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[Audio Gap]Thank you, Niro, and good afternoon, everyone. This is Kunal Shah from ICICI Securities. Today on this call for IIFL Wealth Management, we have Mr. Karan Bhagat, Managing Director and CEO; Mr. Anshuman Maheshwary, Chief Operating Officer; Mr. Mihir Nanavati, Chief Financial Officer; and Mr. Pavan Manghnani, Head, Strategy and Investor Relations, to discuss their business highlights, trends and strategies. I would now like to hand over to Mr. Anshuman Maheshwary for his opening comments. Thank you, and over to you, sir.
Thank you, Kunal. Good afternoon, everyone, and welcome to IIFL Wealth and Asset Management's Quarter 4 and Full Year Update Call. Over the next hour, Mihir will take us through the financial performance for the quarter as well as for the full year FY '20. I'll share other key highlights, and then Karan will give his thoughts on the key trends in the market and the business. We will then open it up for Q&A. Over to Mihir.
Thank you, Anshuman. I will now proceed to give a brief overview on the financial performance of the company for the quarter and the year ended March 31, 2020. We have seen stable operating metrics for this quarter and for the full year, although the last 2 weeks of the March '20 have caused significant MTM impact on our closing AUM and AIF holdings on our books. To begin with, I'll give a quick overview of asset under management. Our overall AUM decreased 11.1% Q-o-Q and increased 1.6% Y-o-Y to 1 lakh 38,762 crores. This excludes custody assets. Our ARR assets decreased 11.1% Q-o-Q and increased 7.4% Y-o-Y to INR 62,595 crores. IIFL-ONE -- within this, IIFL-ONE proposition continues to gain significant traction. Asset increased 10.2% Q-o-Q and 103% Y-o-Y to INR 17,720 crores. Our loans has decreased -- loan book has decreased from 12.2% Q-o-Q and 26.3% Y-o-Y to INR 3,536 crores. The annual averages on loan book remained around INR 4,000 crore level, reflecting regular disbursements and high opening balances. Coming to revenues. Our revenues from operations for this quarter has increased 16% Q-o-Q and 4.8% Y-o-Y to INR 256 crores. Revenues from operation for the year stood at INR 920 crores. Our ARR revenue for this quarter has increased 11.9% Q-o-Q to INR 142 crores, with the full year ARR revenues having increased 20% Y-o-Y to [ INR 535 crores ]. Other income for the year stands at a loss of INR 69 crores, primarily due to MTM losses on our sponsor and nonsponsor investments into our proprietary and distributed AIFs. Now to expenses. Our total expenses for the year -- for the quarter increased 12.8% Q-o-Q and INR 163 crores and by 6.6% for the full year to INR 564 crores. This increase is primarily due to higher variable costs, including for the ESOPs as well as provision during the year. Admin and other expenses have decreased 12.4% Q-o-Q and 35 -- 30.5% Y-o-Y to INR 40 crores for the quarter and 6.8% for the full year to INR 180 crores. Accordingly, our overall cost to operating income ratio stands at 61.4% for the year versus 51.8% for FY '19. As we had shared earlier, this increase is due to the change in revenue model as well as higher ESOP costs during the year and the quarter. Now to profitability. Our operating PBT for the quarter increased 22% Q-o-Q to INR 94 crores and decreased 28% for the full year to INR 356 crores. Profit before tax for the year after including other income decreased 46.6% to INR 286 crores, and PAT, accordingly, decreased to INR 206 crores. With this, now I hand over back to Anshuman to take us through the key business highlights for the last quarter as well as for the whole of FY '20. Thank you. Over to Anshuman.
Thanks, Mihir. So on our last call, when we spoke in January, we had spoken about improvement in client sentiments and our steady progress on our strategic priorities. Unfortunately, there was no way at that time to know what the last quarter had in store, and we remain very much in the thick of what's been happening even today. Accordingly, what I wanted to do was cover 3 areas in the next 3 to 4 minutes. Firstly, I want to highlight our response to the COVID-19 situation. Our focus here has been on 3 fronts: ensuring the safety of our employees, seamless continuance of our business operations and services to our clients, and ensuring that we are able to monitor and mitigate any adverse risk to our client portfolios and our own balance sheet due to the high market volatility. I'm happy to say that we've been successful in achieving these objectives with the help and support of our employees, and we have been operating at almost full capacity throughout this lockdown period with no notable slippages on any front. We rolled out robust BCP mechanisms early in the lockdown to ensure tight risk control, covering the business, technology and all other relevant aspects. During this period, we have continued to extensively engage with clients via multiple outreach channels and also effectively using our technology platform to provide clients a very seamless digital experience ranging from portfolio discussions, reviews to portfolio analytics to providing them the complete access to our entire platform as well as senior management interactions. Further, as a part of our social commitments, we have contributed INR 3.5 crores to various COVID relief funds and continue to access our client and partner networks to promote further contributions. Secondly, on business priorities, at the start of the year, we had outlined our strategic priorities to be twofold: firstly, increase ARR assets with a specific focus on IIFL-ONE; and secondly, to look at a reduction in costs and increase in our productivity levels. Now ARR assets, as Mihir shared, have grown over the last year despite the mark-to-market impact in March. And our ARR revenues have increased by over 20% for the full year. Importantly, retentions have also held steady at upwards of 80 bps on our ARR assets, [ including ] the NIM. Also, net flows remained strong at upwards of INR 12,000 crores for FY '20 and INR 3,527 crores for quarter 4 itself. We have continued to acquire clients, adding approximately 680 relevant new families in the year, and our client retention continues to be north of 98%. Specifically, our IIFL-ONE proposition continues to gain client approval and trust, and this has been growing at a substantially faster pace than the overall business. Assets have grown by 103%. And importantly, net flows into the IIFL-ONE portfolio was INR 2,821 crores in quarter 4 itself. And all of this while retentions continue to hold steady at about 42 bps. One of the key underlying reasons has also been the performance of our IIFL-ONE funds, which has been stellar. Overall mark-to-market impact on IIFL-ONE portfolio was minus 1.8% in quarter 4 versus minus 13% impact on overall AUMs in the same period. This gives great confidence, not just to us, but more importantly, to our clients. In our asset management business, the focus over the last year has been on scaling up AUMs across our existing strategies and products, AIFs, mutual funds and especially in the PMS category. Again, the stellar performance across all listed equity schemes have supported the strong AUM growth trajectory. Net sales for FY '20 stood at INR 5,736 crores driven by our AIFs and PMS offerings. We continue to focus on adding to our product platform to maintain the leadership on the alternate segment, also looking at enhancing our distribution coverage and in line with all the other stellar things happening in the company, improving our processes and technology use. On the second aspect of cost and productivity, we've made significant progress across all relevant heads, including employee costs and other administrative costs. These have been done using a combination of direct reduction initiatives, deployment of technology to improve productivity as well as taking judicious calls on outsourcing of select activities to derive scale benefits. We expect to see the full impact of the initiatives over the course of this year with a significant improvement in the exit cost-to-income ratio for FY '21. Thirdly, a quick update on our acquisition of L&T Wealth, which has been completed in April 2020. We welcome the clients and teams from L&T into our fold and are excited by the growth prospects this offers. The assets being onboarded are approximately INR 10,800 crores, from which approximately INR 6,000 crores are ARR assets. The assets and revenues will start getting reported within our consolidated numbers from Q1 FY '21 onwards. It will be with effect from April 22. With this, I want to hand over to Karan to share his views on the market business and outlook for us. Over to you, Karan.
Thank you, Mihir. Thank you, Anshuman. I'll start off by talking a little bit about the client appetite over the last quarter of the previous financial year. I think the trade was really the risk of trade. I think overall trends for the last 16 to 18 months have been low on equity allocation, especially on the high net worth side and potentially second time during the financial year, once post the [ IL&FS ] crisis. And now there was an extreme risk aversion and large tilt towards short-term high-quality liquid instruments and in case of long-term investments, a big swing towards sovereign or quasi-sovereign papers, if not for bank deposits. This was kind of a bit of a -- seen a reversal in the current quarter, but still, clients tend to be substantially cautious. And the return of capital versus return on capital continues to be the highest priority. As wealth managers, we continue to work extremely closely with clients to ensure an optimal return rather than the highest return and ensure capital preservation and safety of capital as the primary objective. On the asset management side, the entire industry, including mutual funds as well as us as distributors, have had to work hard to ensure that there is no incremental or substantial erosion or exposure to credit funds. As in franchise, we've been lucky. Over the last decade, our exposure to credit funds and therefore, our exposure to clients of our clients to credit funds has been [indiscernible]. Overall, our clients have less than INR 2,000 crores, INR 2,500 crores exposure to credit funds and primarily those being HDFC and ICICI, which has seen less next to negligible impact on the NAVs. We have to -- on the asset management side, on our debt fund as well as on our alternate asset management side, credit continues to perform well. We need to work slightly harder on the real estate side of our alternate assets management business, which has obviously post-COVID seen a little bit of stress and incremental delays in terms of payments from some of the borrowers from the real estate funds. Otherwise, our credit funds remain extremely high on quality and more or less, have 90% to 95% exposure to AAA bonds as well as PSU papers. Our primary offering and focus area, IIFL-ONE continues to gain a lot of traction, and that has given us a lot of confidence in further enhancing the proposition. We've spent a lot of time over the last 3 to 4 months to develop a very focused fund management practice there, a process-driven approach and most importantly, build a very strong platform, consisting of the right investment counselors as well as enhanced technology. These are all investments which need to be made in tough times. And I strongly believe as the platform enhances scale and build scale, we will be able to reap the benefits of these. Documentation in IIFL-ONE, unfortunately, has been a challenge since the end of March all the way till now as the offering is through the portfolio management services platform with each client being a segregated client. The ability to actually do the documentation digitally is not possible. And as a result of that, though the flows over the last quarter has been fairly decent, we would have expected the flows to be substantially larger. We are confident we build a very strong pipeline through virtual call communications with clients over the last 2.5, 3 months. Clients especially appreciated the entire process of having discipline on asset allocation and credit in tough times like this. And we believe that these conversations will result to a lot of conversions as soon as open -- as soon as things open up and gives us flexibility to complete the documentation. Overall, the wealth management industry last year has seen a tough year driven by a big squeeze on margins initially by regulatory pressure. Post that, the [ IL&FS ] and the market impact, both on the credit side as well as on the equity side, large amount of the portfolio of clients has been skewed towards fixed income. And there has been a fair amount of intense pressure on compensation of senior bankers. In the short term, this has resulted in us relooking at our business model. We were fortunate of having made this change early enough and move towards a higher ARR model. We strongly believe we've driven change successfully albeit not as fast as we would have wanted. I believe that as we drive change in the medium term, we are already seeing a healthy consolidation in the industry. And it will ensure that we are able to gain a much larger market share as things stabilize because of our continued investment on the platform as well as in people. And as things emerge, we will see there will be more consolidation of clients who potentially move away to -- at different points of time to slightly riskier instruments or even in some cases, with some independent brokers. We see a lot of consolidation in that segment -- in that sector, and we believe a process-driven approach will enable us to consolidate and lead market share soon enough. Thank you. We'll open up to questions now.
[Operator Instructions] The first question is from the line of Saptarshee Chatterjee from Centrum Portfolio Management.
My first question is on the net flow side. So part is how much has been the net flows for FY '20, excluding the custody assets? And part B is, how is the -- like you have given some color on the sentiment. But for full year FY '21, what is your expectation on net flows?
So I think the net flows, we typically, like we guided earlier, I think the net flows will be in the region of approximately 10% to 15% of our stock, which effectively means in a region of around about INR 15,000 crores to INR 20,000 crores, which effectively would be in the region of around about INR 4,000 crores to INR 4,500 crores a quarter. I think in the year of demonetization, there was a larger jump where we saw INR 25,000 crores to INR 30,000 crores come through. I think in a year like this, where I think we've kind of seen the first quarter in some ways, we are lucky that our revenues continue. But obviously, our ability to collect a huge amount of net assets in this quarter has been limited. But I think over the next 9 months, there will be a substantial catch up, and we should be able to do justice to come back to the INR 15,000 crores to INR 20,000 crores number for the next year. As far as the net flows outside of custody, net flows outside of custody is more or less a similar number. Custody assets has more or less been flattish for the year. It's a plus around about INR 1,000-odd crores. So most of the flows for the last financial year have been on the noncustody side.
Okay. And my second question is on the variable cost side. So this quarter has seen a high provision of variable costs. But like for a full year basis for next year, what kind of variable cost one can assume for the full year?
So on the variable cost, there are 2 components. One is the -- rather, there are 3 components for previous quarter. One is the bonus component. The second is the ESOP component. And third, we had a small portion of the exit cost as we rationalize part of our workforce. The way to look at the bonus on a sustainable basis would be approximately, give or take, 20% to 25% of the fixed compensation for the year. So effectively, for last year, for example, on a fixed comp of INR 300-odd crores, the variable cost on a consistent basis will be in the region of 15% to 20% of that number, which will be approximately, give or take, INR 45 crores to INR 60 crores. The ESOP component last year was INR 22 crores, and there's an exit cost of exit paid to employees, which are voluntary exits from our side, which aggregates to around about INR 13-odd crores. So the breakup of INR 85 crores for last year is INR 22 crores of ESOPs, approximately INR 13 crores of exit cost and another INR 50 crores of incentives and bonuses. For the next year, the ESOP cost will increase because of the acquisition and buildup of 2 strong teams, so one on the asset management side and the other is on the operations and the strategy side. So we expect the ESOP cost next year to be INR 45 crores as compared to INR 22 crores of last year. We expect the fixed cost of INR 300 crores to come down by close to around about 20-odd percent. So we expect the fixed cost to come down from INR 300 crores to close to around about INR 240 crores. We will add INR 20 crores of cost on account of L&T acquisition fixed cost, which is going to be around about INR 260 crores in total fixed cost. Variable, as I said, will be around about 15% of that, which is INR 40 crores. So I think overall, ESOP would be around about INR 45 crores for next year. Fixed employee cost in the region of INR 260 crores, down from 300 to 240 plus the 20 of L&T, which is 260. And the variable expenses are expected to be in the region of INR 40 crores. So including L&T and including an additional ESOP cost of INR 23 crores, we expect the employee cost to be down from INR 385 crores last year to around about INR 350 crores this year.
Understood, sir. Sir, my last question is on the real estate funds that we have. Any kind of loss provisions you think you should make and therefore, similar impact on the P&L?
So we've -- on the investment side, if you look at our investments, they are broadly broken up into 3 big categories. One is on the equity side. Second is on the fixed income side, and third really is on the real estate side. Now we've taken all these instruments on a mark to -- are valued conservatively on a mark-to-market basis quarter-on-quarter. On the current quarter, where you see close to around about INR 66-odd crores mark-to-market arising on account of alternative investment funds, it's broadly broken up and largely coming out of the deterioration in NAVs on the equity side. We have an exposure of around about INR 240 crores in a combination of listed as well as quasi-unlisted equity in the form of the pre-IPO fund. So on INR 240 crores in the previous quarter, which is Jan to March, we've seen an erosion of around about INR 55 crores net mark-to-market basis on equity. We have on -- we have an exposure of around about a similar amount of around about INR 230 crores, INR 240 crores to real estate, where we've seen a net erosion of around about INR 15-odd crores in mark-to-market NAV. Our real estate NAVs are marked extremely conservatively. Unlike the rest of the real estate fund industry, we typically mark-to-market it as if it's an NBFC. So the provisioning norms are tighter, and everything is mark-to-market accordingly. So the NAVs on the AIFs are extremely, extremely conservatively valued. And we believe a large part of the real estate NAVs would come back through the next 12 to 18 months. The equity NAVs would more or less move in line with the market.
Next question is from the line of [ Yashodhan ] from [ BPFS Mutual Fund ].
So I just had like 2 or 3 questions to ask. So firstly, I just wanted to get a sense of your ARR and TBR breakup. So because I was just going through your presentation, and there seems to be some line item in your TBR assets called mutual funds in direct core, and there was some revenue-generating out of it. So just wanted to get a sense of what exactly is that?
There won't be any revenue coming out of the direct core. I don't know. Let me have a look. Where -- which slide are you referring to?
So in your consolidated Y-o-Y, I mean, in your breakup of the assets given ARR and TBR, so whether the breakup of the assets are given. And besides that there's this -- the breakup of the revenues arising from those assets. So I don't know, some portion seems to be coming from direct codes/feeders. Just wanted to understand what exactly is that.
Those would be coming out of the feeders because we would be getting some fees coming out of the feeder income, not out of the direct plan.
Okay. Okay.
It's like [indiscernible].
All right. Secondly, what I want to ask was, if I just take a brief analysis of your balance sheet, dilutions are happening almost year-on-year. And because of which, our return on equity is getting -- slowly going down. So -- and roughly till 2019, if I see the total cash raised from all the issuance of equity as well as ESOPs, some macro comes to around INR 1,800 crores, out of which, if I calculate acquisitions still, say, L&T Wealth Management, it's around INR 1,500 crores. So is this the correct way to look at it? And is this the strategy going to be, which is -- you'll be looking at this strategy going forward as well?
Sorry, the acquisition was how much you say?
So till 2019, I think on a cumulative basis, it's INR 1,800 crores, the cash raised, against which I think that the acquisitions were around INR 1,500-odd crores or so.
Yes, I'll just correct them. I'll just give you the numbers. So I think broadly, we've raised capital 3x. We would have raised the right -- capital right at the beginning from IIFL, which is around about INR 25 crores. We subsequently raised around about INR 950-odd crores, INR 925 crores to INR 950 crores from General Atlantic, which made INR 950-odd crores. And subsequently, we had a $100-odd million around from secondary investors just before we demerged. So all put together, the capital raise is around about INR 1,600 crores, INR 1,650-odd crores. What you will need to net off from this, obviously, is the dividends paid over the last X number of years. And what you'll also need to net off is the acquisitions done. We have done 2 large acquisitions. One is in the form of Wealth Advisors, and the other is in the form of L&T Wealth. All the others have been really relatively smaller acquisitions. I think all of them would aggregate to close to around, what, INR 500-odd crore over the period of last 11-odd years. So I think our acquisitions total up to around about INR 500 crores. The return on equity, you're right. I think we can do better on that metric. I think part of it is to do with the revenue number itself, which in the current year has kind of compressed both from a mark-to-market basis. The operating ROE, if I look at that and just remove the mark-to-market to make it kind of effectively similar, would have also come down from around about close to 18%, 19% last year to around about 13%, 14% this year. Now that's largely on account of the fact that the -- I would attribute, again, 2 things there. One, obviously is, again, the change in business model, which have seen a reduction in transaction revenue last year from INR 560-odd crores to INR 350 crores in the current year. So I think as we've kind of detailed earlier, I think the switch from transaction revenue to around about the ARR revenue will take around about 2-odd years. I think we finished the year off that. We've kind of come down from the transaction revenue from INR 560 crores to around about INR 360 crores in the current year. We've effectively added INR 150 crores of transaction revenue. So we bridged, if I can put it in some -- in a crude way, we bridged 60% to 65% of the gap of the reduction from transaction to ARR. I'm fairly confident over the next 9 months a large part of the gap would be bridged, and we would have inverted our ratio of our ARR revenue and transaction revenue in favor of ARR. I think once that happens, I think we'll more or less be close to the target ROE. The second reason is we need to, I think, improve a little bit of capital allocation from our balance sheet. That's something which we are working on. I think our investment book can be substantially smaller, and we are making a conscious effort at an appropriate time to reduce our nonsponsored investments and get our investments down from INR 650 crores, INR 700 crores to around about INR 250 crores, INR 300-odd crores. And I think we're able to do that. That itself will add around about 150, 200 basis points to the ROE. So I think it's 3 things put together. One is the revenue itself. Second is the split between the revenue, and third is improving the balance sheet in terms of effectively kind of reducing the investment book. So these 3 things put together, I think, should push the operating ROE back to the late teens.
Okay. Just a last question. I currently bought -- because unlike other private wealth managers who have the bank network advantage to them, what sort of channels are we tapping to source plans? Is it the internal structure, which we are dependent upon or something external?
Our business, honestly, we really don't approach any channel. It's all direct because our investment is in high-quality relationship managers. So we really don't disintermediate. And most of the client contracts are largely driven from a very strong referral program from our existing client base.
Okay. So that is even for the IIFL-ONE program we're talking about?
Yes.
Okay. And those clients, which are not part of IIFL-ONE, you -- like the assets which are not part of IIFL-ONE, we'll be continuing to receive the trade commission for the manufacturers directly?
Yes, provided they are in the broker plan.
[Operator Instructions] Next question is from the line of Piran Engineer from Motilal Oswal.
Congrats on the quarter. I have a couple of questions. So firstly, did you mention that the MTM impact on your IIFL-ONE was minus 1.8% versus minus 13% for the overall portfolio?
The answer is yes. But the way to look at minus 13%, obviously, it includes everything. It includes custody assets and distribution assets and IIFL-ONE assets. So if you actually break up the mark-to-market, the highest quantum of impact is on the custody assets, which more or less reflect in some ways promoter assets, followed by a broad impact of around about 9%, 9.5% on the distribution assets and another 2%, 1.75% to 2% impact on the IIFL-ONE assets. That's largely because of the skew on the asset allocation side. So IIFL-ONE kind of close to around about 80%, 85% on the fixed income side. The distribution assets are close to around about 60% in distribution, 55% to 60% in fixed income, 40% to 45% equity. And the custody assets, obviously, most of it is 100% equity.
Okay. I get about the custody assets, but why should there be a difference in the debt equity allocation between IIFL-ONE and your distribution business?
Because IIFL-ONE, most of them have come over the last 8 to 12 months and therefore, have been a little low on equity. Within IIFL-ONE, we follow a price-to-book and price to any multiple method to allocate money to equities. And broadly speaking, north of around about 2.5x book and north of around about 19.5, 20x multiple allocation to equity falls dramatically. And most of last year, that's the way it's been. And since IIFL-ONE is more or less a newer program, the allocation to equities has been substantially lower. Distribution assets, obviously, more or less represents a broad allocation of 60-40. And it's not as tightly possible or easily maneuverable as the IIFL-ONE program because you need to go back to the client, measure it with his own asset allocation and in a sense, work with the relationship manager and the client to make the changes. So it's not going to be -- it's never going to be as nimble footed as the IIFL-ONE.
Okay. So if I understand it, IIFL-ONE, you'll have more discretionary power compared to distribution. Just broadly speaking.
Absolutely. Yes, yes.
Okay. I understood. Then my next question is, so you're expecting INR 15,000 crores, INR 20,000 crores of net flows in FY '21 and beyond annually. How much of that should come from existing clients and how much from new clients?
So I think it's fair to say broadly, give or take, 15% of new clients, again, on a stock basis. So effectively, we should add around about 700 to 800 families, which should aggregate to around about, give or take, on an average of INR 8 crores to INR 10 crores, which is INR 6,000 crores to INR 7,000 crores. The remaining INR 7,000 crores to INR 8,000 crores should come in from existing families.
Okay. Got it. And so raising money from existing families should not be an issue with the lockdown, right?
No, that's not an issue. But obviously, you don't end up getting new clients.
Even with the new clients?
Yes, but see, even for existing clients, they have to have some -- you can get new money for either of the 3 reasons, right? They have a liquidity event and therefore, they end up with new money. They've reduced the allocation of money to the business and therefore, want to invest. And third, you're moving money away from a different wealth adviser to yourselves. I think all 3 during the lockdown is really difficult to get because the first 2 are virtually impossible to happen during lockdown, which is remove money from business as well as a monetization event. The third one, which is removing money from another adviser to you, is also close to impossible in the -- during the lockdown period whether it involves just way too much documentation. So I think additional money even from existing clients during lockdown would have been a challenge. But most offices for us, apart from Bombay, Chennai and Puna, are more or less getting back on the street. Barring Delhi, which is 50%, I think it's fair to say over the last 8 to 10 days, most of the offices are back on their feet.
Got it. Sir, that gets me to my next question. How confident are you of these net flows given that so-called liquidity event or HNI and promoters is unlikely to happen in FY '21. You won't see them selling their business because they won't look to divest. So how confident really are you of this number? And even treasury money will move out. So in that sense, wouldn't it be difficult?
Treasury is a small portion for us, but we have to dig a little deeper because you're right. It's possible that the quantum of money coming from a single client is lower. And typically, if you would see, you would have typically, let's say, 20% of the clients give INR 50 crores and above. And the remaining 80% clients being on an average of INR 5 crores to start off with. I think we'll have to work slightly harder to improve. It might end up being ratio of 90-10, where 90% clients start up with INR 5 crores to INR 7 crores, and only 10% clients start up with INR 50 crores to INR 75 crores because monetization events are lower. And we should also hopefully benefit from the fact that we've recruited 7, 8 really senior bankers over the last couple of years. And I think they should be able to migrate a fair degree of portfolio from competition. So I think given the combination of those 2, I think we should get there. But you're absolutely right. We'll have to dig deeper.
Next question is from the line of Sagar Jethwani from Phillip Capital.
Sir, my question is based on some corporate and bank guarantees, which we have offered. And this put together is around -- it's INR 350 crores, which is roughly about 12% of net worth. If you can give me some idea about what is -- what are these corporate guarantees? Your disclosures would be helpful. And whom have we offered this?
So I will request Mihir to help me here. But I think most probably, they would be just offered for broking margins. Mihir, can you step in here?
Yes, thanks, Karan. I think this is only for broking-related bank guarantees and a corporate guarantee being given for IIFL Wealth Finance to raise money from the bank. Other than that, there is nothing.
Okay. Okay. That was all.
I think 70%, 80% of it will be broking margins on 31st March because they have gone up quite a lot. And we have a couple of large clients trading with us.
[Operator Instructions] Next question comes from the line of Saptarshee Chatterjee from Centrum Portfolio Management Service. Next question is from the line of Nihar Shah from New Mark Capital.
Congratulations on good set of numbers in tough conditions. I just wanted to get your sort of thought on the lay the land and the competitive intensity post-COVID. There are quite a few small guys as well and sort of smaller organizations that are sort of giving the same sort of services that you're giving. How are they sort of coping with the current sort of situation? And do you believe that there is a lot of consolidation potential, either organic and organic, as the situation sort of plays out as COVID plays out?
I think yes, I think it's a great question, but I personally feel it's becoming really, really difficult, right, to be able to charge that 70 basis points of fees from the client, either in the nature of an advisory fee or a discretionary management fee or potentially [indiscernible]. I think in either of the 3 formats, it requires the following investments to be done correctly, right? It requires an extremely strong and innovative product team because it needs to be a team which, A, obviously understands the...[Technical Difficulty]
[Operator Instructions] Thank you for your patience, everyone. We have the line of Mr. Bhagat connected back to the call.
Sorry, my line got cut, yes. So it needs a strong and extremely innovative product team, which not only understands the features of the product, also understands tax implications also understands the ability to package as well as understand the mindset of the consumer. So I think investment into a strong product team is extremely important. Getting a great set of investment counselors is extremely critical. Plus, you need the entire platform there. And when I say you need the platform, you need to have a strong brokerage execution guest. You need to have NBSC to support you in case the client requires. And we need a very, very strong research desk. Plus, we need a very strong sales team to work along with you to support those relationship managers. So overall, I think, yes, there are a lot of smaller firms providing these services. But I think the ability to go out and charge the right fee versus just charging a small monthly fee will get distinguished by the robustness of the platform. And I think that's really difficult to build and needs certain economies of scale to step in. Otherwise, it starts kind of really showing up in the bottom line. And I think we've crossed that hump, and we successfully built a very good moat around the platform. And I think that's what will continue to distinguish us. I think competitively, from a landscape perspective, I think it's fair to say a couple of us have been able to definitely cross the ramp. I wouldn't rule out many others, but it's going to take some time. And it's a much more difficult business to build today relative to what it was 10, 11 years back when we started out.
[Operator Instructions] Next question is from the line of Saptarshee Chatterjee from Centrum Portfolio Management.
Sir, my question is on the platform side, like you just said, a greater emphasis on the platform. If you can give some color why you are so confident on the platform side, and what value addition does it provide to the clients so that the client should be attracted to IIFL.
Really, it's [indiscernible], but I'll try and answer it. So there are factual parts of the platform. And secondly, then there is culture, and then third is the delivery, right? And it's a combination of all of these. So I'll try and answer your question to the best of my capability. So I said as a platform, I think there are certain factual things which you may -- could tick off right. You need to have the brokerage desk. You need to have the NBFC. You need to have a trust platform. You need to have investment counselors. You need to have a little bit of business advisory and tax advisory for your clients, okay? So all these 6, 7 things make up the factual platform. Now it's obviously possible to create 6, 7 of these, tick a box, right? Post that, we made the entire middle layer, which, for the lack of a better word, I'll call it culture and innovation, where you need a culture and innovation of the same sort of people sticking together, working extremely hard to continuously innovate and build a culture of delivery among the platform and relationship managers, which is a 24/7 kind of service model to clients. Because at the end of the day, we're dealing with high net worth families, where expectations are high and variables are multiple. So the entire middle layer of the culture is extremely, extremely important to overlay. And finally, it's the delivery, right? So you need to be engaged. You need to be communicating. Some decisions are right, some decisions are wrong. All we can do is improve the probability of the right decisions. But delivery is extremely, extremely important. And I think that kind of shows up in our low attrition numbers, both on the relationship manager side as well as on the client side. And I think it's a combination of these 3 things, which really makes me fairly confident that as long as we are able to continue with these 3 things together, we'll have a superior player and a differentiated platform.
Okay. And second is on the RM side. So you have given the attrition rate for senior leadership. For the RM, how has been the attrition? And how would you see the risk of attrition in RM? And therefore, is it that sustainable, you have to maintain a high amount of ESOP every year?
So ESOPs are not sustainably very high at the relationship manager level. I think the ESOPs were largely an episodic recruitment last year in an effort to build our asset management business as well as strengthening our operations and strategy unit prior to listing. So actually, a large part of the ESOPs last year were invested on the asset management investment side of the business as well as on the strengthening the entire financing operations. I'm talking about the entire products, legal compliance piece. So that's the place where we've really made a lot of investments last year. A large part of the employee compensation actually gets covered as -- in the variable bonus. That would make up less than 20% of the ESOP pool on a sustainable basis. Attrition, obviously, within relationship managers is a constant challenge. We've done well. We value what we have, and we appreciate the hard work. At the same point of time, we provide their -- provide them with the live platform to take to the clients. And I think that's the right symbiotic relationship, which is needed for us to be able to retain our relationship managers. We also strongly believe that if we do lose a few people, the fact of whether we'll retain the relationship or not will be as much a function of us losing that resource. It's as much as the new resource we add to the relationship. So we believe the client has a strong hook to the platform. And if we are able to add the right relationship manager to the relationship, our threat of losing the business from that client will go down dramatically. So I think it's a combination of these 3 things which gives us a fair degree of confidence.
[Operator Instructions] Next question is from the line of Nikhil Walecha from Sundaram Mutual Fund.
I just wanted to understand our yield on IIFL-ONE is coming down each quarter because I remember you have guided that it's a fixed fee, and that would be in the range of [ 35 bps ]. But currently, it's in the range of [ 25 bps ]. Where do you think that this could settle?
So actually, I pointed out last time, our current yield on IIFL-ONE is at 42 basis points, okay? Basically, what is happening in the current INR 18,000 crores, around about INR 5,500 crores is nonchargeable, okay? Because it is essentially something called stocks and basket, okay, which is essentially when the clients have signed up for IIFL-ONE, as and when they move out of the earlier broker plan or in the earlier AIF where they are being charged normal management fee, as the products finish their maturity, they will automatically move into a normal fee plan. So as we speak, out of the INR 18,500 crores, the chargeable AUM is INR 12,800 crores or INR 13,000 crores, which is broadly translating into around about 42 basis on an annualized basis, taking into account opening, closing as well as average. We can potentially from next time or post the call give a breakup of the exact AUM split. I think it'll remain -- to answer your question, I think it'll remain at the 40 basis points number.
Right. Right. Secondly, how do you -- how are you looking at the revenue side, especially the recurring, which is 25% of the core revenue is coming from the -- through the loan? So given the [ sentiment would likely be ], how are you looking at the overall revenue, especially the lending part of the opportunity?
So I think going forward, as I've guided before, I think if I take a revenue pool of INR 100 for example, I think out of INR 100 in the long-ish trend, 20% to 25% would be broadly coming as the net interest margin around about 20-odd percent. 20% to 25% would come from transaction revenue, and 55% to 60% would be the ARR revenue approximately. Going forward, a year forward after that, we would like the ARR revenue to move to around about 65%, 70%, and the remaining 30%, 35% would be an equal mix between transaction revenue and loan revenue.
So I understand the mix. I'm just asking the -- how are we looking at the trend, especially in this kind of weak environment when the AUM had declined. There is a pressure being -- yes.
So our -- the way we look at our loan book, typically, it tends to be in the region of 2% to 4% of the AUM we manage. It typically goes down to 2%, 2.5% in times like these. It would go up to a maximum of 3.5%, 4%, where clients would like to borrow more. So give or take on an AUM base of 1 lakh 36,000 crores, our current loan books are about INR 3,000 crores, INR 3,500 crores, which is around about 2.5%. In a fairly different environment, this could go up to a maximum of INR 5,000 crores, INR 5,500 crores. So the way to look at our loan book is at the south, it will be around about 2% of our wealth AUM. On the north, it will be approximately 4% of the wealth AUM.
Okay. And also, could you give some color on the structured notes? It is slightly -- it's more less volatile part of the business. So how do we look at going forward in FY '21?
So structured notes for us actually has no impact on the profit and loss account. It's more a source of borrowing for us. So all the structured notes from a market perspective, the ups and the downs in the market, we are not taking any kind of mark-to-market risk. We are fully hedged on all our structures. We essentially effectively use 80% to 85% of all the structures we raise for our borrowing program. And effectively, that kind of helps us borrow at the somewhere between [ 8.75 to the 9.25 ] hit. So there's no impact on the profit and loss account apart from the cost of borrowing.
Okay. And finally, I think one of the news article mentioned that IIFL AMC is interested in buying -- has shown interest in L&T Mutual Fund. So any -- would you like to comment anything on that?
So we did in the first round mode from an interest perspective. Now we are there in the second round. We're not really -- we're still evaluating the opportunity. We haven't fixed our mind either way, whether we want to bid or not. I think the [ proposal ] is still some time away. We're still having internal discussions, and it will be taken up to both committee at the right time. But there is nothing definitive about -- it's still in early stages of thoughts.
Next question is from the line of Piran Engineer.
I just had one follow-up on that attrition rate that previous participants spoke about. So that has actually gone up quite a bit in the past 2 years from 1.5%, 2% to 6% now. So is that a cause for worry? Or how do we read...
So I think it's a good, good point. I think I've got feedback on this in the Board presentation also. We want to break it out into voluntary and involuntary attrition. I think that's -- I think involuntary attrition makes up a large part of that 6%. Voluntary attrition actually is potentially equal or maybe even lower than the previous years. So we'll make that distinction in the graph from next time.
Okay. Okay. And is there any -- what is the difference between your structured notes and your other syndication that you talk about in TBR?
So other syndication is essentially if you're selling any so -- for example, just hypothetically, we sold INR 600 crores of NSC to our clients, okay? so that's a syndication because we're just kind of syndicating it. We are broking it.
Okay. And in the structured notes also or brokerage, right?
We could. But structured notes, we, more or less, only specifically raise money for IIFL Wealth Finance. So the syndication income is fairly low. We, more or less, use it more as a platform to kind of raise liabilities for our own NBFC. Yes, we are broking it through the wealth management business to our clients.
As there are no further questions, I will now hand the conference over to Mr. Kunal Shah for closing comments.
Thank you. Thank you, Karan, Anshuman, Mihir and Pavan for sharing your insights and perspective. And thank you all the participants for participating in the call. Have a good day. Thank you.
Thank you. Thank you.