IIFL Finance Limited (IIFL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IIFL Finance Limited Earnings Conference Call. We have with us on the call today Mr. Nirmal Jain, Managing Director, IIFL Finance Limited; Mr. Monu Ratra, CEO, IIFL Home Finance Limited; Mr. Venkatesh N, CEO, IIFL Samasta Finance Limited; and Mr. Kapish Jain, CFO, IIFL Finance Limited. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Kapish Jain. Thank you, and over to you, sir.

Thank you very much. Good afternoon, everybody. I hope you and your family is safe. Thanks for joining us on this call -- quarter 4 earnings call for fiscal 2022. I'm Kapish Jain, Group CFO for IIFL Finance. On the call, I am accompanied by Mr. Nirmal Jain, our Managing Director; Mr. Monu Ratra, our CEO for IIFL Home Finance; Mr. N Venkatesh, CEO for IIFL Samasta Finance. I now hand over the mic to Nirmal to comment on the economy and the group strategy and plans. Over to you.

Thank you, Kapish, and welcome on the analyst call for the full year FY '23. So to start with my views on the macro economy. Today, there are divergent views about India's macro economy and prospects, primarily because there are concerns about high inflation in the U.S. and Europe, and the impending or kind of moving recession period there, and also the regional slowdown back home. But if I first -- my personal view is that things are good. In terms of macro stability, they are far better than ever before because, on one hand, inflation is a big doubt and therefore, even interest rates are peaked out, and we saw that the last policy, last MPC basically paused interest rate hike. And this is backed by our current account deficits coming off after peaking in September. And obviously, oil imports and the lower prices are helping us. So foreign exchange businesses are in good shape and the currency is also stable relatively. If monsoon is good, then I think the rural demand also will come back. GDP growth, maybe 6.5%, 7% but the potential of India is much more. But in the world that is today, India is really in a sweet spot. And on the whole, given the stable external environment, stable politics and the economy doing generally well and inflation just peaking, outlook for the economy, financial services as well as trade market is positive and optimistic. Now in terms of -- there are many concerns here or many times people talk and ask questions about the bank credit growing too fast. What is the potential of co-lending or data becoming available to everybody, how would NBFC sector grow. So I just wanted to put some numbers in perspective. So banking sector credits is around INR 140 lakh crores today. And out of this, if you see the mortgage by itself is around something like INR 24 crores, INR 25 lakh crores, which is -- so if you really look at our share of overall market is about 1%. Given our vast network of branches, obviously, there's a huge potential to tap for us to grow also. And the mortgage by itself in India, the mortgagee t to GDP ratio is 11%, which is among the lowest. So obviously, mortgage is grossly under penetrated. In the last quarter, we have seen some slowdown in the affordable home loan demand, primarily because of interest rate increase as well as the commodity price increase where the cost and the prices have not come down to make up for the interest rate increase, but this is a temporary figure as we see the interest rate fall, things should come down -- the demand probably can accelerate again. Overall, mortgage industry did well and the luxury segment actually grew much faster. The affordable sector has some long-term potential, as I said, as the penetration is at 11% of GDP, which is 60%, 70% in many developing countries and has been above 100% in some developed projects like U.S. So there's a long, long way to go. Then if you look at MSME sector in the industry, the MSME created by banking sector is about INR 35 lakh crores, INR 40 lakh crores to manufacturing and more than INR 35 or INR 40 lakh crores for services. So together it's around 80 lakh crores. And still everybody agrees from the government banks to bank to reserve banks that the credit in this sector is grossly under penetrated. So again, there's a long, long way for this industry to grow. And the size of business that we have at this point in time is very, very insignificant compared to the potential. Even our gold and microfinance business is primary catered to MSME customers because they're all small businesses and for income-generating activity. Now the question is whether the entire potential can be kept by banks, or there's an opportunity of the niche in which we operate. So in my view, again, and what our experience has been for the last few years that we have a network of branches and people. They cater to very small ticket loans. So if you look at our ticket size on loans in business or MSMEs or digital loan of 3 lakh, 4 lakh or 13, 14 lakh for affordable homes and 50,000, 65,000 rupees for gold loan. So there are much bigger markets bases which banks still have to tap. And these are the customers which are dividend for bank. In fact, many times require access to the customer, and we have got the loan branches that we set up are leaning branches which just carry the loans. The cost structure is very comfortable for the bank. If they were to have a similar kind of loan mobilization sort of system, it would be far more expensive for that. Also in data, while the data we have for everybody, but people still have to learn how we use data, and there are very large number of parameters that people use, and it's a continuously evolving learning and emerging algorithms that works further. And obviously, we have invested in technology and we believe that we are early movers in using the new technology infrastructure of account aggregators, the projects and data by way of alliances with large security players as well as our own organic marketing and getting customers. So the digital infrastructure, the digital investment that we have, the branches that we have and people that we have, that basically gives us a mode to continue to grow our business. Now we expanded our network of branches and people in the last 2 years very aggressively. We can now slow down this expansion and still we have enough capacity to sustain growth of our targeted growth of 35% in our loan yield as well as our income and bottom line. Last year has ended. We have grown our profit and loan AUM in line with our target. One change that we have seen in last -- probably the most of analysts and investors who are watching us would see in the last couple of quarters, the co-lending is increasing. And obviously, the relative share of direct assignment of securitization will have come down to that extent. In terms of accounting, which we follow in India, in case of assignment, we have upfront the estimated value of what is already off the book. But in case of co-lending, the excess interest accrues quarter-after-quarter. So what we will see probably over the next few quarters is that the co-lending income, the excess interest or the difference of interest that we get will keep growing. The upfronting will keep reducing. And basically, that will -- that impact on the whole will be probably be lesser and lesser as we go along. Also, in last quarter, as we have seen for the last few quarters, the COVID impact is now over. Our asset quality is back to the normal level, which is even applying or having implemented RBI's new circular and most stringent norms for income and asset quality. We are still at 1.8% in GNPA, which is well below our target of 2%. And NPA is a little above 1% and here again, our target is to keep it below 1%. Asset quality can further improve in the next few quarters. In terms of cost of funds and our margin, our margins are improved because there has been a systemic interest and obviously, that allows us to increase the pricing of our products as well. Most of our products are small, which are relatively where it's not very difficult to pass on the interest rate hike. But our cost of fund has not gone up in proportion, primarily because our rating and credibility with the banks have improved. Our international credit rating also has been upgraded. Also, we have fully repaid now the dollar loan, which is the MTM bonds we have issued in 2020, in aggregate about 400 million out of [ 30 million ] prepaid before March and remaining 270 million has now been paid on, I think, April 23, with hedging and everything all included, the cost was very high at around 11%. That probably -- that should also help us in strengthening the continuing the increase in cost of funds, which is the impact of a rate increase across the system. We can provide as much information as possible in our presentation as well as call. So many of these people have some doubts or some questions or queries about the data or the changes in number. I really appreciate if they can raise this on the call. We have seen some comments in social media, which is about digital loan. While digital loan is about 3% to 4% of our portfolio, and the numbers for Q3 and Q4 have changes and the reason is as follows. It is not because of discontinued business, but there are some small portion of LAP, which was digitally done, but we thought that there's a conflict in classification and will take LAP as a primary classification. And therefore, you will see that the Q3 numbers of LAP, the LAP has relatively lesser GMP as compared to unsecured digital loans. So the Q3 number of LAPs, which was only at 3.9% has gone down to 3.48 as part of digital loan which the LAP has moved to build. And correspondingly, the digital loan and GNPA which are reported 3.34% for the last quarter have gone up to 4.18%. It's small INR 600 crores, INR 700 crore portfolio of LAP which was digitally done. Now we have classified as LAP instead of digital loans, and there's nothing to get excited about the 3% to 4% of loan in terms of how we present the data. We'll answer all your queries either by mail, or you can talk to our Investor Relations department or ask us questions on this call. So with this, I hand it over to Kapish to take you through the details of the comparative numbers and then we'll take Q&A.

Thank you very much, Nirmal. So first, I'll take you through the quarterly performance numbers, followed by annual. So as mentioned by Nirmal for the quarter, the consolidated loan area for the group moved up by around 26%. And on quarterly basis, moved up around 12%, looking at around INR 64,638 crores. And I have further dissected the AUM growth into core products, gold loan AUM and home loan AUM grew by 28% and 23%, respectively. Microfinance, which is more like a [ muted ] segment has grown by around 59% in this year with improvement in the entire regulatory framework, which came into the segment. Digital loan and loan against property grew by around 33%, 18%, respectively. So overall, the core loan portfolio grew by 29% after [indiscernible], and the noncore in line with our strategy had further shrunk by around 11% Y-o-Y and 4% Q-on-Q. And this is something which will continue as it's going to be muted. The noncore (sic) [ core ] now comprises 95% of the overall AUM, a mix of -- so they have gone up by around 2.1% and currently the non-loan core AUM is comprising of 4.9% has come down. So in accordance with our capital optimizing strategy, 38% our AUM is either assigned or under co-lending. And the assigned loan offsetting trends is at around INR 16,979, up 19% Y-o-Y and 7% Q-on-Q. Impressively, the co-loan, the co-lending book has increased to around INR 7,557 crores by fiscal '23, up from INR 2,845 crores, a 166% jump and this is something which we have in agreement with multiple banks and across our products, primarily gold and the home loan businesses. During the quarter, we also added 2 new relationships in co-lending, IDBI Bank and India Overseas Bank for co-lending of gold and micro LAPs, respectively. So for the quarter, our reported profit before minorities stands at around INR 457 crores, up 43% Y-o-Y and 8% on a quarter-on-quarter basis. In this quarter, we also added across our businesses 300 branches and around 1,200 employees across -- we will get to a higher cost-to-income ratio of 43%. But going forward, our strategy is to monetize our branches, make them more operational and more efficient, along with other cost, drive initiatives that we are working across the franchise. This should enable us to report a far lower cost to income as we go towards this entire fiscal, right? Our cost of borrowing increased by 38 basis points Y-o-Y compared to 250 basis points high that we saw and almost more than half of that has also been passed on through the [ NPA and high credit ] bank. And 14 basis points sequentially to now 8.93 is the cost of borrowing. Gross NPA, as Nirmal mentioned, trends at around 1.8%, down from annual by around 1.3%, while [indiscernible] Q-o-Q, and net NPA is around 1.1%. The diluted earnings per share for the quarter stand at around INR 10.8 (sic) [ INR 20.9 ], up 28% on Y-o-Y and 9% quarter-on-quarter. Just to briefly highlight this enablement on the cost of borrowing was possible only by maintaining healthy liquidity. We continue to maintain healthy liquidity and the liquidity number stands at around INR 9,356 crores. During the quarter, through various sources, [indiscernible] lend INR 80 crores. These were term loans, bonds and through refinance. And we also did around INR 390 crores of direct assignments by selling retail loans to banks. Our gold loan and home initiative, which is really progressing fine, saw significant traction during the year with disbursement of more than INR 1,000 crores. And this has been improved as well in that business. We now have monthly run rate of above INR 100 crore, which consists of 3.5% of our total gold loan AUM. With this, I will now discuss the annual performance for the year 2023 consolidated tax before minority was INR 1,607 crore, up 35%. And our pre-operating provisions, pre-operating profit was INR 2,841, which again shows improvement around 24% Y-o-Y. As I mentioned, 95% of our loans in retail, of which 67% of the loans are PSL compliant. And the rest are gold loans, which is again a asset for the bank. More importantly, the retail and the PSL loans are of significant value in the current environment, where we can sell down the kind of asset performance that we have demonstrated to our market. We have held a very good relationship on those lines from a business delivery and performance perspective as well. Overall on these assets, the collection, recovery is something we entirely own from driving the whole element for the bank, while the risk on the trade is completely passed on as we can deliver to them. Our consolidated ROE for the year stands at around 19.9%, at a lower gearing because of the inclusion of INR 2200 crores, of primary capital that came in our subsidiary company IIFL Home. And then we reported ROA of around 3.3%. Our capital adequacy stands at around 20.4% in the NBFC, and a very healthy 47.3% in the Housing Finance Subsidiary as of March 31. And you can see our CRR is well above the minimum threshold that is needed, and with our off-balance sheet strategy and the internal approvals, we believe that we should only be able to improve with that as we progress. For the year, our average cost of volume increased by 300 basis points to 8.8% on an average basis. Our gross NPA, as I mentioned, is around 1.8%, which is stated below the guidance that we gave earlier. With the implementation of the expected credit loss or IndAS, provision coverage on our NPAs stand at around 1.67 for this specific provision. And our earning per share for the whole year was around -- is around INR 39.5 per share, up 25% and the book value is around INR 231 crores, which again moved around 40%. We have a very positive AUM whereby inflows cover or exceed most of the expected outflows across all our buckets. And the net gearing stands at around 3.5x which is down by 4.2x from fiscal year back in FY '22. The loans classified as digital loans are part of unsecured loan business with an active customer count around 3.9 lakhs for fiscal '23. That's what I have, and we're happy to take more questions. With this, I will open the floor for Q&A and be happy to answer all questions that you have or we come back to you in case we missed some today.

[Operator Instructions] The first question is from the line of Anusha from Dalal & Broacha.

Congrats on good set of numbers. Going forward on FY '24, a couple of -- outlook on the credit growth side, how do you see either panning out? And what will drive the growth? And in current fiscal, we have seen MFI with very strong growth and digital loans as well. So broader, what is the growth guidance in each of the segments? And also, if you can elaborate more on the margin side. I think given so far well managed on the margin side. How do we see your scenario panning out in FY '24. Because I think many of the people are taking the heat on the funding cost side. So what will be your outlook on that?

Thanks, Anusha. And one is on the credit growth side. As I said, that we expanded our network quite significantly and also invested in terminology. So our targets or our -- the goal is basically 25% credit growth. In terms of margin, we are prepared for some bit of upward pressure on the cost of funds. But hopefully, we should be able to mitigate by savings and cost to income as we slow down our expansion. And to put things in perspective, we may -- we would have set up almost 900 branches last year. This number may be about 150 or 200 more than that. Now why 150 or 200? What we do in microfinance business in particular, is that the larger banking we split them in 2 for better risk and operational control. And there may be certain strategic locations which are very good. So I think the number of branches will be just about, maybe around 15% of what we thought last year. And therefore, cost-to-income ratio should mitigate the upward pressure on cost of funds. But still relative to our peers, we should be better off because we have paid off our high-cost dollar bonds. And with our rating and credibility being better, we should be able to negotiate better with the lenders.

Okay. So still -- I mean, on the spread side, how do we see it? You'll be able to maintain FY '23 levels? Or...

I think we should -- will be able to maintain the spread at FY '23 level. And for everybody, what we have done on net interest margin, we have given the net interest spread, which is a difference in percentage cost of borrowing percentage and percentage for full yield. Because when you say net interest margin. And when you say net interest margin might include investment income and the numerator and denominator, they don't match. So I think the spread that we've given in our presentation now is more relevant and more indicative of what is our actual margin. We should be able to maintain that next year also.

Okay. And how much was the benefit of this high-cost bond that you redeemed?

So these are almost the total cost was -- maybe Kapish will give you some small update on that.

So -- and as Nirmal mentioned, this is around 400 million of high-cost bond volume that we had, some bit of it we paid last year and the remaining we paid in February of this year, which was a double-digit number to 11%. And we also recently did a press release. We also got another INR 100 billion. Obviously, the lending cost was around 9.2%.

So a we save about 180 basis points on this -- what we repaid.

Okay. Sir, on the branch expansion side, you said 150 to 200 is for the total branches or only for the MFI?

No, total branches.

Total branches should be...

Yes, so maybe gold, home loan and MFI all put together.

All put together. Okay. So that will be a...

Together, we had about 900 branches, out of -- yes.

So 150, 200, that's the run rate that you might expect over the next 1 or 2 years?

Yes, this year, for sure. And then let's see how the opportunity and environment and outlook is for next year. So our annual plan, we want to slow down. Next year, also, I don't think we need to accelerate because we need to make the existing branches productive. And then once we get the cost-to-income ratio to a more profitable level and then we can embark upon the next phase. And that also depends on the economics and the business environment at the current time.

Okay. Sir, lastly, on the asset quality side, I guess what is the credit cost, internals that you're working on? Because I guess you had mentioned that it would be closer to around 200 basis points order. So any change in that number? Or are you looking at it?

So I think we should be -- maybe this quarter, probably we are at the run rate of 220 basis points. But going ahead, I think we should be at the target rate of 200 or lower.

The next question is from the line of Renish from ICICI Bank.

Yes, so 2 questions. So one is on the -- impact on the gold loan yields, a question around when the charges comes into effect. So any assessment how our gold loan yield should impact because of [indiscernible].

I'd say we're already seeing all our products, and we don't -- I mean, there'll be negligible impact. There will be no impact because we are not really charging penal interest now.

Okay. So we have already [ peaked ] our product.

That's right.

Got it. And sir, secondly, in your opening remarks, you..

We never had a significant component of this, but we have further freed our dependence on this anymore.

Got it. And just secondly, in your opening remarks, you mentioned about sort of unloading the securitization and building more of co-lending book. So accounting wise, of course, this funding of income will go away. So [indiscernible], how do you see like to be sustainable ROE, ROE sort of looking like in '24 and beyond? Just considering the mentioned numbers.

No. So I think we'll be able -- will sustain our ROE. As I said, that this is -- as it tapers off over a period of time, the co-lending -- the surplus co-lending will keep growing. So whatever working we have done integrally, I don't think there will be any negative impact. So we should be able to have or maintain the profitability as well as our ROE.

So basically ROE around 20% on a sustainable level?

And 25% growth in bottom -- I mean the profit cost, 25% growth in the top line as well as bottom line. So that is what I think we've indicated, so we are on track. So at this point in time, we don't see any threat to that.

Got it. Got it. And sir, on a, let's say, ongoing basis, what should be the split between on balance sheet and off balance sheet to the year?

Yes, that's a good question. Normally, it's 60-40. Now in the home loan because we raised equity and we are sitting on a significant liquidity there. So probably this year in the home loan, the off book will go down a little bit. But over medium term, it we can say 60-40 and probably they can go to 55, 45 also. So 45 off book. But in the entry, the home loan piece, because we have much higher capitalization liquidity, this year probably there will be a drop in the order book there.

Okay. So at consolidated level, this year should be 65-35?

This year also it probably will be in the range of 60-40, give or take 10% in there.

Got it. And then going, it could be [indiscernible].

Yes.

The next question is from the line of Nishant Shah from MLP.

This is Nishant from Millennium Capital. I had a question on just the gold loan business. Like the larger kind of like peers alluded to like the competitive pressure now kind of easing off, a lot of the old teaser loans, which were given out at like lower yields, also are running off. We're seeing much better growth at IIFL, but the yields seem to be quite stable like sequentially, like let's say minor debt as well. Could you talk about that, about your business, about what is kind of driving the growth, what is driving the kind of like relatively somber margins? And just like a broader industry comment on where do you see the competitive intensity in the gold loan business because some of the other banks, which have reported very kind of good gold loan growth. So any comments on like the competitive pressure, deltas?

So the competitive pressure is easy. That's a fact. And I think that should also, in fact, release the pressure on prices. I'll talk to that in a minute. And the bank, basically the bank's gold loan portfolio is around INR 90 crores which is direct gold loan portfolio. And some banks actually when they have every loan in portfolio of gold, still they classify every loan. So I would think that the bank's gold loan portfolio is even bigger than that. So obviously, they have a much larger and maybe it will be close to about a [ lakh crore ]. But in terms of our pricing in our portfolio has grown quite well, quite aggressively -- and there has been significantly larger disbursement of the new loan, which has been at a competitive rate, one. Two, as I just said that the penalty we have removed in terms of distribution of the changes in policy that are going to take place now. So that has impacted our yield slightly. Also in terms of, what, product, if you have a monthly income in a product, which are not [ bullet ] loans, then the yields are slightly lower. The impact of the price increase or the easing of competitive pressure also happens only for the incremental business and not for the portfolio as much. So we should see slight visual improvement but 17.5%, 18% is what probably long term also will be maintained. So while competitive ease from new players, but bank actual competitive investment is still aggressive. So if you -- I think on a medium to long-term basis, it might be 50 basis here and there, but if this is the yield, then we'll be.

We have the next question from the line of Mona Ketan from Dolat Capital.

I had a couple of questions on the gold book. So we had the [indiscernible] of about INR 20,000 to INR 21,000 crores. How much of this would be [indiscernible]?

Out of the current book of INR 20,000 crores, maybe half of it will be outlook. But I'll give the number, precise number. Outlook is INR 8,330 crores, which is on Slide #13. So that is gold book and the balance is off book.

Okay. And if I have to look at the breakup of the AUM. Yes, if I have to look at the gold AUM by ticket size, what will be the share below 1 lakh, between INR 1 to INR 3 lakh and share above INR 3 lakh, it's a good helper.

Up to INR 1 lakh, we are 33%. INR 1 to INR 2 lakh is 36%. Less than INR 2 lakhs, we are 59%. INR 2 to INR 5 lakhs is 33%, and greater than INR 5 lakh is 17%.

Greater than 5 lakh is 17%.

1-7, 17% is above 5 lakh, 83% is below 5 lakh.

Got it. And just finally...

60% is below 2 lakh.

Got it. And finally, again, what share of AUM would that probably yield below or equal to 12%?

I think maybe it will be around 40%. Sorry, INR 4,000 crores is below this, so about 20%. 20% is below 12% or below.

[Operator Instructions] The next question is from the line of Sanket Chheda from DAM Capital.

Yes. Congrats on a good set of numbers. My query was again to the point that you alluded in the focus is now more on co-lending, maybe the upfronting related income would be less, and that's visible in the revenue from operation lines that we report on net gain on the recognition. But this quarter, there has been a sharp uptake on the fee and commission income and other income. So is that because of the co-lending thing, wherein...

Yes, there are 2,3 things there. One is that the disbursements are higher. So there's an amount of processing fee that is on disbursement, two to co-lending and three cross-sell of insurance also peaked in this quarter. So historically, also our Q4 fee and commission will always be higher. So the cross-selling insurance also comes here. I think last quarter, we did -- the insurance that is done is like maybe more than what we do in the previous 3 quarters. So that co-lending as well as disbursement is all these 3 combined.

Okay. Okay. So on the, say, net gain on amortized category, so since the gains are coming down, do we expect the loss on the de-recognition also to moderate or come down as we move ahead and reduce the profit there?

No, sir.

In the expense, we also report net loss on de-recognition, right, on the financial instrument.

So normally, there will not be a net loss of de-recognition, because, okay, that can happen and supposing that you have assumed certain longer tenure of the loan, and the loans get repaid without any prepayments or whatever much shorter. But normally, we are conservative on the whole, so it's unlikely that they we'll have any significant loss there. There can be a few crore here and there in the quarter-to-quarter, we sometimes will be gained and sometimes it will lessen but this is not a significant number.

Sure, sir. And lastly, since we are talking about some operating...

So what has happened in this thing okay. Sorry, just to explain something that Q4, we were impacted more by the MCLR increase by the bank, which is higher than the rate increase to be passed on, particularly in our mortgage group. So what happens is that when we do co-lending and then we do assignment, the interest rate we just committed to the bank or which goes to bank, many times are linked to MCLR. Now if you look at our order book, [indiscernible] -- we actually, when we pass on the cost increase, we are -- we had to take into account 2, 3 things. One, particularly the home loan, we don't want the assets to default to increase; two, we also have a long-term customer where the goodwill as well as the repeat business; and three, how we can afford and what is the capacity to sort of adjust which is our margin as well as what we need to pass on. And if we look at the environment and do that, I think that impact also from last quarter. But hopefully, this quarter onwards, we have seen that the bank MCLR has not increased or might be corrected, I think that negative effect will also not be there.

Sure. Very clear. And lastly, I wanted to ask that since we are guiding that maybe operating efficiencies should start to kick in when we are guiding for a lower cost to income. And also this year, despite, say, the cost of funds moving up, we have managed to grow about a little more than 3.5% ROA. So as we move ahead in FY '24 or FY '25, do you see a possibility of hitting 4% in terms of ROA with operating efficiency kicking in? And maybe at some point, credit costs also may be normalizing update. So do we see that...

Consistently improve our ROA and the trend will continue. So whether -- I mean, maybe 4% or closer to 4% is what we should target this year.

[Operator Instructions] The next question is from the line of Nischint Chawathe from Kotak.

Still be or probably in the fourth quarter, how much rate hikes will you have had for your customers?

Sorry?

In the fourth quarter, that was last quarter, how much of rate hikes would you have done for your customers?

So we have done 150 basis -- correct if I'm wrong, in the home loan, we have taken 150 basis points?

Yes, but he's asking only on Q4.

In Q4, I don't think we have any data with that.

Yes. There was just a 25 bps rate hike, that's it.

25 bps rate hike in Q4. And that is relevant only for home loan because in other products, we don't do any rate hike changes.

But even in the other products, you would have increased rates for incremental customers, right?

So in microfinance business, we increased 100 to 200 basis points. It depends on state to state. And -- so home loan take a 25% rate hike in microfinance also, but microfinance happened over the last 3, 4 quarters. So in digital loans, I think we have taken a rate hike of about 100 basis points. But it's a small business.

So broadly across products, were around 100 to 125 for the entire...

On a weighted average basis, because home loan is almost half of it, will be about maybe 50, 60 basis points.

For the fourth quarter, you mean.

That's correct. Yes.

Okay. And the 100 basis points you said, 100 to 200 in microfinance is solely in the fourth quarter.

No, there's a couple of equal quarters. So if you see that the portfolio yield of the product to them that will basically tell us over -- give me one second. Yes. So our portfolio yield in the microfinance has gone up from 23.2% to 23.8%, so 60 basis point increase there.

But again, these are fixed rate loans, right? So more for customers.

These are portfolio but yes, the churn is also high, but these are fixed rate loans, you're right.

Sure. So over a 4-quarter basis, very broadly over a 4-quarter basis, 100 to 125 is more likely what you are saying?

On the incremental loan, yes.

And in the fourth quarter?

The portfolio yield has gone up only by 40 basis points. But you are right, because this is the new loans. So the new loan will be 100 to 125 basis points.

The second question will be on leverage. Based on your conversations with banks or rating agency, what kind of leverage are we comfortable with? And do they see this as the [indiscernible] upon net worth, or do they see this as loans on balance sheet upon net worth, how do they really see this?

So our -- I think they are comfortable with up to 4.5x, maybe in NBFC about 4.5 and in HFC can be up to 6x, 7x comfortably. And this is basically done based on balance sheet. The off-balance sheet assets are not part of this, but this is also, again -- so net worth to your debt on balance sheet, that is a relevant number. So when a question arises whether in gearing or investing the [indiscernible] or the assigned pool should be taken. Now if you really look at it, when we assign it, it becomes part of the bank's risk management because they're are required for risk weighting, and they take that as -- they actually allocate this capital and take that as part of their gearing. So it can be double counting. And many times in many countries where we bundle assets [indiscernible], obviously, there's a true sale along with the risk, then the seller basically gets off the balance sheet completely without any gearing or any risk capital.

And from a regulatory point of view, there is no cap or no restriction?

On the regulatory point of view, unless you take a lot of risk, you won't get the pricing sector advantage also.

Got it. And there is no cap in terms of how much from an NBFC how much should on-book, off-book, per se, there is no cap right now?

No, there's no cap.

[Operator Instructions] The next question is from the line of Pruthul Shah from Anubhuti Advisors.

Given that you have provided for the guidance of 25% in top line and bottom line, and also guiding about 20% ROE. But my question is with respect to the net NPAs. So we are above like 1%, we have around 1.3% of net NPAs. So going forward next year and beyond, what is the level that we can expect in case of net NPAs? Would it be going down to, say, 0.7, 0.8 or it would remain higher, given that we are lending to, say, MFI segment because a higher yield. So what's the understanding of this net NPA part? What is the guidance about it?

We would like to bring it under 1%. No, we really can't guide you in the 70%, 80% or 90%, but we'll bring it under 1%. In basis point, it should be 2 digits and not 3 digits, so. But our provision coverage is significantly more than 160%. So what is happening in net NPAs, we are really aggressive in Stage 1 and Stage 2. The net NPA will have come down. But in terms of our total provision, it's significantly more than our gross NPA. So supposing if I were to provide the management overlay there and I said that all is provisioned against, I think we can become zero, but that is more like a technical or optics. But clearly speaking, our provision coverage is almost 160%?

167%.

167%. So what it means is that the total provision that we carry on the books is 1.67x our GNPA.

[Operator Instructions]

I think it's over now, so maybe we can conclude. If there are no more questions.

We do not have any further questions. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you very much, and hoping it was a very meaningful conversation that we had. In case you have any further queries, feel free to write to us at an investor at Investor Relations email ID and we'll be happy to answer your questions and keep the engagement going.

Thank you so much. Have a good day. Thank you.

On behalf of IIFL Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.