic of our loan book is the large proportion of loans that are compliant with RBI's PSL norms. About 63% of our home loans, 48% of business loans and 91% of microfinance loans are PSL-compliant. In aggregate, clearly 43% of our loans are PSL-compliant. The large share of retail and PSL-compliant loans are of significant value in the current environment, where we can sell down these loans to raise long-term resources. Our average cost of borrowings at 9.4% for the quarter remained flat Q-on-Q; and for the year, rose approximately 40 basis points. We added 430 new branches during the year, taking the total to 2,377 branches. Consolidated gross NPAs and net NPAs, recognized as [ per RBI's prudential ] loans, and provisioned as per ECL metric prescribed in Ind AS, stood at 2.31% and 0.97% as of 31st March. This was against 1.96% and 0.63% as of March 31, 2019. Provision coverage, including standard assets provisioned under the Ind AS bounds of stage 3 assets, was 128% for the quarter. Coverage, excluding the additional provision made for COVID impact, still stands at 88%. Return on assets for the year was 2.2%, and ROE was 16.9%, excluding impact of the one-off items. A brief update on liquidity. Access to long-term funding has -- sorry, we raised INR 1,169 crore on term loans and refinanced from banks. During the quarter, we also raised $400 million or INR 2,855 crores through a medium-term note issue. We continue to have little exposure to commercial paper. Our funding mix is well diversified, including 28% from NCDs, which includes subordinated debt and MTN issue; 35% from bank term loans refinance and NHB refinance and for working capital finance; and 23% from securitization and assignment. We completed securitization and assignment transactions amounting to INR 2,308 crore in quarter 4 compared to INR 2,382 crore in quarter 3, INR 3,721 crores in quarter 2 and INR 4,595 crore in quarter 1. We sold down both PSL and non-PSL loans in 5 product categories, including home loan, LAP, SME, gold and microfinance to public sector, private and foreign banks during the year. A brief update of COVID impact. As of 25th May, 58% of our consider -- consolidated book was under moratorium. An additional provision of INR 282 crore was made based on increasing probability of default by 20% to 25%, depending on the product, for all retail products. For wholesale products, we have increased PD and LTV across all customers based on a detailed case-by-case analysis. As lockdown starts to lift and as and when RBI and government measures start reaching end customers, we expect things to start improving. Brief update on digital. We have continued our focus on digitization encompassing every aspect of the customer loan journey. During the quarter, we launched one-click digital personal loans to help customers with a good track record with their short-term funding needs. We are also offering our existing home and gold loan customers top-up loans through an end-to-end digital process. IIFL Loans app is being increasingly used for various transactions by customers and has been especially beneficial during the lockdowns, giving customers ease and convenience of access. We have about 150,000 average monthly active users on the app and have maintained ratings of 4-plus on Android and iOS app stores. Analytics. In Analytics, we continue to drive the use of credit decisioning engine, artificial intelligence and machine learning through behavioral collection and fraud scorecards. This has continued focus on cross-sell and win-back. With our analytically driven gold loans, win backs are generating strong volumes for both gold business as well as group-wide products. During the quarter, we also increased the efforts to -- onto campaigns related to promoting digital collections and digital disbursements. That brings an end to the update. We'll now open the floor for questions and answers.
[Operator Instructions] The first question is from the line of [ Rashiv Shah from Castro Capital ].
Could you shed some light on how you reached this COVID provisions of INR 282 crore? And some steps that you would have done for your business segment apart from the real estate.
[ I'll -- comment ]
So when we did our COVID provision, we did a detailed analysis of our retail portfolio. So within the retail portfolio, we increased our PDs by about 20% to 25%. And when we looked at our wholesale portfolio, we did a case-by-case analysis. And there, again, the PDs and LTVs were increased to give impact to the amount of stress which could likely arise due to the COVID.
And what about your -- business loans, the small business loans?
First, within the small business loans, we increased the PD by 25% for the unsecured rate to factor in perhaps increase in our future for greater default.
Okay. And could you also share some of the -- I mean, what percentage of your business loans or microfinance would be in the financial services? And could you give us some idea of what kind of loans you've given in the business loans and on microfinance?
So our business loans are pretty granular. These are mostly sub-INR 15 lakh loan, and these are also covered under the CGTMSE scheme from SIDBI. And indeed, that goes to about 19% to 20%. Overall, the book comprises 2/3 of loan against property and 1/3 against business loan. Your second part of the question was on microfinance. That's largely for income-generation activity for self-help groups, combining of women.
Okay. Okay. All right. And I have a question on liquidity front. So on your Slide #3, you have said that you have bank equivalent of INR 1,900 crores and undrawn credit lines of INR 3,500 crores.
Yes. The INR 3,500 crores as of 31st March, that slide explains that. And the INR 2,200 crores in Slide #29, [ this is the main. ]
Okay, okay. All right. because...
Some of the credit line would has been used to repay the loans outstanding in April and May.
Okay. So basically, it was the time line is different. [ The amount is not ]...
As of 25th May. And Chart #13, as of the financial year, 31st March.
The next question is from the line of [ Venu Agarwal from Bank ].
Again, I wanted to take you back to Slide 29. Can you please run us through the various potential scenarios in it -- in this with respect to both the MF / Insurance and the Banks / FIs? How do you see this panning out? And in addition to this, would also be useful to get some scenarios from you on the asset side. So I'm basically looking at your net funding situation. And how do you see that panning out, given the moratorium which is there in the book. Again, nobody has full visibility on when the lockdowns, et cetera, will end, but what are you seeing? And how are you sort of looking at it?
So there is a lot of uncertainty about whether we are still having moratorium or not. So the industry has been presenting to government, as well as RBI, several presentations that happened because it becomes very unfair that RBI makes announcement that all NBFC customers can take moratorium, but NBFCs will get moratorium from their principal lender bank. But most of the banks now, I think, have -- are looking at moratorium tentatively. Some of the banks are already, some of the banks are in the process of it. So what we have done in the chart is that we have separated the loans which are due to banks. And when I say [ have high distribution ] like NSB, who will also fall upon the same pattern, and then there are loans, the difference, in mutual fund and insurance companies, where the bonds and entities are -- this a public issue, to public. So the bottom, funding there, we can't -- we don't see any moratorium possibility. But the upper part is basically loans which are due to banks where I think most likely scenario now is that the moratorium will be given. So if you look at, say, for July 1st, and we have INR 286 crore due to, say, a mutual fund and insurance company. And we have INR 1,271 crore [ this is somewhat better ]. So maybe INR 1,271 crore minus INR 286 crore is what is due to banks. That is really [ at risk to moratorium ]. So if you really look at it, if we get the moratorium from the banks, that's likely, then our liquidity will cover even beyond December '20. If we don't get any moratorium, it might be up to September -- or whatever we have or anything in between. So these are the targets.
But obviously, this assumes 0 inflows from the asset side, right? This is as per your existing approach...
That's right. We are -- [ that's right so, assumes, okay ] 0 flows from asset side, but okay. And also, we have operating costs of running the business. But net, even in with the [ year out ], but we also have a [ system ]. So we have also continued to deal some new loans. But for -- hypothetically, if we stop disbursing new loan and we keep only collecting behind are expected from our existing loan, how much are we collecting, Sumit, from the working business?
[ Probably crores ], INR 250-odd crores.
On a net basis, we'll have [ INR 250 crore ] this coming term, even after moratorium.
And your ongoing costs are, per month?
[ So first off ] around INR 70 crores, INR 80 crores, maybe, that [ is result after investment ].
Okay. So that's very useful. The other question that I had is with respect to the various schemes that the government has announced. It was starting with the TLTRO, et cetera, which didn't really have the desired impact, and then they have announced subsequent schemes. So can you give us some sense of what could be the impact on you as an NBFC? I'm not talking about your eventual customers. But as you as an NBFC, how are you looking at it?
No, I think there are a lot of different schemes that we, as an NBFC, are [ helped with ] because the one scheme is only for AA and better or not for AAA. So we are AA-evaluated, so we obviously can feel the benefit from that. So there are a number of schemes, so there is TLTRO, and the INR 30,000 crores in liquidity finance for NBFCs for 3 months but might get extended. Why they give us 3 months? Because to meet the moratorium equivalent. There's the INR 45,000 crore piece of another scheme, which is partial guarantee, a different format where it will give partial guarantee only for a pool where we are selling certain assets to bank, but this can be even for bonds or securities issued by GSEs. And on top of that, there is INR 3 lakh crore of MSME working capital loans which can be guaranteed. So there, to our existing customers where we give an MSME loan, we do a [ mutual fund, 30%, 20% loan, ] and that is -- that part of loan or the last line loan is guaranteed by the government. So the [ current ] schemes, the final guideline are coming. And then, of course, you have more TLTRO. All these things put together, I think, a very -- and there's a very positive light in next few days, next few weeks. We still have some good liquidity coming from these -- from banks and some other institutions.
Do you have sort of like very rough ballpark numbers? I'm not tying you to any particular number, but just one of -- just like you have very nicely illustrated in the Chart 29 about various liabilities, is there any sort of range you can give us on what additional sort of direct benefit you can get from this? Excluding the INR 3 lakh crore MSME working capital guarantees, because that probably goes to MSMEs directly. But as far as you are concerned, is there any scenario you can give us?
Yes. So from all these schemes, we can get a lot of difference. We really don't know how banks have the process [ in that level ]. But maybe out of around INR 3,000 crores, INR 2,000 crores, INR 3,000 crores we should get. And on top of that, we also have a normal application, which are about -- on lending as well as in our term lending, which is in the normal course. So no, I think our target that it would be INR 5,000 crores to INR 6,000 crores in the next 4 to 6 weeks and seek that kind of buffer in case, I mean, [ that is of course ] we're trying to work for, so that we can continue to grow your book and feel comfortable with that.
Sorry, just to understand that. What you mean is that this cash and undrawn line cushion that you have INR 2,200 crores, you would hope to get it up to INR 5,000 crores to INR 6,000 crores in the coming weeks. Am I right to understand that?
Yes. INR 5,000 crores to INR 6,000 crores. Yes. You're right.
The next question is from the line of Anitha Rangan from HSBC Asset Management.
Just a few questions here. As I saw, you said that 58% of your customers have availed moratorium. So once the moratorium is off, by when do you expect that 100% will be restored? Say, between August to December, or is it August to March? When do you expect it to be restored?
So this figure is as of end of May. Our sense that we sell to our customers specifically, [ sector ]. I think they are [ already ] but there is some kind of opening up. So I think once this INR 3 lakh crore reaches the end customers, you will see that number of customers who avail moratorium will reduce [ moving forward ]. We've already started seeing activity which is worth now the NPV is historic low and the gold prices have gone up, we expect volume, probably after 3 months, [ come back ] 3 months, the situation should be pretty close to normal. Microfinance will take anywhere around 3 to 5 months in that [ term ]. So by same, I think 2 quarters from now, we should be about 80-odd percent of normalcy, depending on the collection side.
Okay. And you spoke that you also have to do some kind of disbursement. So is that like a part of your contractual obligations for the money which you have to disburse? Or it is like even like normal course of disbursements?
So we have had some disbursement linked to construction [ after ]. Now given that the process will be delayed, that also would get delayed. And then we don't have too much of undisposed asset or undisposed money. There is some in the real estate book, but very insignificant.
Like your disbursement which, is like, you have to, like, do, especially when it comes to construction finance per month?
No, there's home loan. That's supposing you got a home for [ INR 25 lakh ], we'll give [ loan which we flag, ] we keep paying. So we will keep the 80% loan. Then with every installment that you pay to the developer -- term, [ about ] 80% comes from the lender. But as I say, these things are very small. They're not really significant in [ as percent of book ].
Okay. Okay. And just one more. Out of this INR 1,159 crore which you have refinanced in Q4, how much would be like a refinance of, let's say, once the existing term loans are over and you get that substituted with a new loan or working capital refinance? And how much would be new, fresh sanctions of the new banks or completely new term loans?
Okay. We didn't quite get your question. Are you asking how much is renewable and how much is it...
Yes. How much is fresh loans? Yes.
Yes, I don't have that information right now for us. [ Fresh ].
Okay. Okay. And just one final notion. What are your thoughts on securitizations? Like because you have been doing securitization in a very robust manner until Q3. So I mean, what are your thoughts because in Q4, you haven't been able to do because of COVID situation and so on?
So securitization [ always ] is considered in the -- towards the end of the quarter. Unfortunately, in Q4, suddenly, came the standstill on 20th of March because the pipeline got delayed. You could still complete a few. But I think now, most of the banks are trying to work completely digitally and even without physical. But I think this will gain momentum as things move along. Normally, what happens, is the [ separation transitions ] will have agency leading, or sometimes, when we have our auditors basically audit. And sometimes, there is relevant checking of [ QIP file ] and the borrower. So all these processes, they work in a normal environment, but they slow down because of the lockdown.
The next question is from the line of SivaKumar, K. from Unifi Capital.
With respect to the home loan segment, what will be the salaried and self-employed bifurcation?
So 58% of AUM is salaried, 42% is self-employed.
Okay. And sir, in business loans, you said 2/3 are secured and 1/3 will be unsecured. Is that right?
Yes, that's right.
Okay. Sir, what is the rationale for giving a moratorium by default? Because that seems to be the reason why we are seeing a higher number or higher percentage of AUM getting into moratorium. And have you extended this moratorium until August again by default?
So we have asked the customers for opting in. So we have given them a choice. So that's the protocol we are following. And the number we've said, 58% as of May end. For the next quarter, we get to know in about 4 weeks' time.
Okay. And within business loans, is the moratorium higher in the unsecured part? Or is it equally distributed between secured and unsecured?
So it's slightly higher on the unsecured part.
Okay. Okay. And we see that in terms of GNPA, business loans has again spiked this quarter. Is that structurally worrying you in terms of how the asset quality has been performing over the last few quarters, business loans?
So when you look at it, there has been -- even before the COVID, the economy was soft. Post that, there has been further impact. Now given that 2/3 of the book is collateral-backed, which roughly runs at about 60-odd percent of NPV, and we assessed cash flows on the customer while giving loans, though it is on the past situation. And again, the 1/3 business which is a business loan is a higher-margin business. So this is a business where there will be something in times to come because these are loans given for generation of income. So last 2-odd months of develop of business activity would result in some pain in this segment. But we are also watching it closely because this INR 3 lakh crore, which is roughly 20% of the entire outstanding, once it reaches the customer, it will help them in restarting their business, which is -- and ease the cash flow for them because it has a staggered repayment tribute. So we'll have to wait and watch as to how things open up, how much time it takes to get to normalcy. But given that we have 2/3 of the book secured, 1/3 having higher margin, we are not unduly worried on this segment at all.
Okay. And the entirety of the business loans would qualify for that INR 3 lakh crore scheme?
Yes.
Got it. And now finally, one question on the construction finance book. We see that it has increased by 2% on a sequential basis, but the understanding was that we would actually bring it down over the next 6 months. So should we actually expect increase in the construction finance book going forward?
No, there are some disbursements that happened based on the -- where the pending approved amount is there. And this also [ data ] with the approval and with the -- in progress. But out of this, the collection was impacted for last 10 days. And many of these installments become due in the last 10 days, and that is what has impacted this. But it is unlikely to [ write ] -- actually, there is some resolution of some projects getting kind of moved. It could have fallen, but for certain lockdowns and things that really standstill. So under normal circumstances, should taking down.
Sir, what is the yield level for the gold loan book?
[ 19.67% ].
The next question is from the line of [ Ran Sunisha ] from BOB Capital Markets.
Some of my questions have been answered. My question is about the gold loans. Have we offered moratorium to our gold loan customers?
In case of gold loan -- the balances are closed for more than 2 months. Now they just opened. So the [ because normally ], even the customer want to pay digitally, but he won't do that till getting [ job back ]. So almost 82% of gold loan, if you see our slides, they are in the moratorium. But as the bank is open, now last 1 week and last -- we have seen a lot of traction on this. Almost 90% of our branches are open, customers are coming back, and hopefully, the moratoriums will go down now actually. And many customers will just pay their interest or [ gold loans ].
No, my only question there in fact, how can we offer moratorium on gold loan? Because moratorium is only to be extended on term loans and not on bullet loans, or bullet repayment loan?
Is that gold loan?
As per the RBI regulation, you can't offer moratorium on gold loans.
First of all, gold loan has multiple products. It's not necessarily just should be a term loan and a bullet loan because [ actually, there ] are repaid in a monthly installment also. And in this case, I think [ there is a restriction ] on bullet loans versus term loans. And most of our gold loan customers are also small businesses. They basically take a loan against a portion of gold.
No, I understand that. But gold loan, the understanding is that it's a bullet loan. And RBI clearly mentioned that the moratorium is to be extended for a term loan and not to a bullet loan.
A bullet loan is not a term loan? I don't think bullet loan is exclusive of term loan. So term loan can be paid in a bullet payment or it can be paid by monthly installment. Many of them, even if they borrow from banks, is a term loan but pay bullet. So bullet loan is a part of term loan.
Okay, sure. And -- sure. And what is the outlook from the gold loans as we go forward into FY '21? What kind of growth...
Very positive. Gold prices are holding up high, and higher as people need working capital to start their businesses or because they were impacted. But I think gold loan outlook is very good.
So any -- would you see a volume net growth or a value net growth?
Both.
The next question is from the line of Lucinda Zhou from Allianz Global Investors.
So my question is pretty similar to Anitha. I mean, it has been answered previously on the gold loan. Just want to understand also the percentage of AUM under moratorium for this gold loan that's actually pretty high as compared to one of your peers who have already announced results. Can I understand why? Is there more or rather less people paying via online apps? Or how do you see that?
We do think the company has invested in, how much is it? Can you share the number?
They mentioned that gold loans on the moratorium is a lot. I mean, it was an article on Bulldog, and then they mentioned that more people are willing to pay gold loan because it's -- so they do other loans as well, right? But more people are willing to pay gold loans than other loans because the LTV ratio is pretty low. And on top of that, they do not want that interest to roll on as well.
No. So what they are saying is right. But business calendar moratorium in this period because the branches were closed, branches were shut. So by default, they got into moratorium. And also what happens that in market, most of the loans, we collect interest on a monthly basis. So we have to put them in moratorium, and most of the customers would electronically agree for that. But as I said that since last 1 week, branches have started opening all over the country again. And we are only seeing there's a footfall of customers coming back and paying interest and paying -- so in all, as within the next few months, you'll see that the moratorium percentage in gold loan will go down significantly.
Okay. Okay. Then my next question is regarding your cost of funding. I know you mentioned about the cost of funding as of end of March. In the last 2 months and the worsening of the COVID situation, we have also seen some onshore funds being closed. So can we get a sense of how it's affected your cost of funding? And also in terms of the ability to extend the market.
So cost of funding has remained stable. In fact, this last year, 9.4%. So when we get refinanced from NHB and other institutions, we get them in a very good rate. Banks also, although there've been little. So there's a bit of a -- the entire decision making process has been stalled. So most of the banks have been waiting for the clear indications from government and RBI about who's going to authorize the risk. So it's not that they have said no. But fact of the matter is that new rules have been very slow in the last 2 months. We have raised some money, but not enough. But as we speak, and what we are seeing is that since last few days, last 1 week or a little more than that, most of the banks have become positive. They have starting looking at the proposal. They have started sending queries to us. And it looks like, it appears that in the next couple of weeks, we'll see good flow of money coming in on new rules.
Just to add to that, last quarter, 9.4% also includes the cost of funding for the MTN program, which was the higher, and that is an important diversification and was a main issue. So overall, as banks constitute larger and larger funding portion, the rates would be going down going forward.
The next question is from the line of [ Vivek Ramatisan ] from [ DSC Mutual Funds ].
Very good presentation. I would start with the strategic question. In terms of automation, whether it's automation execute, do you feel like you seeing any resistance because banks have already put in their infrastructure, and they have their political infrastructure. And so this getting a product from another institution is something that there'd be internal resistance, and that's why it's not taking off? And related to that is, in terms of the home loan business, is it a long-tenor loan, and NTC is generally not able to get over 3 years, 4 years at the very best. Is it best that this business moves to ultimately related organizations and banks?
Come again? What is home loan you're saying?
It's a long-tenor business. I mean, when you give a home loan, it's a 15-year loan or a 20-year loan. And then typically don't get that kind of tenor unless it's SPV financed, or one of its regulatory bodies. So [indiscernible] actually moves more particularly of traditional banks, we see a lot more of home loans and keep it on the books.
Okay. So let me answer both parts of your question. First, is that banks are expanding their infrastructure to give more loans to [indiscernible], they can source on their own. If they could, the 8.5 lakh crore, which is a hell lot of money for banks to have a negative carry and put it back with RBI and reverse report it. Also, the short-term GSEC record has fallen below even reverse reported now, the 6 months GSEC. So the fact of the matter is that, so no bank would like to carry liquidity and/or lessen their cost of funds, obviously. They could lag. So obvious, this country is very large. And the last-mile connectivity, the number of people, like companies like us employ 18,000 people. So it [indiscernible] so that we can get that kind of loan origination, probably need as many people. And we can receive 5% more or less efficient, but we need 18,000 people to replicate what we do. We've got 2,300 physical locations all over the country, obviously. So the fact of the matter is that the network, whatever banks have and NBFCs have, NBFCs are low in the system. It's 25 lakh crore, which almost like, amount-wise, we are talking about around $30 billion. So NBFCs as a network is very large. And also banks are [indiscernible] network, but this -- they can't reach up to everything. And that is our guidance, that we're willing to buy assets from NBFCs. So we're prepared to do as much as they can. But imagine, they obviously, can't double or triple that [indiscernible] to online. And so that's one. Secondly, housing demand, [indiscernible] no country, no economy, no system. We cannot [indiscernible] because it has to be normal because within the country, there are different types of risk assets and everything is still financed. So imagine, so you're in a bank, that's what I'm saying, there is a polarization, there are only 2, 3, 4 entities remain. Some of the [indiscernible] entities are there, maybe 1, 2, 3 or whatever. A country as big as this can never achieve a $0.5 trillion economy. Also, what happens that most of the customers won't qualify for this. So the 90% of borrowers, I guess, won't be [indiscernible] in terms of their credit score or whatever. Most of them still repay a loan, spend the need. But to say that whether it's a -- so it starts on the corporate borrowers. They are the ones who have funds or projects and expansion. Then we want to talk about MSMEs, who want to borrow for the businesses or indigenous ones who borrow for corporate need. If you restrict to AAA, just to give you some data points, out of distinct 10,000 rated companies, only 1.5% are AAA. 98.5% are not AAA. Then I think it'll be a disastrous situation for the economy.
No, I -- no, so I won't belabor this point. What you're saying is logical in the sense that [indiscernible] even the FDA of a bank in terms of its NBFC loans as [indiscernible] -- sorry, in terms of its SME loan, [indiscernible] on a private sector bank or an Ind AS 6 months loans. So it's a logical progress here. But somehow and I hope that progresses. And home loans, what I meant was, this search for liquidity, I mean, [indiscernible] lakh crores, because given the situation of NBFC getting advanced liquidity and current story at the moment. But I like your covert strategy, which makes it capital-light model. But I'll note the next question. In terms of...
Liquidity from NHB, whether like HBC limited, takes refinancing from [indiscernible], we take it. We get it at the same rate. And based on the underlying footprint, and not based on the rating of the housing parent company.
That's right. So..
Our portfolio is pretty affordable. Some of the loans, we have got a 5.5%, 6% also based on the underlying portfolio.
No. I agree. So in the sense there will be that component of regulated [indiscernible] and in fact, in TLTRO also, we believe that the regulators, it's NHB, certainly you kind of [indiscernible] going to play a bigger role than anything else. But more or less, and again, I just want to hear your thoughts on that. In terms of home loans, as well as micro finance, there's been the jump in gross NPAs. So I wanted to ask whether -- is it there [indiscernible], the non [indiscernible] segment and [indiscernible] 6 months?
So I think there is the industry-wide impact. One is that the 30 days or 60 days delever assets on 1st March got classified as this, but many of them under normal circumstances, would have got resolved. So the culture, and I mean this is how industry evolved, that people know that up to 90 days, not NPAs, and they might pay between 80 and 90 days kind of a thing. Secondly, even before COVID, [indiscernible] had a bit of a slowdown in our liquidity [indiscernible]. So what we are seeing is industry-wide phenomena. But having said this, we fared far better than the industry averages on the PL book. So if you put in a capital format and look at the regulation and quality of assets who are coming variable, you'll find that we did much better. Like in MSME, our GNPAs have gone about to 3.5%. But the banking sector is around 15% and for the mobile, more than 20%. And if I look at the average ticket size of our loan is more comparable to [indiscernible] loans [ 4, 5 ] typically. The video side is the one I'm talking about. So again, it's a process, which is a [indiscernible] process and also your collection infrastructure. Then in our branches, you have young people who go and collect more of the [indiscernible] and your digital infrastructure in terms of how do you vividly engage customers and make sure that our collections happen, your underwriting standards, which is our analytics. So they're very good at [indiscernible].
Yes. You also had a question on the micro finance. So micro finance, the increase primarily is accounted by what happened in Assam, so we started the business there. We have an insignificant, about 2% portfolio there. But there is -- there was a issue there. And also with the Mangalore region in Karnataka, so those 2 impacted it this quarter. Based on, most of the book is for income generation to rural customers. So therefore, we are clearly confident that this set of customers already had very good intention to pay. And they're very resilient even in the face of flood, cyclone, they've come back. And this time around, the disruption on the economic side is not too severe in the rural area. So we are fairly confident that as and when teams can operate, meet customers, this segment will also recover pretty quickly.
Sumit, that was very useful. The last question, since your COVID strategy's kind of as at [indiscernible] holding like a dense group in cricket, let me ask this question. In terms of [ RTS ], government support of banks and appreciate it, I mean, in one bank case installment, please don't take a deposit [indiscernible] in your private sector banks. But NBFCs have never got that kind of support. Is it possible that also that you might not look at the banking strategy going forward? So you have said that, of course, only a few banks have gotten deposits. But by and large, it seems more stable than the NBFC model.
No doubt about it, actually so we'll better evolve into a bank. And opportunity will be there to have a very new age, new era bank, which can be far more digital, far more customer-centric and much more lighter not only on capital, but on cost also. And we should look at an opportunity. And we can by -- in a way, if we -- this is our COVID strategy. We work very closely with bank, and meet the bank's credit standard, the bank offices, then the transformation is a little bit easier for us.
The next question is from the line of [indiscernible] from [indiscernible] Mutual Fund.
Two quick questions. So firstly, just to reconfirm, IIFL Home Finance announced INR 15 dividend, right?
Yes.
So just wanted to understand the rationale, it was increasing in home finance.
[indiscernible]
No, home finance. I mean home finance.
Home finance, yes. I think home finance is a subsidiary of IIFL Finance. So that dividend comes through the parent company, the parent company already has a dividend in the month of March.
No. Right. So my concern, so I just want to understand the rationale of, first, infusing equity into home finance business and then taking out 35% of the equity the next year in dividends. So just wanted to understand the rationale.
Okay. I'm not very sure of the number, 35% because the dividend payout has been around 15% to 35% as per our dividend policy, one. Two, what the track record of dividend also help you, I mean, this is now, what you're saying, the logical question, but the way it happens is, that when you go to banks and you go to LIC, then you go to NHB, saying that application, [indiscernible] were designed years ago, they look at our track record of profit and dividend. We have built a track record of dividend. That is one. Second, home finance is more than 30% of our business. So in the parent company, whatever dividend we have been giving, we don't want to reduce it. So it's better that we get dividend from the subsidiary companies in the proportion of profit made rather than the [indiscernible] from the stand-alone, with actually enough model business in the entire group.
Right. No. So my concern was so, in FY '18 as well as in FY '19, we had nothing for IIFL Home, I think, hardly announced anything. And in FY '19 itself, I think we -- so IIFL...
No, it's a good observation. But as long as outside shareholders are concerned, the dividend, which is given by IIFL Finance matters. And internally, that can be given out of dividend ratio from subsidiary companies, or out of stand-alone profitability. But as we have seen that the subsidiary businesses like micro finance and housing finance has become larger. So we will upstream the dividend so that we can maintain our dividend track record at the parent level to [indiscernible] shareholders.
Okay. And next one, for the RE book. So what I understand is around 61% of our book has [indiscernible] from moratorium. So just wanted to understand what percentage of the balance, 39%, would be in natural moratorium?
No. Because everybody has [indiscernible] the moratorium. And so it depends on how the whole crisis are unfolding. So actually, on 31st March, 11% on the moratorium, and now it's in large numbers, some more have opted for moratorium. It [indiscernible]
So just to answer that, the balance book we are talking about is that all our [indiscernible] loans are interest paid on quarterly. So there is no -- there was no moratorium on that. So that continues to be growth on the balance book. So the only ones which have opted for moratorium has been already mentioned rightly, [indiscernible]. The balance continues to [indiscernible].
The next question is from the line of [ Sneha Aravali ] from Barclays.
Just wanted to know what would be the percentage of digital collections you have to forward? And what is it now?
Yes, the [indiscernible] digital collection actually, because typically, the material is not [indiscernible] really recently.
And [indiscernible] COVID?
Well actually COVID, our business loans, home loans are more or less fully digital direct bank transfers from the customers, very small part of the cash collections. Home loan [indiscernible] where we can have physical connections. [indiscernible]
[indiscernible] digitization.
So 30% of home loan is digital and 60% is physical. But we are making a concerted effort to increase this 30% to a significantly higher number. By [indiscernible] the customers.
The next question is from the line of [indiscernible] from HSBC.
Yes. Just wanted to understand the difference. My first question on the liquidity slides. There are 2 slides, which is both 29 and 30. One is on debt repayment review and the others on ALM. So I'm just looking at the outflow numbers in the ALM slide versus the retail number, which are mentioned on Slide #29. So I mean I'm not able to understand the difference between...
The slide is up to December '20. It's just about 6 to 7 months. And the ALM slide is for 5 years and longer.
Right. But even if I look at, let's say, outflow in the next 6 months, that shows that about INR 6,300 crore in the Slide 30. And in Slide 29, if I look at the total number 20 during [indiscernible] [ 30 ] [indiscernible]
So there will be debt obligation. So that doesn't take care of any operational cost and other cash flows that we'll have. So there will be 4 difference there. But I think there are 5 or more slides that you take a look at the only 6-month component, and then it may be more to corresponding than that other slide, which is just up to December 2020.
Okay but then the outflow, which is...
It's only debt payments. So it won't take into account dividend, expenses, operating costs and other things.
Okay. This outflow, which you have mentioned, does that include securitization also?
Yes, that's right. So the full slide will have a separation outflow also, but the collection of the customer is given kind of a thing. So that is [indiscernible].
Right. And I just want to understand on this securitization piece. Like given the customers have opted for moratorium and okay, I mean, particularly in some more shops and then loans like gold loans, which [indiscernible]. I mean, like how does it work? I mean, because do you have to repay the bank or the holders of the...
No. Because when we are trying to securitize, cash flow is whatever we get from the customers, there will be times we'll get. And so there is a bit of a confusion on this in terms of how the pools will get rated or whatever. We're steady because the secondary count of [indiscernible] are new. So there has been some clarification. But as far as we are concerned, so somebody assigned the loan, rural bank loans. So customers get a bank or a customer in a bank will get it.
Okay. Got it. My other question was on your capital. So your overall capital adequacy has come down to about 18%. Earlier, that's excess 20%. So any reason for a sharp decline in the past quarter?
Yes. So one aspect -- a couple of things that happened. One is that the few [indiscernible] also go out be postponed. And so you see a sudden increase in the year end loan on the balance sheet. Secondly, the investment actually has gone down. So we can -- we have some room to rationalize and optimize there, whether it's the equity debt or the guaranteed loan. So we'll be -- one is that if the business loan is going to come down. The dividend payout also happens in the last quarter, and also there's a huge [indiscernible], so the normal samples that get added is also low. So all these things put together are impacted. So the profitability for the quarter is very low because of the poor equation, and there is a dividend outflow. And on top of that, the [indiscernible] project got delayed. So all these things are combined for the -- it used to come down to 18.2%. But it will improve a little bit in the whole, based on our plans and target. It should move up nicely as things get normal.
Okay. But like, I mean, why would that be? Because like this...
You have internal [indiscernible] which we will paying in March quarter. Then the [indiscernible]
[indiscernible] packaged in part would still [indiscernible]
Yes, we'll process. [indiscernible] it will take certain assets are diluted. And as I said that certain subsidiary companies also will try and structure [indiscernible] on the capital. As I said, the last quarter of the [indiscernible], we had a certain disruption. But with -- so by internal approval, the securitization and rationalization of possibly investment, all these things will help us improve the capital just a little bit.
Again just on securitization. Just want to understand as, going forward, do you expect banks to or like banks and other places to participate enthusiastically? Because, I mean, given the moratorium and worry on the underlying assets itself in terms of like repayments, would they be more comfortable lending on balance sheet as compared to taking the pool?
So if you look at it, 2 things. One is that they're not able to adequately lend on balance sheet. And today, they have a huge sort of liability and shortfall of assets. And so that's why they put such a large amount of [indiscernible] and surplus [indiscernible]. Two, their own track record in collection critical is not so good, particularly for the smaller loans and then [indiscernible] a hand in the industry. Three, this is not one rule apply, where one size fits all, because there are some [indiscernible] they have a track record and where they have comfort. I would like to believe that this is more high level. If you look at our last 8 years track record of assignment and securitization, there are also something lower than what typically concerns, or any rating agency would estimate or where banks would directly estimate to take into account in the pricing. So again, question of it's a rolling thing. We will build comfort and confidence over a period of time in the business. So our COVID strategy is that rather than doing it post sector, we'll get into some alliances with the banks where we do it simultaneously as we originate loans and don't have to even wait for [indiscernible]. So we'll align our credit policies, processes as if we are working for the bank and originate only assets which banks are willing to take. So then 100% of assets can be given to them. And we can -- hopefully, this will be negotiating with a few banks. [indiscernible] where there's a clear understanding at the time of originating itself that this [indiscernible] given to that bank. Banks really have to be very profitable for them. See what happens at [indiscernible] is legal. Today, they don't have much appetite to do wholesale corporate lending. So how would they build assets when they're getting deposits? So they need retail assets. They are doing their best, but they can't do on their own much. So it's a win-win for both of them that way.
Yes. Actually I understand the point. Only upon [indiscernible], given the current situation that there is moratorium and so on or to be given on weak loans. I mean, given that scenario, they might go cautious, probably for...
[indiscernible] I think -- so until this -- things get normalized, we may be [indiscernible] and on the things they are capable of so quickly. And to that extent, as the world gets normal, this will actually be, we can experience this.
The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.
So I have 3 questions. One is the Tier 1 capital. I mean, I know you said in your opening remarks that right now, even if you do a very large dilution, you'll be able to raise a very small amount of capital. So I'm assuming that raising equity is out of the question. But if you do stress testing and you look at your Tier 1 capital at 13.6%, I mean, you have very little room for error. So have you had conversations with your large institution shareholders like CDC or the others, often probably a convertible structure or something, which might give you access to Tier 1 capital, maybe not at the current depressed prices, but if need be, you might have access to it? Have you had something about that?
Yes. So Fairfax and CDC both, we are in regular touch with. And so that is there on our mind. But as I have said that maybe last quarter was a little bit of an exception in terms of Tier 1s going down a little bit more for the reasons which I've said in my response to the earlier question. But okay, 10% is a threshold. And internally, we want to keep at least a safety of 13%, 13.5%. So you're right that we don't have much room here. So we're very consistent in all the options that can be convertible. It can be perpetual bond. It can be -- and what also qualifies as Tier 1, or it can be one of the options that -- as well as structuring in a manner that we can assign more and reduce the capital. But I agree with you, I assure you that we are very mindful of this. So we are looking at that very carefully.
Okay. And second question is the moratorium, which was a very small number as of 31st March for obvious reasons has now grown to 58%. But what was the progression? I mean, has -- as time has progressed and lockdown has gotten extended, are more and more people opting for moratorium? Or do you put a...
As lockdown is getting extended, most of our customers are small businesses for the past [indiscernible]. So initially, there were not many customers who want to say, okay, a couple of weeks, we'll manage it less than a [indiscernible]. But as we got lockdown 2, lockdown 3, lockdown 4, then the moratorium has increased. And because their source of income are shut and then they're also -- I think they are forced to take this.
Because the reason I'm asking is that when we look at many of the commercial banks who also reported over the last few weeks, they've kind of given out moratorium numbers for April and they're in the ballpark of 30%, anywhere from 25% to 35% for end of April. But in the conversations we've had with them, most of them are saying that they haven't seen any increasing incidence of moratorium, principally because people don't want to incur these interest cost. And especially in the case of a bank where they may -- they feel that they may be treated slightly differently as compared to well-behaving loans. You've not seen that. You've seen a continuous increase in morat request.
You see, the 2 components of our business is gold loan and micro finance, they have limited balance. And that's why what is applicable for banks may not be applicable to us because these 2 businesses account for almost around 35%, 37% of our total portfolio.
And here the morat rates are quite high...
Yes. 98% of micro finance is moratorium. So if you look at it, it's just a very micro finance company, and you understand the micro finance component of ours. So I mean we do have customers like [indiscernible], Reliance or Tata. [indiscernible] large customers are. So the micro finance is 98%; gold loans, 82%. So this is revenue we still take. But as things open up, these are also segments which get the bounce back fairly quickly.
Okay. And last question, I wanted to -- I was confused...
[indiscernible] the balance is skewed because micro finance is volume reported.
Right. Right. So I'd like to draw -- I have a question relating to Slide 34. So there are 2 tables there, right? Micro market prices and project mix. Now the top table suggests that bulk of your principal outstanding in your real estate is towards affordable projects. But if I look at the bottom table, you have 11 projects where the micro market prices are in excess of INR 31,000 a square foot, which accounts for almost about, whatever, INR 1,500 crores of principal outstanding, which is 39%. So how -- the 2 tables don't seem to tally? Or at least I couldn't understand what they mean.
Yes. Actually, this is Anujeet here. So the very simple explanation to that is that 31,000 purchase is on [ CAF 1 ] and second is for projects which are in Mumbai, because essentially, the smaller one DSP kind of units and so on. So therefore, in Mumbai, anything which is under net about [ INR 2 crores ] just qualify as affordable to a large extent, and these are mostly in the [indiscernible]. So therefore, even though the per square foot on a project [indiscernible] looks higher [indiscernible] the outside is just slightly better. So therefore, it does qualify in Bombay. And we do have about 2 or 3 projects, which are also there in the western suburbs [indiscernible], which have already established something like 78%, 80% sales. So with that, a little on the higher side. But then the supply is being a constraint in [indiscernible] suburbs [indiscernible] suburbs of Mumbai. We've never [indiscernible].
Okay. And last question, over the last 3, 4 weeks, will this whole migrant labor reverse to accelerating in such a big way? Do you think the press on your residential projects, real estate projects could get worse?
Well, I would say that there would probably be a February start. And why I say February is that ultimately, the migrant labor is coming because of want of opportunity to earn money. And given that opportunity is very limited in the places where they come from, it's a question of time that they have to come back because whatever schemes the government has, MGNREGA and all that, the amount of money which they'll make is a fraction of what they would make here. And also one thing what I see also is what is happening on the ground is that developments are providing for accommodation and labor camps, which are far superior to what they were earning to attract them back. So I see that [indiscernible] lasting not more than maybe about 3 to 4 months.
But you are right that for 3 to 4 months, impact will be there, 3 to 4 months cost and all. It will impact the cost and because it's all [ SKDS ].
[Operator Instructions] The next question is from the line of Harsh Agarwal from Deutsche Bank.
Two questions for me. One was, can you give a sense of how much of the bank loans you've been able to get moratoriums since the RBI direction came out? Just a rough sense would be helpful, I think. And secondly, your cash and undrawn lines have declined a fair bit from 31st of March to May. So I mean just use to get a sense, is that mainly because the bank loans were not in the moratorium and you were likely repaying the bank loans? Or what else, if anything, led to the decline in the cash and undrawn lines in the net?
You're right. So the earlier moratorium was not there. So we think we almost ended up paying INR 2,400 crores of bank loans and thus new [indiscernible]. But only very recently, like the money that are due in last 2, 3 years have been [indiscernible] today, yesterday, we have started getting some confidence about moratorium. So moratorium was not available, and we didn't want to take any chance in terms of rating because banks are not confirming moratorium, we don't pay and somebody can certainly report, which can cause a lot of problems, although we are in touch with the banks. So this clarity is emerging only about a week ago as stated [indiscernible] and a news article came that okay, they have now agreed to give moratorium [indiscernible]. Today, they will wait. But at least what was the circumstances in March and April, even in April, and we are largely [indiscernible] which should bill about 15th May. For sure, there was no moratorium [indiscernible]. After that, now I think moratorium is not just blanket and [indiscernible], but still, I think most of the banks are now considering moratorium. And hopefully, almost all the banks now early. And that is why we have separated the outstanding, which are likely to get moratorium or not moratorium, both in our debt obligation.
And to add to that, a lot of the lines and cash has been used to pay off NCDs during April and May, for which obviously moratorium is not applicable. Those are to the tune of approximately INR 800 crores. So those were repaid on time during April and up to now.
So we have [indiscernible] liquidity [indiscernible] because the environment is so fluid and volatile to [indiscernible] the routine investors are [indiscernible].
The next question is from the line of Amit from 2Point2 Capital.
There was an announcement about the auditor's intention of resignation. Can you provide a bit more color on that? Whether the auditors already resigned? Or this is something that will be discussed at the next Board meeting? And whether it's preferable to have a change in auditor at this current point of time, given the uncertainties in the market?
Thanks. So in yesterday's Board meeting, Deloitte has given their intention to resign because they feel that the fees they are being paid as proposed by the Audit Committee, those are not commensurate or -- and the expectation has not increased in a certain percentage, but many fold increase. Now while I do not see official documentation of it, but it looks like that most of these [indiscernible]. And last year, there were [indiscernible] the current company [indiscernible] a problem. So Deloitte basically directed by their global parent, the increment fees many fold. They're trying to add the risk premium into it. And some of these before have been involved in some of the entities in the financing sector, NBFC banks that came under a bit of -- a lot of stress on default and things like that. And I have a feeling that they're trying to restrict or relatively balance and therefore, downsize the practice in BFSI space, and balance it because I think over a period of time, this a very large component. This proposal is a large component of their audit practice. So these are circumstances. Under ideal circumstances, we would have done this. But now we're in COVID, we are trying to put a lot of pressure on continued cost optimization, cost containment, salary cuts, including me and all senior people have taken it. We don't want to have something which is [indiscernible] increase in the fee, which will be like very exorbitant. So we negotiated with them, but it looks like that the expectations are way too high than what probably we can -- where we all agree. So the Board will take it up on the 5th, the meeting, where we look at all the proposals, everything, and then -- but the -- this last year's balance sheet in audit, Deloitte is going to sign, and they will complete. So there's no conflict, no doubt about that. So even if we part ways, it will be amicable, and we can reengage the second [indiscernible], but for the time being, it looks like the fees are not tenable. But this is not -- the Board [indiscernible] what I'm saying is [indiscernible] but I really can't talk on behalf of the Board.
Next question is from Aman Shah from Jeetay Investments.
Sir, I have one question on [indiscernible] some previous participant's question on gold loan moratorium. When you compare to [indiscernible], the gold loan is like some 90% of the customers have opted not to take moratorium, while your [indiscernible] like 90% have opted for moratorium. So the numbers look at very extreme. Would you be able to actually explain what would be the reason for this?
So I'll say [indiscernible] explain what it is in [indiscernible] competitor.
So my understanding is that every gold loan NBFCs runs different schemes in terms of attracting customers. So one of the popular schemes which a lot of NBFCs ran around retail schemes, which essentially means that we have a [indiscernible] repayment and which stores perhaps even a 7-month or a 12-month tenor. And then as someone starts paying earlier, you're restarting the rebates on the loans. Certainly, those are themes where eventually customer repayment is an elongated one, which wouldn't have come. So that's why perhaps tomorrow figures are low.Most of our portfolio is under monthly repayment schemes. So where -- based on that, we see a larger number of customers in different branches also under lockdown until about a couple of weeks back, that's why the numbers are higher. But now that branches have opened, I think a lot more customers are coming forward to repay, and we should see the number trending downwards.
So if you collect monthly, there are advantages and disadvantages, but the advantages are that credit discipline is maintained. Secondly, the loans become assignable because as far [indiscernible] only if you have collected 3 installments for a short tenor loan or a 6 for a long tenor, and they will evolve. And I think we will assign [indiscernible] also a fairly significant number. And secondly, in case of a bullet -- [indiscernible] obviously, unless the bullet is falling in the same period, you really don't want to do anything because [indiscernible] funding due. So a yearly scheme or a 2-yearly scheme, then maybe only about [indiscernible] I think will typically fall due the year in March time. Others are not falling due, and I don't want to talk about moratorium also because of the [indiscernible].
Your next question is from the line of Rocky Andaya from Lion Global.
So just 2 questions. First one is, given the moratorium that you need to grant to your customers, how will it impact the ALM situation because you're a positive ALM, right? So for the next maybe 6 months, what's the ALM situation with the moratorium that you're granting to your customers? And the next question is, I think you bought 15 million of the dollar bonds in April. So is there a plan to increase more -- to buy more U.S. dollar bonds going forward? Or do you have any approvals from RBI to do such thing?
No, we don't have approvals from RBI. So I think as [indiscernible] we really can't do any buyback more, but 15 million we did in the month of March. And in terms of moratorium, in fact, we'll be -- so if you're getting, say, running through on the moratorium of a bank, then obviously, they get inventories. So if you look at the part that we've given, if you don't get moratorium from the bank, then sorry, even for next few months you're taken care of. And obviously, we can securitize as we now raise more funds. But if the moratorium is corresponding from the bank, then the AML is not impacted as much.
Okay. So just to clarify, if you don't get moratorium from the banks, you will have basically negative...
But yes, so the difference to our liquidity are the results that we see. But we've provided for that. So even if we don't get moratorium from a bank, because we're seeing our operations and liquidity for the next 6 months at least.
The next question is from the line of [ Ajiv Agarwal ] from [indiscernible] Advisors.
My first question is on the gold loan segment. You seem to be quite bullish about it. And some of your peers who have reported the numbers also seem to be very bullish about it. Are you seeing increased competitive intensity in that space? And how is that impacting the business?
Competition, I think, has been increasing in the space, but I think the [indiscernible] learning in terms of to get it right from testing the gold to get like kind of customers restoring security and getting the product delivered early. So actually we've been building the business over a period of time. Also, this business traditionally has been done like a consumer business with advertisement marketing. So if you see some of this gold loan company, there are always new celebrity models to create the brand awareness. I don't know if you noticed, but we also signed up [indiscernible] has become our brand ambassador. And because like the [indiscernible] business, you create the brand awareness. So it's competitive. And I think the gold business will have competition. But we would like to believe that we will be in the business for 10 years, so we have much higher value income in terms of understanding why the business is very important. So it's competitive there, but we are not overly concerned about it.
Got it. The second thing is can you talk a little bit about total amount of disbursement you would have done from end of March till sort of the May 15, where you have reported your ALM? Because I still have the question around how the ALM or the total cash from bank lines have come down from more than INR 5,000 crores to INR 2,200 crores. So I just want to see how much of that is driven by the disbursement that you have done?
Yes. [indiscernible] we have, as I said, INR 2,400 crore of bank notes [indiscernible] we repaid. So currently, the [indiscernible]. But most of these retailers due on 31st March and April, they've been paid.
Sorry, so how much was the disbursement you said? I missed that?
Disbursement [indiscernible] at this rate [indiscernible]
Okay. So while you're taking that, one more question from my side. And that is, if I look at your assignment income, the assignment income seems to be goes around 5% of the amount of size.
Can you repeat?
The assignment income, the percent of assignment income as a percentage of signed assets is around 5% plus. Is that something that is sustainable?
Yes, it's quite sustainable because like gold loans, our business loan and business is [indiscernible], higher operating costs and a higher margin. So this would be sustainable. The total of this business would have been about INR 100 crores in [indiscernible].
INR 100 crores in the last 1.5 months?
Yes, yes, slightly less than that also.
The next question is from the line of [ Adira Maya ] from Deutsche CIB Centre.
My query actually continues with respect to the loan increase that you were talking about. You mentioned that you are getting today is around INR 4,000 crores, INR 5,000 crores in the next 4 to 5 -- sorry, INR 2,000 crores to INR 3,000 crores over the next 4 to 5 weeks. Do you have any sanctions, which have been like granted? Or are we still in preliminary things in terms of rating funds?
So there are various stages, actually. I would say that there are confirmed sanctions, whether it [indiscernible]. But they are very stable. So the [ fourth ] banking system have been -- and maybe I would like to believe that [indiscernible] in this sector, we're not alone. But there is waiting for a clarifying guidance from government and RBI about the credit guarantee as well as [indiscernible]. There is [indiscernible] very recently [indiscernible] in next year, we'll see good [indiscernible]. But nothing much will happen last [indiscernible]
Got it. Then coming to the liquidity, are there any cost rationalization that the company is planning? Like is there any cost-cutting measure? Or is there any [indiscernible] measure that the company is thinking about?
Cost cutting, yes. [indiscernible] no. So we have the high -- and we also have not reduced number of people also. And more or less our average spend in March and in April ended [indiscernible] 1% or 1.5% difference. So the high cost people are taking are salary cuts. We are trying to rationalize the branches and limit the costs, including travel. And we are trying to cut down on the marketing activities in states and local. So we know that salary will have been brought down by 10%, 12% the operating cost. We're trying to bring them down by 30%. So a lot of work is happening on that front also. The great opportunity to rationalize cost in this kind of environment and with the new revolutions that have happened about how much people need to travel and where people can work from and what kind of productivity we can target. So I think a lot of effort is having cost [indiscernible].
Got it. And the last question is actually pertaining to the assigned assets. I'm sorry, I'm not just -- is there a way that I can see with respect to the previous years how the assigned assets work and how the income works because -- but I think that there has been a chart provided on Page 30 [indiscernible] corresponds to whatever the historical assigned assets are and the income that has been provided there.
So that includes assigned asset premium. So if the assets are not repaid, then we will just base on the assets.
Okay. So just the understanding, the INR 575 crore that has been mentioned, and the 5.8% income that is mentioned, that is on the base of the INR 9,700 crores that has been [indiscernible] asset?
Absolutely right.
And that INR 500 crores will -- is those assigned assets [indiscernible], that INR 500 crores or -- will come -- INR 570 crore will come in, in the year?
Absolutely right.
Sorry, just one more question. [indiscernible] in what sense are you looking at what -- in terms of the bank balances, how much of them has [indiscernible]?
Come again?
I think you mentioned that there are INR 2,400 crores of cash and income lines. Are any of them lien marked?
No.
Okay. Those are not lien marked.
No. [indiscernible] this is not anything that is lien marked.
The next question is from the line of [ Lamar Zaveri ] from [ JNJ Holdings ].
Can you just throw some light on the gold loan PTC, which are not for the banks, but to the retail and retail customers. So how is the yield over there for our company since you offer some higher buffer in terms of security as well as some personal promoter guarantee also. I'm just trying to understand this product.
No, we don't have any promoter guarantee product. Like I said, we don't really promote a guarantee.
Not loan interest. Gold loan PTC. Gold loan pass-through certificates, I'm referring to. So in that, basically, how are the yields compared to the assignments that you've given to the bank?
So gold loans may be slightly higher. But as a part of our strategy to diversify and have different sets of investors and providers of money. We are working on this. So here, we end up growing about 10% plus, maybe around that way. But the bank probably be in work at 9%.
And how big is that in the total assignment?
What was? More PTC?
Yes.
Not very significant. I mean, maybe it's not even 4%, 5% or so of our [indiscernible] numbers, but not much.
So just one question over there. I suppose there is some -- in this specific instrument about PTC. If there is some higher delinquencies, would that affect the rating of that pool? And in turn, affect -- would affect the whole pool, right?
So it wouldn't be -- unlikely to happen because historically, delinquency, you always have option to hold and repay the loan. So the deferred in delinquencies are very few and far in between.
That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.
Thank you so much. [indiscernible] but we are very happy to answer more questions. If you have, you can email it to our Investor Relations Manager, Pooja Kashyap and he'll be very happy to respond, and so take care. Thanks. Thanks a lot. Bye.
On behalf of IIFL Finance Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.