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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 '22 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, sir.
Good day, everyone. I'm Rajesh Rajak, Chief Financial Officer. On behalf of team IIFL Finance, I thank all of you for joining us on this call. I'd like to welcome Nirmal Jain, our Managing Director; Mr. Monu Ratra; CEO IIFL Home Finance; and Mr. N Venkatesh, CEO IIFL Samasta Finance.
I'll now hand over to our Managing Director to comment on the overall economy and the group strategy and plan.
Good afternoon, everybody, and welcome. And a warm welcome to our earnings call. So in terms of macro environment, currently the global news is not really encouraging because we keep hearing about inflation rising in most of the large economies. War which is happening in Russia and Ukraine, also the resurgence of pandemic, or the fear of that. But unless this, the good news is that India is going to be the fastest-growing economy in the world this year. And I don't think there's too much of any conservatism on that. And given that investors cannot ignore this regardless of the deals on the short-term valuation.
Having said this, inflation particularly KPI which have been around -- holding around 7%, 8%, mixed [indiscernible] given that the margin is good expectation that will be a normal margin this year. Despite that, given that the interest rate increase in most of the countries around the world, most analysts would expect about 50 to 70 or 80 basis points interest rate hike in India in the year. Domestic real growth has not been strong, but it appears that it might pick up now in the next -- in the remaining part of the year for our inflation interest rate, and that will impact growth. The key factor to watch is obviously the oil prices, but we hope that under the circumstance, it's really unlikely that oil we will go significantly higher than $100. Then on top of that, I think liquidity in India has been good and also several banks been committed to make sure that liquidity is [indiscernible] and that basically will make sure that the growth momentum continues in the economy. Coming to our company as the economy does well there's a tremendous -- there's a strong growth for our credit as well and the segment that we operate in, we have seen that the credit environment has improved significantly in terms of not only demand but also connection efficiency and the repayment.
Last quarter, the quarterly review, we have seen that the fourth credit, the loan AUM has grown by 10%, which for 1 quarter is very significant. As you are aware that our strategy has a digital where we basically focused on our typical network of branches as well as digitizing and trying to get efficiency as high as possible with the digital infrastructure as well as digital innovative ideas that came to this. Our branch network grew last year by 731 branches, which required us to add about 8,500 people. After we achieved some size, I think this has been the fastest ever growth in branch network as well as our people. And we have done this keeping in mind that there's tremendous latent demand for credit, there's an opportunity because many NBFCs -- the large NBFCs have consolidated and the demand is picking up with the economy.
We already had a good network of branches, and we can see that the branches has breakeven in 12 to 18 months time [indiscernible] in the value of growth. We are fully aware of the way the world is going in terms of digital potential of -- or the way digital growth can be processed and discussed. And our DIY roles, which are completely untapped or without any human intervention, has been growing very strongly. In last quarter, they doubled over previous quarter, but close to INR 260 crores. So these are focusing on MSME sector. We have seen that this digitally applied process and disburse loans, also that it should be recreated behavior as well. And the risk adjusted price is very favorable. We expect a stronger trend to continue here.
We also have tried a few digital transformation initiatives and timelines. So we are really excited about the opportunity that digital technology is offering to complement the branch network that we have and make sure that we can leverage our branch network better and make the breakeven even faster and also profitable. So last quarter, despite our existing investment in new branch base, so out of 731, 175 branches went live last quarter itself. And our OpEx on a quarter-on-quarter basis increased almost INR 50 crores primarily for new branches, people and also the marketing spend that we will do to create awareness about these new branches.
Despite this, we are really happy to report that our profit after tax has been all-time high for a quarter, close to INR 330 crores. Our ROE is close to 31%, ROA is 3%. And now with the expanded network, we can look at accelerated growth. And this year, our network growth will slow down and that's probably maybe this year or next year in solvency. Our focus will be on making the expanded network more productive. So in terms of regulatory environment, we have a very positive development in microfinance industry. MFI industry has been very badly impacted by COVID. And the regulatory changes is used with capital pricing as well as give more flexibility in terms of size of loans and the type of loans will make the industry healthy and we also have set opportunity to make sure that our subsidiary company, which is in micro finance and also the leading players in microfinance now, grows well with these kind of regulatory change.
In terms of reported NPA, RBI circular which came I think in 12th November 2021 had an impact. But on a like-for-like basis, our NPAs have improved. So if we ignore the impact of circular, then our GNPA would have gone down to 2.5% to 2.3% But in the last quarter, impact of circular is just about 0.3% and the reported NPA is of 2.8%. But this quarter is the impact of full quarter and that is about 0.9%, and therefore, the reported GNPA is 3.2%. Our collection credit terms and the process will align to the new RBI requirements over the next 2 to 3 quarters, and we think that these GNPAs will come back to our long-term trend line of around 2%.
With this I hand you over to Rajesh who will take you through the details of our financial results and then we'll have questions live.
[Technical Difficulty] Apologies for this. The line got disconnected. So Rajesh will just continue again. But one small thing I want to bring to everybody's notice is that the advertisements that we got published today in the newspaper, there was an inadvertent error. And the quarterly results for March '22 compared to March 21, '21. But actually, those are for December 2021. And therefore, the quarterly growth that you see is Q-o-Q and not Y-o-Y. Tomorrow we'll publish the revised advertisement with the correction [indiscernible]. Rajesh, you can continue.
Thanks. So pre-operating -- Yes. So we were at the subject of pre-provision operating profit, which was INR 670 crores for the quarter, which is 14% up on a year-on-year basis and 10% on a quarter-on-quarter basis. Full year's PPOP was INR 2,346 crores, which was 17% on a year-on-year basis. This was also impacted by a large investment in new branches. Otherwise, our total income was up 23% on a year-on-year basis. Our loan AUM now stands at INR 51,210 crores, which is up 15% on a year-on-year basis and 9% Q-on-Q. In fact, our loan AUM for core products have grown faster at 20% year-on-year and 10% in just 1 quarter to INR 47,669 crores, driven mainly by small ticket home loans, gold loan and micro finance loans.
We disbursed close to 2 million new loans during the quarter across our core products, 40% higher than the previous quarter. 94% of our loans are retail in nature and 69% of the retail loans are PSL compliant. You should note that gold loans are not classified as PSL loans under RBI regulations. The large share of retail and PSL-compliant loans are of significant value in the current environment where we can sell down these loans through long-term resources.
In line with our capital optimizing strategy, 38% of our AUM is either assigned, securitized or under core lending as of 31st March 2022. During the quarter, we tied up with SBI Bank and Union Bank of India for co-lending of home loans and gold loans, respectively. We added over 730 new branches and 8,500 more people during the year. As a result, the cost-to-income ratio has increased to 40% in FY '22 compared to 35% in FY '21, but this paves the way for accelerated growth in the future.
Our annualized ROE for quarter 4 stood at 21.1%, driven by annualized ROA of 2.9% despite large investment in growth causing spike in operating costs. Our capital adequacy ratio was 23.7% and Tier 1 saw 16%, well above the statutory requirement of 10% and 15%, respectively. Quarterly average cost of borrowing declined by 28 basis points year-on-year and 14 basis points sequentially to 8.6%. Our gross NPA stood at 3.2% and net at 1.8% as of March '22. This includes the impact of RBI's notification dated 12th November 2021.
With the implementation of ECL model under India, supervision coverage on NPAs stand at 123%. Condition of efficiency has improved compared to the previous quarter across all products. During the quarter -- now we updated on the liquidity. We raised INR 5,954 crores through term loan bonds, refinance, et cetera, out of which INR 1,464 crores was raised by refinancing, including INR 1,200 crores from Navat. In addition, loans of INR 4,284 crores were securitized or assigned during the quarter. Our cash and cash equivalents and committed credit lines from banks and institutions at INR 9,499 crores, which was at an all-time high. It is adequate to meet not only all near-term liabilities but also to fund the growth momentum. We have positive ALM whereby enclosed cover or exceeded expected outflows across all buckets.
This quarter, we also bought back INR 50 million crores of overseas bonds at par, which were funded by corresponding ECB loan of maturity, which was not less than the maturity of the bonds bought back in line with RBI regulations. This will reduce the cost of transaction by approximately 225 basis points. During the quarter, we also successfully raised long-term funds of $68 million from ADB to improve financial access to affordable green housing and lower-income women borrowers.
A brief update on our digital -- our strategy. 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. During the previous quarter, we had mentioned about digital DIY initiatives for disbursement to Whatapp and app more than 27,000 customers have been onboarded till date under these initiatives, but the added DRI disbursement in quarter 4 were more than double at INR 265 crores as compared to the previous quarter. Our gold loan at Home initiatives we started a year ago saw significant traction with disbursements rising 52% Q-on-Q to INR 209 crores for the quarter. On Jhatpat home loans, our pan-India products for instant home loan disbursement, continues to do well as 100% of the home loans now are worth Jhatpat loans at. The corresponding percentage in Q4 of the previous year was 94%.
IIFL Loans app is being increasingly used for various transactions by customers and has been especially beneficial at this time, which gives customers ease and convenience of access. We have more than 2.1 lakh average active users on the app for the month of March. With this, we come to an end to the update. We are now happy to take questions.
[Operator Instructions] The first question is from Saptarshee Chatterjee from Centrum Portfolio Management Service.
Congratulations on a good set of numbers. Sir, my question is on the home loan part. Sir, can you give some color on the like salaried and non-salaried part, how the GNPA would be?
Monu? Is there on line Monu?
Yes, yes. So our salaried home loan composition is almost 62% and about 37% to 38% is self-employed. And the -- if you look at the AUM level, our salaried GNPAs are hovering around 1%, and the non-salaried ones are at about 1.9%.
Okay. Overall, it is around 2.6%, right, sir?
Yes. So that is at the loan book level. So I was referring to at the AUM level, because -- and that was also using the dispensation of the higher economics there. So I was referring to the -- at the AUM level. The one which you are seeing is at the loan book level. Because we have almost about 32% to 34% of our book is off book. If you want to see the color of the entire book, then these are the numbers.
Understood, sir. Very helpful. Secondly, on the MFI part, I just wanted to understand that earlier across like 3 quarters, it has been maintained around 100% provisioning on the MFI Stage 3 assets. And this quarter, I see around -- I think around 60% coverage. Is there any change in coverage provisioning?
Sorry, can you repeat the question? The line was...
Yes, yes. Sorry. Sir, I just wanted to understand that last many quarters, we have been maintaining around 100% provisioning on the Stage 3 assets of MFI. This quarter, we are seeing slightly lower provisioning. So is there any change on provision policy?
Yes. So you know, under Ind AS, the expected credit loss is based on the probability of default and the loss given default. So when we -- as the economy is opening up and we're looking at the past 3 years' data, so it's based on the past 3 years data, and the model basically throws up this number that is required to have a lower provision. So as we know, post-demonetization, the stress that was there. So in the earlier number that was used in the model, even that period was being included. And now as we are going more into the future, the earlier periods are being excluded from the model and the newer periods recollection is now increasing better in the recent months is taking place and that's what's being factored into the model.
Okay, understood. And last question is on the like home loans. We have disbursed around INR 1,000 crores of home loan co-lending model. Sir, can you provide us the NIM and maybe expected [indiscernible] on this co-lending part of home loan?
Yes. So we have seen that typically, the spread in these co-lending model is ranging anything from, say, 1.5% to 2% in the absolute interest spread which we see at the moment. And we have had a pretty encouraging last quarter on co-lending, and we hope to scale it up much more this year.
Understood. And just to clarify the co-lending part that you mentioned around, I think, close to INR 2,000 crores in AUM. That is around -- this is -- I think 80% of that is mentioned, right? The other 20% would be included on the own book?
Yes, that's right.
The next question is from the line of [ Sharat Singh ] from [indiscernible] Capital.
Sir, my question was, so a large part of the growth is coming from the assignment book. So what is the sustainability of the partnerships there and how are we looking to grow the loan book itself?
So actually, we have been doing this for many years now. And -- so I mean there's -- in many banks, we have a long-term understanding as well that every quarter, we give them certain assets. And over a period of time, as the quarter grows, this will also decline. But I think at least for the near future because the co-lending base still to be gradual, but between the co-lending and DA together, we'll continue to have higher and higher part of our book, like this is 38% now, going there.
Do we have an internal number? I mean, what percentage of our book will be off book around 2 years?
Only 40% will be off booked next 12, 18 months.
40%. Okay. And how are we looking at the in-house book, sir? The loan book?
See, what is happening, suppose we do co-lending. So 20% remains in-house. So that growth are in-house on balance sheet -- on book loans as well or on balance books loan as well. And also what happens is some of the loan show in the co-lending model, the banks certain created policies. So based on that, it's the loan issuance, they will take it. And they also take it on a real-time basis as well as cost factor. So there is some credit, which we are comfortable with and banks are not, so that it is in our books.
Okay, okay. So essentially...
So certain assets which are not in line with bank's policies, but we still want to do it, then they will remain on our books.
Okay. And sir, the second question was, so how do we look at the NIMs going forward? So -- and the competition, are we seeing increased competition due to which possibly the NIMs could be lower going forward? Given the interest rate hike expected?
Actually, different products have a different structure of NIM and the competition as well as our mix. So gold loans till last quarter, the NIMs are under tremendous pressure. So if you look at our yield of gold loan, last quarter [indiscernible] is followed by 1% towards previous quarter. But this quarter is from -- starting from April, we are seeing that COVID restrictions have eased, because everybody has realized that this is not going and it doesn't help anybody. So if you see the advertisement of gold loan last quarter, you will see those 49 basis points, 59 basis points per month. They are now disappeared. So we expect the NIMs to improve in gold loan. And in business loans again, it's the type of small loans that we cater to, where we should be able to easily maintain. So on a weighted average basis, we don't see any challenge in -- at least in the foreseeable future, maintaining around 7% NIM that we always have. 6.5% to 7% is -- that's a maintainable thing.
Sir, where do you look at the stable gold loan?
I think gold loan is nimble [indiscernible] if we go back to ...
Sorry, percentage.
7%, 8%.
In the gold loan, sir?
Yes, yes.
Okay. And how do you look at the scenario in the MFI space going forward? I mean in terms of...
MFI as you know, I think RBI has come up with a very sort of pragmatic policy structure and that is priced industry. See what happens? The risk is always there in any industry, but it has to be priced in. So earlier, we had said 10% of above your cost of funds. And MFIs have a huge operating cost as well. And whenever there are cyclical or spotting problems like cyclone or demonetization or COVID, obviously, the industry suffered a lot. But what happens is, typically, our feeling that most of the industry players will improve their pricing by 200 to 300 basis points, which should easily absorb the losses and the extra provision or write-offs.
Besides what has happened at relaxation from say, up to 75%, you can do -- the remaining 35% can do into other loans. The income-based criteria, the cash flow base, I am out of loan -- all those things will allow -- see what was happening earlier, suppose it is a good quality customer. You could not lend say more than 25,000, but if you can then 1 lakh. That improves your cost as well as credit both very well. In any case, you would have been borrowing from, say, 4 microfinance companies earlier. So there are many changes that RBI has done, which I think will help the industry improve significantly in this year and next year.
Sir, would it be fair to say it'll be more aggressive in this space going forward?
So we have been quite aggressive to last year. We expanded our network very strongly. And now I think we need to make the network productive. So we have already done the aggressive bit. And I think if we are able to spread the network, it has been a very strong growth this year.
Sir, what I meant was, would we loosen our underwriting, given that we can price the risk correctly now?
No, no. No way. Because I don't think you can compromise our underwriting norms in this case. Whatever, these are flexibility on price. The pricing flexibility is against competitive pressure as well, because it's not there in any district there is only 1 microfinance company. So you have to be -- I think there's a little bit of flexibility that has come. We'll only take care of the risk which is there in the business in any case.
Okay. Okay. And sir, one last question. How do we look at the credit cost going forward in general and especially in the MFI and the business loan segment?
So last quarter, our credit costs were very badly impacted by MFI and business loans. Because if you recollect, January and February were again COVID months. And RBI's recognition has become much stricter. But okay, I've been saying this, but it has not happened until now. But going forward, we do see that the credit cost should go down.
Okay. So could you give any guidance as to what can we expect on the credit cost?
I mean it's very difficult, it's a long-term historical trend before COVID was around 100 basis points, maybe 100 basis points to 225 basis. So if you take the higher share of microfinance [ NSE ] now 125 basis points. But we can safely say this will stabilize around 150 basis points and not more.
On an annualized basis, sir?
Yes.
Okay. And if I can squeeze in one more question, sir. You mentioned like the pricing will be a factor of competition. So are we seeing more competition than we initially would have planned for in the different verticals we're catering to, certainly in the housing and the housing, gold and MFI space. I mean, are we seeing more competition than we would have for this?
Well, actually, the competition is not more. Competition is similar or is changing. So if you see housing there or DHFL and maybe intervals are more aggressive, there was also a Reliance on finance. Those players are not there now. But obviously, the existing NBFCs and other banks have become a little more aggressive. I think India has a huge untapped market. And in terms of pricing, like our home loan onboarding interest is 9.5%. So we are fairly competitive. But as to competitor intensity, I don't think it's increasing and not decreasing. So it stands where it was. I talked about microfinance. The last year, if you see microfinance stand-alone, then our ROE profitability is much below any acceptable level, and that is about the industry as well. So that has to resuscitate back to a normal level where the industry can sustain and grow. So that is a change that will come with these policy changes.
Sir, what I was saying, sir, last part of our growth has actually come from the gold loan space. And I mean -- so now we basically have a INR 16,000 crore book there. So could we see the growth maybe a little tapering down there? In the gold...
Gold loan?
Yes, sir.
Gold loan, again, the growth is a function of gold prices because that determines how much of money can be borrowed against, given quantity of gold. So right now -- I mean many people think that most certain banks probably might try to increase good reserves, and that can have upward pressure on gold prices or at least they remain stable. In that scenario, I think it will continue to grow at around 15% or so. But if gold prices were to come down for any reason then obviously, this segment of business will be impacted or this industry will be impacted. See, if you recollect 2013-14 when the gold prices crashed, obviously, our gold loan companies have seen sinking in their balance sheet. But it bounced back after some time. So it's more a function of gold prices. But if the gold credit remain where they are, then, in terms of volume or the tonnage, what we say, gold tonnage in our vaults should grow at around 6% to 8%, at least.
The next question is from the line of Savi Jain from 2Point2 Capital Advisors.
I just wanted to know, more on this fair value changes, what does it comprise of in this quarter so there's a significant decline both Q-o-Q and Y-o-Y? So what is the composition of this?
Mostly, in the earlier quarter, it was IPO. So basically what happens at -- as an NBFC, we're also [indiscernible] to apply an IPO. So some of the IPOs where our research is comfortable, we apply. And typically, we sell on listing or immediately in a very short period after that. So that was the income that used to come in favorly changes. But last quarter, we did not have any IPO -- or I mean, probably we did not apply any of the IPOs.
Okay. And -- okay. And...
Other than that, like in the investment, but we don't have much financial investment in the balance sheet yet.
On the MFI business, it looks like we had a loss this financial year. Is that true?
No. No, we did not have a loss.
What was the MFI profit last...
So there was a INR 48 crores profit for the year.
INR 48 crore profit in MFI, but it has about a use of INR 1,000 crores of capital.
And was there a loss this quarter in MFI?
No. This quarter what was the profit?
About INR 5 crores.
So this quarter is like near breakeven, INR 5 crores of MFI profit in the entire contribution.
And I saw that there is some INR 300 crores which has moved out of restructured book. Is that because of write-off or because of prepayment?
No. Because the expected time frame will be over mostly. So actually, the restructured book of 938 has come down to [ 373 ] which in a way, is good because that is what was at risk of GNPA. And that basically had resulted in MFI GNPA to spike in last quarter. And other than -- so there are [indiscernible] So in case of construction real estate I know that there is a repayment of 1 loan. But in MFI, what you see is that restructuring is over mostly. So the restricted time period is over.
Okay. And another thing was this -- on the stand-alone financials, there is quite a significant decline in interest income Q-o-Q. What is the reason? Is that because of more assignment or I mean, there's quite a bit of decline.
Savi, that is -- yes, that is also a reason. Another reason is that in quarter 3, we had IPO funding, so there is interest income from that. And if you remember, in quarter 2 and quarter 3, the stand-alone interest income was higher than quarter 1 because there was income from the covered bond trust. These are structures that we had created in 2019. So what happens is that's a stand-alone entity that trusts also and incomes are there. Now when the trusts are concluded, the appropriation of accumulated profits in those trusts, which were held in trust for the benefit of NCD holders, was transferred to the stand-alone company in quarter 2 and 3. So as there was no such transactions in quarter 4, you see a decline. So a combination of all these 3 things, the trusts, the IPO financing as well as the higher assignments during the quarter.
Okay.
So does it answer your question?
Yes. So that's -- you talked about this trust thing, which was then Q1, Q3. Did that also lead to additional profits in Q2 and Q3 or it was just...
On a consolidated basis. So on a consolidated basis, it does not make much a difference. It just [indiscernible]
Okay. And your -- so you mentioned about the 150 risk credit cost guidance, is that -- does that also hold true for like next year, next -- the immediate next financial year?
Yes. I think that should -- I mean, unless something unexpected happens, that should hold for next year.
Because we continue to provide for in the wholesale book and MFI also.
So wholesale book we have provided last year. This year, it has been mostly MFI and MSME.
The last quarter also we provided for in wholesale right? I mean...
So last quarter -- No. I think last quarter, a significant part of it is MSME and MFI, wholesale book we have also provided, I think incrementally visible. But most of it has gone to MFI and -- so if you see my MFI and MSME would have taken brunt of around INR 200 crores in the last quarter. And there is some normal incremental provision, which is continuing in all businesses.
So this was only the third wave, because we -- it was all the provisioning has been...
I think it's a combination of 2 things, 3rd wave as well as RBI circular..
Okay. So basically, we should revert to a normalized credit cost in the next financial year? And -- Okay. And your -- there's some reduction in securitization Q-o-Q. What is the reason for that? I think [indiscernible]
We did more assignment maybe that's so. So normally, what happens at assignment or securitization, you can do 1 of the 2 things with whatever assets you have.
I think in securitization, we need to retain -- we need to provide some kind of first class in the assignment. That is not the case, right?
So in securitization what happens is that you get a lower interest rate. I mean, so you get a better rate from your point of view because you are selling the assets. But there is also some margin, maybe around 5%, which is driven by your bank fixed deposits. And that becomes like a post-close guarantee kind of thing, but that also gets locked up from the capital. When you calculate your capital equity. It's just a formula, but it has an impact.
In assignment, that is not the case.
I'm telling you, that's not the case.
So all losses are gone completely...
[indiscernible] so bank often factor that in the price itself.
Got it. But if banks have like their experience is not as per expectation, then they may be either reluctant to do more assignments or they may increase their cost for future assignments.
Yes, that is true. But normally, what happens they have a very detailed process to -- and we think they actually use rating agencies to find out the loss -- the value or the losses, the probability. And rating agencies basically go through granular data, and they have much -- and given that experience, they are very good fix on this.
And one last question. You mentioned that MFI has been public lending [indiscernible] 200, 300 and so what is our increase? I mean, I'm sure it has already been...
It varies from region to region, from state to state. And so in some cases, we were not even -- earlier rates were lower than 10% also. I mean our margins are less than 10%, some cases 10%. So it, again, depends on state to state, where as me states where this is higher, you will price more. So it's not across the country one rate.
But can you like give an indicative -- like blended increase or is it like in 100 basis...
I think, yes. So there will be some increase from 100, 200 basis point at least.
And that then literally flows into the ROE because there's no -- I mean [indiscernible] the profile of the business increases significantly.
Yes. And as I said, that even if suppose you've a 1000 crore capital and makes INR 40 crores, INR 48 crores, it's not generating a 4% or 5% of ROE. So obviously -- and our case will be like a typical refrigerating of industry as well. So -- and that is what RBI has also recognized, that there has to be risk rate rising because you can't total the pricing and the risk is not controlled. So the whole industry should hopefully that would recover in this.
Got it. And then I may see there has been an increase in NIM, but it seems counterintuitive given that you mentioned in gold loan you have seen a reduction in NIMs this quarter. So how is there an increase on an overall basis?
Yes. So actually Savi the proportion, if you see the gold loan has been the highest increase for the quarter and as well as micro finance and digital financing. All these have an above average, above or average yield. So yes, while individual products may decrease, the fact that these products are high wastage. And in these products, yield side sell is higher than the average, you get a bump up on the average yield in the total.
Okay. Okay. That's it from my side.
The next question is from the line of Tejas Mehta from Omkara Capital.
Congrats on a very good set of numbers. Sir, a couple of things I would like to know. So one is gold lending has started quite well now for us, almost INR 2,000 crore net addition is still a very good number. What sort of guidance can you give on co-lending for FY '23?
So I think -- this is our focus. This will continue to grow. Very difficult to give guidance because as a concept co-lending in India is a little new, and we've been working with multiple banks. So we'll try to maximize it, but it's difficult to give guidance at this point in that basis.
Right. Right. But on the current fourth quarter run rate, you kind of a maintained on a quarterly basis.
I think so. I think that run rate can be maintained.
Okay. Okay. Got it. Sir, the other question is, how long will we take to see this gross NPA reporting being normalized after the entire impact of RBI [indiscernible]?
I think this would take about 2 to 3 quarters.
Okay. So essentially we can see further increase in the NPAs? Though not as though it's not expected...
This could happen because this quarter was full quarter impact.
Right. Okay. So the potential [indiscernible] is stabilizing at the current numbers from this quarter?
Now it should go down. And over a period of 2, 3 quarters or will revise this year, we should see coming back to the -- or converging with earlier launch.
Right. Got it. Got it. Third question, which I would like to understand was on the OpEx side. So you said that this year, you will go slow on the expansion front. Any number on the number of branches that we're looking to add or are we [indiscernible]
We added about 800 branches. This year, we'll add about 200 to 300 branches.
Right. But the OpEx...
As branches will get added because there are quite a few locations and things solid in pipeline.
Right, right. So OpEx as a percentage of assets was about 4.4% in the fourth quarter versus earlier, this seems to be below 4%. So do you think over the next 4 to 6 quarters, this number can go back to 4% or [indiscernible]
Certainly it will go back 4% or lower.
Okay. Okay. Got it. And finally, just on -- you announced that you all have applied to RBI for credit card. Can you throw some light what's the game plan? What are you looking to do over there?
So I think credit card has opened -- RBI has now opened the application or they have started taking application from NBFCs for credit card and PPI. We have a base of 6.5 million customers. So there's a tremendous opportunity for us to -- if the RBI approval to have these products in our portfolio.
Right. Right. But do you -- as in what sort of plans do you have? And then is there anything on the drawing board right now on how will you approach this segment? And what kind of scale up of the business you would like to see in this case?
So it's very initial sign, very fluid at this point in time. But this is tremendous opportunity, because see, in India, debit card penetration is almost 80%, but credit card penetration is just about 3%. So if you see the smaller towns, then the credit card still is not there with many people because when we say 3% to 4% credit card penetration is really, really low. And so again, like any other product, this product has got leased to smaller towns in India where we have a good network. So we see a great opportunity here.
Yes. There's the fact that there are risk-adjusted returns are good, but it's a product that is unsecured in a small ticket sized product and time and again, we have seen banks making significant losses. Everyone, every now and then, especially to the interested clients.
I think we need to be cautious. Credit underwriting process has to be strong. The card is just a more [indiscernible] delivery of credit card. But I agree with you that this business has that cycle and people have seen high profit and high losses, so let's be cautious. I'm with you on that.
Great. And just one last question, sir, on the home loan side. Why is it that we [indiscernible] significant spike up in the RBI related new norm related home loan this quarter? Typically, it's supposed to be very safe segment and usually not be satisfied. I'm just trying to understand that what the...
I don't think we'll have losses because -- but if people have [indiscernible].
So sir, if you see the home loan side, although these are because of the RBI norms. But almost 80% of it is in 30, 60 DPD and another 5%, 10% is in the 1 to 30 bucket. So it's only 10%, which is in the 60-90. So I think it's just a change of habit, which has to come into play. And I think in next 2 quarters, we should be pretty good. If you will see -- if you would have taken away the -- this impact aside, actually, our GNPAs have gone down in home loans from the last quarter. But this one is -- has changed a bit, and it was there for the entire quarter. And it's more of a behavioral thing and we should not see any losses there.
And I'll request all the participants to restrict to 1 or 2 questions, we have quite a few in pipeline waiting and then you can come back in case you have more questions. So I will stick to one of the important ones and then again, we can say because the queue is becoming longer.
The next question is from the line of Vikash Agarwalla from Bank of America.
Just a couple of questions. One is on the disbursement and the AUM growth guidance. And sorry if I missed this earlier. Can you share what's the guidance on disbursement in AUM growth for different products for FY '23?
So normally -- I mean, we don't have any specific guidance. But historically, as we have indicated that -- Okay, last quarter, we grew by 10% quarter-over-quarter. But on the normal circumstances, we can grow by about 25% in terms of earnings.
Got it. And for AUM, what would it be?
Yes, that's for AUM only.
Okay. Understand.
Disbursement can be a little higher, disbursement number would be difficult to track because every business has a different ratio of disbursement to loan book. But I think maybe loan book or loan AUM will be a more better indicator.
Understand. And my second and last question is on the dollar bond side. You have made some purchase on dollar bond side very, very recently. And you have mentioned in the presentation that this will reduce its cost of funds by about 225 basis points for that transaction. Can you explain the dynamics on what are the details -- what the -- that's leading to this saving? And related to that question is, again, how should we look at the overall maturity, I think still close to -- more than 300 million outstanding maturing next year. How should we look at our these strategy in refinancing or repayment of that?
The dollar bonds are putting at a dollar rate, which is much higher than our cost of fund in rupee terms. So supposing you got about yield of 7% to 8% and then we can cancel the forward contract also as we buy them back. The RBI regulation do not allow us to buy back in the normal circumstances. We can buy back only to the extent that we are raising another dollar loan of a maturity not less than the regular maturities of the dollar bond. So we had an opportunity at $50 million ECB. So we basically use that money to buy back. And then based on the maturity, there was another $2, $3 million release. So we bought that also back. So we are trying to negotiate another tranche of $50 million from ECB loan, which is like in dollar -- foreign currency loan. Then probably we can buy back more.
Understand. And for the remaining maturity bullet, what's the strategy as of now? How are you thinking about it?
So that's what I'm saying. Although the domestic liquidity, we have significantly higher than -- so our dollar bond on stability [indiscernible] our liquidity is $1.2 billion. So whenever -- but I can't use the rupee resources to buy back the dollar bonds. So we are looking for opportunities to borrow in dollars and then we can use that to buy back the dollar bond.
Sure. And then just one last small question is for the ECB loan, what's the all-in borrowing cost and [indiscernible]?
Yes, I think as our CFO has pointed out that this is saving about 200 to 225 basis points, all in.
Okay. Understood.
What happens is you take -- you cancel the -- that forward cover, you take a forward cover on this. Everything all adjusted -- on a net basis, it stays about 2% or a little over that.
The next question is from the line of [ Pratik Chira ] from Guardian Capital Partners.
Yes. So my question is more on the gold loan side. What we see is that we've gained quite a bit of market share in the FCC, also commented cost from yield respond on a base. So is it fair to say that even we are sort of focusing on higher ticket loans where the risk of default is slightly lower? And also, could you just give a breakup of the loan book at the time of business [indiscernible] difficult sale loans, how much would it be about 1 lakh at the time of the business? And how much would be below 1 lakh as a type of business, please?
So our average ticket is [ INR 70,000. ] I don't -- it's not that we are focusing on a large ticket growth. But we also look at cash flow and the purpose of the loan. So to some extent, what you are saying is right that we'll probably try to have a lesser risk than the yield we had benefited. And having said that, last year, last quarter, the last couple of quarters more, there's a tremendous pressure because of a lot of competitive activity, competition activity in terms of interest rate, which it appears that this quarter has settled down. And most of those are -- those kind of schemes the competitor were hyperactive have withdrawn the scheme.
Fair enough. So is it looking like -- are you thinking of the similar queue that since the economy sort of opening up banks are again sort of focusing on the non-gold part of the AUM rather than [indiscernible]?
Banks continue to focus on gold loan, but that's one of the products for them. And we have certain type -- I mean, we can cede certain types of customers and certain size of customers. So this is a huge market after -- beyond that.
Sure, sure. My second question is on business loans. So the collection efficiency is again still at 97% level in this quarter also. So just wanted to know how much of this business loan book is secured and what is your understanding of how much would be the ultimate loss on [indiscernible] default? This is versus secured.
No, last quarter -- again, because, as you know, January, February so 2 months were affected by COVID. Secondly, the unsecured is about 1/3 of the book, but there our [indiscernible] is much higher. So the -- in terms of like-for-like basis, the GLP would come down from 6 to 4.8. If you take the way we were recognizing GNPA earlier. I think long term, you should see about unsecured losses can be around 3% -- 2.5% to 3%%. But that is properly taken care of the price that we have for this. So these loans are typically 25% to 24% interest rate, the [indiscernible]. It differs to the size of the lab, but can go down 14% to 15% also.
The next question is from the line of Abhiram Iyer from Deutsche CIB.
Sir, congratulations on a good set of numbers. Again, apologies if this is a repetitive question and maybe I need a bit more clarification on this. But in terms of the GNPA increase due to the RBI norms, given the fact that the recognition is a point-in-time process rather than over a period of time versus what's changed between December till March that the recognition norms have affected our numbers. Broadly speaking, shouldn't all the effect be captured in December -- in the December number because it's a point-in-time calculation?
See, Abhiram the circular [indiscernible] on 12 November. And the first type of EMIs that would have fallen you would be around 5th of December, right? So there's only one set of EMIs, which would have slipped into which were there, which had to be collected. And whereas for this particular quarter, I mean, you have -- you would have all 3. I mean, all the 3 months and including the 3 months of the previous quarter as well. So anything that would have fallen due in December, for example, if you don't collect, would have become an NPA as of March. Whatever was in November would be in February. So there is -- if you think of it in terms of a funnel, so the amount in collection or the amount that is required to be collected in absolute terms to enable it to escape the NPA classification is much higher now compared to what it was earlier.
I'll explain that how these new loans work. Supposing that your monthly installment is say, INR1 lakh. So for you to become NPA, you would have just 3 installments of in agregate INR 3 lakh right? Now earlier supposing out of these INR 3 lakh you collect INR 1 lakh. The new [indiscernible] the first month to again the 60 day, not 90 days and it's not GNPA. Now what RBI has said that to take it out of GNPA, you would connect all INR3 lakh.
Okay. Got it. Okay.
So you can't say that I'm collecting the first one, second one, third one is pending, so that you see it's rolling over. So that is why they all impact us.
Got it, sir. So broadly speaking, the 3 month -- that is a 3-month delay in the application is what you're saying, which means that, effectively, all the norms application has been taken care of by March?
Yes, that's right. So earlier it was 1 installment now it's 3 installments. So all 3.
Got it, sir. And the second question was something which was made at the start of the call. It was mentioned that basically home loans for -- or home loan NPAs on first average was around 1% on medium level and 1.9% for non-salaried level -- non-salaried, whereas the NPAs for on-book portfolio is around 2.6%. So is there a concern that better part of the book is sort of being securitizing, involved in co-lending versus what's actually been on our book?
No, not really. If you see this Firstly, what numbers I stated were basis be a like-to-like without these new RBI amounts that is 2.6, inclusive of the RBI norms taking into account. The differential is very marginal. So it is nothing significant. The difference between both of them is about 30, 35 bps. There's nothing more than that.
Got it, sir. Got it.
Next question is from the line of Vishal Singh from ICICI Securities.
I have a few questions for you -- so I just wanted to ask, you mentioned that in April, gold [indiscernible] have we also raised our gold loan rate? And if yes, and by how much? I mean, what would be our lowest rate then right now?
So they have not raised the rate, but they have withdrawn the schemes which were like absolutely low prices, like 49 basis points is 6%. All these gold loan company's cost of funding more than that. So those schemes have now been withdrawn so effectively the yield which had gone down by, say, 1% should have bounced back to the earlier level. And over a period of time can further improve.
Got it. Got it. Sir, for us, the interest rates will -- I mean, our rates will remain same, but for other...
Yes. No, we also had a product return. So these are all [indiscernible] products. The way the industry is operating is that you offer something at a very low rate and it is not default or slight delays and then increase the rate back to the next level. The next level grow jumping scheme on their part. So we also had one of the products like these other 2, which we have not taken back. So I think the yield should improve a 100 basis points, broadly. That's what my experience would be.
Understood. And secondly, if I look at this quarter, like most of the growth has come on the back of co-lending book in gold AUM, which I'm assuming that where we are offering low rates, so now that you're mentioning that lower rate schemes are gone. So will it have any impact on the growth or do you feel that there is still like good demand outlook in the market and since that the competitive intensity from the pricing point of view is gone, so there will be no impact?
Impact will not be there from that point of view, but see typically March quarter has a little higher growth for whatever reason, historically. And maybe in this quarter, people go on [ view ] during April, May. So I'm talking about last 10-year trends, so not so far -- not only us but for all gold loan companies. So there are some seasonal variations in the volumes. But that will be more because of seasonality rather than -- and not because of the rate changes.
Okay. Understood. Understood. And just last question. I mean have we auctioned the gold this year, then how much? And what would be our like option to loan book? I think we used to give it earlier in the presentation.
So [indiscernible] keep happening. And normally, on the -- so the historical numbers have been -- just one second So around -- from the -- see what happens is loan book and average size of the -- average tenure of the loan, is about 3 to 4 months. It can be around 20, 25 basis points, but I don't have the number at this point in time. But it's not very significant. It's a small number.
Understood. Sir, just last question. What would be our typical ROA or ROE in gold loan business only?
So normally it's difficult to calculate ROA, ROE on a full year allocated basis because most of our branches were from multiple products. But it's something very similar to the company average.
Understood.
ROA is closer to 3% and ROE is closer to 20%.
Got it. Understood. Okay. That's all from myself.
The next question is from the line of Deepak Poddar from Sapphire Capital Partners.
Sir, I just wanted to -- you mentioned our new normalized credit cost is at 1.5%. Is that right? Because earlier you used to say 1% is our normalized credit cost.
Yes, that's right. So new expected credit costs, we should [indiscernible] 150 basis points. Because now, the MSME and micro finance has grown a little bit. And historically, whatever we have seen in the last couple of years that whatever estimate you make the cost are a little higher.
Okay. Okay. So FY...
but you are right, historically prior to COVID. we used to have around 100 basis points or maybe less than that.
Okay. So what you're implying is that FY '23, we are looking at 1.5% credit cost. Is that what you're implying?
Yes.
1.5% credit cost. Okay. Okay. Understood.
And they -- everything is normal.
Understood. And then something on the cost-to-income ratio now 40%, how do you see cost-to-income ratio in FY '23?
So 35% price is expansion. So it will gradually slide back to that level.
Gradually, maybe, what, next 2 to 3 years would be a fair assumption?
I think, maybe 4 to 6 quarters, maybe 1 and a half years.
So your voice was not audible sir.
I'm saying maybe -- yes, 1.5 to 2 years.
2 years. So 2 years, we are looking to -- we are looking to go back to 35% kind of a cost to income?
That's right.
Okay. So ideally, if your AUM is growing at 25% and cost to income is declining, our PPOP growth should outperform your AUM growth right? That would be a fair assumption to make? Like 25% AUM growth, our PPOP can grow at 30% rate?
Absolutely.
Okay. Okay. Yes, that's about it from my side.
Thank you very much. That was the last question for today. I now hand the conference over to the management for closing comments.
Thank you so much. And if you have any more questions, we can always get in touch with our investor relations or [indiscernible] department. Thanks for being patient,and have a good day ahead.
Thank you very much. On behalf of IIFL Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.