IIFL Finance Limited (IIFL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IIFL Finance Q2 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I hand the conference call over to Mr. Vikas Jain, CFO of IIFL Finance Limited.

My name is Vikas Jain, CFO of IIFL Finance. Thank you very much, and a warm welcome to all the ladies and gentlemen who have joined us today for IIFL Finance Q2 FY '27 -- joining us on today's call are Mr. Nirmal Jain, our Founder and Managing Director; Reddy Koski, CEO of IIFL Home Finance; and Mr. Venkatesh, CEO of IIFL Samasta Microfinance. During this call, we will take you through the company's performance for 2 quarters and half year ended September FY 2026. Before we discuss the detailed financial and operational performance, I would like to hand over the call to Mr. Nirmal Jain who will share his perspective on the macroeconomic environment and key industry development and the company strategy and outlook.

Thank you, Vikas. Good evening, everyone, and thank you for joining us. So let's start with the macro environment. Macro backdrop is very supportive of retail in India, but it is not conservative. While domestic demand is steady, former credit pellets in small towns and areas where we operate in is still very low. At the same time, global uncertainty, volatile oil prices, or commodity prices and tight funding and one that benefits in asset quality, diversified funding and liquidity matter more than ever before. . And in this environment, we have to do with discipline, keeping adequate liquidity and strict control on asset cover. Now to the quarter. So our year is crossing between INR 1.24 crores, which is a growth of 38% Y-o-Y and 8% sequentially Q-on-Q. Profit after tax on a consolidated basis is INR 84 crores, first time crossing the milestone of INR 800 crores, up 13% quarter-on-quarter and 92% year-on-year. What is important is our gross NPA has improved as we remain at around 1.5%. Our return on equity now on a consolidated basis is above 20% what has been our target. The book is about 90% secured now, and our liquidity is significantly higher than normally we keep given the global environment and uncertainty as well as liquidity tightening expected in local market at INR 13,804 crores on a group basis. Our capital adequacy on a competitive basis is 23.5%, but we can discuss individual companies separately. So our strategy remains capital-efficient growth and that remains on sixth pillar. Once secured lending -- is converted to secured lending and that is already down 93% of our total road book, and we will intend to maintain it at this level. Second is capitalized growth. So our outbook AUM is 34% of our total loan assets. The 18 banks that are active colending partners now. Many of these relationships have started recently and will scale up. We have originated in the last 10 years over INR 1.7 lakh crores loan, which are assigned to bank component. Third is our funding and liquidity. Fitch upgraded our into -- we raised $300 million solution bond. We also did a small insurance time in the tokenized bonds. More importantly, liquidity I already talked about that we have over INR 13,000 crores, which is all time high. In the month -- in the previous quarter, we have taken delivery contribution from our shareholders equity, which will further strengthen our balance sheet as we go along. Fourth, AI is part of how we operate. And I think many of projects have moved ahead of pilot we deployed with reasonable success. Similar with distribution, I mean, I think it is phygital because our gold that customer pledges with that system is really, really slow. In aggregate, including gold loan, microfinance, we have more than 5,000 reserves now, and primarily serving underserved customers across the country. Sixth is our credit and cost discipline. As you see in our numbers that we are trying to make sure that our credit cost and the operating cost move southwards in relation to our own assets and which will identify further. Looking ahead, we are confident that this momentum will continue through FY '27, and will remain disciplined asset quality and capital. With this, I hand over to -- I hand it back to Vikas to take you through the slide details.

Yes. Thank you, Nirmal sir. Now I'll take you through the detailed financial and operational performance for the quarter. Overall, quarter 2 financial year '27 reflects the strong business momentum, improved profitability, continued progress towards our building brand capital-efficient portfolio. We remain conscious of the significant portion of the recent growth has come from the gold loan, capital adequacy, liquidity portfolio concentration and real -- therefore, it remains an important area of focus. Coming to the consolidated financial performance. At a consolidated level, our loan AUM increased INR 1,24,268 crores, representing the growth 8% quarter-on-quarter and 38% year-on-year basis. Our core businesses, gold loan, home loan, MSME loan and microfinance now accounts for around 97% of the overall portfolio and grew 43% on a year-on-year basis. Our portfolio remains predominantly secured with secured loan accounting for approximately 90% of our AUM. Gold loans represent around 53% of our portfolio and while home loan accounts for around approximately 27%. Consolidated net interest income increased to 30% quarter-on-quarter to INR 1,480 crores. While total income grew by 6% to INR 2,340 crores and free of provision operating profit reached to 8%, INR 6,355 crores. The loan loss provision has declined by 5% sequentially to INR 21 crores. Consequently, the profit after a noncontrolling unit has increased 13%, a very healthy quarter-on-quarter to INR 805 crores. Nirmal just mentioned, this is the first time we have crossed on a quarterly basis INR 800 crores milestone. And on the half yearly basis, it stood at around INR 1,518 crore. Again, if we see on the operating efficiency, it continue to improve with the operating expense to average on year-on-year has now declined to 3.3%. What is heartening to note is that this is compared to the level of 4%. The annualized return on asset debt for H1 stood at 3.1%, while annualized return on equity is 20.1%, which is upward of our 20% target levels. The consolidated portfolio has declined by 3 basis points on a quarter-over-quarter to 16.5%, so largely remaining stable. The cost of borrowing has increased to -- 9.08, again, largely remained stable, resulting to a 6 basis point narrowing in our interest rate of 7.42%. Asset quality remained broadly stable. Consolidated gross NPA declined by 7 basis points on a quarter-on-quarter to 1.48% and net revenue stood at 0.87%. Overall, the overall coverage ratio again remains very, very strong, upwards of 90%, clearly 91%. The combined joint portfolio stood at 9%, while the 90 plus portfolio remains at 1.5%. Let us just mention around the key strategic things, our liquidity position now has trended significantly during the quarter. We had approximately around INR 13,805 crores of our cash and undrawn credit lines, providing an adequate service for our near-term liabilities and supporting our growth. We continue to remain cumulatively ALM surplus across all our maturities. Our funding profile remain diversified stable across all term line debentures, refinancing, ECB securitization and other sources under different maturities. This indicates our efficiency to raise further funds across all the maturities. Consolidated capital adequacy stood at 23.5%, net bearing stood at 4.1% compared to 4x in the previous quarter. Shareholders increases has now crossed and increased to INR 15,432 crores, supported by profitability record during the first half. Now we will look at the IIFL Finance stand-alone commercial performance. Coming specifically to IIFL Finance standalone, loan value increased by 11% on a quarter-on-quarter basis crossing first time INR 70,383 crores, which is 96% secured. Net interest income increased 21% sequentially, very healthy growth. Total income grew by 8%, and P2AP has increased by 10% to INR 893 crores. With lower proven gaining by 11%, the profit after tax has increased by 17% quarter-on-quarter basis to INR 548.5 crores. The standalone yield has increased by 12 basis points to 18.8% while the spread increased by 11 basis points to 9.2%. Operating expense to average AUM has moderated further to 3.5%. Stand-alone gross NPA stood at 1.3%, representing a modest increase by 3 basis points. Capital equity ratio stood at 17.3%, while we remain to 4.7%, overall now accounts for around 93% of our stand-alone AUM. On IIFL Home Finance performance, the AUM increased by 4% eventually, crossing INR 43,070 crores, while the disbursement has grown by 3% on a quarter-on-quarter basis to INR 3,498 crores. PPAP has increased 6% sequentially to INR 330 crores. PAT is broadly stable at INR 188.7 crores. Gross NPA has improved by 8 basis points to 1.38%. At Samasta, AUM has remained stable at INR 10,816 crores and business maintained the calibrated approach to growth. Gross NPAs improved by 46 basis points to 6.82%. Net NPL has improved by 14 basis points to 0.66%. PAT NPL has increased by 13% to INR 169 crores, supported by lower credit costs. Our strategic funding highlights reasonable level mentioned capital efficient distribution and continued model display of good AUM from pricing of assignment and colending, INR 42 076 crores, around 36% of our -- 34% of our consolidated AUM. We are now 18 -- 19 partners across all IIFL Finance, Home Finance and Samasta Finance. During the quarter, we -- during the first half H1 '27, we have raised 800 -- revenue through international bond issuances. This also includes 300 social bond payers issuance during the second quarter, which was approximately 2.3x subscribed, which reflects lifts strong investor confidence on our diversified access to the global fund. In my closing remarks, in some quarter 2 financial was '27 was a stronger quarter in terms of AUM, operating profit, profitability, best quarter as continued progress in our operating efficiency, asset quality, liquidity and funds. With that, now I will now invite for Q&A session for everyone. Thank you.

[Operator Instructions] The first question is from the line of Gaurav Khandelwal from JPMorgan.

I've got a couple of questions. The first one is on gold NPAs. Why the gold NPA has increased almost 30 basis points quarter-on-quarter. Any color there, please?

So end of the quarter, gold prices were lower as compared to the net of the quarter previous quarter. And in these, I mean it's a very small increase. So these are actually small customers, some of them are not able to pay in time. But historically, we have seen that these kind of things happen, but the losses will be minimal because we have the collateral. Some of the customers are not able to pay on time, say, and they get delayed by 90 days and they get classified. But I don't think there's any worry in terms of -- see, these had gone up to, say, 5%, 10%, it doesn't matter. 60 to 90 basis points is a variation we are very happy to leave in.

Got it. But when I'm looking at the data, even the 1 to 30 DPD bucket for gold loans has increased quite a bit quarter-on-quarter. So almost 7% of the book is at 1 to 30 DPD. So let's say, if gold prices were to correct hypothetically 10% odd from current levels. What would that then mean in terms of both the NPAs as well as LGDs.

See, in current correction -- a 10% correction has happened in the early part of the year. So NPA may vary, they may go to 1%, 2%, 3% also in such scenario. But ultimate loss will be billable because most of the time what happens that customers also know that the gold and the jeweleries that their value is mainly higher. But they may take some time to get money. And many a times, these customers have relationship with customers. So they also know that in a few days here and there, we aren't just going to be harsh on them in terms of on the gold. So the NPAs can spike if there's a sudden fall in gold prices. But the ultimate losses will be still negligible. That is -- that's how we can say.

Got it. And sir, only for this 90 DPD plus cohort, can you tell us how much is the LTV for their loans?

It will be close to around 85% tied.

85%. Okay. Okay. And my other question is on the capital -- of the standalone. Where are we in the process? What are we finalizing in terms of QIP or a strategic shareholder. Any color there? And what is the size of -- quantum of money that we're looking forward to raise?

So we got more in seat approval last quarter. And now obviously, the result announcement is a time period, which is quiet period. And now we are probably various investors from time to time. Today, I don't have an answer whether it's going to be private equity or a QIP. But one thing is there that we are committed to raise equity capital at the earliest opportunity. Hopefully, this quarter, we should be able to close something.

And sir -- okay, this quarter. And maybe in terms of size, any indication?

So you know our market cap. So dilution from 10% to 20%.

Got it. And if I can ask one more question. The off-book AUM is up quarter-on-quarter, but the off-book income is actually down quarter-on-quarter. What explains that?

See, this is a good question, actually. Colending is increasing. And in colending, we don't have any upfronted income. And also the earlier -- so the rate that an as the year book runs off, that income also gets amortized over a period of time. I think offbook income will continue and move more and more towards colending. Offbook income will continue to decline or will not grow at the same pace. But if you see the net interest income to the colending, it's just like loans are on your book because the industry is suffering quarter-after-quarter. . For a long time, maybe analysts are concerned that there's upfronted component in our MR profit. But in a relative component is only on the flow, on the stock, we don't get anything, and it harmonizes over a period of time. But I think as we go along, quarterly will keep increasing, and we'll see that rented income reduction, but the interest income maintains. That is simple.

Got it. And sir, final question, sorry. This entire draft by RBI on the insurance commissions, right? So if I look at the FY '26 insurance commission that we earned at a group level, which is closer to INR 240 crores and 1% of the PVT, let's say, this were to come in the current form, how much of gets impacted? And then how are you and the management and the Board thinking about this, the impact of this? How will we make up if this gets lost?

So significant part of it is part of real, which will be -- and then Samasta. So IIFL stand-alone has hardly any large commission is just about INR 3 crores in IIFL Holding company or IIFL Finance in NBFC. Samasta has about INR 17 lakh, HFC has about INR 160 crores. HFC will have an impact. Girish, you want to talk about it?

Yes. So I think we've been very closely watching, interacting with all the insurance partners. So as of now, insurance income parcel income to total revenue is about 4.5% to 5%. So we just figure out how to cover that up. We have constantly impacted all the insurance partners as to how do we change the static to ensure that the impact is minimum. Recently, I think that is why initial consultation paper, this was to be effective from 1st of April, may be it was slightly deferred. So this is all in the coming financial year. So we are very closely looking on the plan as to how to bridge this gap.

Impact on microfinance.

Yes. I mean, we will definitely have a slight impact in the thing because we do the credit shield on the aspect of the customer.

What are the commercial decline on that.

We have close to around 14 points.

[indiscernible].

It will be close to around 2.5 to 5.

Okay. So at a PBT level, it will be around 5% or so, not 10% for us, maybe a little less than that. So some part of it, you have to figure out. And of course, the industry will have to be working on other cross-sell products and we have to watch how it is, but there is an impact.

Got it. Those were all my questions. .

So just going back to the insurance. Part of our profit for stand-alone, where there's no impact or negligible impact. So for a consol basis, the impact for us is significantly lower. .

Next question is from the line of Pawan from Edelweiss.

Congrats on a good set of numbers. I have 2 questions. One on gold loans, how much of the gold lending is through income generating loan. What are the pre and post disbursal documentation or the processes that we are doing to illustrate that these are income generating in nature, I mean, to meet the RBI requirements whenever that happens. Just part of it is on the auctions, right, you have always maintained that you would rather not auction the gold but maintain the customer trust. But when I look at yesterday's business standard, there is a whole host of auctioning by you. What is driving this? Is it to maintain the CRR at the stand-alone entity? Or is this more like customer deliveries are increasing. That's first question. Second question, I mean part of the pool again. The tonnage improvement has been quite strong, like some 64 tonnes to 69 tonnes, whereas also -- the whole tonnage improvement is quite strong this quarter, right? But generally, going into the festive quarter, the assumption is that while the merchants want to increase the stock in the store and then pitch more gold, the families would want to have the gold loan. So how are you managing to balance these factors but increase the gold tonnage. Those are my 2 questions.

Yes. Thanks, Pavan. So first question is about the auctions. So in retail, we have millions of customers, even if one person goes for auction, it will be tens of thousands. So the newspaper ad you'll see every center being listed out. But what -- when we say that our auctions are minimal, but they are not 0. As I've said that the number of transactions that we do in a year is almost like 40 lakh, 50 lakh or maybe more. And therefore, even if but maybe around, say, one product goes for auction, there's no significant account. We try to minimize option, but you cannot avoid them 100%. So there will still be some customers who may not be traceable, some customers who just don't want to pay. And every year after year for the last few years, our auctions are very significant. But of course, they are in the range of 1% to 2% or depending on the year, it can be a little more or little less. Secondly, tonnage growth is the important part of our -- as we have been recouping our market run. We also set up new branches in the last 2 quarters. So when we made 2 years ago when we resumed our business in -- there are -- the market is again that we do and many customers come back, it really takes a long time. Also, the market is expanding. So I think our tonnage growth is there, which shows that we're getting new customers as well as our new branches are becoming productive.

Just a follow-up on this. Are you seeing any increase in intensity of auctions this year considering the gold prices have come off vis-a-vis earlier years. And also on the first question, as...

Yes, last 2, 3 quarters, we almost had negligible growth option, almost 0 kind of thing. So there's a slight increase, but just like NPA 60 to 90 basis points or this, they are very insignificant for a business like this where the low ticket size is small. So the increase, but the percentage increase or the basis point increase is very insignificant. .

Got it. Sir, just one part of the first question. On the income generating loans, how much of the loans are...

We started late last quarter. But I would -- I don't have precise number, but I think about 20% to 25% would be income generating loans as of now, and this might go up. So the income generating loan, the process on that basis. But otherwise, 70%, 80% of our customers will be MSME customers, and they all are qualified for income generating. But the income limiting process, which is value to go up to 80% to 90%, although we don't go that high in terms of LTV. That process we started last quarter. We have a very -- okay, what we do is we take the civil data. We also take the bank and the GST data wherever available. And we triangulate the data to forecast income. And also, of course, our branch people talk to the customer. Also, we do -- as you know, that most -- we have really strong colending relations with the banks and banks have even tighter process. So when we do colending, we will comply with the requirement to the satisfaction of the bank. So we believe that relative to peers, we have a much stronger system for document collection and monitoring the income-generating loans. .

Next question is from the line of Kursh Caraya from ujvin Small Finance Bank.

Congratulations for the all time high perfect numbers. My question related to the strategy, it's ideal there is a 30% productivity increase. So -- Can you hear me?

Yes, I can hear you.

So I was looking on the AI strategy slide, there it was mentioned around 30% of selectivity increase. I'm sure this is very new to which you all have been using in the industry. So sir, can you just highlight what kind of productivity increase do you see? And also in microfinance, these numbers are helping us in terms of collections? Or is it only for the customer acquisition aspect only?

So these numbers are for the processes which are scoped when we started, like audit or collection. So wherever we are able to implement this then we can have a chat bot, we can have automated journals as -- So there are quite a few tools that have been used. So the processes where we applied this, we have seen about 30% incremental activity. So what -- supposing what 100 people could do now 70 people could do. And this number will further improve in the productivity or the costs and these numbers that are becoming applying the AI technology.

Understood, sir. So in microfinance related effects, are we getting some kind of benefits by doing the AI calls, how this strategy is working, the tool is working in terms of collection, improving our fee collection bucket.

[indiscernible].

For us, it's especially helping with the 90-plus bucket where it's reading our field offices in terms of giving them the PPPs and things. So it is definitely helping them -- helping our field officers in -- especially on collection. And also, we look at lead generation and for our existing customer base. If an existing customer base is interested in the renewal loans of add-on loans, so we are able to work on that. .

Next question is from the line of Yash Dantewadia from Dante equities.

Congrats on a great set of numbers. My question is -- first question is regarding the fund raise, right? There are 3 vertical that we obviously have, one is home finance, Samasta, the stand-alone business start is majorly cold. I just want to understand if you're looking to -- because I think Samasta and home finance is majorly not growing at the rate at which your stand alone is growing, right? So just wanted to understand in terms of fund raise, are we looking at the stand-alone entities any of these 3 or we're looking at a related entity?

So fund raise is subsidiary, we don't need because we have adequate capital adequacy. Fund raise is required only in the listed holding company in... .

We are looking a selling Samasta, right, initially. I mean that was the correct...

Yes, you're right. So looking at -- so there are various -- okay. The issue that we need to resolve is that there's a faster growth in the stand-alone entity, which is in gold loan and lab business primarily. And we provide some more capital there. So capital can be provided even if you are able to sell the subsidiary because then they get the listed company or the parent company gets the capital. Or we can do a primary raise. Now the question is the timing is of importance. So it looks like maybe it appears at this stage is that a divestment of a pool of subsidiary company will take time. And in the meanwhile, we need to make sure that we do the equity raise up so that the growth is not affected.

Understood. Understood. I think that is a great answer. My second question is regarding your guidance. Because I feel like home loans, I think, are not growing that well in general. You see we had guided around 18%-ish growth in your home finance business, but that's not growing. Obviously, H2 should be stronger. So what is the overall AUM guidance. Gold finance will majorly depend on gold prices. So I understand, but what are we looking at in terms of ROE guidance and AUM growth guidance from here onwards?

So in home finance, disbursement has grown and the AUM is growing on the whole around 4%, 5% per quarter. So when you say 18% guidance, the loan assets will grow at that pace. The core home loan has grown by 2% quarter-on-quarter, but lab has grown faster. And in terms of structurally, if our target is that we should have 20% to 25% LAP then LAP is not here. In home finance, we have completely reoriented our strategy as affordable home as compared to earlier than we had been traveling across all segments. . For that, we have set up the branches, people, the infrastructure. So a lot of work has already been done. So I think as you are right, then in the second half, you should see accelerated growth in the core home loan segment as well. But I think on the year basis, we should be able to meet our guidance. And ROE is 16% to 18%, we hope we have targeted for next year, but it will continue to improve quarter-after-quarter. And there is an operating leverage that works here also. So volume growth accelerates, we see more than proportional growth in the bottom line.

Right. But the ROE guidance for the consolidated...

Okay. I would like to add, I think if we look at the disbursals which is based on clearance. So if I compare with last year, the growth is 64% on disbursement. And on AUM, the growth is 8%. So we've just caught up on the growth -- last few quarters. If you look at last couple of years, it was pretty flat. So now we are back. So we've done almost -- this is on the numbers what we report, which is based on clearance. But if you look at the booking, which means what we actually disburse. Even sequentially, if you look at disbursement, we've grown by 41% quarter-on-quarter. So I think there's a clear growth on disbursement, it will catch up with the growth in AUM. We had guided a growth of 18% to 20% on year, we'll be well within that because we are already achieved the sales after 2 quarters.

Right. And ROE for the consolidated entity? .

ROE for the consolidated entity will be above 20%. That's what -- so what will happen is if you do equity raise, it can be a bit better temporarily for the finance of the NBFC company, the parent company. But as the profitability catch up, it's just in the quarter 2, we should be able to catch up. So in the medium to long term, we want to keep it above 20%. That's what our target is. .

I just hope with the way the business is going, we do not dilute at a very disappointing valuation. Of course, those numbers are going to be confidential and based on demand and supply in general. But all I'm trying to tell as a shareholder is that I really hope you guys are able to at least maintain a basic -- based on your current ROE and ROA, you guys are able to maintain a laxmanrekha in terms of raising at a particular -- or above a particular price to book. And I really hope that investor and stakeholder interests are maintained in that sort of a direction, and we do not raise at a suboptimal valuation in terms of price to book, especially when we are throwing the kind of numbers that we are throwing. And you guys are working extremely hard to get these numbers out there. And I really hope the dilution is not something that dampens the stock price from here onwards.

See, there's always a trade-off in the -- so the market price is market price. We can't really fight it beyond a point. But there's a trade-off that you have to maintain your growth. I mean there's some time you can wait and help this thing. But I think longer term, all shareholders should create good return and create good wealth, and that's what our endeavor will be. But in finance or lending institution, it's important to maintain margins of safety and equity because that will also help us in upgrade of our credit rating and bringing the cost of funds down, which will further accelerate the profit growth and the ROE. So we have to keep all dimensions in mind.

No, I completely understand and agree, but I just hope a particular price-to-book ratio is maintained in terms of raising because see, currently, we are at all-time high profits in terms of annual quarter, our ROE, ROA, everything is extremely, extremely healthy. So obviously, when you look at it as a shareholder, you expect a certain price to book equity fund raise. But looking at the current price action, the general assumption is...

I appreciate your this thing. And we raise equity is also important, the quality of investors that we bring in because that helps in rerating and perception change.

Next question is from the line of Vansh Solanki from Rspn Ventures.

So my question is GNPA and NPA. So consol declined, the NNPA slightly increased on quarter-on-quarter basis. So why this all happened.

So GNPA has declined, but within the GNPA gold loan GNPA has gone up. Actually, as I said that the loss given default is much lower. And that is why you see that the provision has not gone up at the same pace It's slightly lagging with GNPA. So that's why you see that the GNPA has marginally come down and NPAs has largely gone up. But even the lower GNPA would have been much lower, but for gold loan, which is slightly up.

Okay. And second question on IIFL Finance Home Finance. So like for home finance and Samasta, we were talking about share value creation. And so is there any plan also like the divestment of any of the company as of now or IPO or of any company with Home Finance.

No, I don't think there's any -- so we said earlier, we like we look at there we look at raising capital company by company basis.

Okay. So like why if we are raising equity for a standalone. So cant we sell some portion of our equity within the -- our subsidiaries and raise funds from there.

So -- but subsidiaries, we can raise equity, but we cant put money in the parent because dividend is taxable. But if we can sell part of the subsidiary, then it is better, but we are looking at all the options, all options.

Okay. And the last question, can you just recap FY '27 guidance, all the guidance you have given?

So there's no change in guidance as such. But I think there hopefully, we are on track to meet and exceed the guidance. So the guidance there is Slide 46, 25% AUM growth. And similar profit growth and ROE of around the upper end of the guidance and ROE is 20%. So I think we are there.

And will it be possible for us like maybe you have done. So like will it be possible for us to close FY '27 with the 20% ROE because maybe there will be a dilution of equity will be more or less...

It's possible.

next question is from the line of Deep Vakil from Bandhan AMC.

Congratulations on a good set. Sir, 1 question on the industry. I think you already highlighted the draft consultation paper that has come on the insurance norms, right? So earlier there was a draft consultation on -- I mean, the broking entities with respect to MPF and STT and all that. But the final guidelines were a lot more harsh as the initial draft. So what do you expect -- do you expect -- I mean, something on those lines also in the current consultation paper that it will be more easy out and not harsh like this proposed in the draft. What do you sense on market? Or what's your overall idea on this?

It's very difficult. I'm not an expert on this, but it's possible that it might be diluted a little bit. But some changes will happen and the industry will have learned to adapt, become cost efficient and do more different cost setting. But yes, it's quite possible that the steep -- so what happens that the 10, they said 10, they might settle at 50, we don't know. So in my personal view, which is maybe completely different or may not be true. But I think yes, some middle part can may come because there's a lot of resistance and a lot of worry about the job losses also. See, Insurance is a great product, and it can be a great price, but that who will sell it. The problem is that selling is a very, very huge effort, and it takes time. And there's only certain productivity that people will can achieve. So therefore, when you balance, there may be some little part. That's my personal belief, but I'm not sure.

And sir, sir, generally, in home loans in our subsidiary, so can you just guide -- I mean, usually, we have a condition attached to the loan that you'll get the loan only if you take insurance or we try to cross-sell...

It can never be -- not happens like that. Okay. But if what happens, like a bundled insurance then something happens with the bread winner of the family, then the family does not have to pay any more installment once they get the house to stay forever. So in a way that works very well for a nominal premium is fully protected. But it can -- it is never forced, it's never conditional, not in our case.

Next question is from the line of Pavan from Edelweiss.

On the MSME, the MSME yields come down 0.98% quarter-on-quarter, right? Again, the home loan yields have also come down 11 basis points quarter-on-quarter. What is driving this? At the same time, we are seeing GNPA also come down significantly. Can you give some comment on the on-the-ground situation and your internal approval rates. Are you seeing increase in the approval rates, the MSME.

They are linked. So as we move superior quality of borrowers, you get lower yields and the quality of asset improves. So this trend will continue because the LAP now low-value property, there is a time when we had a micro LAP with 24% yield or 18% to 24% and had massive losses. Now the new business that we are doing is maybe around 12.5% to 13.5%. But then quality is very superior and the losses are minimal. So strategic decision that we took. And we have sacrifice on yields a little bit and over a period of time gradually, but it will improve the quality of assets similarly.

Sir, just a follow-up to that. Like we are giving up yields of almost 1%, right, but the credit cost won't go down by a similar number. So what will be the overall impact.

Yes, it's a very good question. We have debated a lot on this over the last 3 years. The problem is in the cycle. So when the -- right now, we are in a fairly good cycle of credit and collection. So when the cycle goes bad, these things really go much worse. And two, is too much of volatility in the asset quality and the reported numbers. So on balance, over a period of time, also they have a higher collection costs, which will appear somewhere in operating cost. The -- I mean when we have a small ticket and a high-yielding asset. So from a longer-term point of view, strategically, I think this helps to have a lower yield and lower credit cost, lower collection cost and stable or a lower band of the NPA delivering.

Yes. Got it, sir. So the overall impact on the ROA would be -- any comment on that.

Yes, go ahead.

No, on the -- just at the segment level of the MSME, what would be the kind of overall ROA impact that we can expect because of these going higher up in the curve in terms of quality?