IIFL Finance Limited (IIFL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IIFL Finance Q2 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kapish Jain, Group CFO, IIFL Finance. Thank you, and over to you, sir.

Thank you very much. Thank you very much, ladies and gentlemen, for joining us -- joining in our quarter 2 earnings call for financial year '24 -- '25. And I just would hand over the line to Nirmal Jain, our Founder, Managing Director to give you a perspective on the company's performance for quarter 2 before I take it back again and talk on our numbers as well.

Thank you, Kapish, and welcome, everybody, on the call. I think as all of you are aware about RBI that RBI has put an embargo on the gold loan business in terms of sanctions, disbursement on March 4 of this year. And the same was lifted on 19th of September about 6.5 months later with -- so I think we have been able to satisfy RBI with our compliance rectifications and all the corrections that we did. And we have strengthened our compliance as well as all assurance functions, which comprise of risk and audit as well, and we continue to do so. So why this figure has been challenging, but I think this -- we emerged stronger from this, and this is something that would have happened to many strong companies as they face short-term challenges. In the last 1 month, what we are seeing is the resilience of the company and the team that we are coming back strongly. The customer's unit royalty is also very heartening and satisfying. As we restarted our business in the month, you would have seen that the gold loan book, which has fallen from INR 26,000 crores to around INR 10,000 crores by the time the ban -- the embargo was lifted is around INR 12,000-odd crores now. And as you know, we could apply to banks only after the embargo was lifted and banks have a process of 3 to 4 weeks. So we expect the liquidity to improve and that will allow us to grow the book -- continue to grow the book at a good pace. In terms of -- otherwise, the environment is very good about the gold loan as well as MSME business. So -- and all our businesses, even the affordable home loan business, also we have seen that the demand is picking up as interest rates seem to be peaking out. We'll see that the demand growth continues. The new government has also reintroduced the modified form, the affordable housing incentives through PMAY schemes and so on. Microfinance business has been passing through a bit of challenging times, maybe later in the question-answer call, we can discuss this more, but primarily because -- after the liberalization of loan to the microfinance or [ Samasta ] group, there have been concerns about over borrowing by these customers. And then [indiscernible] came up with the guidance of not more than 4 loans per customer, and that basically would have -- has led to some bit of stress in some of the borrowers. We believe that it might take maybe this quarter and next quarter. But again, the business will bounce back with strength. With this, I hand it over to Kapish for a more detailed discussion on the financials and then we'll come join you back for Q&A.

Thank you, Nirmal Jain. Yes. So for the first quarter -- for the second quarter, Q2 '25 IIFL Finance at a consolidated level reported a net loss before non-controlling interest of INR 93 crores, which is down by 118% Y-o-Y and 128% quarter-on-quarter. We recorded a pre-provision operating profit of INR 723 crores (sic) [ INR 732 crores ], which is down 21% Y-o-Y and 13% on a quarter-on-quarter basis. For the quarter, consolidated loan AUM de-grew by 8% on a Y-o-Y basis, and de-grew by 4% on a quarter-on-quarter basis to INR 66,964. After AUM or we call the product that we are focusing on microfinance, gold, home, digital loan, it grew by around 7% Y-o-Y and 4% Q-on-Q to INR 65,145, forming around 97% of the total overall loan AUM. There was 1 exception item which we have reported in our financials, which is also elaborated follow on Slide #5. So company had certain AIF investments, which was due to mature in June '24, for which it conferred in-specie distribution of assets. So debentures of underlying companies in lieu of the AIF investments. Subsequently, these debentures were assigned to an ARC. The book value of the SRs with the same underlying assets as of September '24 was INR 586.5 crores. The RBI Circular on December 19, 2023 on Investments in AIF required 100% provisioning of AIF investments if they are not liquidated within 30 days of the circular. To comply with the spirit of the circular, a provision equivalent to 100% the book value of these SRs was made in this quarter, which caused in an overall loss. However, this is absolutely an exceptional item. We do not expect this to recur and the same will disclose hence for and rightly as an exceptional item. On the business as usual basis our gross NPA stood under control at around 2.4% and net NPA around 1.1%, which is marginally up by 51 basis points and 3 basis points, respectively, compared to the same period last year. Our ECL provision gives the overall provision coverage on the NPA assets on 136%. The assigned loan book stands at around INR 13,948 crores, down by 24% Y-o-Y and 5% Q-on-Q. Beside these are co-lending assets of INR 8,489 crores, which is again down by 20%, all of this is led by because of gold embargo was largely in place for the last 6 months. Quarterly average cost of borrowing marginally increased by 12 basis points Y-o-Y to around 9.15%. From a liquidity perspective, during the quarter, we raised around INR 3,216 crores through term loan bonds, commercial paper, including INR [ 1,882 ] crores was raised through reassignment of our loans. From a cash and cash equal perspective, we hold around INR 3,882 crores which is additive to meet our near-term liabilities, and we are looking for, as Nirmal mentioned, further mobilization of liquidity to boost our growth since the embargo has been lifted. We are positive on ALM on across all our buckets and our net gearing with the inclusion of capital that we raised in quarter 1 of around [ INR 1,351 crores ] is comfortably placed around 2.7%. Our annualized ROE stood -- stands at around 5.3% negative, while [ other year ] was 0.7% negative. As of 30 September, our capital adequacy with the infusion of capital stands at 26.3%, in the housing finance portion is 49%, and for Samasta NBFC is around 30.5%. So across all the entities, the capital adequacy is way above the minimum 15% requirement from regulatory perspective. That's all ladies and gentlemen. I'll now open the floor for question and answers. Yes.

[Operator Instructions] The first question is from Dhaval from DSP.

Just 2 questions. One is relating to this AIF provision that we've created. When do we expect the write back? Any thoughts around that would be useful. And the second question was relating to the gold book now that the ban has been lifted. How do we see the ramp-up and when do we get back to our original size? Like do we have a time frame and strategy around that? Some color around that would be useful.

Thanks. So AIF recovery will take about -- all the full recovery of the underlying assets as they get monetized maybe about 2 to 3 years. And gold loan, I mean, it's very difficult to say, but I think by March quarter end, we should be back to where we were a year before. So that is what my estimate will be. But I think nobody can really see how things can pan out from here in terms of market, but that's what my guess would be.

And Nirmal, just on the gold business comeback. So this -- like what are the 1 or 2 big changes that we are sort of doing in terms of like the absolute quantum delta in the next few quarters that you expect is quite material? So what are the 1 or 2 big changes? I've already seen rate, but any other points that you want to highlight to sort of see how we get back the lost business?

So I think we aren't doing anything extraordinary in terms of being aggressive or whatever. We are just -- customers are coming back. There's a relationship with the customers that we have for many customers for more than 10 years and as they term -- as the loan -- wherever they have taken the loan, the tenure gets over, then we see that the customers -- in many cases, they prefer to come back to us. And secondly, one good thing that has happened in the industry is that now I think it becomes completely cashless more or less, so it's become completely digital, which is easier from a long-term perspective and good for the industry going forward. And what we realized is that earlier there was a fear that if we move away from cash then customers are going to go back to money lenders. But I think customers have digital -- the [ general ] account or UPI. Sometimes you have to educate and make sure that the activation happens. But as even the competition has gotten away from cash, so that is I think one healthy practice. And I think more or less the industry is now becoming fully compliant. And -- so that also is a good development, I would say. And given that the gold price are firm, and there's a demand at the ground level in the economy, many of our customers have small businesses again. So we see that there should not be -- there will be good traction going forward in next few months.

Sure. And just last question on the MFI business. How do you think the credit cost is likely to move in the next like couple of quarters? And how are we looking to navigate this cycle? Any color on that would be useful.

Yes, I think Venkatesh who is the CEO of our microfinance should take this question.

Yes. I mean if you look at the most of the stress which stand out in the quarter 2, we are seeing some mild improvement in quarter 3. I mean, it's still early days for us in the month of October. Given the whole thing, if you look at given 65% of our overall customers who borrow are agree or agree with allied and their income levels have -- well, given the monsoons have done well, they'll not see a dip, and we see that these things are stabilizing. And also our fresh lending, if you look at it, we introduced our guardrails even much before [ ensign ] bought about it. We have got it in nothing. So our new book has been doing well. And the stress is only that there are older things which will also ease out and by the quarter 3 and quarter 4 will look much better.

The next question is from Abhijit Tibrewal from Motilal Oswal.

Just circling back to the gold loan business. We've also seen a management change in our gold loan business where Mr. Saurabh Kumar has moved to a group role now. So are we now looking to appoint someone internally to lead this business? Or are we looking for an external hire? Also, I mean, earlier to the question when Dhaval asked about your outlook on gold loan business, you shared that you are looking for normalcy to come back by March quarter end, maybe go back to where we used to be prior to the bank. But are we working with some gold loan growth targets now in mind, if not for this year, at least from next year onwards? That is my first question.

Sorry, what is the second question? Next year onward what we want to do? So what was your question about?

So the question is, while we said that by March quarter end, we are expecting it -- expecting that we will be where we used to be prior to the bank in the gold lending business, not in terms of loan book, but in terms of momentum. So I mean, if not for this year, at least from next year onwards, are we thinking about how we want to grow in terms of some loan growth targets for the gold loan business?

Okay. So firstly, on the management changes are in normal course of the business. So people -- I mean they have been there for long term, so there's nothing more than that to read into it. In terms of hiring internally or externally these things are -- unless they are done, it's very difficult to make a statement on this because we have quite a few talents available inside also. But obviously, they are doing their jobs. I mean there's -- and at the same time, we also understand and our management team which -- and actually, normally, all our businesses, we prefer a crossbreed of talent where we're trying to take it from a few very good players in the industry so that we get the best practices from multiple players. So these are things which are very difficult to make a futuristic or a forward-looking statement because we have a very good HR team and NRC, which is Nomination and Remuneration Committee. So they look at all the senior management and take account of that. Second thing is how do we look at the growth next year. So one is that you would have noticed when we say digital loan, which is our business loan, and this is the MSME loan and our gold loan is in a way, many of our customers are MSME. So in terms of -- when we look at our stand-alone company, we'll try and diversify a little bit more. So the loan against property, which is the secured business loan and unsecured business loan. I mean that business probably will grow faster. Next year's growth is dependent on a number of factors, including gold prices as well as the economy and the economic activity. So I'm not -- we do want to make any guidance or a forward-looking statement, but that all depends on the industry and recovery. But in terms of strategy for a particular product, yes, we'll grow our business loans -- I mean given the small base of the investment that we've made in last 6, 7 months, that will grow -- that is expected to grow faster. But that again, as I said, depends on the macro environment.

Got it. Second question was -- that I had was for Venkatesh. Sir, I mean while you said that early days seeing mild improvement in third quarter and the fact that we already implemented those guardrails that [indiscernible] recently came out. I'm just trying to understand, I mean, in your assessment, I mean, what could like credit cost be for the MFI business for this full year? Given that, I mean, you already saw Q2 was elevated. And when you speak to other your NBFC and MFI peers, no one is really kind of giving that sense that things have already peaked out in the MFI space. So how are you thinking about the MFI business?

Yes. See earlier when I answered I said, it is early signs of some kind of a stabilization. I didn't say it has peaked out or something. But in terms of the credit cost, if you look at it, we should be hovering anywhere between around 3.75% to 4% kind of a thing for this year.

Got it. Got it. And sir, last question that I had, I mean, some of it is data keeping and some of it is on the credit cost. One is, I mean, this time around, if I go through our P&L, on the other income side, some of the items like a net gain on fair value changes and the assignment income that you report, they are higher. So just trying to understand, I mean, are they going to be at these levels or there is something lumpy out there? And also on the assignment income side, have you done any assignments after the gold loan ban was lifted? It's one thing that I wanted to understand. The other thing is if I look at credit cost for this quarter, credit costs even in our stand-alone entity was elevated. So was just trying to understand, was it just some residual cleanup on the gold loan side that we did? Or this was predominantly coming from our CRE business.

No, I think you have 2 questions, one was about assignment. So the assignment was done in housing finance because home loan business has been continuing. And given our strategy where we will be digital in maybe 40% of is off books. So that can be either by way of assignment or co-lending. So assignment transactions, you can expect more or less every quarter. And the second, coming to the lumpy fair value, yes, there is one that the MSME shares, I mean most significant part of it has been sold and that profit has been moved in fair value of about INR 80 crores or something. So I think that is not recurring. But from the treasury, we have something on other that there are opportunities, but there is one lumpy item in the fair value gain. You would recall we had MSME share anything which we sold in last quarter.

Yes, sir, as I recall that. And sir, again, the second question was credit cost in the stand-alone entity also appeared a little elevated. Was it some cleanup that you have done on the gold loan side? Or was it predominantly coming from the CRE portfolio?

No, it's coming from MSME actually, as MSME book is also growing. So we increased our provision and we have a fairly conservative provisioning policy. So the increase in the LLP in the stand-alone is primarily because of MSME.

Got it. And sir, just trying to squeeze in one last question. Sir, I mean, given how the environment is, and everyone is talking about broad-based stress that we are seeing in unsecured segments. Despite that, I mean our guidance that we continue to grow our digital loans, unsecured business loans. I mean how are we looking at it? I mean, in an environment like this?

That is a very good question. So the worry about unsecured loan is more of a personal loan than consumer loan, which is buy now, pay later or a personal loan where many guys, salaried people because they offer too many loans and they get over limit. Our focus of digital loan as well as unsecured loan is entirely a business loan. And there are 2 advantages that we have over, say, a personal loan or unsecured personal loan [ basis ]. One, is these are covered by insurance. So I think government has 2 very good insurance schemes; CGFMU and CGTME -- CGTMSE. So one covers loan less than INR 10 lakh and then the business one covers loan above INR 10 lakh. We've applied and we have got the approval now. So now onwards, I think, we'll be able to -- the approval has recently come. I mean, there is a process and we will comply with it. So from this quarter onwards, we'll be able to take advantage of that also. Secondly, all the banks, because, on their own, they find it difficult to achieve the MUDRA targets on the SME or MSME segments of the priority sector lending. So we are seeing very good response from the banks to partner with these loans. And also the risk is priced [ risk ]. So there will be losses which can go up to -- in a bad cycle up to 5%, 6%. But then the interest rate also is around 20% to 24%. So our strategy basically is to make sure that we are protected by insurance cover. Of course, our credit quality also, we can be strict and want that -- we don't underwrite anything, but we try to leverage our distribution network to source these loans. And third is that there is a bank partnership model where risk along with the benefit of private sector is also transferred to banks.

The next question is from Shubhranshu Mishra from PhillipCapital.

So two questions. The first one is what is the level of provisions and write-offs you are going to see in the microfinance business going forward in the next couple of quarters? Second is on the gold loans. Are we seeing any customers -- or what is the proportion of customers who are coming up and pledging their gold in order to pay up for their unsecured exposure?

So I think Venkatesh spoke about around 4%, 3%, and 4% of LLP in this year in terms of -- which is, I think, the first 2 quarters, we have done -- what is the provision for LLP that we have taken? INR 300 crores already in microfinance and the book is around INR 12,000-odd crores. So may be INR 10,000 crores?

Microfinance is INR 10,000 crores.

And the total MFI INR 12,400 crores. So maybe that's our -- in terms of the current expectation is another INR 200 crores in the next 2 quarters, broadly. So that will take [ INR 300 ] crores to [ INR 500 ] crores, before reaching [ INR 500 ] crores whatever we are talking about.

What would be the write-offs?

I think home loan to repay unsecured loans, we haven't seen that kind of tendency. I mean, if somebody is doing it and not disclosing is a different thing because there's not something that will normally capture in the stated end use. But I -- my gut feel from talking to people, I don't think that's -- that's very exceptional. That is not the trend.

Understood. And what has been the write-off in microfinance in the first 2 quarters? And what is the write-off we are expecting in the next 2 to 3 quarters?

So I think the write-offs and loan loss provisions put together will be around this thing. So what are the -- if you want to have -- some of the write-offs is INR 107 crores [indiscernible]. I think 2 quarters we have taken the total loan losses and provision is at INR 300 crores. [indiscernible] Right now it is around INR 200-odd crores and over and above write-offs INR 100 crores we have provision -- INR 107 crores.

What is the write-off we're expecting in the next 2 quarters or 3 quarters?

I think, Venkatesh, do you have the estimates with you or...

See, if you look at the last -- it will be -- we are trying to minimize things. I mean, if you look at it in the last quarter, we were able to figure out what it could scale up to. Now we have a collection mechanism where we will be working on even there'll be a lot of pullback in terms of the 90-plus and the provisions we have made and even the write-offs we have taken. So we don't expect it to go practically above from what we have already done in the first 2 quarters.

See, incrementally, I think if you see 4% as a loan losses provision, write-offs and provisions put together can be another INR 200 crores in the next 2 quarters?

Yes, that should be enough.

Unless it's based on the current estimate, but as it's going to make a forward-looking statement in this -- how this industry evolves, one has to watch.

Next question is from Vivek Ramakrishnan from DSP Mutual Fund.

It's a continuing question with the other questions. So let me start with microfinance. Venkatesh, in microfinance, when you say there's stability, the par 0 going to par 30, par 30 going higher, has the flow stopped -- has the momentum of flows been improving over the last few quarters? Do you see any improvement from that? Another way of asking the question is, whatever is there, you're going to be writing it off, but the new flow is not going to be that significant?

See, Vivek, if you look at the flows have actually not completely stopped. I mean, if you look at the quarter 2 was the worst quarter, I mean, we have gone through. What I mentioned earlier was given that we have -- the October month is a lot of holiday things. We are seeing [ sizing ] stabilization in terms of the flow. So I mean, we'll be post all the festivals getting done. So that's when the stability of the sector would be seen. So we're seeing post somewhere around November 15 kind of a thing where the stability we'll be able to see. As of now, the collection efficiencies have slightly improved from what we saw in the month of September.

The second question is on the digital loan or the unsecured SME loan. Nirmal, you had mentioned about credit loss guarantees which are there. How much does it cover in the sense that what is the typical SME loan loss in an unsecured portfolio -- in your portfolio that you're estimating? And then what will be the overlay of insurance that will reduce it to for -- going forward?

So Vivek, it's a quite complicated scheme that I'll try and briefly explain it to you. So there are 2 schemes; one, above INR 10 lakh and one less than INR 10 lakh. So above INR 10 lakh, they cover only twice the premium. So 1% is the premium. So maximum they can cover is 2%. So broadly 1% of losses can be covered above INR 10 lakh. You get it? Less than INR 10 lakh, what they do is you can cover 15% of your portfolio in which 3% of losses will be borne by the originator like us, by the company. And out of the remaining losses, 75% is given by the insurance. So to put numbers in perspective, if you have INR 1,000 crores in your portfolio, you can cover maximum INR 150 crores. So that's good enough because normally one wouldn't expect more than 15% of losses. And out of that 3%, which is about 4.5% is borne by you. And say, out of the remaining losses, 75%, they will pay you. So roughly INR 109 crores can come from them if you have INR 1000 crore portfolio and your losses are maximum up to, say, 15%. But this is how the numbers work. I mean you got it for the less than INR 10 lakh loan.

Yes, perfect. This is very useful.

Premium is around 90 basis points or 100 basis points, that is what you repay. So all things in summary, above INR 10 lakh you should try and restrict your losses to 2% otherwise, and there also is like a 1% premium, 1% subsidy. In less than INR 10 lakh, it can be significantly better. But of course, they will -- 75% you'll get back, 25% still you have to bear. And 25% over and above plus 3% of losses.

Next question is from Yash Dantewadia from Dante Equity Capital.

Am I audible?

Yes, go ahead.

Yes. So I wanted to know, now on the gold loan side, going forward, since we have a lot of capital, right? And we've raised capital through rights issue, et cetera. What I want to understand is, are we going to focus on gold loan itself or are we going to focus on co-lending? Because right now, we have no [ resolve ] to focus on co-lending because we have sufficient capital and we want to get profitability and co-lending is not very profitable, right? And can you put some light on that whole area, how you're going to go forward?

So right now, our capital adequacy is good. But in 3 to 6 months, as we get back to the earlier level, it will get back to those, again, the older levels. So as a strategy, nothing changes because we'll continue to focus on both co-lending as well as our own loan book in a ratio of 60-40 that we had historically for the entire portfolio.

Actually, we should be focusing on gold loans itself, right, by co-lending?

While co-lending is liquidity and the use of capital and that allows you to grow without diluting capital. So at this point in time, what we're saying is right that this quarter, next quarter, we can see that we can do our own book. But you want -- we want our capital adequacy also to be 15% of minimum requirement, but we want to be around 20% or more just as a margin of [ 15% ] and that is where co-lending helps.

See, the reason I raised this point is your microfinance is clearly slowing down, and I don't see microfinance recovering for the next 6 to 8 months. So definitely, on the microfinancing, you're not going to be able to increase the book size. Home loan size, that is going to grow at a steady rate of 15% to 20% from what I'm able to see. Now since the microfinance part is not growing and you don't want to grow your unsecured book, you're obviously going to focus on growing your secured book, which is the gold finance book at a much higher rate. So you don't need to co-lend at least for the 6, 7 months, right? Because co-lending is -- you're completely right. I get your point on the capital side, but co-lending is not very profitable. So anyway that was just one point that I wanted to...

So what you're saying is right that now, I think, the focus is more on the secured where golden as well as LAP is another product, which is also a secured product as a part of business loan.

Right. So do we see MSME -- sorry, please go ahead.

See co-lending is a long-term strategy because what happens is if you go like our -- what it allows you to leverage. So even if it's a reasonable ROA, your ROE can be significantly higher. But for the time being, maybe like we have see for next 1 or 2 quarters and then we look at the strategy here.

You're completely right. Co-lending works. You've been doing it -- you've been growing at a 30%, 35% CAGR in the gold loan space.

Absolutely. So -- but that again depends on the pace of growth. So maybe for the time being, we will watch for the next 1 or 2 quarters and then rework on the strategy.

Exactly. Exactly. So I was just saying, at least for the first 6 months, I think you can focus on gold loans. I'll take it into our loan books and then maybe focus on co-lending as and when the old book is built back up. That is one thing I wanted to point out because clearly, your unsecured space is kind of wobbly for the next 6 to 9 months at least, till the whole microfinance cycle plays out. So that is point on the point. Now can you talk more about our focus on the MSME portion? How are we planning -- are we planning to grow that at a significant pace, secured MSME I'm talking about? How are you focusing on that whole segment? And also on the housing loan front, there have been talks about an IPO for value unlocking. I think, in the last interview that I watched and he said something about 2 years sort of time line. So could you throw some light on that, too?

Okay. So MSME piece, so -- because we have a very large distribution network and as we roll out a product, we -- on a small base, growth can be good. But this is something which is because we've got our 2,700 branches of gold loans. And if you add up all our branches, then we have more than 4000 branches, including microfinance as a product. So the loan against property is a product which our branches can do. And in the 6 months, 6.5 months of embargo on gold loan, we were training our people to do the unsecured as well as secured business. The unsecured business loan business, although unsecured basically obviously evokes negative emotion about risk and quality of asset. But as I said, that this is something which is private sector lending, which is what government is also pushing banks to achieve the target because that's for the government growth. And just to give you a perspective of that, despite so much of push on MSME, in India MSME contributes 30% of GDP. In China and South Korea, where the countries have grown very rapidly in the last 2, 3 decades is 50% to 60% of the economy. So MSME has a long way to go. And the only way MSME can grow is by availability of credit and distribution of credit and the [ 85 million in ] MSME. So the number is so large and enormous that the banking system alone cannot achieve this target of -- this objective ambition. So we'd work in partnership and that's why government is supporting by way of insurance schemes or by way of targets to private sector lending. What we have to do is that we have to partner with the bank and make sure that we do what we are good at. And then banks -- basically also we help banks to achieve their targets and make sure that the risk is contained within the price that we charge. So that is about MSME. What is the second question about?

About listing, listing of...

Listing is, again -- sorry. So I don't think we'll do an IPO yet, because unlikely. I mean, I can't say we will not do or do because this is a Board has to decide, but we have an investor in our housing finance company. And every investor basically will need some kind of option to exist or liquidate. But there's no rush or no hurry. But when we drew this, whatever we have discussed, and the preferred option what we have done for the group is demerger of the businesses, so that without any further dilutions or without any change in the economic interests of various shareholders, the companies get separately listed. That has an advantage that you can affect different types of investors because there are some investors who are keen to invest in microfinance who are more oriented towards social goals. There are investors who are very keen on housing finance and then there are investors for gold loan and other businesses. So -- but I think there's a process and the process takes time. At this point in time, nothing has yet been discussed or approved by the Board. And whenever that happens, obviously, we'll let everybody know.

Yes. But see, after the Bajaj housing sort of listing, it's very clear that HFC is -- that is able to grow that book at a 20% sort of run rate and that have stable asset quality, get a very decent price to book. I'm pretty sure that you have more input than me in this particular thing. So I hope you do the best for shareholders.

Next question is from Anusha Raheja from Dalal and Broacha.

Is it audible?

Yes.

Yes, sir, firstly, on the gold loan side. I think that we had -- if you can just take us through how has been the walk-ins of recently versus it was 6 months prior? And the competition has also intensified. [ And walk-ins ] have also taken away some of your market share. So in that sense, how do we see growth in this backdrop?

Anusha, What is your question please?

Walk-ins.

Walk-ins. So we have database of customers that were our customers, and walk-ins are also there. And as people get to know that we have resumed business as usual, so there's a flow of customers. So we have seen a very healthy trend there, Anusha. Our people are really motivated and committed, so -- to get back the market share. And obviously, the profitability and everything depends on that. So the trend is positive.

Okay. And the Stage 2 assets, 31 to 90 DPD, there has been a significant rise across all the loan segments and the levels are higher than what it was in Q1 as well. So what is causing such a significant rise?

Okay. So in gold loan, I think, because we just started almost towards the end of the quarter. So we wouldn't force customer to liquidate their loans, and obviously, they are also waiting for it. If you see gold loan typically, because they are small customers, INR 50,000, INR 60,000 loans, they tend to pay towards just before 90 days to avoid auction or threat of liquidation. Then the construction finance, they are lumpy businesses with one of the loan basically not being paid or delayed by more than 30 days despite the number. And I think other businesses the trend would be similar, if you really look at 31 to 90 days of the last quarter.

And if you can just tell us what could be the blended credit?

We had a 6% that's become 7%. And obviously, there is an increase in the gold loans part of it, which is -- a little bit of increase in gold loan. So there is a marginal -- the 6% has inched up to 7% on the whole. And we're talking about Stage 2, 31 to 90 days.

Okay. And what could be blended credit costs that we can factor in for -- on the overall consol book for FY '25?

See because microfinance has moved up more than what we had expected. Other businesses remain more or less similar. So what we are talking about 2% may become 2.5% on the whole.

Okay. Any number to put up there, including this MFI credit cost on consol book?

The MFI consol book will be around 2% of the loan assets on a steady state basis.

Okay. And also on this...

They are again a bit different in all segments of the business as you know. So gold loan is slightly higher at 2.4%, but this we expect to go below 1% as the business is fully rolled out properly. And the other trends are more or less. So the business loan will remain around 3% in terms of -- I mean, we may bring it down to 2%, 2.5% over a period of time. Yes.

Okay. Yes. And if you can just take us through growth in -- across all segments? Like you said that in gold loans, we would see by March '25, the growth will revive back and MFI is likely to see a consolidation. Some color on the growth for the home loans and digital loans and LAP loans, how do we see that segment growing in FY '25 and in the medium term?

Monu, is Monu online? Monu?

Okay. Nirmal, you go ahead please.

Monu, I think she's asking for the growth in home loan segment of the business.

Yes, yes, yes. So we're seeing as a -- home finance as a whole, we're expecting about -- the AUM growth of about 17% to 18% for this year. And all the segments will move in the same tandem. We can expect home loan about maybe a couple of percentage more, about 20% growth in home loan. And the other part of the business should be about 16% to 18%. That's what we expect in the housing finance business.

Other business, I think, we've already spoken, Anusha.

Next question is from Mr. Shikhar Mundra from Vivog Commercial Limited.

I just wanted more clarity on this exceptional item. So where were the AIF investments exactly made? And what is the reason for them not being liquidated?

Sorry. AIF investment was made in June '21, and it was to mature on 1st June '24, so in the month of March -- okay. The circular of RBI came on 19th December, giving 30 days to either liquidate or make 100% provision for the sale. We got it liquidated in 30 days, but what happened that in the month of March, when we got NPC distribution, then those debentures that we got in our book were also delinquent because they're delinquent in the -- for most of them, not entirely. So that thing is what we sold to ARC. And normally, all the delinquent assets, the resolution is through ARC, which is -- and basically, in the ARC, normally, we also invest in the security receipt. So the underlying collateral being the same, what we have tried to be is that we be conservative and follow the regulation, not only in the letter, but also in spirit. While the asset has changed the form of -- instead of AIF, it had become security receipt, but underlying collateral is the same. So we decided to make a full provision of this, but [indiscernible] is noncash item.

Sorry?

This is onetime exceptional provision that we are making, and this does not have any implication to the cash profits only thing which is. So this is just a provision.

When can we expect the write-backs from this?

I mean this question was asked, because maybe 2 to 3 years will take to realize all this.

Next question is from Kriti Tripathi from NVS Brokerage.

Sir, so yes, in continuation with the AIF question just mentioned, I wanted to know that how much was the amount invested by ourself in the company -- in the AIF. Apart from that, the initial amount and then now our share of profit and loss, what is the difference between that? So can you explain on that?

So original amount, I think, INR 900 crores to INR 1,000 crores, out of which some repayments have happened, which is INR 900 crores to INR 1000 crores. And then when we got the [indiscernible] it was INR 675, but I think because there was a write-down and then the ARC took it. The ARC do their own valuations and there's auction and bidding process. So then our -- actually, so what we hold from that AIF was INR 586.5 crores as of March, NBFC. So there are lots of transitions in this. So I'm giving you a broad estimate that we started close to INR 900 crores to INR 1000 crores, but now this is INR 586 crores. Some repayments as well as some write-downs, so both put together.

Next question is from Kamal Mulchandani from Investec Capital Services.

I had a couple of questions regarding the gold business. Firstly, I wanted to know that have we reduced any interest rate on gold loans recently? Additionally, I wanted to understand how are the recent trends post the lifting of the RBI ban? And if you could just brief upon the strategy around how to scale up the gold business back to where it was as earlier. I'm sorry, if I may have missed the strategy-related part.

So we have not resorted to cut from price competition to get the assets back. But we have -- so there are various multiple schemes that you run, it's like you have [ 99 paisa ] 12% interest where it has to be a monthly interest income. And now that we are kind of slightly lower NPV than the other schemes. So initial -- we expect the traction to be more in the lower-yielding products that we have. But we are not resorting to any cuts on price to get the assets back. Secondly, our strategy is very simple to focus on the customers. So we are not really -- at this point in time, we don't see the need to be very aggressive or go out of way to focus on -- to get the customers are coming back. And as their loans mature and elsewhere, we are seeing good traction of customers getting back to us where they were earlier.

Okay. Okay. Like -- and any initial trends which you are seeing? Like, it's a very small period, but how has been the disbursement trends in October?

It's very good, very positive. So in about a month, exactly when we started, obviously, it takes time to get back to the momentum. So our loan book which was INR 10,000 crores has gone up to INR 12,000 crores.

Next question is from Raghav Garg from AMBIT Capital.

Just one very small question. In the stand-alone business, is there any overlap between the digital gold loan customers and -- sorry, the digital loan customers and the gold loan customers?

Which customer, sorry. Digital loan and gold loan customer overlap is very minimal. I would say maybe less than 1% kind or maybe 1%.

Okay. Okay. And another question is, so when I look at Slide #12, right, which has stage-wise assets, there the digital loan assets is about INR 6,500 crores, whereas on Slide 18, the digital AUM -- digital loan AUM is about INR 5,400 crores. So where is the difference in which entity? Or I'm just trying to reconcile these 2 numbers. Can you help?

INR 5,400 crores is from the Slide 11, right, INR 6,500 crores?

No, on Slide #12, the number is INR 6,500 crores. And on Slide #18, the number is INR 5,400 crores.

Hello. Can you hear me?

Yes, I can hear you.

So there are some loans which are sourced by Samasta Microfinance, and they are booked in the parent company. So that is a difference. So the way the individual loans, which are booked through Samasta for micro LAP that is there. I think there will be a reconciliation which will tell you where. I think we have reconciliation in the book. Yes. So if you go back -- go to Slide #35, so I think, there is home equity, which is LAP secured, which is originated by Samasta but booked in NBFC. Yes, I think maybe from the next presentation, we'll make it a little more clear in terms of how we classify and show the assets.

Next question is from Rishikesh from RoboCap.

Hello. Am I audible?

Yes.

Firstly, on gold loan. So if I see, in peak we were around INR 20,000 crores, INR 23,000 crores of loan book. Do we have any internal targets to get there again and by when?

No, we don't have any target as such, but we'll -- as the business grows, we'll get there in some in time, not too -- it won't take too long.

Okay. And how do you see the growth in our LAP book going ahead?

So LAP book had 2 components. One was the old LAP book, which is of a larger ticket size. So that basically -- obviously, that is tapering off. So when you see the overall LAP book, there is only 1% growth, but the normal LAP book that we are continuing, which is a smaller ticket size is growing healthily. I think, Monu said that is about 17%, 18% is the trend there.

Okay. So are we expecting this to grow by 17%, 18% going ahead?

So the overall reported LAP has the older LAP book, which is larger ticket, which we have discontinued. So what growth you'll see here will be lower, not so much, but maybe slightly lower.

Okay. And just to come again on gold loan, what growth rate are we expecting going ahead?

No, I think, again, maybe everybody is very curious about this. But unfortunately, I'm not in a position to give any forward-looking guidance on this. Only thing is that it will continue to grow at a steady pace as our customers come back. And because we have a distribution network and base of customers, we do not think that it will take too long to get back to what our loan assets were before the value. But still, I can't point -- put up a finger and say this is the time frame. What we have told that we want to make sure that customers are serviced well. No compromise in terms of compliance and on the risk management. And at whatever pace we can grow the business, that should be healthy growth. That is more important for us.

Next question is from Shweta D from Elara.

You actually partially answered my question, but nonetheless. So in light of regulatory forbearance and RBI calling out on interest rates, so do we see repricing of our assets on microfinance side on the lower side? And alternatively, I think you answered this. On the gold loan side, are we going to stick to competitive rates? Because we have seen a slight drop in your yields. So in quest of growing the gold loan book, are we looking at keeping the rates competitive on the gold loan front?

So on the first point of interest, if you see Slide 40, we have implemented the risk-based pricing and that what is actually even RBI is looking at. And we did not have any predatory pricing in any of our businesses. So those 35%, 40%, 45% rates are not for any of our businesses. So we are very conscious about it. And also, we have now a Board approved policy for interest rate cap. So that is about the higher interest side. Then the -- your second part of the question is on the lower interest rate to be competitive. As I said, that the customers when they come back, the early customers are more -- the flow will be in the lower price scheme. But there, the requirements like [ the yield ] are more conservative and there is a monthly interest payment. So the yield may fall a little bit. But as I said, that we are not getting into any cut-throat competition. So there won't be a dramatic impact. But yes, marginal tapering off will be there in this quarter, next quarter, for sure.

Okay. So just coming back to the MFI side, so I didn't imply [ use of this ] rate or something which you're not confirming with the RBI norms. All I meant was, are we looking at recalibration in interest rates further on our MFI piece?

We've already introduced -- as Nirmal pointed out, the risk-based pricing is already introduced. So this is with the guidance with what the RBI asked us to do. So -- that's already in force as we speak.

The next question is from [ Navneet Dayal ] who is an individual investor.

Sir, I wanted some clarity on your security receipts portfolio. So in your Slide 23, you've mentioned that your outstanding security receipts are about INR 3,600 crores, against which you have a provision of INR 612 crores. So the INR 3,000 remaining, is that also at risk? Why aren't we providing against those?

So security receipts accounting is done based on the accounting principles. So there's a fair value and based on that, we have to make sure that they're valued. So this is an exceptional thing. It was just to make sure that RBI's circular is complied with and that would explain it. But the other security receipts are good. And in terms of their expectations on the whole portfolio, we expect it to recover fully, and we don't see any need to basically provide for it. But on Slide 23, we've given more color on the portfolio of security receipts. But we'll make sure that is there any risk or any expectation of a loss that we provide for, but we don't expect any loss in the portfolio.

Okay. So of the INR 3,600 crores, you've provided for INR 586 crores. So we are saying that the remaining INR 3,000 crores, we are not expecting any credit costs also to occur in our P&L?

INR 3,600 crores portfolio that you have, I think that will recover fully, along with some interest or whatever which accrue -- we should accrue to the ultimate borrower. That is what our expectations would be.

Okay. I understand. So no further charges is what we expect on the P&L? Do I understand that correctly?

Yes, you're right.

That was the last question in queue. I would now like to hand the conference back to Mr. Kapish Jain, for any closing comments.

Yes. Thank you very much. Thanks a lot, ladies and gentlemen, for joining our quarter 2 earnings call. For any further queries, we are available. You can write to us at our investor relations e-mail ID or reach out to us separately and we'll be more than happy to clarify things, anything further from the results. Thank you.

Thank you very much.

Thank you so much. Have a good day.

On behalf of IIFL Finance, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.