Sammaan Capital Limited (SAMMAANCAP) Earnings Call Transcript & Summary

Ladies and gentleman, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Indiabulls Housing Finance Limited hosted by Investec Capital Services. From the management, we have with us Mr. Gagan Banga, Vice Chairman, MD and CEO; Mr. Ashwini Hooda, Deputy Managing Director; Mr. Mukesh Garg, Chief Financial Officer; Mr. Sachin Chaudhary, Chief Operating Officer; Mr. Ashwin Mallick, Head Treasury; Mr. Ramnath Shenoy, Head IR and Analytics; Mr. Veekesh Gandhi, Head Markets; Mr. Hemal Zaveri, Head Banking. [Operator Instructions] Please note that this conference is been recorded. I now hand the conference over to Mr. Gagan Banga from Indiabulls Housing Finance Limited. Thank you, and over to you, sir.

Thank you. A very good day to all of you, and welcome to the earnings call of quarter 3 of fiscal '21, '22. I hope all of you and your families are doing well and are safe. At the beginning of the new year, I was reflecting on the year gone by, [indiscernible] accomplishments and the progress Indiabulls Housing made in 2021. As we started 2021, I was cautiously optimistic and besides the adversities believed that all will be well. Now that we are in 2022, I'm actually pleasantly surprised with the progress Indiabulls Housing made in 2021. Some of the key accomplishments of 2021 include transformation from a design stage to now a maturing asset-light, retail-focused business model, Operationalization of the AIF platform for wholesale loans within the current quarter, the continuing institutionalization of the company and continuing to maintain a fortress balance sheet despite all the adversities around COVID and everything else that fiscal '21 stood for. I would request you now to please refer to Slide 4 to 8 of the earnings update. The company has spent the last 3 years in realigning its business model to the changed realities for NBFCs in India. We came to a realization that a successful housing finance business will have to go through a cyclical shift wherein asset-heavy balance sheet and high leverage levels will have to transform into leaner balance sheet by following an asset-light model of business. As we made this entire design, there were more skeptics. There were also several critics, but we kept our focus, over the last 3 years, very tight towards consolidation of our balance sheet, and, as a result, strategic derisking of our balance sheet. Since September 2018, on a gross basis, Indiabulls has successfully repaid roughly INR 88,000 crores of money to the system. As we did this, we have successfully delevered from a net gearing of over 7x in FY '18 to below 3x now. With the real estate sector showing strong upward trajectory, we are firmly on track to reduce our wholesale book by 1/3 by the end of this financial year vis-a-vis fiscal '21 and by 50% by the end of calendar '22. Hereon, this will be achieved through internal accruals, that is sales and collection at the various projects, and we will not need to resort to any of the expense structure deals that we have done in the past. In fact, I'm very happy to inform that the structured deals that we had concluded 1 year ago which should have had a very nominal runoff in 1 year, has seen a rundown of as much as 45%, with the buoyancy being witnessed in the real estate market. This is a very good reflection of the quality of our wholesale assets and also the liquidity of these assets. During this phase, we have shifted our focus to transforming Indiabulls Housing to an origination and servicing machine, by building the technology-enabled cost-efficient asset-light business model, which operates on low leverage, yet provide such strong base for mid- to high teen ROE. I'm happy to inform that within months of starting and transforming this business and taking it to some scale, we are already back to being the third largest mortgage originators within housing finance companies in India. Under this model, our net gearing will stabilize around 2.5x as the new book starts adding in and will remain stable at these levels as the incremental business will be done in an asset-light model. We also, over the course of the last 3 years, enhanced the process of institutionalization of the company. Now as we execute its strategy of Indiabulls 3.0, we have a 3-track road map ahead of us for fiscal '23 and beyond. The first track is to continue to mature our retail-focused, tech-enabled, low-cost distribution model through core lending and securitization in partnership with banks and other financial institutions. We have been very careful in selecting our partners, and I've only gone with such partners where there is a strategic fit and we bring something which is extremely valuable for our partners. We will revert back to pursuing growth, but in an asset-light model, and we expect a 15% AUM growth in fiscal '23. Our focus through our asset-light model is to regain our position as a large originator of loans and drive total loan assets under management rather than balance sheet growth. As I mentioned, we are already back to being the third largest originator amongst HFC, and we can continue to grow this scale. There's a large opportunity in the mortgage industry and the macro for housing has changed after 8 to 9 years. Over the past 1 year, we've been working hard to establish and operationalize our co-lending relationships with partner banks and financial institutions. In line with the revised guidelines around transfer of assets as well as co-lending, I'm happy to inform that in quarter 3, we did business with each of our 7 lending partners, and did as much as INR 1,573 crores of retail co-lending at an impressive return on asset of 3%. For fiscal '23, we already have a contracted demand for INR 20,000 crores of co-lending assets from our partners. This establishes without doubt the scalability of the co-lending model. We achieved total retained disbursals of roughly INR 2,800 crores in quarter 3 fiscal '22, on a run rate of a little over INR 900 crores per month. We are scaling up our branches and sales people. And we are on track to disburse retail loans of roughly INR 18,000 crores in fiscal '23, which should further scale up to INR 24,000 crores in fiscal '24. These disbursals will be done in a ratio of 70:30 between home loans and LAP. Of the total loans disbursed, only about [ 15% ] of the loans, on a longer-term basis, will stay on our balance sheet, fulfilling our asset-light growth objectives. We continue to focus on our physical distribution, which is driving on evolving India. With this backbone or simple yet scalable [ tech you are taking ] for our employees and customers to go deep into Bharat. Over the past 4 quarters, we have continued to expand our reach by increasing our branch network in Tier 3 and 4 towns through opening 29 technology-enabled smart branches. We are now in a position and are tracking to add 50 such technology-enabled smart branches by the end of fiscal '22. We've also successfully, over the last 2 years, completed a test phase for 2 new products, Smart City Home Loans and Smart City LAP Loans, which cater to the home loan and LAP requirements in Smart City and Tier 2, 3 and 4 towns of the country. These are smaller ticket loans. For example, home loans will be in the ballpark of INR 10 lakhs. Indiabulls Housing -- and would be operating at a yield of 12% to 13%. Indiabulls Housing will launch these products at a full scale in fiscal '23, and we aim to disburse INR 2,000 crores in the next financial year around the Smart City products. Having operationalized our retail co-lending model, the second track for us is to now focus on operationalizing our wholesale co-lending through an AIF platform in partnership with 3 global real estate focused funds. One of it is also a global institutional stakeholder who bought a part of our promoter stake. The AIF platform will be filed with the study in quarter 4 fiscal '22 and will be launched in quarter 1 fiscal '23, subject to receipt of necessary regulatory approvals. The platform will focus on lending to commercial real estate to task the LRD opportunity, construction finance for residential and commercial projects, investing in the stressed asset opportunity and providing mezzanine finance wherever the opportunity presents itself. Year 1 goal is to do INR 15,000 crores, year 2, INR 20,000 crores. Of this, 10% of the capital will be provided by Indiabulls Housing and the balance will come from our partner bank. This platform, on our capital invested, will generate an ROA of over 4%, 5% for the company. We have undoubtedly been in the repair and transition mode over the last 3 years, which may have perhaps to our -- especially to our skeptics, given the impression that we do not know what we are doing. Over the course of the last 3 years, we've been focusing on ensuring that we continue to maintain a robust and fortress balance sheet. And at the same point in time, create a base, not only around capital provisioning, et cetera, but around a business model, which does not remain vulnerable to interest rate and liquidity cycle and does not wobble every 5 years, which has been the case with NBFCs in general in India. We've turned the corner, and from fiscal '23, we will be in the transition and growth mode. In fiscal '23, we will be focused on resuming profit compounding, which we did extremely well for 10 years between 2009 and '19, and we believe we can get back to a decade of 15-plus percent annualized profit compounding, maintaining an ROA of 3% plus across all of our products. This 3% ROA is not something which is based on an excel sheet model. This is something that we are actually achieving on a flow basis through our retail disbursements today. The retail disbursals are for real. The disbursals around co-lending is for real. The contracted demand is for real, and this gives me confidence that the growth plan of 15% for fiscal '23 should also, in reality, workout. Just to make sure that all our stakeholders are aligned with the way that our Board and the management team are working, we will measure our success by our retail disbursal growth, our ability to generate an ROA of 3% plus and the value of our franchise by adding around 250,000 customers over the next 2 to 3 years, and, in the process, build a highly sustainable, customer service-focused, low-cost platform. While we pursue both the tracks, we will continue with the exercise of derisking the balance sheet through a reduction of the legacy wholesale book. The wholesale platform that we are setting up in the AIF structure will facilitate that process. The macro momentum on the real estate side would also further facilitate that process. And we should be able to complete a 33% reduction by the end of this fiscal over where we were last year. The third track is to continue with the institutionalization of the company, to transform it into a Board-led, professionally managed company, with best-in-class corporate governance. The institutionalization process began around 3 years ago when the wider Indiabulls Group decided to move out of the real estate development business, as a step to move forward with the founder, relinquishing the Chairmanship of the Board, which is now resumed by Mr. Mundra, the former Deputy Governor. As a step 3, the Board was strengthened through the induction of new independent directors from various walks of life who are all extremely distinguished and experienced. As the next step, all of our various growth subcommittees were chaired by independent directors and are dominated by independent directors. So [indiscernible] audit the risk management, the ESG, they are all chaired by independent directors with relevant experience. As a further step, Mr. [indiscernible] also reduced his stake in December '21, which was bought by a group of marquee global institutions such as Blackstone, [ RBI ], et cetera. As a next step, such significant institutional investors will be offered board seats, thus bringing direct institutional oversight into the operations of the company. Subject to receipt of requisite approvals, we will conclude the process of de-promoterization of Mr. [indiscernible] in calendar '22. And through calendar '22, we will continue to engage with strategic investors to bolster capital and advanced credit ratings. Indiabulls Housing has a bias for action. And we all know that preferential transactions, et cetera, had their own regulatory issues, especially for companies trading below book value. So rather than stay in the realm of theory, we decided to move ahead and make a very, very concrete and perhaps the most important step towards the institutionalization of the company. We are in a very clear and comfortable position as far as capital is concerned, yet we remain engaged with strategic investors. And I am highly confident that with the new ownership structure, we are in a very, very good position to be able to figure out a new structure, which should bolster the capital and, as a result, enhance our credit ratings within calendar '22. Our partnerships with various global funds will only help us in facilitating this process. In order to get third-party validation, we are also voluntarily applying to be part of [ NFC clients ]. We set the norms that describe corporate government standards stricter than the expense requirements for NFC-listed companies. The [indiscernible] has been approved by the Board of Directors in today's meeting. Our ESG Committee is now engaging with both S&P and Sustainalytics. Our Board has also approved that through the course of calendar '22, we will be issuing INR 5,000 crores of sustainable bonds, which will have second-party conformation from Sustainalytics and one of the big [indiscernible]. The existing management team will continue to run the company. It has been beefed up with new talent around IT and IT security besides compliance. And together, we will continue to drive the new asset-light business model. The 3 tracks will govern the way we operate from fiscal '23 and beyond. And I'm quite sure that we will continue to build on our position as the third largest originator to become one of the largest originators in the mortgage industry in general. I'll just go over the headline numbers for the quarter before we conclude, if you can refer to Slide 3. As at the end of December '21, our loan book stands at just under INR 61,000 crores. Our assets under management stand at just under INR 74,000 crores. Our AUM has been on a decline as we look to consolidate our wholesale and high-ticket assets in order to derisk the balance sheet, and to that end, quarter 3 was a phenomenal success. This initiative gains traction on account of favorable macro and resulting cash flows from projects of our borrowers, which has helped us in reduction of these assets through self liquidation rather than having to resort to any meaningful structured transaction, especially in the last 2 months. We are firmly on track, as I mentioned, to continue to reduce the wholesale book. But at the same [indiscernible], I would say that we are now at the fact end of our AUM consolidation process. And from fiscal '23, quarter 1 itself, this should start growing at an annualized rate of around 15%. Our capital adequacy provides us [ 31.2% ] with Tier 1 capital of 25.7%, provides us with a great way to achieve this growth. The net debt to equity of 2.8x makes us fundamentally very, very strong. And the profit after tax stability that we have achieved over the last 4 quarters has made a very good base for earnings to also start compounding from fiscal '23 onwards. If we can move on to Slide 9 now, please. The company has aligned its definition of default from EMI outstanding today as we approach as per the RBI guidelines. This has had a marginal impact on the financial results of the company. The increase, as I mentioned at the start, is technical in nature and will get rolled back over the next 2 to 3 quarters. Our total provisions continue to be extremely comfortable at 4.5% of loan book, which is over 3x of the regulatory requirements and almost 120% of our gross NPA. Besides low gearing and high capital, high provision cushions places the portfolio in a strong position to negotiate any macroeconomic uncertainty, and, at the same time, provides a strong base for growth from fiscal '23 onwards. The company has seen strong recovery in the last 2 quarters. And on the back of the pickup in the real estate sector, the company expects this trend to continue through quarter 4 fiscal '22. Overall, our portfolio performance has been fairly stable. We've not had to do much of restructuring and only 0.25% of our loan book is under the restructuring framework of 1.0 and 2.0. Under the ECLGS scheme, we have disbursed loans of only INR 204 crores till the end of December 21, which is equivalent to only 0.33% of our loan book. We believe our strong provisioning pool, the seasoned retail portfolio and our strong demonstrated recovery capabilities will ensure that the asset quality will be maintained in a fairly tight range from where it is right now. Moving on to the next important pillar of our operations, especially given our focus on maintaining a fortress balance sheet, is liquidity and ALM management. On Slide 11, we have given the details of the money we've raised in the 9 months of fiscal '22. We raised a total of INR 18,500 crores through various institutions. These include over INR 4,000 crores of long-term loans, INR 7,500 crores of loans between 1 and 3 years. Most importantly, through the course of this fiscal year, we have started the -- restarted the process of retailization of our liability franchise. We successfully done public issues totaling to INR 1,345 crores thus far this year. And we will look to do at least one more issue in the current financial year. This should be a steady source of public sort of funds of around INR 2,000 crores every year. Through securitization and loan sell-downs, we have raised around INR 4,600 crores. We've also raised equity and quasi-equity through FCCB transactions. And our stake sale in OakNorth Bank, which earned us an IRR of over 48% in 6 years. Our funding program is coming back on track. The public sector banking fees had already come back on track. I'm happy to inform that 3 private banks also joined the consortium last quarter. And on the back of the various capital raise initiatives, equity, quasi-equity and debt, the rating agencies were kind to change the outlook of the company to stable, which has resulted in our lead bank reducing our rates by 100 basis points. Given our proportion of bank term loans and working capital facilities, we expect other banks to follow soon, and over the next 90 to 120 days, which should result in our overall cost of funds dropping by 50 basis points. This is a great hedge to have in and otherwise could have an unfavorable rate cycle. Along with the ESG ratings from Sustainalytics, the company has also developed a sustainable financing framework. And as I mentioned earlier, through this year in calendar '23, we look to issue around INR 5,000 crores of sustainable bonds in domestic and, perhaps, guidelines committing even in the international markets. As at the end of September, IBH had a liquidity buffer of almost INR 9,000 crores or roughly 15% of our loan book. We've also voluntarily created a reserve fund for the dollar bond maturing in May '22. We've already transferred INR 2,048 crores, totaling to 75% of the total maturity proceeds. And we are extremely comfortable as far as this particular repayment is concerned. The company has, in the past, done bond buybacks. In this particular case, it has created a dollar reserve fund, and we will continue to undertake such proactive management of ALM to utilize a strong capital position, comfortable level of liquidity and to provide comfort and confidence to our bondholders and the wider capital markets to further strengthen our credentials. As for RBI's master directions for housing finance companies, we were supposed to start maintaining a 50% liquidity coverage ratio based on tightly defined high-quality liquid assets. Against the 50% required by the regulation, we stand at 393%. Mind you, these are just high-quality liquid assets. The actual quality -- liquidity available to us is INR 9,000 crores. And even stuff which is invested in overnight funds, et cetera, is excluded out of high-quality liquid assets. Our tail end as of the end of December '21 is published on Slide 10. Our detailed 10-year quarterly ALM is also in the appendix slides, and we have a positive net cash of INR 10,464 crores at the end of first year. Moving on to Slide 12 and 13. During the last quarter, we have laid down objective target for the company over the next 10 years to -- for our ESG best practices. We have engaged with Center for Environmental Research and Education to assess our current environmental footprint. We've also partnered with ESG rating from Sustainalytics to develop a sustainable financing framework. And this is a way forward for that and a huge area of focus for the company, for which our EAG subcommittee is regularly monitoring us and on a quarterly basis, updating the Board. To conclude, I would like to reemphasize that the management team has embraced the following operating metrics to be the key parts through which we will measure our success. And hopefully, the market would also value and measure the success of our franchise. We believe our enterprise value on a longer-term basis will be driven by the quantum of retail disbursals that we do, the ROA that we generate out of that and the expansion of customer franchise has retained numbers and targets around each of these 3. The other important thing in order to make sure that we sustain our 3% plus ROA target very comfortably is to buffer it with a 5% product -- 5% ROA product, which comes in via [indiscernible] platform. We are fairly confident that this platform will be operational within a quarter. Institutionalization of the company and the transformation that -- journey that we had begun 3 years ago is continuous. And through calendar '22, be it the de-promoterization process or the bolstering of capital through a strategic transaction, would continue to remain areas of emphasis for the senior management. And we will continue our focus on maintaining a fortress balance sheet that can't be compromised or made less emphasis on at any point in time. And for that, we would continue to rely on the pillars of strong capital adequacy, high provisions and high liquidity. This brings us to the end of this presentation. The IBH management team is now open for questions. Thank you.

[Operator Instructions] The first question is from the line of Craig Elliot from NWI Management.

Congratulations on the great results and great progress over the last quarter and the past few years. I really like the crystallization of the solid 3 track road map. As you know, we, at NWI, are long-term supporters and we count ourselves among the biggest fans. One of the things we want -- just want to pull up for a brief discussion. Credit agencies, besides to your efforts, have finally, I think, started to understand the value and the great progress that you've made across a number of areas. Just wanted to bring up a few areas and get your thoughts on how to help other things that you've been doing to be understood by the broader financial markets, especially the stock markets. The 3 track road map is one, which is very powerful. We understand it as your long-term investors. #2, the de-promoterization, we've always think it as a positive, but perhaps the market is balancing that against having a more diversified shareholder base as maybe not a positive. #3, the asset-light model understood well, I think, again, by us that the can market, essentially the local market needs an education there. I'm sorry for all the points. And #4 is, it seems generally the sell-side research is not following [indiscernible], especially on the equities research side as we think you deserve. So those are some diverse comments and questions. I'll turn it over to you for your quick thoughts on HBI credits, please.

So firstly, thank you for your continuing support, the guidance that you provide to the management team, your encouraging comments. We strongly believe that what we are doing in terms of institutionalization or the asset-light model is the right way for the company to go forward. That said, since we operate in a regulated environment, there is only so much that we can communicate, especially in a silent period. So I believe that, soon after the [indiscernible], we quickly came into a period where December 31 happened, and we could not really engage with stakeholders and explain the way forward. And this is confusion as to whether there is going to be a strategic investor or not? What would the top management look like? What would be the role of some of the investors who have come in? I would like to just give a small -- use this opportunity to give a small example of how relationships grow. From my own personal experience dealing with one of the largest private equity funds, which acquired a material portion of the assets of our associate company Indiabulls Real Estate. That engagement began back in 2017, '18, and they acquired a partial stake of a few commercial assets. 6 months later, they acquired a partial stake of some more assets. Subsequently, they acquired all the commercial assets and eventually, as is common knowledge, they came in and were sort of the catalyst for the eventual merger, which is undergoing between Indiabulls Real Estate and Embassy, in which they would also be material shareholders. As I had mentioned in my comments, at Indiabulls, we have a buyer for action. We can continue to wait for the ideal scenario to emerge or the ideal products, group solution or regulation to emerge, which solves all of our problems at one go. What our experience tells us, especially learning from the challenges some of our peers have also faced, there is no doubt that the NBFC industry has been in a hard place for the last 3 to 4 years. A few of us have tried to transform ourselves and have done so successfully. And I can complement to each of my peers who have been able to transform their businesses successfully. Some others used this as an opportunity and were in a privileged position given their background and have actually meaningfully grown. The sector, in general, has presented to all stakeholders a very clear case that, even though it was back in the day tightly -- sorry, loosely regulated or it had what was called a light-touch regulation, on a broader basis, aside of 1 or 2 bad apples, it has been a good sector. It hasn't given pain to any stakeholder. In our specific case, we have been able to repay to the financial system something close to about $12 billion to $13 billion, which is a phenomenal sum of money by any standards. All of this has set us up in an ownership structure today where any partner is engaging directly with the Board. The free float of the company is such that if anyone is seeking control, it is available without much of resistance coming from anyone. The business model is maturing from a stage where it was in design phase and there were skeptics to, today, where a lot of my peers and other stakeholders are reaching out to us to understand what is the technology deployment that we are doing, and how are we managing to do this scale with multiple number of banks? So all in all, I think, as the franchise value improves, as the enterprise value improves, the probability of the company finding the right sort of direction and the right sort of home also improves. Some participants in the market would look to start engaging with the company on a more continuing basis once we see a clear track record of growth. As you rightly said, while the asset-light model is well recognized and established model for mortgage financing in the Western world, this is not so in the U.S. I was with a large, very well-known fund manager managing billions of dollars of assets, but focused on India. And he did not understand the Rocket Mortgage model very well and which I believe is now the largest mortgage originator in the U.S. doing larger mortgage origination than most of the large banks like Wells Fargo, et cetera. That's the goal. That's where we have to go. That's the opportunity. Fortunately, for us, we have all the financial buffers in place. So we do not have to worry about a transaction necessarily happening for us to be able to grow because we do not have the equity capital. The debt providers are hugely supportive. The company understood, on a longer-term basis, for stability, it needs to adopt the best governance practices, and it is trying to move ahead on very, very sound and robust governance practices to the best of our understanding, and we are forever open to any sort of a suggestion, which is why we are also getting some of our institutional shareholders on the Board of Directors, such that shareholders such as yourself seeing that your peers are there to protect your interest. As we move forward on all of this, there would be a time where, at a much larger enterprise value, we will do some sort of a strategic transaction. Till that time, the senior management team, the top 30 people, who have stuck together over the course of the last 3 tough years, we [indiscernible] to up that team further with a few additional very valuable resources in the departments that we needed. And we are fairly confident that we should be able to do the disbursals of INR 18,000 crores and generate an ROA of 3% plus fiscal '23 onwards. So we thank you for your question, NWI in specific and other supporters in general. And I'm very, very confident that with all of these buffers in place and with the teams together managed by a very, very professional and experienced Board, we should be able to operate and deliver on the operating metrics that I mentioned. Will we be a classic mortgage lender, which is growing its balance sheet? I want to make it abundantly clear for me, a fortress balance sheet is what is a must. I do not believe on a longer-term basis 7x gearing is appropriate. We will continue to run the company at 2.5x to 3x gearing. But in the same breath, I can also assure you that we are very focused on ROE. We have a 16-year track record of giving dividends every year to our shareholders since we got listed. ROE dividend payouts are extremely dear to us. We will, through this model, achieve a mid-teen ROE in the next 2 years. And I'm quite hopeful as we deliver this quarter-on-quarter, as the credit rating agencies have understood this model in detail, as we become more predictable in our earnings, the equity analysts would also start engaging more productively. We've gone through the cycle earlier. It takes a little bit of time, but I'm quite confident that by September 2022, we will have at least 3 to 4 of the global banks or brokerages of the global banks writing on us. We will -- we are always available to them. It's a matter of recall. Some of them will be here, and we will continue to remain available for them. I'm sorry, I took a long time to answer this question, but it was a very important question for me coming from a very important stakeholder. So thanks for your patience.

The next question is from the line of [ Felix Bergman ] from [indiscernible].

First, congratulations on all the progress over the last 12 months, while we hope it's going to be reflected in the stock price eventually. Just one of the questions on disbursement. So you're speaking about INR 18,000 crores for fiscal year '23? And then you mentioned the AIF platform INR 15,000 crores. So does that mean that INR 15,000 crores out of the INR 18,000 crores will be done through this platform? That's my first question. And the other question is more like competitively, why would [indiscernible] in India [indiscernible] versus other banks or the other NBFCs today, if you could give us a little more detail on why you believe you're competitive -- you product is competitive in the market?

Yes. So, Felix -- again, you are a very long-term supporter, and I would like to take this opportunity to thank you. We are -- you've been uniquely supportive to us in the sense that with all of your concerns around India, you've yet continued to have faith in Indiabulls and the management team and thanks for that. You've been involved in our business, and you've seen our growth strategy in the past as well. Up until 2017, in the time that we got upgraded to AAA, we were niche players. On the asset side, we were a niche player, focusing on specific segment in the retail mortgage market, being self-employed lending around home loans or retail LAP loans and so on. And on the liability side, we were unique that we were the largest players in the mortgage securitization market in India. [indiscernible] 2017 because of abundant liquidity, high credit ratings, et cetera, we perhaps made a colossal mistake of rapidly expanding the balance sheet. We are back to basically our basics where we are focusing on specific segments. Fortunately, at this point in time, our scale, which is just over -- just a little over $100 million of disbursals a month, going to perhaps an average of $200 million of disbursals for next year and then subsequently $270 million to $280 million in the year after. As we look to achieve these numbers in the overall context, these are small numbers. We used to do roughly $500 million back in 2018. That is one way of looking at it. The other way of looking at it is that already at $120 million, $130 million a month, we are the third largest mortgage originator amongst HFC. My goal is not to get capped at being the third largest mortgage originator among [ 33 ]. I believe these niche segments allow us to partner with banks and actually become amongst the top 5 mortgage originators in the country between banks and NBFC, especially because we are not constrained on the liability side. Within that, we will continue to focus on specific segments, which will thus do away with the disadvantage that we have on a relative basis on our cost of funds. There are a few of our peers who do lending at 12% to 13%, whose cost of funds are 9%, and they've built very, very good businesses. We believe those businesses need scale. We already have scale. We also have certain segments which we understand within urban India very well and have a track record of having gone through 3 cycles, and thus know exactly what type of a business tends to make it when the tide is high. So we stay away from those credits. Those credits have performed exceedingly well. As long as we don't lose our head and try and, again, go very [indiscernible] and try and compete at what is the 6.5% to 7.5% market right now, that's not the market for us. In the first place, in 2017, we should not have gone to that market. We will never go to that market. Currently, we cater to a market which is 8% to 9%. If you look at our slide, which is Slide #5, we are doing average ticket size of INR 28 lakhs, which is INR 2.8 million, where INR 2.3 million is the average ticket size for our home loan and INR 6 million is the average ticket size for our LAP loan. But look at the Credit Bureau Score, which is the [indiscernible]. We are doing loans which are [ INR 750 ] and above. So these are good quality loans, good quality profile, but the credit appraisal is a little bit more serious than appraising an employee working for a AAA or AA-rated company. These would require a whole lot more of due diligence for which we have to continue to invest in the technology platform such that a large part of that diligence is done more through technology and less through human intervention. And we can provide the last 10% to 15% of subjectivity through the institutional memory that we have built for appraising these credits more efficiently. So that's the segment that we would go behind. Again, on the higher yielding, low ticket segment, we wanted to tread on that product extremely cautiously. Once we make up our mind, then we will scale up that product. Most of our peers in that segment do around $40 million to $50 million per month, which I believe we will start doing in 6 to 7 months from now, that kind of scale. So in order to not rush into that product, we took 2, 2.5 years to test the product, build the book, saw it went -- how it went through COVID and everything else that the macro economy has gone through. And now we are confident that we have the right product with the right cities and so on and the right cost structure where, for doing the INR 10 million monthly disbursal, we don't spend more than INR 300,000. We took 2, 2.5 years to get that model right, and that's the other segment that we would be going behind. With all of this, within the niche, we are very, very competitive. And as I mentioned, our cost of funds, despite the rate cycle, is only headed down. Our credit rating agencies are appreciative of that model. We continue to engage. We continue to focus on bolstering our capital further. I'm sure that would continue to keep us on a positive rating trajectory, which will continue to bring down our cost of funds. But even if those cost of funds are to go down to a level where we can afford to do mass lending, let me clarify again, much like we are not pursuing balance sheet growth absolute mass lending is not for us, and we're not going to pursue that.

The next question is from the line of Amit Mehendale from RoboCapital.

Am I audible?

Yes, sir, you're audible.

Okay. Great. So I have a couple of questions. First question is on the disbursement. I'm referring to Slide 4 where we are looking to disburse about INR 15,000 crores from the AIF. So this is essentially the current wholesale book moving from NBFC to AIF, right? [indiscernible] is my understanding correct here?

No, sir, I'm sorry, your understanding is not correct. As I've clarified a few times in my comments that the runoff of the wholesale book would largely be dependent on self liquidation, which is being facilitated by the robust sales and, thereby, the collections that are happening despite money is being put back into construction. And I was just commenting to my Board members earlier today that if you look around our office and see around radius of 5 kilometers around our office in [indiscernible], a lot of the buildings that we had that are mortgaged to us, which were 30%, 40% complete, today, are at a stage where either they have received occupancy certificate or are in the process of receiving it over the next 3 to 4 months. As that happens, the collections in the actual accounts continue to remain very robust. And our primary go-to for reduction of the wholesale book would be self-liquidation. That is a far more cost-efficient model. The robustness of that model is also [indiscernible] in the fact to the other data that I shared with you that all the structured deals that we did 1 year ago have already, within 1 year, run down by as much as 45%, right? So there is no loan which is contracted for 2 years in the project finance market. So the 45% rundown is obviously a rundown, which is much, much ahead of schedule. The AIF platform is largely for incremental lending. There could be a 20% to 30% contribution from our book, but no more than that. 70% to 80%, at least INR 10,000 crores to INR 11,000 crores out of the INR 15,000 crores that we are talking about would be us going back to the market, booking new loans and restarting that line of income for ourselves, which is a very profitable line of income. Despite the near double-digit delinquency that the wholesale book now sits on because it has run down, et cetera. if you look back in time and see the last 15 years that we have been doing this product, it has been a steady 5% annualized ROA asset class for us. So the asset class has done well despite the fact that in the first half of the 15 years, commercial assets were down in the second half, which is the last 8 years, residential assets have been down. Despite that, the asset class has delivered to us 5% ROA. So it's a very, very profitable asset class to lend to. We've made our mistakes. We've learned from our mistakes. There are other challenges as far as lending to real estate is concerned, which is largely reputational in nature, which, again, would get addressed with the global partner, partnering with you and, thereby, there being nothing very heavy around the loans that one is giving out. So as the combination, the right thing to do is to do this via an AIF platform, especially if the underlying fund is an open-ended fund, which is the structure that we will try to create. And just as a breakup, a large part of the INR 15,000 crore would go to pursue new business opportunities.

Right. Great. And so that essentially means that the growth numbers -- the AUM numbers next year will be quite significant? I mean about 18,000 in retail and about INR 10,000 in AIF, will be about INR 25,000 crores plus type of a number. And from where we are today, it will be quite a substantial growth...

See INR 15,000 crores because we continue to receive at least INR 1,000 crores back every month. And with the enhanced collections in the assets -- wholesale assets on our balance sheet, that book would also continue to run down. So it would be a 15% growth numbers. We very carefully calculated that and thus arrived at that.

Great. And the second question on the sourcing on the retail side. So we disposed about INR 2,800 crores this quarter. Could you share some -- like what are the sourcing channels that we are reading, like some ballpark numbers on how much comes from branches, [indiscernible], digital? So any indicative numbers will be greatly appreciated.

So as customers who opt for a large part of the journey to be digital would be around 40%, 45%. If you ask me strictly digital origination where somebody would go to an online broker and from there would come to us, that's not how real estate purchases happen in India. That's not how we believe they will ever happen in India. So physical presence both of the office as well as at the construction site as well as a network with the brokers for retail transactions. We are currently more focused on retail. We are not so focused on under-construction, or we are focusing on projects which are close to occupancy certificate. And are at more inventory stage rather than an early stage of construction. So here, it's a combination mostly of around 30% of the business coming from brokers from [indiscernible] and the balance 70% coming from our physical presence. Of this 100%, around 40% -- 40%, 45% of the people are today willing to do a large part of the journey digitally, where they don't have to necessarily call our executive to upload their Aadhaar documents or their income statement or their P&L statement or whatever they are happy to upload it by themselves. We are also able to -- today, we're in a position where we don't need a lot of this documentation from the customer, and we can get it from the source itself. So the tax-related information, the GST-related information, a lot of the property-related details we are able to get it from the source itself. So I would say about half of the processing happens digitally, 70% of the sourcing happens by our people and 30% through the [indiscernible].

The next question is from the line of [ Hemant ] from Pegasus Capital.

Congratulation on your set of achievements that have been mentioned on the call. I wanted to check the status of the PIL and whether the affidavits of 2 or 3 agencies are [indiscernible] we submitted to the court?

So the folks behind the PIL will continue to harass us. The good news is that the key agencies, which were supposed to file affidavits or complete their inspections, have all done so, and MCA has filed the affidavit. The NHB inspection, the special audit also got over, and we signed a disclosure around that with the stock exchanges, and it is on our website as well. NHB and RBI worked together on that. So the financial direct regulator, the wider group regulator, those are the 3 key stakeholders. They are all done with their process. Unfortunately, because of COVID, the PIL listing has not really happened. As and when it happens, this is a judgment passed by the Supreme Court. I believe the matter, they've already classified it as infructuous. So the Dehli High Court should also follow suit. That said, those people will continue to irritate us since we went hammer and tongs behind them, classified them as blackmailers, proofed to the world as they are actual professional blackmailers, got the police to investigate and subsequently arrest them and some of them spent quite a long period of time in jail. And now the charge sheets have been signed, and they are facing trials. So they continue to harass us, some FIR here, some complaints there, getting some other investigative agency to look into that, et cetera. To that end, the Mumbai High Court Division Bench, in April of '21, passed a very, very strong order, which said that all of these efforts are malicious and are being done to taint the company. That said, we are in business and these kind of things will happen. Whichever regulatory agency or court or whoever asks us, we continue to cooperate. I am least worried now about these allegations, especially given the fact that the company has gone through a very, very detailed scrub at the regulator level. We have a concurrent auditor, which has been appointed by our bankers who have been in place since October 2019. I believe the concurrent auditor has gone through, as we speak, roughly 98% of the portfolio and has been observing every rupee in and out of the company since October 2019. So anybody who tomorrow gets up and alleges that there is frightening done by the company, it is the duty of the relevant agency to look into that. But as far as we are concerned, we know it's the same thing. It's the same wine in a different bottle and how to swallow it and grapple with it, we know quite well. It's almost like [indiscernible] of the courts. The courts have been extremely supportive. And if there is anybody else who decides to trouble us, we will seek the necessary legal remedy, we will go to the necessary court. We have a very, very strong order, and we can always go back to the court and say that despite your orders, so and so is asking us questions, please clarify. We should get a favorable order. So I'm -- at this stage, on 3 counts; one, this is the scrub; two, this is the current governance framework that we have with the Board oversight; and three, with these engagements that we've had such as either the judicial authority and the kind of support that we have received there, we strongly believe that these are matters which businesses have to deal with in regular course of business. There is not even a 1% risk of any financial loss or liability to any individual or to the company coming out of any of these matters. This I want to state very, very matter-of-factly and put it on record once and for all. Yes. If there is any further questions, we'll just take one more question, and that should be the last question. If there is none, then we can end the call.

We'll take the next question from the line of [indiscernible], Individual Investor.

Yes, sir, please go ahead.

Mr. [indiscernible], your line is in talk mode, please go ahead with your question.

Yes sir, my question is on PIL, which is you commented on that.

Right sir, so as I said, please don't worry. There is no liability which can -- we've done our homework. We've done a lot of hard work. Unfortunately, we work in a country where people don't appreciate growth. We suffered that. We took it on our chin, but the silver lining is that today, our regulators are bankers, the wider government agencies. They understand our business as well as we do. Our bankers have supported us. Our rating agencies have supported us. They've done their diligence and they continue to support us. There would be irritants in the form of these PILs or some inquiry or something or the other. I think every and any company in the country today has to go through this. This is part and parcel of an evolving democracy where our institutions are also becoming more mature. And we have to support as they evolve and they also help us evolve as a business and improve our business practices. A large part of the governance overall that we did was also keeping in mind that we have to draw a line between ownership and management so that whatever are these allegations, which keep coming up from time to time of the past, they never come in the future, and which is why a professionally managed company, run by a professional CEO, assisted by a professional Managing Director and our Chief Operating Officer and the Chief Financial Officer, these are all very high-quality great people that we have and be rest assured everything is in good hands.

Sir, should we take the next question?

Yes, please. One last question, please. I actually have something at 6:45, so we have to end it before that.

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

Congratulations for the great transformation. Sir, when you say that AIF, your contribution will be 10% disbursement out of the total capital -- out of total planned disbursement of INR 15,000 crores, your contribution will be INR 1,500 crores?

Sorry, could you repeat that, please? Your line was a little [indiscernible]?

So out of the AI -- on the AIF platform out of INR 15,000 crores disbursement, when you mean that your contribution is 10%, you will be disbursing something like INR 1,500 crores?

Okay. That is correct. And the ROA that we are computing, which is expected to be 5% is based on our INR 1,500 crore contribution.

Perfect. Sir, also congrats on [indiscernible] efforts, and that's a great change.

So we are open to any and every such feedback. The other important thing is that -- the big picture is that the company has transformed from trying to design a transformational model to something which is actual, the ROA of 3% is actual. These disbursals are actual. The demand from our partner is actual. So on this basis, I would just like to reemphasize that we are fairly confident that we should be back on a growth track from fiscal '23. Thank you again for the patience as we did a fairly painful transformation, but that painful transformation has many silver lining, including the fact that today, our gearing is all of between 2.5 to 3x, and that's where we long term wants to be, which makes us very, very stable. And as I said, there have been some great supportive stakeholders, shareholders, credit rating agencies, bankers, et cetera. And I can't thank them enough because I know it is very painful to support a financial institution, which is degrowing. I hope I don't continue to give you this pain for too long. And again, my -- me and my team would like to record our thanks to all of you for your patience. Looking forward to speaking to you at the end of the financial year. Thank you so much.

Ladies and gentlemen, on behalf of Investor Capital Services, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.