JM Financial Limited (523405) Earnings Call Transcript & Summary

On behalf of JM Financial, we extend a very warm welcome to all of you to the conference call to discuss our financial results, both for the second quarter as well as the half year ended FY '21. I hope all of you have had a chance to go through our presentation, our press release and the results. We have updated the same on our website as well as the stock exchanges yesterday. I'm joined on this call by our group CFO, Manish Sheth; Subodh Shinkar, MD and CEO of our Investment Advisory Business; Shashwat Belapurkar, CEO of our Real Estate Business; Anil Bhatia, who heads our Distressed Asset Business; Gitanjali Mirchandani, Head of Origination for the Real Estate business; Sonia Dasgupta, Head of Financial Institutions and Group Borrowings; and Ajay Mishra, Head of our Private Wealth business; as well as all our CFOs for the NBFC as well as the ARC businesses. I shall now provide an update on the performance of our businesses, post which Manish will take you through the financial numbers and then we can open the floor for Q&A. Our consolidated revenue for half year ended FY '21 stood at INR 1,495 crores. This is a decrease of 12.5% Y-o-Y. For the same period, our PAT stood at INR 233 crores, a decrease of 9.4% Y-o-Y. Given the uncertainties around COVID-19, we have prudently taken additional provisions across the group to the tune of INR 123 crores for the half year ended FY '21. Our adjusted profit after tax, adjusting for the COVID provision, after noncontrolling interest is at INR 289 crores for the half year ended FY '21. Moving on to our loan book details. Our consolidated loan book stands at INR 11,386 crores, which is down by 17.6% Y-o-Y. The breakup of the loan book is as follows: the wholesale mortgage book constitutes 74% of our loan book, which is approximately INR 8,410 crores. And this book registered a year-on-year degrowth of 8%. The capital market book continues -- constitutes approximately 5% of the loan book, which is approximately INR 533 crores. It registered a year-on-year degrowth of 51.6%. Our corporate lending loan book, which also includes our promoter lending book, constitutes 14% of our loan book, which is approximately INR 1,650 crores. This degrew 43% Y-o-Y. Our retail mortgages loan book is at 7% of the total loan book at approximately INR 800 crores. This book has registered a Y-o-Y growth of 24%. This loan book comprises largely of housing finance, small ticket loan against properties, and education institutions lending for brownfield expansions of K12 schools and a cross-sell of loan against property to some of IWS clients. Moving on to asset quality. The gross NPA ratio of the lending business is at 1.69%. The net NPA is at 1.13% and our SMA2 stands at 2.86% as of September 30, 2020. As the decision of the Honorable Supreme Court is pending, we have not considered a few accounts as NPA. Had those accounts been considered as NPA, our gross NPA would have been 2.13%, our net NPA would have been 1.43% and our SMA2 would have been lower at 2.42% for the September 30, 2020, half year end. Moving on to leverage and liabilities. On a consolidated basis, our gross debt-to-equity stood at 1.2x for September 30, 2020. And on a net basis, adjusting for the free cash on balance sheet, it stood at 0.89x. During the half year ended 2020, we have raised close to INR 950 crores through long-term borrowings. We have additional sanctions in place for over INR 1,000 crores, which we hope to draw down this quarter. And we have concluded a QIP issuance of INR 770 crores in June 2020. Our borrowing mix comprises of 83% from long-term sources, 17% from short-term sources, as compared to 90% and 10%, respectively, for June 2020. Now I will take you through a brief update on the half year performance for each of the group's business verticals. We start with the IWS segment. The segment posted revenues of INR 696 crores with a profit before tax of INR 177 crores. The business contributed approximately 42% to our group's PBT. PAT for this segment for the 6 months increased to INR 136 crores, an increase of approximately 10%. The assets under management for our wealth management business stood at INR 54,000 crores, excluding custody assets. The equity component increased by 18.4% Y-o-Y to INR 16,300 crores. And the assets under our newly commenced Elite Wealth business stands at approximately INR 265 crores. The loan book for the IWS segment is at INR 3,861 crores, down 28% Y-o-Y. The gross debt equity for IWS segment is at 1.3x... [Technical Difficulty]

[Operator Instructions] We have the line from Mr. Kampani reconnected. Over to you, sir.

Yes, sorry. I will just repeat the last part. So I'll start with the mortgage lending business. The segment had revenues of INR 590 crores, with a PBT of INR 205 crores. The business contributed 48.5% to our group's PBT. The profit after tax from this segment stood at INR 69 crores. Our loan book stood at INR 7,500 crores, which is a decrease of approximately 9.4% Y-o-Y. The gross debt equity for the mortgage lending segment is at 1.3x and the net debt-to-equity is approximately at 1x for the same period. Coming to the distressed credit business. Our AUM reduced by approximately 19% Y-o-Y to INR 11,400 crores. JM Financial ARC's contribution to the ARC stood at approximately INR 3,244 crores, which is an increase of 4.4% Y-o-Y. The segment had revenues of INR 183 crores with a profit before tax of INR 32 crores. The business contributed 7.4% to our group's PBT. PAT from this segment degrew INR 16 crores. The gross debt equity for the distressed credit segment is at 1.6x and the net debt-to-equity is at [ 1.55x ]. Moving to the asset management business, comprising of our mutual fund business. The segment had revenues of INR 14 crores, with a loss before tax of INR 5 crores. Loss after tax is at INR 1 crore. The average quarterly AUM of the mutual fund is at INR 4,200 crores, comprising of INR 900 crores in equity schemes and INR 3,277 crores in debt schemes. With this brief update, I will now request Manish Sheth, our group CFO, to present the group's financials. Thank you.

Thank you, Vishal. Good evening, everybody. Before I present financials, I would like to bring to your notice that any forward-looking statements made on this call are based on management's current expectations. However, the actual results may vary significantly, and therefore, the accuracy and completeness of this expectation cannot be guaranteed. Now let me quickly take you through group's results, which we announced yesterday and are available on our website. In quarter 2 FY '21, our revenue decreased by 5.6% Y-o-Y to INR 803 crores from INR 851 crore. The quarter 2 FY '21 PBT is at INR 240 crore, which is a decline of 11.8% Y-o-Y. Our quarter 2 FY '21 PAT increased by 7.3% Y-o-Y from INR 130 crore to INR 139 crore. With regard to the half year numbers, the gross revenue is at INR 1,495 crores and a net consolidated profit is at INR 233 crores. This represents EPS of INR 2.56 versus INR 3.06 for the same period last year. As on September 30, 2020, the net worth is at INR 6,568 crore, which is a book value of INR 69 per share. With this, I would like to conclude, and we are happy to take any questions. Over to the moderator, please.

[Operator Instructions] The first question is from the line of Dhruvesh Sanghvi from Prospero.

Am I audible?

Yes.

My question is related to the overall strategy of the business going ahead. Considering the last 3 years, now we were doing very well on the mortgage lending and the lending piece was predominantly mortgage lending. What are your thoughts on how the business will shape up in terms of stability of the book currently and potentially some growth coming on that? Second, related to that aspect is again on the ARC because we are degrowing our ARC business as well, maybe because some assets might be maturing or -- some thoughts on that. And where are we heading there? Third would be on the securities side. Post-COVID, nearly 70 lakh, 80 lakh accounts has opened in the industry. How has JM been able to capture because I believe even the online account opening process was not active for the first half of the COVID -- post-COVID period? Has it been solved? And are we looking to expand the retail franchisee? Or what is the way we should look at it? And when we say the wealth management and the Elite Wealth Management, what is the broader difference? And how are we doing versus competition in your opinion?

Sure. That question is like a Bible, it includes everything. So let me attend that with the strategy. So nothing really has changed dramatically in our strategy. If you look at our businesses, we are basically capital markets and real estate-heavy. And I think we will continue to be that way. We see a lot of long-term growth prospects in this space. And I think we will continue to grow. Coming to your question, specifically on mortgage lending, I think that will continue to be a mainstay business for us. We have seen challenging times post-demonetization, post-IL&FS and now with COVID. And I think after every challenging time, we have only emerged stronger. And I think we are seeing some very good green shoots in the sector post-COVID. The last 2 months or 3 months, there has been exceptional demand and very strong demand for real estate, for properties, especially in the residential housing side. We expect this festival season to be very strong. And to give you a data point, I think our escrow collections for the month of September are already at 88% of pre-COVID levels, and we expect them by December or January to be at 100% of pre-COVID levels, if the current sales momentum has to continue. So I think it's only a matter of time before which we will restart growing our wholesale mortgage business. On the retail mortgage business, that business -- our book has grown almost 20%, 25% Y-o-Y. It would have grown more, but we lost the April, May, June quarter completely because of COVID and the lockdowns. So it was almost impossible to operate. Without that, we would have grown almost 35% to 40%. And I think we continue to maintain that growth rate. I think on the retail housing side, we will grow at 35% to 40% for the next 3 years year-on-year. So the mortgage lending business is a growth business for us. It's just about waiting for the right time to push the wholesale business. As I also mentioned earlier in my opening remarks that our net debt-to-equity now is at 1x, and we are in a very strong position. We are expecting a huge amount of repayments and prepayments even this quarter. And I think our balance sheet will be in a completely envious and very strong position by the end of this quarter. And we will hopefully start looking for growth in new transactions starting calendar year 2021. Coming to the ARC business, that is a tricky one. I must first report that we had a -- we concluded a major resolution, and we have received almost INR 500 crores plus of cash yesterday. One of the key accounts got resolved is a steel company, which got bought by JSW Steel. It was in the news, so which is good news. Even the activity at the courts have increased dramatically, and therefore, we are hoping for a much higher cash flow in these 6 months compared to the first 6 months of the year where we had complete operational inflexibility with the courts being shut and many of the hearings, even when they started were more virtual in nature. Some of them are still virtual in nature, but at least we are seeing good momentum and good activity. And as I said, we've got INR 500 crores plus yesterday in our bank account from a major revolution. So -- sorry?

Hearty congrats on that.

Thank you. So thank you, it's all thanks to the team. So with that, I think we are hoping for some more resolutions over the next 6 months. And I think we will still, for the entire year, the entire financial year -- this year we focused only on resolutions because when the economy goes through such a heavy slowdown, there is -- your valuations can get hit very hard and your cash flows in a distressed asset business can get hit very hard. So we are completely focused on the asset resolution side, and we will look to add new assets only next year. We did see some ray of light, some opportunity to add assets because of the COVID-19, but with the onetime restructuring, it's not going to happen. I mean, everything is going to get pushed out by at least 2 years. So I think that gives us more time again to focus on resolution. And maybe next year, sometime in the first quarter of next financial year, we will rework our business plan on how we need to grow and which areas do we need to grow. Second, see, from an economy perspective and a distressed asset perspective, the economy is -- not just India, but the global economy is going to go through a huge substitution effect, right? So what happens is people's choices change when they go through a crisis like this, a public crisis like this. And when your choices change, demand for a lot of products change. And when demand for a lot of products change, then there are sectors which may not even exist or will find it very difficult to exist over the next year to 2 years, and there will be other sectors which will tend to do very well. So it's too easy for us or too -- rather too difficult for us at this point in time to be able to point out what is the right valuation at which we should be able to buy an asset to conclude a transaction. You may, for example, jump in and find a hotel very attractive and you may go by the hotel at a distressed value. But if there is a second wave or a third wave and the hotels still don't open for a year or 2 years or 3 years, right, then you're a sitting duck with that asset, even though you bought at a fairly attractive price because you're not going to generate cash flow from it. So therefore, we want to go through and see the substitution effect. And I think we'll be in a better position to answer when we start growing the ARC sometime next year. Also, we had a stated objective that we don't want to have high leverage in our ARC because of the delays we have faced from NCLT as well as other resolutions. Interest costs have hurt us a lot in terms of our profitability. And therefore, we are going to incrementally, from next year, grow this business through AIFs and not grow it necessarily through our ARC balance sheet. So that is another important objective for us. Moving on to your question on the securities side of the business. Again, the securities side is seeing tremendous momentum. You are right in pointing out that we are a very strong HNI player, and we do our retail business through franchises. Again, we want to grow our franchisees, but we literally lost out the April, May, June quarter because of COVID, but we are back on track. And our stated objective is to double our franchisee network over the next 2 years, and I'm fairly confident the team will achieve that. And most of our online account opening as well as some of the other issues that we were facing earlier during COVID have been ironed out, and we look forward to growing our retail business more aggressively, which we could not do in the beginning part of this financial year. The wealth management business has performed very well. They've grown their assets quite substantially despite almost doubling the headcount in the last year to 18 months. They have still managed to be profitable for the last 6 months and nicely profitable. And we continue focusing on integrating the wealth management business more and more into our investment bank and our institutional platforms, both on the equity as well as the debt side. And the integration is proving to be of tremendous benefit to all of those respective divisions. Our Elite Wealth Management is basically -- it's a product. It's a strategy, which is for the Elite Wealth customers. And the way I would define that is basically customers who have less than INR 100 crores of income to be disposed or to be invested in capital market assets. So above INR 100 crores is what our wealth management will target and below INR 100 crores is what Elite Wealth Management will target. So that is the fine differentiation between the two. They are 2 separate teams. Wealth management is headquartered in Bombay, and Elite Wealth Management is headquartered in Bangalore.

The next question is from the line of Kunal Shah from ICICI Securities.

So first, particularly on this entire real estate portfolio, so you highlighted in terms of the pro forma GNPA. but how are we looking at it maybe post the lifting of the moratorium? You said in terms of the escrow account, 88-odd percent, but what is the kind of restructuring which we might see? And how do we expect the collection efficiency to pan out, particularly on the developer segment?

Yes. So our collection efficiency today has moved up to around 80%, 81%, which is a very healthy sign. I think with the revised addition post the Supreme Court judgment, the number I gave you on the gross NPA side, I think we would have sort of peaked out at a gross NPA of 2.13%. I'm not hoping to have higher gross NPAs. And I'll explain to you where this comes from. Even on SMA2, I think, will peak out at roughly 2.5% to 3%. So we don't anticipate that our portfolio at risk will cross 5%. And I don't see, as of now, not a single account that we have will go through a restructuring. We will not go through OTR, the onetime restructuring, which is the RBI scheme. But what will happen, we anticipate approximately between, say, 18% to 22% of our portfolio to go through DCCO. And roughly 10% has already been done as we speak today. And we anticipate anywhere between another 8% to 12% to get done before 31st of December. This approximately gives these accounts roughly an 18-month to 2-year window to be able to repay their principal. And we think that is a substantial time and subsequently, we don't see any further need for restructuring of any of those assets. Our average asset covers for these restructured assets will continue to be in excess of 1.6x. So it's a pretty healthy asset cover considering the impact of COVID. And we had made these calculations to an AQR as well as a COVID test done for our March 31 numbers. And things have substantially improved for the sector as well as our portfolio in the months of July, August and September as well as October. So if this were to continue, and we were to revisit some of those cover assumptions, I will not be surprised if the 1.6x cover even on the restructured portfolio moves up to 1.8, or in some cases to even 2x. So I think we have clearly peaked out. We are very focused, as I said, this quarter, again, ongoing through all of the DCCO with our accounts and making sure our portfolio is on track. We disbursed -- last 4, 4.5 months, we've disbursed almost INR 100 crores in construction finance. And I think that speed will increase. We were ready to disburse more, but purely because of construction challenges earlier, specifically in June, July, it was difficult to deploy the money because we didn't have workers and the approvals were coming a bit delayed. And all of that is now getting streamlined. So we expect the disbursement of our construction finance purely on existing projects to pick up. So that itself should stem the fall of assets on the project finance. And as I said earlier, Kunal, we're expecting a lot of lot of prepayment this quarter. We've already got, as I said, more than INR 500 crores in our ARC yesterday. So we are expecting over INR 1,500 crores of repayment in the next 30 days in our wholesale book. It's repayment/prepayments. So we will be sitting in an abnormally high cash position, and we will let this quarter pass. And I think if things are looking more stable, I think we are back to growth on the lending business starting next quarter.

Sure. Sure. This is helpful. And in terms of the nature of this portfolio, which is under DCCO, this 18% to 22%, what would be the nature [indiscernible]? And would this be particularly concentrated in say Mumbai and NCR? We saw some reductions out there in the portfolio in Mumbai and NCR, and we are growing in Bangalore and Chennai. So how would you evaluate, maybe some light in terms of the nature? And would there be any risk maybe further extending or giving them a more time frame? Do we see this emerging later on?

Yes. So let me answer this question with a little bit of more data. So today, if you were to see how our portfolio is split, so roughly 50.7% of our real estate portfolio is in the western region, 35% of our portfolio is in the southern region, 5.2% is in east and 9.1% is NCR, which is north. And in that 50.7%, Mumbai is almost 60% at 31.3% of the overall portfolio. And if you asked me 6 months ago, my biggest worry was Mumbai. But I'm not as worried about it. And one of the reasons I want to tell you is that the current state government as well as the regulatory authorities are quite supportive to help developers. They've reduced stamp duty. They're reducing some premiums. And once all of these things go through, there is going to be a significant amount of relief, which is going to be given to Mumbai-based developers. Also, I think, finally, Mumbai-based builders have realized that they can't keep holding prices forever. And one of the reasons, frankly, why sales have been very good is because most of the Mumbai-based developers have shown flexibility on price. So I'm not as concerned about it. The DCCO will be -- it'll be quite widespread. There will be some cases almost in every city, but I think primarily, it would be Mumbai. Gitanjali, you want to give more details on how the DCCO is going to be split approximately?

Yes. So quickly, like Vishal said, it is not really concentrated to 1 particular geography. But given that most of our Mumbai portfolio is our projects under construction and that is where we can actually use the DCCO benefit or give the DCCO benefit to those projects. It is centered mostly around projects in Mumbai and in Pune. So to answer the question of concentration, but we have given benefit of the DCCO extensions to NCR and to some projects in Chennai as well. Just to -- anything specific if you would need, but this is broadly how it is split.

And again, Kunal, I don't think we would specifically look to increase some geography or decrease some geography. But yes, we are seeing a lot of incremental demand. [Technical Difficulty] So as I said, we are not -- we're not specifically currently looking to increase any geography, but we are seeing good quality projects and some good demand for money coming from Bangalore as well as Hyderabad, and there are some interesting projects in NCR. What we would look to do is I don't think we will be in a rush to increase Mumbai. I think we will hold on the Mumbai. Mumbai is already 1/3 of our portfolio. So yes, you're right in saying that there will be probably further increase in Bangalore in certain areas, but that's because we are seeing good projects that we can underwrite at good rates. It's got nothing to do with the preplanned strategy to increase those areas.

Sure. And just last one on ARC. So this quarter, there was no provisioning, no doubt there is visibility in terms of resolving the resolution which has happened just recently. But do we see any risk of a higher provisioning due to delayed resolutions which would take place, particularly in the ARC side, which we have not seen in Q2?

Yes, that's a good question. So we will evaluate that more closely towards February, March. As of now, we feel that we are well covered because we have taken a lot of provisioning for March 31, 2020, on the ARC side. And the management team, in fact, is expecting some amount of write-backs in few of the cases where provisions were taken. But you're right in your assessment, we will take that call only in February and March, depending on the state of the economy and where we are seeing our various projects in terms of where they are in, in the stage of resolution. Having said that, do I expect it to be a big number? No, I don't expect it to be a big number. I don't think it will be a meaningful number, which we -- like we did for March 31, 2020. Also what happens is in many of the ARC assets, our fees is a priority, right? So it doesn't actually hurt us that much because even if it's delayed, some amount is crept back in terms of fees, not everything, but some amount is crept back. So we'll have to see. We only have 1 situation which we are concerned about is the Unitech case in the Supreme Court. And because the case is in Supreme Court, I'm not at liberty to discuss more about it. But that is the only 1 case where we may see some amount of provisioning. It depends on the outcome of the judgment, which we will await as soon as the hearings are done. But again, it's not going to be a significant number, but it will be the most significant number of the total provision we will make if we were to make one in the next 6 months.

Vishal, if I may add? Again, there, we have a priority loan and fees, which will be -- which have a priority of repayment in the waterfall mechanism. So it would be -- there will be a delayed recovery, but eventually, even if you provide, there would be a write-back of provision subsequently on that.

Okay. And any other assets in advanced stage of resolution, like what we saw yesterday or maybe just 10 days back on Asian Colours? So do we -- are we seeing any more names which are there, which have been pending and now...

Yes. So there are 2 resolution. We have 1 pharma asset, which is in advanced stage, and we have 1 large textile assets, which is in advanced stage of restructuring. We're hoping to complete both by March 31. Fingers crossed.

The next question is from the line of Ritika Dua from Elara.

Sir, first, mostly the asset quality question has been answered. Some clarifications, so firstly on ARC. For Q2 FY '21, sir, how do we reach this particular bid that asset applied by ARC is INR 10 crores and JM's acquisition is INR 271 crores.

Yes, because we increased our contribution in existing assets because we could buy them at good prices.

Okay. So this is something to -- because you've given an abstract which says that sold by...

Because we made a statement that we're not going to buy new assets. So we wanted to make it very clear. This is only increasing our old and existing positions.

Understood. And sir, on the resolution that's happened recently, any -- how has been the IRRs there?

Yes. Anil, you want to take that question? Though the resolution was significantly delayed, but you can give a picture on the IRRs.

I think we never talk about individual IRRs of individual cases, okay? All I would say is that the IRR for this case also will be in line with our standard thumb rule of all IRRs being in the range of 20% plus. And our average IRR, even today is about 28%, 29% of all the resolved cases. Individual IRR cases, we generally don't talk about.

No problem, sir. Sir, on the wealth management, the quarter-on-quarter addition to the AUM has been very good. So just want to understand more color on that.

Yes, sure. Ajay Mishra is on the call. Ajay, do you want to give her color on the AUM movement and also the breakup of the AUM movement?

Yes, sure, Vishal. Thank you. So at wealth management, the AUM has increased from about, say, 13.5% quarter-on-quarter from INR 47,500 crore odd to about INR 54,000 crores. And we have grown across all the asset classes. So in equities and in alternative assets, we've grown about close to 35% in direct debt, wherein we sell direct debt, mutual funds, et cetera, we've grown close to about 6%. And in liquid assets, we've grown about close to 10%. So this comprises of about 13.5% overall growth. Also, what has really -- sorry, also, what has really helped us is our overall integration within the group as IWS. So the synergies in terms of differentiation, bringing in bespoke ideas within the group on product ideation, client referencing, really works well.

Understood, sir. Sir, if maybe some more color would be helpful because this is quite a strong performance, maybe -- I know we were around INR 47,000 crore, even maybe third quarter FY '20. So -- but then INR 13,000 crore in a quarter-on-quarter, I think is the strategy working very well here and some color on maybe how granular is this growth on a quarter-on-quarter...

Ritika, also, I think, frankly, what's also happened is a lot of the business that should have got booked in April, May, June, actually happened in July, August, September because of the COVID, right? So there was a lot of effort, which was put in and some part of that actually paid off sort of later. But our focus has been on basically adding equity assets and a large part of the addition has been in equity, which we're very happy about. And so if I can give you a more sort of granular mix, I think our -- in the INR 54,000 crores, our total equity assets are approximately -- which we've added new assets, added almost INR 3,900 crores to INR 4,000 crores is in equities. And debt is roughly INR 2,200 crores, and the rest is an alternate asset here. So I think so you will see some quarters where you will see flattish performance, in some quarters where the team comes together and they actually deliver a lot of AUM increase. But as long as on a half year basis, our trajectory is strong, I'm very happy as. I'm not really pushing the business on Q-on-Q because we want to win the right business. We want to win profitable large clients on an integrated fashion, and that is our strategy.

Sir, one more, and maybe I'll come back on the true after that because I have a couple of more to ask. On the wholesale business, you had already shared even in the last quarter that you'll do this AQR on your book and September would really help you evaluate the book better. And you'll call the shots on the promoter wherever you think you need to, et cetera. So that time, the number which would eligible for DCCO was much higher and the number which is going right now is a little lower than that. Secondly, a clarification on the DCCO number. Should we see this 18% to 20% as a percentage of INR 7,500 crore? Or -- obviously, because the DCCO extension will only be given to your CS book. So is this 18% to 20% of INR 7,500 crore or 18% to 20%...

So our construction finance book is roughly -- the largest part of our book, it's roughly 75%, 80% of our book. So this is our total book. It's 20% of the total book. So it will be obviously larger as part of the construction -- under construction book. What is very important to understand also is that currently, our book, which is under moratorium, okay, is not being able to service principal interest is roughly 20.6%. That means 80% of our book is able to service interest. So if you just do the mota, mota math, right, it's really 20% of projects, which have actually faced a delay in terms of construction or some approvals, they are just naturally going through DCCO. And the security covers are very strong. Yes, in that 20%, there could be 1 or 2 or 3 projects, which may require some more funding, additional funding from what we've planned, which we will provide for, our balance sheet strength allows us to take care of those issues. But on the whole, I think the DCCO benefit will really allow those projects to do well and actually be able to construct, complete and repay all our loans.

And if I may squeeze around the credit cost and how do you really see for the wholesale fee? So you've provided recently over the last 2 quarters, but then still looking at where we -- your assessment of the stress book is, which roughly you're saying will not cross 5%.

Yes. I think we've peaked out. I personally think we've peaked out the only caveat I would put, which is beyond my control is, again, a public health disaster, future -- further lockdowns or big another corona wave, you know what's going on in Europe and the U.S., right? So now even in Europe, there are some parts of Europe which are doing okay. Germany is okay. But France is doing very poorly. So see, the COVID scenario is still pretty scary, right? So -- and therefore, I think waiting another quarter and taking a call next quarter, strengthening your balance sheet further, being completely future-ready for the next decade is something we are focused on here. And I think you can clearly see that in our numbers.

Sorry, just maybe I'm just pushing it again. So on the current stress that you see, which you're assuming that should not move up from here on, are the current provisioning enough? Or would you think that even for the current, you might want to maybe still...

So let me give you a number. I think to be on the safe side, we would probably do another INR 50 crores to INR 55 crores of provisioning this quarter and maybe another INR 50 crores to INR 55 crores of provisioning next quarter, and that would be max.

The next question is from the line of Anitha Rangan from HSBC Asset Management.

My first question is on the IWS segment. And you did touch upon the fact that the loan book has grown reasonably well. But the gross revenue also like quarter-on-quarter, has seen a significant jump of about 40%. Can you give some clarity on that? The reason why I'm also asking is that if you compare the loan book end of -- like September of last year versus September of this year, there's a degrowth in the loan book...

Our loan book has not grown. In fact, our loan book has degrown.

But from like Q1 to Q2, I'm seeing like a jump like the INR 340 crores to INR 386 crores. And -- but sir, the revenue also -- yes.

Yes, but that's not significant. I think we've had absolutely, I would say, a fantastic performance in our IWS business. And the good part of all the performance is that it's been heavily led by fee business, and the fee business, which is unlinked -- totally unlinked to loans. And I think that is something which is very impressive. So if you see year-on-year for the last almost 2 years, our loan book on the capital market and corporate financing side has come down. And at least on the corporate and promoter lending side, we have cautiously brought it down. So we did a lot of transactions in the last -- so before COVID, after IL&FS for that 18-month period, we did a lot of short-term funding, bridge financing transactions to keep profitability high. But we haven't even done those in the last 6 months. And yet, the profitability from our IWS business has been very strong. And this has come partly from the investments that we've made. Once IL&FS struck us, we were one of the only firms on the street that was adding people and adding people aggressively in IWS, across most of our businesses in IWS, and you're seeing the payoff from that in the last 2 quarters. And in addition to that, the markets have been very strong, right? So the capital markets have been very strong. The M&A business has been very strong. The wealth management has been very strong. The equity broking has been extremely strong. So I'll give you some numbers which will put a perspective. So if you just go back to quarter -- half 1 FY '20, right, so talking about September year-end -- September 30, FY '20, right, last year, so our interest income was almost 54% of our IWS business and 46% was our fee business, right? And if you look at the quarter ended 30th September 2021 as in 2020, for this financial year, last year was '19, our interest income is 36%, and our fees and other income is 64%, right? So that is a very powerful number. So imagine a scenario now, whenever we increase our interest income -- sorry. So whenever we see that we've increased our loan book, we've even got higher fee revenue. So a lot of things have happened in IWS. As I said, lots of investment in people, lots of integration between the businesses, which was missing in the [indiscernible] And third, we are looking to now grow the loan book from next year even on the IWS business. So if we grow the loan book and this momentum continues, I think the profit growth numbers can be very strong over the next year to 2 years.

So you see that this kind of mix between like a fund and fee to be kind of a sustainable trend?

Yes. Yes. So if you go back to many of my calls over the last 3, 4 years, I've always maintained that we'll ideally like almost 50% of our revenues and profits to come from IWS and the remaining from mortgage lending and others.

Okay. My second question is on the mortgage lending piece. The presentation slide actually says that collection efficiency of 96% post moratorium. In the call, you mentioned like 80% to 81%.

Yes, so that must be interest. And the blend must be -- the principal must be lower and so the blended rate could be lower.

Vishal, sorry, can I answer that question? That must be, [ Ritika ] for retail mortgage, which is at 96% collection efficiency.

That's right. That's right. Retail is at 96%. But even the wholesale also, the interest collection is obviously going to be higher than principal.

Obviously, Correct. Go ahead.

All right. Okay. Just one small thing, like there also between Q1 and Q2, there's a slight increase in the loan book. Is this driven by just by disbursements, which you had to like make? Or is it like strategically...

Yes, those will be construction finance disbursements, and this quarter would be also in interest capitalized of some bids, right?

Okay. Okay. And 1 question on the liability...

We haven't added any new accounts, just to be clear. So there have been no new loans in the last 6 months.

Okay. Okay. All right. And I have 1 question on the liability side. Overall, while your cash is still like very fairly robust, and you have said that you're getting like incremental cash also this quarter. Just between June and September, there's like a slight decrease in the overall cash and cash equivalents. Now strategically, are you like going to reduce your cash component because that's like a negative carry in your book. Have you started thinking on those lines? And are you seeing some ease in like funding from the overall system, including banks and other components of the financial system?

Yes. That's a good question. So one reason for our cash and cash equivalents coming down is we actually utilized the cash and we reduced our CP borrowing, and in many cases, we replaced that borrowing with group money. Second is our hit because of negative carry is almost INR 180 crores this year, which is a big hit because of the substantial cash that we are holding compared to what we were holding pre-IL&FS levels. I think we will gradually, over the next 12 months, reduce our cash levels. This quarter may be an exception because we're expecting a lot of prepayments, as I said, and we will try and buy back our debt wherever possible. Even the ARC with the cash flow they've received yesterday is going to try and buy back their debt. The same thing will be true even for our NBFCs. Failing which, because now nobody wants to give our debt back to us, right? People were dying to give the debt back to us in March, April, and today, nobody wants to give the debt back to us. But wherever we can, wherever there is -- it's not expensive for us in terms of prepayment penalties, et cetera, we will buy it back. But I think, hopefully, from Jan quarter, once we start looking at disbursements and the economy is sort of a lot more stable, you will gradually, over the year of calendar year '21, you will see our cash levels go down.

The next question is from the line of Antariksha Banerjee from ICICI Prudential Asset Management.

Can you hear me?

Yes. Can hear you clearly. Go ahead.

Yes. Sir, the first question I have is on the equity that you had raised a couple of months back, what is your status of the deployment of that? And I mean from what we were thinking initially of some portion of it being deployed in the ARC business, because of the current situation, has there been any change to your plans? And how do you intend to deploy it?

That's a great question. So right now, there is no deployment of the cash. That cash just sits in our treasury. It was raised purely as a COVID buffer and uncertainty surrounding the real estate as well as the ARC business at that point in time. As we had said that we utilized almost half of that for ARC and half of that for real estate. Fortunately, at least for real estate, we are very sure right now that they will not need the cash. And if the ARC recoveries continue to be strong over the next -- over this quarter and next quarter, then I think this financial year, they would also not require the cash, and this will stay as treasury in our holding company.

Okay. So in that case, given the situation at present, I'm sure a lot of interesting offers will be coming up, sir, enabling growth? Are you evaluating those? Or is that a normal?

No, we are evaluating. We saw something in the capital markets and broking space, we made an offer, but the seller was keen. But the seller changed their mind. We are looking at a couple of things even in the retail lending space, and we are hoping that we should be able to close something before 31st of March.

And the last point I have is the DCCO accounts that you were restructuring or whatever you call it, these were all standard until COVID hit, right? There was no problem in any of these accounts before COVID.

That's right. That's right.

Okay. And other than the mortgage fees, I mean, including retail mortgage fees, there was no impact of moratorium or any delayed repayments in the rest of the lending business.

There is one space where we are concerned. We have an education loans portfolio, which is a very granular retail portfolio, which is roughly loans of INR 50 lakhs to around INR 2.5 crores which we have made to schools. Most of these schools are dominated in the south and west of the country. So we are in Telangana, we are in Tamil Nadu, we are in Andhra Pradesh, we are in Karnataka, we are in Maharashtra, Rajasthan, and we are hoping for these route schools to restart. So it's almost a INR 200 crore plus portfolio. It has so far performed well. In the market, it's one of the best-performing portfolios, again, because we've been very conservative. But in many of those cities and many of those cases, schools have restarted. But again, we need to watch this for December as well as for March. It's not a very large portfolio, but that is something I would like to mention.

Okay. But as of now, it's not part of your SMA or GNPA, this INR 200 crores?

It is not. It's standard.

The next question is from the line of Ritika Dua from Elara.

Sir, this question was not on my mind, but then since you've mentioned the retail lending acquisition. Given that we -- our retail pieces are still growing, and they are relatively smaller size, how large can this acquisition -- I mean, what is the strategy in terms of like how large would you want to go for inorganic kind of opportunities?

So we'd like to buy something which can double our book in less than 1 year.

And this would be largely housing?

Yes, housing and housing-related, like school infra finance, same spaces we are in, small ticket LAP as well as housing.

Due to time constraints, we'll take that as the last question. I would now like to hand the conference back to Mr. Vishal Kampani for closing comments.

Thank you very much. If you all have any further questions, we are all available. You all can contact us, and we will be glad to engage. Thank you again, everyone, for your valuable time.

Thank you very much. On behalf of [Audio Gap]