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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 IIFL Finance Limited Q4 FY '21 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 Finance, I thank all of you for joining us on this call. I am Rajesh Rajak, Chief Financial Officer; accompanied by Mr. Nirmal Jain, as the Chairman. Also on this call are Mr. Monu Ratra, IIFL Home Finance CEO; and Mr. Venkatesh, Managing Director, Samasta Microfinance. I'll hand over to our Chairman to comment on the macroenvironment and the group's strategy and plans. Thank you. Handing over to Mr. Jain.
Thank you, Rajesh and good afternoon, friends. We are really living through hard times with mass social and health crisis. And the second wave of COVID has been really cruel for India. All of us have some loved ones affected and going by the pandemic history as the people that [indiscernible] the steeper the fall of virus spread should be. So we hope and pray that this does not damage and passes us by quickly and we get back to our normal life. So we are doing everything possible for our employees as they have dealt with this challenge valiantly. And our message to our employees is also clear to have compassion for the customers as well. Be sympathetic, understanding, flexible while handling customers, which are generally impacted. In our previous call, I actually had confidence about the retail recovery. And I do hope that this period is a blip and it will get better soon. We all have to be [ cautious ] in certain respects about the impact of pandemic. At IIFL, fortunately, our product mix is dominated by home loan and gold loan. And both these are fully backed by state policies. This has also helped us maintain superior asset quality and our overall GNPA and NNPAs are below 2% and 1%, respectively. But at the same time, as lockdowns affect livelihood and income in our portfolio, microfinance and unsecured business loans are most affected segments. And considering the headwinds in near future, we have aggressively taken write-offs and provisions, particularly in unsecured portfolio of microfinance and business loans. In business loans, 2/3 of business loans are secured and over 1/3 is unsecured. And therefore, during this quarter also, we have loan locks and provisions, which are significantly higher than the long-term norms that we had than last year. We started the process of outputting real estate loans to an alternate investment fund so that we can refocus our business model strongly on retail loans. Of the [indiscernible] asset affected the teams working on it during the last 2 months and caused some delay. But now the process is on track. And Alternate Investment Fund has signed the contribution agreement. And the first round, which will be about 1/3 of the proposed portfolio that is to be transferred will move to the fund in the next few days, maybe in a week. And the remaining assets will move in a few weeks thereafter. Now coming to financial performance, I'm happy to report that our profit before tax caused the milestone of INR 1,000 crores. And the quarter post-tax profit was INR 248 crores, which generated an annualized ROE of over 30%. Our cost-to-income ratio has fallen steeply from 52% last year to 35% this year, with higher volumes as well as higher margins and cost control. Our capital adequacy for the listed NBFC is now over 25%, which leave adequate margin for future growth. Our loan AUM is a little short at INR 45,000 crores, but grew 18% last year against all sorts of lockdown and liquidity challenges. Our strategy to partner with banks as well as fintech is on track and yielding expected results. We continue to invest in technology of people, and we launched first-of-its-kind app, which is called MyMoney, for paperless instant deliver business loan with propriety technology. During the last quarter, we expanded our branch network as the things are looking much better in terms of the likely impact of COVID. And we added 124 branches and hired or added about 1,800 people to our manpower. We will wait for some time, and as much things get normalized, probably we'll expand our branch network further. So this summer, we look at environment with cautious optimism, cautious because we don't know when will this pandemic end and optimistic because we know it will end sometime soon. Now these times call for extraordinary dynamism. If things get more challenging, this should be adequately cushioned. And if the pandemic [ easily ] created demand for, we should be prepared to seize the opportunity. I thank you. Now I hand over to Rajesh to give you business and financial updates.
Thank you, Mr. Jain. I'll just take you all through our business and financial updates in brief. During the quarter, IIFL Finance's total comprehensive income was INR 270 crores, which was up 17% on a quarter-on-quarter basis and up 392% on a year-on-year basis. We recorded our highest ever pre-provision operating profit of INR 650 crores during the quarter, which was up 6% on a quarter basis and 85% up on a year-on-year basis, driven by higher volumes, better margins and cost optimization. Our loan AUM at INR 44,688 crores was 6% higher than the previous quarter and 18% higher than the same period last year. Our core segments, in fact, grew faster at 21% year-on-year to reach INR 39,790 crores.Our disbursement for all core products, except business loans, continue to surpass pre-COVID levels. Retail loans, including consumer loans and small business finance, constitute 90% of our loan book. A strong characteristic of our loan book is a large proportion of loans that are compliant with RBI's priority sector lending norms, PSL. In aggregate, nearly 36% of our loans are PSL-compliant. Gold loans are not deemed to be 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. In line with our capital optimizing strategy, 33% of our AUM is assigned to securitize as of March 2021, up from 31% as of March 2020. Our cost to income at 35% was significantly lower than 52% of FY '20. In fact, for quarter 4, our cost to income was 33%. Annualized return on asset based on quarter 4 results is 2.8% and return on equity was 20.7%. Our Tier 1 capital adequacy stands at 17.5% against the minimum requirement of 10% and total capital adequacy at 25.4% against the statutory requirement of 15%. Our average cost of borrowings declined 13% on a quarter-on-quarter basis and 56 basis points on a year-on-year basis at 8.8%. Consolidated GNPA and NNPA at slightly below 2% and 0.9% of loans, respectively, is much lower compared to 2.9% and 1.5%, respectively, in quarter 3. The collection efficiency for most products continues to be on a rising trend. Our provision coverage, including standard assets provision under Ind AS loans on Stage 3 assets was 186% as of March 2021. Moving on to liquidity updates, during the quarter, we raised INR 3,889 crores through term loans and refinance from banks, including debentures. In addition, loans were INR 3,189 crores were securitized or assigned during the quarter. A public issue of unsecured subordinated debt in March 2021 was highly successful as we raised INR 670 crores, more than 6x the base issue size. Cash and cash equivalents and committed credit lines from banks and institutions at INR 5,275 crores were available as on March 31, 2021. We continue to have mild exposure to commercial paper. We have a positive ALM in all buckets, whereby inflows cover or exceed expected outflows. During March and April 2021, we have bought back USD 9 million nominal value of our MTN issue, which we had done last year through the open market. This is as per the maximum permissible amount that can be bought back currently under RBI regulations. A brief update on our digital focus. We continue to focus on digitization and analytics to improve customer experience and enable a convenient one-stop shop for customers' credit and investment needs. We have completely digitized our business loans journey right from customer onboarding to underwriting, disbursements and collections. We are collaborating with the fintech ecosystem to further enhance our platform and customer experience. We have recently launched MyMoney app for paperless instant unsecured business loans. We have enabled digital top-up for our high-quality secured MSME loan customers, wherein the entire journey is paperless, right from communication for accepting sanction letter, any agreement is sent to eligible customers via SMS and the disbursement is automatic with no manual intervention. [ Jet-set ] Home Loan app, which is a PAN India product for instant home loans, helps all the stakeholders in the housing finance industry, be it the individual home borrowers, developers and the company. They get a loan in an instant manner. Our home loan disbursed loans has gained significant traction. Of the total home loan disbursed in the month of March, 99% was coursed through [ Jet-set ] loans. The corresponding percentage in March 2020 was 54%. In addition to digital top-up and renewal of gold loan launched during the year -- or launched earlier, during the quarter, we have launched the facility for customers to avail gold loans directly from their home office. The loan officer business applicants, home or office and the entire process is tablet-based from onboarding sanctions to a disbursal. IIFL loans app will be increasingly used for various transactions by customers and has been especially beneficial during COVID lockdown times, giving customers ease and convenience of access. This app has been downloaded more than 6 million times till now, and we have more than 2.5 [ lakh ] active users on the app for the month of March 2021. With this, we bring an end to the update, so we can now open the floor for questions, please.
[Operator Instructions] The first question is from the line of Prashanth Sridhar from SBI Mutual Fund.
Yes. I hope I'm audible.
Yes, we can hear you. Go ahead.
Sir, if you could just tell us as of now how much of onetime restructuring and the DCCO extension is done.
So onetime restructuring we have done is about INR 500 crores, and DCCO we would have done, we have stated about INR 2,400 crores.
Okay. And how much of this DCCO would move into the real estate fund once that comes in?
So I think because almost when I say INR 2,400, is almost half the real estate book and DCCO has been done only in the asset portfolio. So most of it will move in the fund.
Sure, sure. And the second question was when we look at disbursements, especially in the MFI and business loan space, over the last 2 quarters, how much would have been disbursed to an existing customer or to a customer under some sort of stress, maybe 0 plus, if that's a metric?
So in business loans, the existing customers would have got under the government scheme. But among that let's say INR 45 crores. In case of microfinance, we don't have the data, but a good number of customers who have got a top-up loan depending on their track record.
Okay. And what would be the filters we apply there, sir, before we do a top-up loan?
Yes. Good question. So basically, we look at the loans would be current. It shouldn't be an NDA. And we get the track record of the customer, which is how long the customer has been -- what has been overall track record. So in case of business loans, we have more or less restricted only who are eligible for this GECL scheme of the government. GECL scheme of the government and focus on that.Well, your concern is valid actually in terms of how the -- because they're under the fear of over -- they're quite conscious about it.
The next question is from the line of [ Rajiv Malhotra ] from [ Cantab Investments ].
I have a macro kind of question. In a time when a lot of people would be looking from corporates, especially in the finance of acquiring or setting up banking, is there any long-term plan of IIFL for that? Long or short-term plan?
Yes. So banking is something that we are -- we really value. So at this point in time, there's nothing on [ annual ], but what we plan to do is just set up a team internally and maybe take help of some consultant who will figure out that -- what is the facility of becoming a bank and what is the cost of it also, because initially we'll be hit by CRR, SLR and priority sector immediately on day 1. And what does it mean for all the stakeholders? So we -- maybe in the next couple of months, we do propose to undertake an internal study but they've got some consultants also required.
The next question is from the line of Deepak Poddar from Sapphire Capital.
Yes, so just wanted to understand now given the second wave and uncertainty, is there any thought process you can put on the credit cost that we might want to kind of in FY '22?
See, our secured portfolio of microfinance and business when put together is just about 15% of our total book. And credit cost, actually -- so last year was quite accessible here and our credit cost in terms of loan losses is going -- has been significantly higher than the historical 10 years that you see before that. So currently and if you really look at it, it may be as bad as last year or better, now because given the fact that COVID is still there and nobody has a clue when second wave will start again and how it's going to pan out ultimately. But the worst case scenario, in my opinion, will be what was there last year. But most likely, probably, it will be better off, we'll have credit cost and provisions as compared to last year.
Yes. Understood. Understood. And in terms of the growth...
So even if your organic growth [indiscernible] as much as last year, which is exceptionally high in terms of the provisions, if you look at our balance sheet, our [indiscernible]. But then also, I think we are fairly good. I mean in terms of whatever profitability we have, we can maintain the normal growth there.
Okay. Normal growth like 20% is what we kind of have been doing, right? On a...
Sorry, can you repeat it?
So in terms of the growth, like 18%, 20% growth is what we have been doing. So is that what we want to target this year again?
Yes. I think that's a good target to have. Last year also we grew 18% and last 5 years was our compounded averages in the same range. So 18%, 20% is a good volume growth target.
The next question is from the line of Chetan Cholera from Pragya Equities Private Limited.
Yes. Congratulations for a good set of numbers. Can you hear?
Thank you. Thank you.
Yes. I just wanted to understand that CRE asset transfer, what will be the impact on the balance sheet as well as P&L? Is there any?
Yes. I mean it's good that you asked this question. So the assets which are transferred, we basically release the cash flow and capital to that extent. But it is 1/3 of the book. So one part of the portfolio, which is there right now will become -- will be classified as investment. At least one part of the portfolio. And the remaining basically -- so the rate happens is that we've got all the debentures which we sell into a fund by it. And fund gives you the units in return, and those are buying units, they give cash. So basically, what we expect is that about 2/3 of money should get back in our hands. And the remaining 1/3 should basically attract the capital efficiency norms of 100%. So at least whatever portfolio we transfer, 2/3 of that will get released in terms of capital and in terms of cash flow also. It can be -- [indiscernible] also with the longer [indiscernible] that we need to keep. But at the same time, what it does is that there are a couple of things that happened, which are also very interesting to understand how this works. So what is happening is when they are on our books and supporting -- while the quarterly payment is delayed because of NNPAs. And the project may require some last mile funding because when cash flow the forecast and the actual bookings are less, but still using project is good. But it really becomes difficult for an NBFC to support some [indiscernible] can become NNPA. But in time because you don't have a quarterly period captured or whatever, and we are providing for recruiting in the first, so the last mile [ funding ] will be past. And no projects will get stuck for last mile cash. So our plan broadly is that INR 3,000 crores portfolio transfer, INR 600 crores will be kept as cash out of the total INR 3,600 crores. So the portfolio that we are transferring should get executed very fast and should generate the cash flow so that it gets -- it's paid by external as well as us. Now our investment will be valued on the basis of fair value by maybe rating agencies. So depending on the cash flows of the project, we may not be able to accrue much on the portfolio that we are holding. So the cash that we get from the portfolio, basically we believe will retain our business. So if it remains in our extra liquidity then we generate no liquidity, but if we are able to deploy it in our other businesses like home loan, gold loan, then it reduces our need to borrow, and it's not generating that kind of return. But immediately, what NIM you see, which is about 14%, 14.5% in the entire portfolio, that goes away. We'll be able to accrue about 1/3 of the portfolio depending on the fair valuation. The remaining 2/3 or whatever cash which we get, we'll have to defer that in the business. So that is one. But what it does, that incrementally, we would require provision of this portfolio because if you see last 4 quarters, then given the stress in the overall sector and trying to be conservative because the portfolio is going to get transferred, we have been making provisions in this portfolio quite aggressively.
How much will it go...
But it will also reduce the provision in damage that we have.
So this won't be a -- there won't be a onetime effect? Is it like slowly, slowly effect will be there also for...
Unlike some others, what we have done is that we have been writing down the portfolio as required, but there won't be any onetime impact because the transfer is more or less at the current value. And there may be a small impact, but it is insignificant.
Okay. And the second question is we have various businesses. What is the eventual game plan? There will be a different 2, 3 companies out of these IIFL finance? Or you will be going to be a bank or something? What is the eventual game plan?
The game plan is asset finance, you say?
No, no. We have microfinance business. We have a home loan portfolio. You can have different companies for each sector, isn't it? All sector, each sectors are very large.
Yes, because the size of these businesses now is in a way somewhat closer to some of the companies I had invested. But at this point in time, so there are 2 alternatives, one that somebody asked that whether we can become a bank, we want to evaluate that. If you become a bank, then there's no point in listing these companies separately. The other alternative is that we decide not to become a bank. And at what point in time we should basically get them, which is separately, I don't know. I think that nothing in near future. So as of now, the most likely scenario, we'll continue as -- we continue to be 1 entity with 2 are wholly controlled or holding subsidiary, brought more or less only loan. It's really 99% of [ secured ] microfinance. But that is how we continue. But we are open. I mean it differs in the businesses, again, a typical size and we find that they can be a good investor and it makes sense for all the stakeholders to separate them. We can look at that. So historically, our group, you see them we separated well then these businesses and we had high-quality [ business ]. And again, the critical mass and they could attract a separate set of investors. But in this business, at this point in time, there's no plan.
[Operator Instructions] The next question is from the line of [ Mandesh Varma ] from Citigroup.
And congratulations on a good set of numbers. I had 2 key questions. First one was regarding the recent complaint which came out against you and, apparently, which has been -- which is being investigated by Ministry of Corporate Affairs. I know your response has been there in the public domain as well, but I would want to get some clarification about how you are thinking about how this thing proceeds.And is there anything that we should be worried about? I know you have mentioned about the background of the person as well, but at the same time, just your thoughts and how it progresses. So we'll appreciate that. And the second will be with respect to the disruption, the potential disruptions to your business in light of the impending lockdowns everywhere. I know there is no national lockdown, but regional lockdowns and disruptions to business is likely, which is going to have an impact on your earnings. So how do you think about that? And how should we think about the impact on your financials or the result of this?
So the first, our company now, this gentleman, who are the borrower earlier, but now we don't have any exposure to him. So he defaulted to suppliers is the -- and the many customers who got promises from him, they have complained. And some of them are taken into NCLT also. There are quite a few consumer companies. Now to get up on NCLT, he decided to sell this project to a builder that is far more reputable builder, with a very good track record which is [indiscernible]. The company [indiscernible]. And their promoter [indiscernible] personal guarantee that they have taken over this project. So far financially, we are concerned, we don't have any exposure to [indiscernible]. We're making a lot of ways [indiscernible] given this input to the need for the new story in the electronic media. Now as we have said in our response, which was on that due to the exchange, we have talked about Ministry of Corporate Affair comes in, but we have received no communication from them, and there has been no inspection by Ministry of Corporate Affairs till now. And we also do not know that on what ground he's seeking inspection by Ministry of Corporate Affairs. So unless we hear something from MCA, we really can't comment on that. Having said that, the other -- as I said, the finance, if we don't have any exposure, but there are a lot of criminal companies which are doing well against in settlement. But after this story that is coming, we'll also take legal action against them and try and get an injunction to abort spreading or mudslinging without any evidence or without any basis. So we'll take some corrective action there. So does this answer your first question?
Yes, broadly. But at the same time, he had -- in the complaint, there are definitive points which have been raised about how the train has worked and apparently, that is what he's alleging. So from your perspective, are you planning to come up with a point-by-point kind of rebuttal to those? Or would you leave it as is and just go for a legal action against him?
So we'll go again [indiscernible] the company. They have completely baseless point because as we said, he's down-tripping over [indiscernible], which again is a [indiscernible] because of a new loan in a new corridor. So there are a lot of contradictions in what he has given. So we have done our response to the media also, which they partially carried but partially did not carry some of the responses there in the article. But here's the entire -- whatever campaign he's given is completely baseless. And it's too frivolous to respond to. Our legal action again him is for damages that he's causing by mudslinging, giving false information. But we have responded by [ these ] point-by-point rebuttal. Nonetheless, any investor has any -- that want to know more about any of the points that he's given, we'll be happy to give you a clarification of more medias about every case. Yes. So if anybody is more interested, then you can take up the point from that and just send it to us, we'll give you the details. Coming to the lockdown impact, as of now, as we speak, lockdown impact is minimal because most of our branches and most of our operations are still live. Because the lockdown has exempted the financial services, not only capital market, but also financial services from, including NBFCs and banks. So we are able to operate. Many people are working from home. But at least now, we have a playbook because we passed through the entire pandemic last year. So more or less, business is not impacted much. If it is impacted in terms of collection efficiency and [ order ] this quarter, we'll discover that, and we are prepared for that. The volume growth may slow down particularly in [indiscernible], but that is intentional because we also want the environment to become clear before we are able to do much. There can be some impact because some of the branches are closed. Now I really don't have precise number, but maybe all over the country, about 3%, 4% of our branches may be shut down because of lockdown and the conditions in those micro areas. But the impact, as of now, appears to be minimal.
And from a collection point of view, are you seeing any difference in the past months as compared to the previous month? Or so far it has been relatively unchanged?
So there is a marginal decline in the most of the revenue as compared to March. But many times, these things pick up in the last month of the quarter as until end of the quarter. But in the month of April, when we look at our collection as effective, there's a marginal decline as compared to the previous month.
Right, right, right. Okay. And the final thing is with respect to your plan to sell your assets, the loan portfolio for real estate to SSG and a few other investors which have been mentioned in the public media. How should we see this in terms of your overall portfolio getting impacted? I think your real estate exposure, if I'm not wrong, was something like 12% to 13%. So what is the change going to be for this transaction?
So already the asset portfolio has come down to 9.5% now, when we look at our March numbers of the year and the last year end. So the 9.5% will become indivisible. So as I said, that about INR 3,000 crores, hopefully, we are moving. The portfolio that we are not transferring is either -- are the loans which we'll get over very soon because of the cash flow, or there's really small loans, the INR 5 crores, INR 10 crores, INR 20 crores, where -- and many of these are through our [indiscernible] construction only. So that is not the portfolio that we want to advance for. But I think once we get done, the 9.5% will come much below, 5%, I guess, will become really insignificant.
[Operator Instructions] The next question is from the line of Abhiram Iyer from Deutsche CIB Center Bank Limited.
Mr. Jain, congratulations on the set of numbers. I had a couple of questions. One was more in terms of housekeeping. The gross and net NPA numbers that are mentioned, the 2.1% and 1.0%, these are before taking into account the [indiscernible] for distinction, right? These are not comparable to the 1.6% which was given for the last quarter when you talk of gross NPAs?
Yes, well, the proforma numbers are higher. These are comparable to proforma number. Yes, you're right. So the last quarter numbers would be significantly higher when we look at the comparable number.
On the pro forma GNPA as of December was 2.87%. So the right way to look at it would be 2.87% has come down to 2%.
Got it. Got it. Just wanted to confirm that. The other question that I had was if you're targeting a growth of -- you mentioned that you're targeting a growth of 18% like in the previous years for the portfolio. Do you mind letting me know whether you'll be tapping the capital markets to facilitate this growth, either the offshore bond market or in the equity markets?
So not really, we don't need to because our capital adequacy is 25%, and internal adequacy will also meet part of this growth. So at this point in time, for 18%, 20% growth, we really don't need to tap the capital market.
Got it. Got it. And...
It can drive us for capital market, but it's not a need for capital.
Got it, sir. And the cash that you will receive on the AIF transaction, the real estate transaction. That would be -- that would go through -- going the other parts of the business? Or would you be using that to grow sort of the AIF itself and grow real estate transaction through the fund?
No. So as we said, we want to focus purely on retail. There's no question of putting that money back in real estate, so.
The next question is from the line of Amit from 2Point2 Capital.
A couple of questions. One, this quarter, the collections that have been provided including arrears, so can you provide comparable numbers with last quarter, which were excluding years for home loans, business loans and microfinance?
So we have provided numbers for 4 quarters. So basically, they are on a like-for-like basis. So you can look at that in that part, it will give you quarterly numbers actually.
Yes. So if you can give us what are the collections, excluding arrears for the home loans, business loans and microfinance category, which was being provided earlier.
Actually see what happens because mainly there's a part payment -- and the payment which is it becomes [indiscernible] track that way. But what -- so basically there's a demand versus collection. And this is what -- if you see that quarter-over-quarter the numbers are comparable.
Okay. And so there are INR 1,160 crores of loan losses and provisions last financial year. And just how much of this was from the CRE book?
INR 1,160 crores, how much -- so this includes write-offs as well as incremental provision. And out of the CREs, close to INR 500 crores.
INR 500 crores. Okay.
INR 500 crores. Yes.
Okay. And just on the gold loan business. Even this quarter, you have actually grown fairly well. And this despite banks having the advantage of almost 90% LTV. And now from April 1 onwards, banks are again back to 75% LTV on gold loans. So how has the competitive intensity now changed versus what it was the last 2, 3 quarters when banks had an advantage in terms of being able to give higher loans? So are you seeing an improvement in the competitive intensity scenario in the gold loan business?
See, actually, even if you are allowed 90% probably still would not go beyond 75%. So if you look at March quarter, and the gold prices sell almost 15%, 18%. So in a way it's a commodity, and that can basically generally create enough -- send goosebumps because your LTV will go down to -- or mark-to-market, even over 2 months, interest will not fail. You will hear more than 100% when we need planning to auction ourselves, which can be problematic for a customer also because they are the most [indiscernible].So we would like to be conservative, keep it at 75%. So I don't think we're impacted by that. I don't know whether many banks are also conservative. So they are waiting per ground, the way they compete, I don't think they are going aggressively toward 90% and if somebody had, then probably we will have -- then there is a significant risk to the portfolio because I mean we have so many customers and you should deliver 90% LTV. And then some of them defaulted, obviously, you won't be able to recover your entire money because you have more collectibles below your recoverable amount. So I don't see that as a challenge. And the competitive intensity has been increasing because banks have become aggressive on over the last 1 year. But you must see this market a little differently because the huge market which is still with farm brokers, money lenders, many of these revenue shops in the land, and there is an unorganized market, which is very large. So basically, that has to come to the formal channel, which comprises banks and NBFCs. And within that, if the market is already local that your brand has to be close to the customer. Many times customers do repeat business if they are comfortable in the people that are in the branch. So they want to have a very quick turnaround time because it won't get repaid -- prepaid. So if somebody is borrowing for 2 months, 3 months or 4 months, we really don't bother too much about a few percentage interest here and there. So if you look at the industry, the online market is now huge, it's something like INR 3,600 billion or some INR 360,000 crores in November, I've seen the numbers for the industry, which is there on Slide 42 and is also further growing. The market is very large, actually. And I will move it from [indiscernible] customers will value all the same. When you are borrowing for a home loan, then you are very particular about 0.5%, 1% or 2% because it can make a lot of [ damage ] over 15 years. But if a short-term thing, when people say fine, just loan we'll take INR 50,000 then they don't bother much.But certainly it becomes very important. So they come to the branch, within 5 minutes they can take their gold back, within 5 minutes they can get the money. There are somebody from the banks who remind them about the interest or we talk to them. So all these things matter a lot in the business. And now we have started giving homes for this also.
The next question is from the line of Oon Jin Chng from HPS Investment Partners.
And also, congratulations on the good numbers. Most of my questions has been asked, and I just want to get a further clarity on a couple of issues. One is on the CRE loan transfer. You mentioned that about INR 3,000 crores will be transferred out. The -- and also that you were not pursuing or you're not growing this loan book further. So over time, this loan book will be -- you're exiting the real estate financing business. Is that correct?
Yes. See, as a group, we do this business through funds, and these funds are right now in our Alternate Investment Fund, which is part of our wealth management subsidiary. So we'll be exiting real estate financing business from the NBFC balance sheet. But in the AIF structure, we may continue. But in the AIF structure, the contribution of NBFC will be either insignificant or very, very small, which can be like 2% or 3% or 5% in case we do this. But you are right, that when we look at the NBFC balance sheet on our company, then, broadly, it will be [ a year ] in the business.
Great. And then in terms of coming back on your balance sheet...
Sorry, just one clarification. The existing portfolio that we have will take maybe at least 3 years to fully exit and, therefore, we'll have a team to manage this portfolio. And sometimes from the fund, we will require last mile funding. So we are the sponsor of this fund. And therefore, it's managing the existing portfolio and whatever the requires will continue. And also in housing finance, the construction finance on the smaller ticket size, that will continue.
Got it. And in terms of the -- you just mentioned the AIF structure will remain. Your stake or your ownership in the AIF structure, what percentage is that?
In this particular fund, it will be at least 1/3.
Sorry?
In this particular fund and with SSG coming in now as an investor, we'll hold at least 33 and 1/3%, not less than that.
Okay, 33%. Got it. And then you mentioned it will take 3 years to exit to fully fund. So the INR 3,000 crores would take what, 3 years to transfer over time?
No, no, no. The INR 3,000 crores or whatever portfolio we work on will get transferred now, to exit -- because the fund has a tenure of 3 years plus. So the -- because the fund, we get the cash flow and then we'll get the cash flow for our contribution as well as the residual. So our exit will happen in the next few weeks. But the fund probably we'll be able to exit in 3 years.
Understood. Understood. And in terms of those broad numbers, again, you mentioned 2/3 of the amount -- 2/3 cash to be released, 1/3 will be in terms of capital relief. In terms of understanding, in terms of provisioning and in terms of your capital adequacy ratios, is there any impact to it? And potentially, is there any reversal of provisioning as a result of this?
So I -- as I spoke earlier, in terms of capital adequacy, this will help. But whatever assets we are -- we continue to hold on our balance sheet, even because investments they continue to attract capital adequacy. So that capital adequacy will be required. But it is really at least maybe about up to 2/3 of that portfolio in the fund. So some INR 2,000 crores, INR 3,000 crores. And INR 2,000 crores is taken up by additional -- by outside investors, then the capability what we have declined for [indiscernible] INR 2,000, we'll require only the INR 1,000. Broadly, [indiscernible] as well.
[Operator Instructions] The next question is from the line of Prashanth h Sridhar from SBI Mutual Fund.
Well, I think the call has been very useful. Just if you could explain to us the fee income growth has been substantial Y-o-Y. Actually, even the interest income growth has been pretty good. So what would drive both of these this year?
Yes. So if you see our Slide 6 when we gave the details, so if you see the fee income is INR 153 crore in this quarter, and it was just about INR 2.7 crore in the last year and INR 137.9 crore in the last quarter. Now this is actually broken in 2 parts. So one is the fair value changes, which is statutory changes in investment of company that is estimated. So in there, you keep revenues on a fair capacity basis and the gain or loss is accounted both. So that is INR 63 crore. But the larger component, which is INR 89.3 crore and the fair value last year, last quarter was negative. So that is why you see a more steep change here. So the fair value is about INR 60 crore and INR 90 crore in fee and other income, which is the income that we get by cross-selling and also some incentive that we get on an assets and securitized assets, so that comprises of those income, and the processing fee for the new loans. So that is a component which is there, which was INR 90 crores or close to INR 90 crores, INR 89.3 crores in this quarter, which was INR 59.3 crores in the last year, last quarter and INR 77.6 crores in the third quarter, in the quarter before. So that is a steady scheme of income. The fair value changes is more accounting, and that can be a little more overtime.
Sure. And the fair value changes come from what kind of assets?
So both investments and property, which are held, not the property that we use, but something we acquired something from the customers who have deposited and the investments that we have. So some of this, maybe sometimes we apply the IPO. Some of the IPO we applied as an NBFC. And earlier, we had a stable share, which we actually liquidated last quarter. So this is primarily investment in property.
Okay. Interesting. Okay, sure, sure. That's helpful. And just if you could give us one more data-keeping point. If I have to split this restructuring of INR 500 crores, what asset classes would they come from?
They are mostly accessing primary entirely SMB, on the home loan also. So then I'll just give you the breakup just one second. Yes. So the INR 575 crores is the complete [ list for sale ], out of this INR 130 crores is home loan, about INR 273 crores is business loans. And the onetime restructuring of capital market also of INR 150 crores, probably given the restructuring in the market.
Sure, sure. That's helpful, sir. Just a doubt, so when you say restructuring in the capital markets, that would be what, a last kind of product that you've restated?
Yes, it's the last kind of product and particularly during last year moratorium time period, that is when we did that.
We'll take the next question from the line of [ Bagna Ramirez ] from [indiscernible] Service Limited.
Sir, just one clarification detail. On the AIF fund, you mentioned that SSG has come in with INR 1,200 crores of their investment into the fund, which means that our current contribution would be 2/3, right? Not 1/3? So 1/3 is the minimum and we'll be working towards that?
So Okay. SSG is taking INR 1,200 crores. And they are the anchor investor. So we started the process. Now we are -- as per our agreement with SSG, we have to hold 1/3, this is INR 1,200 crores minimum. The remaining hopefully, we can sell it down. So we are talking to some other investors. So that are basically the -- I mean we will sell down on some of the investments.
Understood. But that's in the process. So the work down towards 1/3 is in the process?
But that may take a little more time. So I think if the sell down get completed this quarter, we expect that transaction to slow next quarter also quite possible.
The next question is from the line of Deepak Poddar from Sapphire Capital.
Yes. I just wanted to understand this, the transferring of the CRE portfolio that we have been talking about. So already, we had some provisioning on it, so any kind of impact on the provision that we can see because of this transfer? Or the haircut -- or any kind of haircut that we are taking on that?
No. So what is happening is the provision will take care of the haircut, let me put it this way. So we won't see much impact on the provision.
Not much impact on the provision.
Neither new provision, nor a rebate provision. So we should basically -- we'll take care of what we are transferring. And what we want -- and the balance of book also, we want to carry some provision, so better after that.
Okay. So the provision that we have taken, the haircut would kind of matches each other and you would have not much impact on the provision or either side?
Yes, you can say that.
The next question is from the line of Oon Jin Chng from HPS Investment Partners.
So I'm back for my second round. The other question I have is on your business loans. I see that there was a INR 344 crores of -- from the disbursements from the ECLGS. I just want to understand this a little bit. The ECLGS scheme, the disbursements for this, this is for the -- your customers that -- for new loans or this is to meet debt obligations because they're not able to -- they need to exit?
This is for existing loans. So the customers, who are good customers and did not have any default as on 29th February 2020 and so they were impacted by COVID, so what Government of India has done is they've given something like 20% additional working capital loan, which is guaranteed by government, to make sure that at least the customers that are good and not defaulting, they don't become defaulted.
Understood. And this is about 18% of your new -- your disbursement?
The eligibility criteria are there from the government that the borrower should not have defaulted. And also in some cases, borrowers should -- and also we decide borrowers concern. So what happens that even if some borrowers were eligible, so that's why out of INR 6,000 crores portfolio, we only got INR 1,200 crores. But many borrowers may not be willing to take the new loan. So it was about that the borrower is considered there and borrower is eligible, then we can do this loan.
And your customers applied to these schemes through your company? Or do they apply directly to the government to get access to it?
Through our company. We have to upload the data to certain agencies appointed by the government, but the loans are disbursed and monitored through us only.
Understood. And in terms of just looking forward then also given because of the second wave of the COVID. The -- how much visibility or pressure do you see in the business loans? And having said that, this scheme has a finite amount. Do you have the ability to -- how much excess do you have for this funding liquidity? And the third question is when I look at your Slide 15 in terms of collection efficiency, business has been lagging the rest of your businesses, gold, home and microfinance. How is this collection rate trending in Q1 and Q2, given what's going on?
So now actually we need to figure out how you go in future, but as of now, things are not as bad. In fact, people are fearing much worse than what reality is. Because many businesses now, unlike, say, last year, when there is a complete lockdown and there is no activity happening and nobody knew how is the [ element ], I would say most of the businesses today are able to carry out, do some activities that will impact marginally. And now actually, we don't expect it to worsen much. Whatever -- before we get from the ground, most of the businesses are able to manage, and they are also concerned about their own credit score and the ability to borrow in future. And so they are struggling, but it looks like that it may not be damaged.
Understood. And the LTV of the...
The corona has already started -- the corona cases started [indiscernible]. Many areas where we have good exposure, also, we are seeing that things are getting even better. So those have been very bad in terms of the impact in the -- it's very nasty and it has caused a lot of damage. But from the economy or business point of view, it has been very quick. So it's like the ride is very steep and hopefully fall is also very steep. So we say that we'll get over this pretty soon.
The next question is from the line of [ Isabelle ] from Ares SSG.
So I just have one quick question. I noticed that you mentioned you have bought back about $9 million of the U.S. dollar bond in the open market. Are you able to share what price would these be bought back at?
Yes. Good to have SSG on the call because there are really questions for you guys, no matter where I put it, they will [ give it to you ]. So they were bought back at 6.05% dollar deal. And we say 4% to 5% of ForEx cover also. So effectively, we get about 11%, 11.5% staging in the cost of borrowing that we buy back is dollar bond. So we are able to borrow at around 8%, 8.5% locally. And so I think it's a good -- so whenever we get an opportunity, we would like to buy it back because the dollar amounts are still going in [ certain ]. 6% in dollar but as we -- as I said that when we buy them back, I can cancel the current amount of my ForEx cover, which saves me about 4.5% for [indiscernible] more, maybe 4.5% to 5%. Does this answer your question?
Yes. Yes, it does.
That was the last question. I would now like to hand the conference over to the management for closing comments.
Thank you so much. Thanks for everybody for being on the call. And if you have any more queries or questions, we'll be happy to respond to that. Our Investor Relations Anup Varghese or CFO, Rajesh Rajak, you can address them anybody. Thank you so much, and have a good day.
Thank you. On behalf of IIFL Finance Limited, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.