Sammaan Capital Limited (SAMMAANCAP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indiabulls Housing Finance Limited Q4 FY '21 Conference Call hosted by Investec India. [Operator Instructions] Please note that this conference is being recorded. From the management team, we have Mr. Gagan Banga, Vice Chairman, MD and CEO; Mr. Ashwini Hooda, Deputy Managing Director; Mr. Sachin Chaudhary, Chief Operating Officer; Mr. Mukesh Garg, Financial -- Chief Financial Officer; Mr. Ashwin Mallick, Head Treasury; Mr. Ramnath Shenoy, Head IR and Analytics; Mr. Veekesh Gandhi, Head Markets; Mr. Hemal Zaveri, Head Banking. I now hand the conference over to Mr. Gagan Banga. Thank you, and over to you, Mr. Banga.

Thank you. A very good day to all of you, and welcome to the quarter 4 and full year fiscal '21 earnings call. I hope each one of you and your families are doing well and are safe. Going to the lockdowns, most of us are taking this call from our homes. Therefore, we request that you restrict yourselves to high-level questions. Granular numbers beyond the ones detailed in the earnings update or on this call can be taken directly from the Investor Relations team by e-mailing them. The year gone by has been unprecedented in all of our lives, as the COVID-19 pandemic raged across the world. India did well to control the spread of infections in the first wave and supported by government and RBI's initiatives, the battered economy clawed its way back to growth from October, November 2020 onwards. However, the sharp rise in COVID-19 cases since March '21 has led to the reimposition of restrictions in various states and cities, which has impacted economic activity. As the incidence of new cases reduce, the positivity rate in most metro cities is now coming to under 5%. As that happens in more and more cities, we expect the economy to open up again in June. Thereafter, coupled with vaccination gathering pace, we expect a quick rebound in economic activity and growth. We thus expect disbursals and AUM growth to follow this and pick up pace from June onwards. One silver lining through the last 1 year has been the resurgence of the real estate sector, backed by a structural cyclical shift in the residential real estate space, which was going down and down over the course of the last 12 years. The structural shift finally started playing through in September of 2020, supported by favorable parameters, such as vastly increased affordability, government duty cuts, attractive price offered by developers, lucrative payment plans and most importantly, low interest rates. The sector witnessed a strong revival across price segments after more than a decade. Despite the economic toll imposed by the second wave, given that most of the structural factors causing the cyclical shift are still very strong, one expects the real estate demand to remain strong and emerge stronger through this COVID Phase 2. I will now quickly cover the headline numbers for the quarter and the year. I request all of you to refer to the earnings update that has been sent across. Please refer to Slide 3. As of the end of March 2021, our loan book stood at INR 66,000 crores, with greater focus on granular retail loans and our asset-light model. We've let our high-ticket loans across all product segments run off. Our regulatory capital adequacy at the consolidated level stands comfortably at 30.7%, of which Tier 1 capital is 24%. Our net debt-to-equity remains low at 3.4x. Our net interest income for the quarter stood at INR 764 crores. The net interest income is after factoring in the reversal of interest on interest on moratorium cases as per the honorable Supreme Court's judgment. PAT for the quarter came in at INR 276 crores, registering a growth of 102% over quarter 4 fiscal '20, PAT of INR 137 crores. For the full year, PAT was INR 1,202 crores. As is evident through the stable profitability of the company over the course of the last 5 quarters now, the period of repair for the company is largely over. The period of transition continues, but the company has largely stabilized its earning profile, and it should begin its upward trajectory, as the disbursals start going forward. Growth in profits should also get supported by our declining cost of funds on the back of the rating outlook change that was affected on March 31, 2021. Our funding costs have already marginally moderated, and that has allowed us to maintain our spread at about 2.7%. I had communicated to all of you at the beginning of the year that we had briefly paused our dividend payouts to conserve liquidity to ensure that the period of repair is shortened. And we have tremendous strength or added strength through the period of transition. Now the earnings having stabilized, the period of repair being behind us, I'm happy to announce that the company's Board has approved of an interim dividend payout of INR 9 per share, and I'm quite confident that as profitability increase so will the dividend payout. Moving on to Slide 4. Here, we have detailed the business goals the company has achieved during fiscal '21. The 3 important pillars the management has worked on during fiscal '21 to fortify the company's balance sheet are: one, capital adequacy; second, liquidity; and third, asset quality. I will cover updates and progress on these 3 pillars in the next few minutes. In fiscal '21, the company has raised a total of an equivalent of USD 550 million. This is the highest amount of equity capital raised within our peer set of AA rated NBFCs. As a result of the capital raise, our capital adequacy stands at 30.7%, and our gearing stands reduced to 3.4x. To put this 3.4x in perspective, then in 2017, we were upgraded to AAA. Our gearing used to be 2x of this, at 6.5 to 6.8x. Our asset quality has remained stable, and this has been an area, which has taken an enormous amount of management bandwidth through fiscal '21 despite it being a period of acute macroeconomic stress, brought about by the COVID-19 pandemic and resultant lockdowns. Our net NPAs have actually declined to INR 1,285 crores from INR 1,517 crores in quarter 1 fiscal '21. We have had credit costs within our guided range, and credit costs for the year have come in at 1.1%. To further fortify our balance sheet, we have built up total provisions, which are as much as 2.7x of the regulatory requirement and equivalent to a healthy almost 4% of our loan book; to be specific, 3.7% of our loan book. As further detailed on Slide 6, our gross NPAs as of the end of March '21 are 2.66%, while net NPAs are at 1.59%. This is despite the fact that the company had degrown its book. Had we not degrown our book, the gross NPAs which are at 2.66% would have actually been 2.31%. Our outstanding retail book, which is the core area of focus of the company, is now well-seasoned with an average vintage of the book of almost 4 years, 45 months to be precise. What this implies is that these loans have run down, the borrower's equity has gone up significantly in the finance property, and the loan to values have come down. Plus there is a lot of equity and a lot of significant upside for the borrower to continue to service these loans in a very honorable manner. This vintage book should be one of our biggest strengths through this tough economic phase of the second wave of COVID-19. Our collection efficiency was more or less normalized in the month of April as well. It moved only marginally from March. Logistically speaking, we do not see much impact of employee unavailability. With the grace of God, of our total collections team of over 1,300 people, only 46 employees got infected by COVID-19, of which 21 have already recovered. So of a team of 1,300, only 25 are at this moment indisposed. We are taking care of our employees, and I'm sure they should also be back very quickly to join the force. Our strong provisioning pool seasoned retail portfolio and strong demonstrated recovery capabilities will ensure that the asset quality will remain stable as it has through a very, very tough phase of fiscal '21. And I'm quite sure that we should be able to manage with a credit cost of between 1% to 1.25%, in line with the 1.1% credit cost that we witnessed in fiscal '21. A big win for us in the last few months was the revision in our rating outlook by CRISIL to AA with stable outlook, from a previously negative outlook. After 2 years of a negative outlook on our credit rating, the rating has finally stabilized. This gives comfort to our lenders, brings down our cost of funds. And the company's management is confident that we are now on a rating trajectory where the momentum should be towards the upside. On Slide 5, we present the elements, which will be at the core of laying a strong foundation of our retail asset-light model. The retail asset-light model relies on strong partnerships, a low operating cost base and tech-enabled distribution. We have been on a path of consolidating our wholesale loan book in this whole model of repair and transition for the past 2.5 years, with the exercise gaining immense traction in the second half of fiscal '21. Just in the month of March, we had seen as much as INR 2,000 crore reduction in our wholesale book, thanks to the highest ever sales tractions in the projects of our wholesale borrowers, leading to highest ever collections in escrow accounts of our projects, which are financed by us. This has put us firmly on track to reduce our wholesale book by the guided 33% by March '22. To expand our reach and customer base, we will continue to open low-cost, small tech-enabled smart branches. We opened 8 of them. We are in the process of opening another 42 to complete 50 new branches by the end of the first half, which is September 30. We should have opened 50 new such low-cost, high-tech branches in Tier 3 and 4 cities. We've also been capacitizing our team to ramp up disbursals. And by June, we would have added 500 people over March. We will continue to expand our team to be in a position to disburse INR 2,000 crores of loans per month by March of '22. In conducting a profitable business, a key lever for NBFCs is cost-to-income. While we do not have immediate control on our cost of funds and through periods of time even credit costs, what we can control is our cost-to-income ratio. Our technology-based lending workflow has ensured that we remain at an industry-leading cost-to-income efficiency. In a challenging fiscal '21, we were able to cut down our cost-to-income ratio to 12.8% from 16.2%. While we will invest in both people and technology through the period of fiscal '22 and '23, I expect the cost-to-income ratio to remain in the range of 12% to 14%. The most important strategic area for us to effectively scale up our retail-focused asset-light business was to consolidate our co-lending relationships. In April, we inked a co-lending arrangement with HDFC Limited for sourcing home loans. We already have a functional relationship with RBL Bank for our LAP loans and with another PSU bank. And as we ink one more relationship with a PSU bank for home loans and LAP, now our partnerships are complete in terms of their ability to be able to allow us to offer range -- loans across the risk spectrum from low yield to high yield in both home loans as well as in LAP loans. To cover the third pillar of liquidity and ALM management in some detail. On the pillar of liquidity, fiscal '21 was extremely good, and the company was able to raise over almost $5 billion or INR 34,000 crores across bank loans, bonds, portfolio sell-downs and equity insurances. To put this INR 34,000 crores, our total loan book today is INR 66,000 crores. So that's the quantum of liquidity we've been able to raise through this whole period. On the important topic of ALM management, a topic which is discussed often, and I have also received feedback is that we have a large bond repayment falling due in September '21. I thought of using this forum to inform all of you that of the INR 6,567 crores (sic) [ INR 6,576 crores ] of bonds due for repayment in September '21, as on date, which is 20th of May 2021, we have already repurchased INR 4,340 crores of bonds, which amounts to 66% of the amounts due for repayment in September '21. These bonds sit as our treasury stock. No further monies need to be spent for this INR 4,340 crores of bonds, which have been repurchased. To complete the buyback or repurchase or payment of the INR 6,576 crores, we will only need to spend INR 2,236 crores more. This INR 4,340 crores is not forming part of our liquidity buffer. If you refer to our ALM published on Slide 7, and detailed on Slide 19 and 23, this has been brought out in great detail. If there are any further questions around this, we are happy to answer that. At this point in time, I would like to also highlight that, in total, the net reduction in our borrowings over the course of the last 32 months has been to the quantum of INR 56,000 crores or around $7.7 billion. Despite this reduction of INR 56,000 crores, despite this repurchase of INR 4,340 crores of bonds maturing in September '21, we are sitting on a strong INR 12,000 crores of net liquidity, split between around INR 13,100 crores, which is lying in unencumbered bank balances and unencumbered bank deposits. And we have another INR 1,370 crores -- sorry, INR 1,390 crores, which is lying between government securities, INR 940 crores and INR 450 crores split between bonds, mutual funds and CPs. We had cut checks, issued checks to our borrowers to the tune of INR 2,000 crores, which had not been encashed as of 31st of March. Net of that, we have -- we are sitting on a net liquidity of INR 12,000 crores, which is completely unencumbered, available to us on T+1 basis and does not include the INR 4,340 crores of bonds which we have repurchased. In the backdrop of Indiabulls Housing having raised INR 34,000 crores in fiscal '21, which is over 2x of the repayments for the next 12 months, somehow, again, the feedback that I have received is that a few stakeholders continue to obsess over balance sheet growth as being the most important parameter to define the strength and the future prospects of a financial services company. I beg to differ with them. That's not what Indiabulls Housing stands for. We have an established originate and securitized model as well as strong partners now for co-lending. Who we are is a retail-focused, tech-enabled, low-cost, mortgage origination and servicing platform. I'll repeat, who we are is a retail-focused, tech-enabled, low-cost, mortgage, origination and servicing platform. We measure our success by our disbursal growth. We value our franchise by its scalability demonstrated by the number of customers. We are incrementally acquiring and servicing. The guidance that we give out is that we will grow our disbursals to INR 2,000 crores in March '22 and increase our customer franchise by 1.5x. What we focus on compounding is our customer base, our net interest income, our return on asset, our profit after tax, our return on equity and very, very importantly, our dividends. We believe our sustainability comes from operating on a customer service focused, low-cost platform. Its sustainability is not by increasing borrowings. Perhaps its sustainability is more enhanced by reducing borrowings. To be able to achieve all that we want to, we will do what we do every day, which is invest in our leadership, in our people, in technology and data-led innovation. We will continue to move forward on letting go of wholesale assets and building our retail disbursals. Our strength, as I've said earlier, is origination and servicing of loans. Our partner strength is their access to low-cost granular deposits and CASA. So collaboration is, we strongly believe, the right way forward. Our partners can capably warehouse credit, which is acceptable to them and thus enable mutual earning compounding. While I was at business school, I was taught that the growth mindset relied on perseverance and resilience, and that love of challenge, belief in effort, resilience in the face of setbacks and creative thinking led to greater success. This was my mantra over the last 14 to 15 years that I have been the CEO of Indiabulls Housing. And then uncertain times hit us around 2, 2.5 years ago, and I was wondering if this growth mindset was enough for us to thrive in such periods of uncertainty. Over the last 2.5 years, we were hit by India's Lehman moment, impacted by big motivated blackmailing forces. The nation, the world and Indiabulls was affected by COVID. Yet, we continue to perform, and we performed exceptionally in our belief through fiscal '21 and made the most of it. While Indiabulls Housing has navigated these uncertain times and this very uncertain world so far quite well, we've chosen now that we shall no longer react and navigate. We will create our own fiscal '22, wherein we will thrive in the chaos around us. It's a very strong strength to have a book where the vintage is as much as 45 months. Leveraging on such strength, even if the future remains unpredictable and the world unstable, and we are also a speck in the world, so we remain vulnerable. We are determined to prevail against the odds. We have clarity of thought and goal when pursued, and we are pursuing it with integrity and teamwork and clear communication of what we can and cannot do. With this clear communication, teamwork and clarity of thought, I'm quite sure we will win fiscal '22. Thank you all for your support through fiscal '21, and I look forward to the same kind of support in fiscal '22. On this note, we are now open to questions. Thank you.

[Operator Instructions] The first question is from the line of Kang Zheng Gwee from Tahan Capital Management.

Can you hear me?

Yes, I can hear you. Thank you.

My first question relates to asset quality. So you mentioned that, had Indiabulls chose not to degrow its book, the NPA would have been lower at 2.31%. So can you explain to me what is the difference?

So if the denominator would not have degrown and the numerator would have been the same, we would have mathematically arrived at, hypothetically instead of INR 66,000 crores, we were -- at the same level, we were at, same time last year with INR 75,000 crores. The nonperforming loans of around INR 2,000 crores would have been divided by INR 73,000 crores and not INR 66,000 crores. We have degrown from a peak of around INR 1,25,000 crores to INR 66,000 as part of a stated strategy. Had we not done that, had we continued with those loans, our -- those are obviously very, very good loans, which is why they were able to repay us. So they would not have normally contributed to NPAs, and thus, the number would have been even lower.

Okay. And I observed that even your competitors have reported an increase in gross NPA for home loans. So what is the trend during the first quarter?

As I said, the April collection was reasonably efficient. We were running at about 98.5%, sort of collection efficiency, through quarter 4. That has marginally come down by about 30, 40 basis points in April and has come down further by another 20, 30 basis points in May. So we will still be well north of 97% collection efficiency even in May. But the way things are shaping up like in Mumbai, the city is now seeing fairly low numbers. Even in Delhi, the numbers have declined quite sharply. I'm quite sure that the opening up will begin in June. And within June, we should be able to catch up. Fortunately, logistically, we are not disabled. We have our workforce, which is intact. So as of June, I do not expect any significant impact on our gross or net NPA. And even for the year, as I've guided, our credit cost expectation is that it would be in the range of 1% to 1.25%, much like it was 1.1% in fiscal '21.

Got it. And can you give us a breakdown of your gross NPA between the home loans net and the corporate loan books?

I will not have that handy, but it should be in the ballpark of 50, 60 basis points of home loans, about 100, 125 bps for LAP, and around 7% for the developer book. But my Investor Relations team will certainly get back to you with that specific number.

Sure. And what is the AUM breakdown along those 3 lines?

We've presented that on Page 15. So our -- Ramnath, would you want to take that question, please?

Yes. I'll take that question. So if you refer to the slide on Page 15, so we have retail mortgage loans, which are your traditional home loans. Our -- all of the developer loan book comes in commercial real estate loan portion. Our LAP is split between the CRE portion and the business loans portion. So LAP, which are typically larger ticket size or where we have lent to companies or against commercial property would as per regulatory guidelines be classified as commercial real estate. The more retail LAP, which are to SMEs out of proprietorships would fall under business loans and retail mortgage loans are traditional loans -- housing loans.

Okay. And one point about the corporate loan book. So obviously, you have set up the AIF structure. And can you remind us how many transactions you have done so far apart from the Oaktree transaction?

The AIF structure that we've set up is not for the Oaktree kind of transactions. The Oaktree kind of transaction is where we are trying to raise liquidity. The AIF structure that we've been speaking about, which we want to do with an investment partner, is where we want to put more money to work, leverage on our heavy lifting capability of originating loans, credit approving them or proposing for them to be credit approved and then managing them. That's a separate topic. That's a structure and a format, which is still work in progress. We've done -- along with Oaktree, I think we have done 3 type -- 3 such transactions and 2 more transactions are underway, which should get concluded in the next 2 to 3 months.

And one last final question. So obviously, the dollar bond is coming due in 12 months' time. So what is the company's plan for that?

Yes. So I'll just address that. One second. I've addressed in great length the September maturity. There are 2 other repayments, which I can spend time on. One is in October, which is a $200 million ECB maturity, and then in May '22, there is a $350 million dollar bond maturity. We have no plan to refinance these at this point in time. Our ALM is very robust. And thus, there is no need to refinance, as was the case when we repaid $167 million earlier in fiscal '21 of ECBs and roughly INR 315 crores of Masala Bonds in fiscal '21. We will just pay this out of our liquidity buffers. As I'd mentioned earlier in my comments, on a net basis, we have repaid a dollar equivalent -- rupees equivalent in dollars of $7.7 billion or INR 56,000 crores. Our very clear goal is that we are not focused on balance sheet growth, we are focused on NII compounding we will originate and securitize, or we will co-lend. Thus, any repayment, which will come, which will -- is already captured in the ALM. If we look at our ALM, as has been detailed on Slide 7, we will have a net cash positive balance of INR 13,517 crores after 1 year. We've also raised around INR 34,000 crores in the last 12 months. So if we had to just repeat what we did last year, which is today's INR 34,000 crores. We have liquidity of INR 12,000 crores sitting with us today, that is INR 46,000 crores. We will have all dues of, I think, INR 16,000 crores, INR 17,000 crores, which is left to be repaid. After that, also, we will have access to roughly INR 29,000 crores, from which we can do our disbursals, et cetera. This is not factoring in customer repayments, which are coming in to the extent of around INR 10,000 crores. So we will have, if all goes well, and even if it goes as well as it did in fiscal '21, whereas fiscal '22 is expected to be a better year, we will have access to something like INR 39,000 crores after making good all repayments. So we are in a very, very comfortable liquidity position. And I thought we should put this conversation around liquidity behind us. We should -- having done what we have done in terms of creating the fortress balance sheet around capital liquidity and provisions, I would imagine we should put that behind us. And now the company should fully focus on growing its disbursal, while it has to continue to spend a lot of time in making sure that the asset quality stays stable.

The next question is from the line of Hariharan from NWI.

Gagan, congratulations. What you've accomplished over the last 16, 18 months is spectacular, and the resumption of the dividend was also, I guess, a big accomplishment. So well done. Just -- I have only one question. The announcement regarding your co-lending deal with HDFC, I mean that was very interesting that the largest housing finance company chose to partner with you in terms of -- but there was some concern as to what the terms of engagement in terms of risk acceptance criteria would be. Whether -- maybe you can comment a little bit as to the extent you can as to the understanding with HDFC and that in terms of your ability to be able to originate assets, which meet common risk acceptance criteria, that's in good shape. That's one. And secondly, how does the HDFC co-lending -- how is it going to reside with what you've indicated previously that you're also talking to other entities, both domestic and international, including the possibility that there might be more than just an originate and sell model with some of these entities, there might even be the possibility of equity stake by some of them, et cetera. So maybe you can comment on those 2 things.

Okay. Thanks, Hari. Thanks for your kind words and your support. I'll just elaborate and clarify that the co-lending model with HDFC or for that matter with Ratnakar Bank or the two public sector banks, one, which is in play, the one which is going to come into play very shortly, is basically all the same. The way that it works is that there is a common accepted credit policy, and there is a standard operating procedure, along with a pre-agreed application form. The customer is sourced by Indiabulls. Based on the common credit policy, we do a soft approval. We propose to -- and at times, even do the hard approval. This -- there is this one small nuance between the 4 different partners. The credit, which is acceptable to the co-lending bank or co-lending NBFC, is completely their choice. We expect that 99.9% of what gets approved by us should get approved by them because it is all being decided as per a commonly agreed credit policy. And there is enough flow of data before we arrive at a decision. But I must clarify that the credit decision, our credit decision is not necessarily going to be accepted by them. We do a soft approval, they do a hard approval. Therefore, what we are trying to do is leverage on their warehousing capabilities because they have access to deposits. In the case of HDFC, in the case of banks, they have access to both deposits as well as CASA. So they have that granular deposit base, which is also low cost. We have the ability of being able to address the self-employed segment. We have the ability of being able to go to Tier 3, 4, 5 locations and do that business in a low-cost model. So that is the strength that we bring to the table. The commercial arrangement is, and one has been very mindful of that, that one is not trying to generate a large upfront fee income. The processing fee is ours. Any third-party products that we sell, the commission from that is ours. But what we are emphasizing on is through the life of the loan, every month, we should earn a trail income, which is a spread on the 80%, which resides on our partner's book. On the 20%, which resides on our book, we obviously earn a spread. So a sum total of the processing fee, the third-party product sold or bundled with the loan, the fee coming out of that, the trailing income coming out of the 80%, which is residing on our partner book as well as the spread on our 20%, all 4 of these combined is the income that we will be generating from this. Now when a loan goes bad, if it does, then the risks get shared on a pari passu basis. 80% of the risk is of our partner, 20% of the risk is ours because that's the ratio in which the loan is residing. There is no first loss guarantee. There is no credit enhancement. If a loan goes bad, it just goes bad. It is a self-correcting market. So if a large number of our loans start going bad in the bank's book or in our partners' book, it cannot do much about the past, but it will obviously curtail the co-lending arrangement for the future and not source more business or curtail the credit policy such that we can only source a certain type of business. I hope this has clarified on the co-lending arrangement. Now moving on to the AIF structure. That AIF structure will be for wholesale loans. As I've been saying, the first priority of the company is to -- was to finish the repair and transition phase. The repair phase is certainly over. The transition phase continues. As part of the transition phase, the big goal that we have set for ourselves is to get to a disbursal number of INR 2,000 crores of retail disbursals per month by March of '22. As we steadily make progress towards that, we will also start devoting energies in trying to concretize on the various partnership proposals that we have on our table as far as the AIF is concerned. Given the fact that we have been able to reduce on an absolute value basis, our wholesale book by 50% in the last 30 months. People are seeing a lot of -- global investors are seeing a lot of value in the book that we have created. As I was mentioning a short while ago, we've also partnered with a few of these investors to arrange for liquidity, but the same investors have also seen our book and are appreciative of the assets that we have, which is why we continue to do these transactions. So either with one of them or others, we will set up an AIF. We will set it up towards the next quarter and have it operational from the second half. Over the next few months, we would like to devote all our energies in scaling up our retail disbursals. As and when, there is -- the third part to your question, the equity partnership. As and when there is an equity transaction, and if that is to be in a strategic partner or a strategic investor structure, with most of the strategic investors that management is in touch with, they're completely in sync with the fact that the future of mortgage lending in India is a collaborative structure where there is a marriage between the distributor and the warehouse. There is no point of the distributor being the same as the warehouse. This is what happens in the U.S. and most developed markets. Very few banks keep assets on their balance sheet. Most nonbanks don't keep any assets on their balance sheet. They are preapproved loans. We are trying to evolve to that structure. India is perhaps half a decade away, but we are taking the lead in that. All the equity investors, strategic investors are appreciative of this. So as far as the retail structure is concerned, there is going to be no rethink on that. Certainly, the kind of investors, who are talking to us, also have their own real estate funds, which is why the AIF strategy may marginally change. On the retail strategy, there is going to be no rethink.

The next question is from the line of Craig Elliot from NWI Management.

First of all, congratulations again on great results. And I'm especially impressed with the maintenance of asset quality during the last year and even during the last couple of challenging months. Now would you give a -- clearly, you -- that's key to success, you outlined, including a good vintage in loan-to-value on the -- in your book and a very strong collections team. Now could you just give a little more color on, do you see these components and maybe some other components as being sort of a sustainable competitive advantage in that area of asset quality? I'd just like to hear a little bit more about that, please.

Sure. Thank you. So for the most sustainable part about asset quality as far as Indiabulls Housing is concerned and the same is true for anybody else whose book is largely secured by property is that unlike unsecured loans, where the primary dependence is on the income of the borrower, here, there is a lot of comfort, which gets built in, given the fact, that the loan is secured. The borrower is aware that there is a lot of equity trapped. And when it comes to cash flow prioritization, they would always prioritize from their cash flow to service a loan where they have collateral and a collateral, where the equity value is only going up by the passing month. And there is a lot of equity, which is trapped in there. So we are clearly benefiting from the bias of cash flow allocation towards servicing of various loans, a home loan or a secured loan by home -- type of a loan would always get higher priority. The second advantage that we have, which is not as strategically thought out as we are now getting it is, that over the course of the last 2, 2.5 years as we've not grown, the loans which are there on our balance sheet have increased in vintage, and thereby, the equity contribution there has gone up, which is contributing to their more superior performance. It also is a risk -- the credit is extremely well understood by the entire team, be it the credit team or the collections team as well as for the slightly larger loans, the senior management team. So we know exactly what is on our plate, and we are going ahead and working on that. The third advantage is, which is something, which has done us well through the good as well as the bad times is that we are a very early mover as far as the first stage of delinquency detection is concerned. We don't wait for loans to go overdue, within 24 to 48 hours we press the trigger as far as recovery is concerned. Within the first or the second day we go out there and -- of a loan becoming nonperforming, we go out there and start the repossession activity, which is why as much as 72% of the loans, which have gone overdue in the last 4 years, and by overdue, I mean either nonperforming or have been written off, 72% of those loans have already been recovered. And I think that number is by far the highest in the industry. Most of my banking peers would be a fraction of that. So it is a great degree of focus, which has gotten us there. Anecdotally speaking, I was speaking to a private bank, and we were discussing delinquency numbers. And I told them that let's just focus on the pools that you've purchased from me and look at the delinquency numbers there. And the bank's CEO was quite surprised that the delinquency that our pools were demonstrating was 1/3 of the delinquency being reported by in the same asset class, which is home loans, in their own bank. So it's a combination of all of this. I don't have one answer or one mitigant to what we are doing different to be able to have a superior credit performance.

The next question is from the line of [ Prashant ] from SBI Mutual Fund.

Just if you could throw some more light on the asset quality in terms of restructuring or the DCCO extensions or the ECLGS disbursements that you would have done for this year?

Restructuring is 0. ECLGS, I think we've, in total, disbursed INR 187 crores or some -- such very small number. It's been insignificant. And DCCO falls under the same restructuring piece, which is 0. So under the guidelines, which were prevalent before the recently announced guidelines in April, there is practically nothing. As far as the new restructuring policy is concerned, we are in the midst of debating that at the Board level and finalizing it. Once it's finalized, then we will go out there and engage with our borrowers, but what the team tells me is that the way that borrowers are looking at is that if we are eventually going to get reported as restructured, we may not categorize as NPA, but it is cosi NPA. So we may as well live temporarily with a marginally overdue status rather than be permanently build as either an NPA or cosi NPA. That's the way that most borrowers thought of it the first time around. Most borrowers, I believe, will continue with it the second time around also. So -- and it's not something, which is hidden. Restructured loans have to be reported as restructured loans in the Credit Bureau and would remain a matter of record for the rest of the business's life. So I don't see consumer behavior or borrower behavior changing significantly. And as a consequence, I don't see the restructuring number being of any consequence in our book.

Sure, sir. And just since COVID has sort of intensified post April, is there any feedback on the projects in terms of some of the old issues we face like migration or labor issues that will hinder progress?

So a large number of projects continue with construction workforce, which is in the handle of 60%, 65% of what it was, let's say, in Feb or March. We moved early and suggested all our developers to allocate living in space to most of the labor, which they were able to build temporary quarters and make most of these people stay. So construction is going on in most of the projects. I haven't recently ventured out, but from my residence, I see a few of our projects, and I see the cranes moving up and down every day, I keep getting feedback from my team across the country and construction is going down -- going on. But yes, about 30% -- 30%, 35% of the workforce will be lower, as we speak, than, let's say, 2 months ago. But as we witnessed last time, the labor tends to come back very quickly. As I understand, right now, that the numbers at least in metros have started going down. So there would be a positive bias for a lot of this labor to start coming back next month onwards.

Sure. Sure. So with all the collective measures that you mentioned, I believe the Stage 2 from your annual report in FY '20 was around INR 22,500 crores. So that should have been significantly down now, right?

No, we will keep it at that. Otherwise, how will we continue to hold such large provisions. So the important thing as far as Stage 2 is concerned is that it allows you to hold provisions, but there is insignificant slippage into Stage 3, which is what we've witnessed through fiscal '21. So it would be in the absolute value, same ballpark. Otherwise, we would have had to release provisions, which we don't want to. I just guided that we will continue to enhance provisions and run with the credit cost of over 1%. The goal is we are at about 3.7% provisions right now. We should get it to as close as 5%. This is a period of repair and transition. Repair is over. Transition is on. Through this period of transition, if we are able to build a very solid provision base of 5%, then for the next 5 years, management team only needs to focus on business growth and not about provisions and such negative elements which come in from time to time.

The next question is from the line of Deepak Poddar from Sapphire Capital.

I just wanted to understand one, first on the dividend policy. So now [ INR 27 ] we clearly have [indiscernible] 33% dividend payout. So how do we see payout going forward?

So my sense this dividend policy would be also governed to a large extent by what RBI finalizes. That is a proposed RBI dividend policy for NBFCs. So we would, at a big picture, get governed by that. In my view, if we interpret, we would be able to pay out 30% to 40% of profits as dividends. We will do it in a calibrated manner every year. And we will look at what the profitability looks like. You will appreciate these are uncertain times. We've come through very strongly through these last 5, 6 quarters and have been able to transition the business into a very safe and stable sort of a setting right now. So the dividend policy would continue at about 30% to 40%, provided the regulator allows.

Understood. Sir, so now you have restarted the dividend -- paying the dividend. So you'll continue that, right?

Not only restarted, we are also guiding that as the profit of -- absolute profitability increases, the dividend payout will continue to increase. So the -- in value terms, this 9 should be going to 10 and 11 as the profitability increases.

Fair enough. Fair enough. Understood. And then how do you see the growth coming into FY '22? We are just talking a lot about the focus more on the -- not on the balance sheet and more on the...

This is -- fiscal '22, my friend, would continue to be a year of transition. So we will start giving guidance on ROA and ROE in about a year or so. First and most importantly, I want to get to an absolute value of retail disbursals. I want to be firmly on track of being able to increase my customer base 1.5x. Once that is underway, then ROA and ROE are an outcome. Whatever goes into an ROA are essentially 3 things. Cost of funds, we are working towards continuously improving our credit rating. Credit costs, credit costs are stable. Cost/income, cost/income is also fairly good. On ROE, while we are not encouraging a model of massive leverage, but by having a lot of loans, which will be residing on our partners' balance sheet, we will be able to get that effective leverage. So on both ROA and ROE, the model is in place to be able to get to mid- to high-teens of ROE and around 2.5% sort of ROA. But is that immediate priority? No. The immediate priority is clearly to ramp up the retail disbursal and increase the scope of that franchise.

Fair enough. I understood. Sir, how do you look at the share of on-book and off-book? So what share we are looking to maintain over maybe next 1 to 2 years?

In the initial year, it will be largely originated and securitized, which would be 80% of what we do, which will reduce to -- so fiscal '22, 80% of what we do will be originated and securitized. By fiscal '25, it will be 60% of what we do. So that 80 to 60 migration is something that we have to achieve over the next 3 years.

Fingers crossed. And securitization to 60% over the next 2 to 3 years, maybe?

Yes. I'll just take one more question and then we can...

The next question is from the line of Pranav Tendolkar from Rare Enterprises.

Congratulations for managing through this crisis. Sir, so when you said that 20% of the loan will be on my balance sheet. Will you be finishing every loan or will there be a pool of loans?

It is every loan. So every loan, 20% is on our balance sheet, 80% is on our partners' balance sheet. Every loan is approved by the partner. There is no pool concept. The pool concept exists in securitization, not in co-lending.

Clear. The second is that, 8 branches that you have opened, high-tech branches, you are going to open by H2. Can you just explain what happens to these branches? What is the economic spend? How is the disbursement per bank? What are the is that you are tracking banking?

These are small 200 square feet, 2 people on the third, fourth floor of building sort of a branch, where these 2 executives are essentially supposed to only come in, scan documents if the customer is unable to scan directly and upload. And if there is any servicing-related requirement, there is somebody that the customer can physically reach out also. That's all that happens in that branch. It is not a credit branch or branch through which checks are being disbursed or any massive storage is happening. it collect the property papers and on the same-day basis, they will dispatch it to head office. It's essentially a sales and servicing unit.

Right. Great. Sir, this INR 2,000 crore run rate that you're seeing about so INR 400 crores will be effectively on our book, out of that, and the rest of the...

INR 2,000 crores is disbursal, of which 80%, as I said, would be in an originate and securitized model. So at the start, INR 1,600 crores will be on my book, INR 400 crores will be in the co-lending model. Of that INR 1,600 crores, it will be continuously getting churn. So the stuff that I'm doing right now will get securitized in a few months. That month's book will stay on book, but the book of 12 months ago would keep getting securitized. So ultimately, the model is that every loan that we do, we do only with a perspective that it has to either get securitized or it is done in a co-lending model.

Right. The last question on the project loans that we have. Sir, in this case, is there any more amounts that are going to happen? And can you quantify roughly amount that could be, say, sold down to in the 6 months or 1 year? That is one. And second is, whatever...

We are looking at a INR 4,000 crore transaction to happen in the next 60 days around wholesalers.

And whatever stays on our book, how has the collection team -- what is the percentage completion of those projects? Can you just give some more color, so that we get more confidence that this book will be in a design phase.

The proof of the pudding is, what has happened, if any of those projects required much of support, the easiest thing for us to do was to restructure them, which we have chosen not to. I basically carry so much of provision, even that would not have come in the way we could have easily restructured them, instead of 6%, 7% provision, we could have increased it to 10% provision. So we did not want to restructure any loan. Those loans are self-sufficient. We've continued to deploy a lot of capital through them. I would imagine, on an average, if I was to do a book, then the book will be at about 60% project completion. Thank you, everyone, for your support, and I hope you and everyone in your family and your organization stays safe. At Indiabulls, we are trying our level best to support our employees. And fortunately, a large number of those who got affected have already recovered. So I hope everyone stays safe. And I look forward to speaking with you again next quarter. Thank you.

Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.