U.S. Markets open in 8 hrs 36 mins

Edited Transcript of IIFL.NSE earnings conference call or presentation 19-Aug-19 9:00am GMT

Q1 2020 IIFL Finance Ltd Earnings Call

Mumbai Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of IIFL Finance Ltd earnings conference call or presentation Monday, August 19, 2019 at 9:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Balaji Raghavan

IIFL Finance Limited - Executive Director of Real Estate Services

* Nirmal Bhanwarlal Jain

IIFL Finance Limited - Chairman of the Board & Founder

* Prabodh Kumar Agrawal

IIFL Finance Limited - CFO & Head of Research

* Sumit Bali

India Infoline Finance Limited - CEO & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Deepak Poddar

Sapphire Capital Management LLC - Portfolio Manager

* Dipanjan Ghosh

Kotak Securities (Institutional Equities) - Research Analyst

* Shubhranshu Mishra

BOB Capital Markets Limited, Research Division - Analyst

* SivaKumar K

Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and a very warm welcome to the IIFL Finance Q1 FY 2020 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to the management. Thank you. And over to you.

--------------------------------------------------------------------------------

Prabodh Kumar Agrawal, IIFL Finance Limited - CFO & Head of Research [2]

--------------------------------------------------------------------------------

Good afternoon, everyone. On behalf of team IIFL I thank all of you for joining us on this call. I am Prabodh Agrawal, CFO, accompanied by Nirmal Jain, our Chairman; R. Venkataraman, Managing Director; and Sumit Bali, CEO of IIFL Finance.

I will now pass the mic to our Chairman to comment on the overview of the group's strategy and plans.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [3]

--------------------------------------------------------------------------------

All right. Thank you, Prabodh. And welcome to the call. So I can take a few minutes to share my thoughts on the current macro environment as it is relevant to our business and what our strategy going ahead is. So virtually, we are seeing negative yield on 10-year and 30-year government bonds and that pool is getting to trillions of dollars, a very, very unusual phenomenon, but it suggests impending recession or [short] liquidity, which is coupled with risk aversion. And therefore, conservative investors are not only compelled to reconcile with negative return on long-dated security but also risk of huge NPA loss if interest were -- interest rates were to rise a little. In contrast, India has still a long-term growth story and has ability to generate good long-term return.

So one would have expected India to attract huge capital during very low or negative return all the same. However, at least in the near future, investors are concerned about economic slowdown here. IIFL Finance is a non-banking lender and as all of us know that NBFCs and HFCs have passed through trial by fire and the rates of IL&FS defaults and the first anniversary of IL&FS default is just about a month away. And it is last 1 year time period, we haven't seen any default of major significance or anything which is major, but most NBFCs and HFCs have slowed down in the loan growth given their inability to raise debt resources or renewable term loan. RBI's government measures will have far-reaching implications for the industry's future. In particular, the onboard lending scheme can be a game changer.

And also of course, we did a scheme to underwrite the first losses up to 10%. This can also be a significant booster. Historically, NBFCs grew with 2 different strategies: one is opportunistic by wholesale funding at high interest yield to developing real estate sector and loan against [the actual] promoters; and two, by complementing bank's effort in fulfilling the credit gap for productive activities as well as for retail consumers. But the onboard lending scheme clearly is not a bail out. I mean it's for future loan, and I mean it is more to ease liquidity stress. The history has very clearly disturbed growth and is for future lending. If you see all the schemes that the majors and government is doing is very clear that RBI as well as all the banks and government recognize the indispensable role that NBFCs can play in filling the credit gap and delivering last mile credit for growth. And that's where they can partner and complement bank's effort.

So other than the onboard lending, some time ago, we also saw core lending scheme. So I think policymakers also realized that the economic slowdown to some extent is caused by NBFC squeeze. The sector has passed through a kind of crisis, and a crisis should not be wasted. At IIFL Finance, we have sharpened our focus on core retail loan assets. We're reducing our exposure to real estate sector. Our strategy is to bring it down to single digits in total loan AUM and that to focus on affordable projects, especially where we can be partner for home loans end -- or end users [buyers]. We're inside of all the real estate projects and have funded and also adequately provided for. So our INR 3,800 crores loan book in -- our NBFC carries more than INR 400 crores (inaudible) provision, although the current GNPAs are just about INR 139 crores.

So we will be constantly making sure that all the projects basically are monitored carefully and we don't end up with any additional losses there. But other than that, on the retail core assets -- the core products -- where basically, we have the significant volume growth or significant AUM growth. Over Y-o-Y basis, if you look at our loan AUM, there is 28% Y-o-Y growth in this quarter in the core retail assets which are focused for growth, including home loan, the small business loan, microfinance loan and the gold loan. Even in business loan, they have small negative growth, but then if you break it out into the large ticket LAP and the small ticket business loans, then the large ticket LAP has de-grown, but the small ticket loan, which is our focus, has grown positively. When we look at our GNPAs in June over, say previous quarter or previous year, we might see a marginal increase, a small increase in all the retail assets. There are 2 reasons. One is, our assignments are increased significantly. And when you assign it to the bank, obviously they will not take any delinquent assets, so they will take assets which are good performing.

And to that extent, if you look at our GNPAs and the loan AUM, they remain in the -- lower, and there is a marginal dip also because of seasonal nature of the business, June quarter, the June end is typically and these are slightly higher in the March end and this is an industry-wide phenomenon, particularly, for the home loans. Our operating cost has gone up significantly, but that is in line with the growth in our branch network and people. So our branch network also has grown by almost 500 number of branches. This is close to almost 25%, 30% increase, and there's a similar increase in our number of people also. Now these both initiatives were taken about a year back. We have completed them. We have increased our footprint to make sure that our retail asset growth remains robust. And now I think is the time to make sure that we derive the operating business, disrupt these branches and improve productivity of these branches. We don't have plans for expansion at least in the near future.

In terms of liquidity, if you look at our balance sheet, which is given in our annual presentation, we have cash and bank of over INR 2,000 crores. And besides that, we had INR 2,000 crores of committed funding credit lines. So we have been -- we are quite well placed or reasonably comfortable in terms of our liquidity and our ability to fund the near-term growth as well as all the obligations that we have. So the market sentiment is showing from [irrational] exuberance to feeling of eternal doom, but we remain focused on our retail business. And in this crisis, we have not only sharpened our focus in the core product but also take internal steps to reduce our operating cost and sharpen our technology edge as well. And we hope that as the -- as things recover, we are well placed to seize the opportunity.

So with this, I'll pass it on to Prabodh to take you through the financial numbers in greater detail and then we'll take a bit Q&A.

--------------------------------------------------------------------------------

Prabodh Kumar Agrawal, IIFL Finance Limited - CFO & Head of Research [4]

--------------------------------------------------------------------------------

Thanks, Nirmal. IIFL Finance net profit was INR 181 crores in first quarter FY '20, up 7% Q-on-Q and down 7% Y-o-Y. This is after adjusting for one-off gains and sale of CV business in the last quarter. When we just consider profits from continuing business, that is ex CV businesses, the net profit of which is INR 181 crores was up 43% Q-on-Q and 2% Y-o-Y. Loan AUM grew 19% Y-o-Y and was flat Q-on-Q at INR 34,920 crores. Our Tier 1 CAR stands at 18.4% and total CAR at 22.1%. Primary drivers of our AUM growth are small-ticket home loans, which grew by 33% Y-o-y; gold loans, which grew by 46% Y-o-Y; business loans, which grew by 1% Y-o-Y; and within that, small-ticket MSME loans grew by 13% Y-o-Y, while LAP declined by 4% Y-o-Y; and microfinance loans, which grew by 112% Y-o-Y. On the other hand, construction and real estate finance and capital markets loans declined both on Q-on-Q and Y-o-Y basis.

In home loans, our focus remains primarily on small-ticket loans to the salaried and self-employed section. The fastest-growing segment in home loans is the affordable home segment or Swaraj loans, with average ticket sizes of INR 13 lakhs to INR 14 lakhs. IIFL Home Finance has been a significant player in Pradhan Mantri Awas Yojana-Credit Linked Subsidy Scheme. Till date, it has provided benefits to 30,000 customers and disbursed subsidies of nearly INR 700 crores. The company is also expanding its footprint and currently has 120 branches across 17 states. The customer base for our HFC has crossed 88,000 this quarter.

Retail loans including consumer loans and small business finance constitute 86% of our loan book. Another strong characteristics of our loan book is the large proportion of loans that are compliant with RBI's priority-sector lending norms. About 57% of our home loans, 47% of business loans and 95% of our MFI loans are PSL compliant.

In aggregate, nearly 43% of our loans are PSL compliant. The large share of retail and PSL-compliant loans are of significant value in the current environment, where we can sell down these loans to raise long-term resources. We completed securitization assignment transactions amounting to INR 4,595 crores in first quarter compared to INR 2,562 crores in fourth quarter last year. We sold down both PSL and non-PSL loans in 5 product categories, including home loans, LAP, SME, gold, and microfinance to government, private and foreign banks. Our average cost of borrowing rose by 16 basis points Q-on-Q and 68 basis points y-o-y to 9.26% in first quarter. Except to long-term funding, sources are still scarce and we continue to manage the tight liquidity conditions by tapping new borrowing channels, like dollar-based funding, public issue of NCDs, market-linked debentures and assignment deals. Of late, banks are warming up to term loan proposals and few of our proposals with banks are in advanced stages. We also expect incremental refinance from the National Housing Bank. We have been able to reprice our loans and protect our net interest margins. Our NIM was at 8.25%. We currently have 2,110 branches primarily for our HFC, gold and micro finance businesses. Consolidated gross NPA and net NPA recognized as per RBI's provincial norms and provision as for expected credit loss method prescribed in Ind AS stood at 2% and 0.8% of loans, respectively. The NPA ratios appear higher primarily because the loan book has declined 6% Q-on-Q and 13% Y-o-Y due to portfolio turndowns.

Provision coverage under Ind AS norms on Stage 3 assets stood at 131%. Return on assets for first quarter FY '20 was at 2.3% and return on equity was at 17.3%.

Some update on liquidity. We have significantly cut down our borrowings through commercial paper over the last 3 quarters. In end June, CPs of INR 1,790 crores are outstanding, which was 5% of our total borrowings. This has been further reduced to almost 0 as on date.

Our funding mix is well diversified, including 22% from NCDs, including subordinate debt; 37% from bank term loans, working capital finance and MSB refinance; 36% from the securitization assignment; and 5% from commercial paper. We had raised INR 1,200 crores in tranche 1 of public issue of bonds in January this year. The second tranche of the bonds issue is currently open. Last month, we raised USD 100 million through ECB from EDC Canada. This is a prestigious new addition to our list of investors. We have a positive ALM, whereby inflow is covered or exceed expected outflows across all buckets. We have committed credit lines totaling INR 1,949 crores in end June.

On the digital front, 99% of the 6.4 lakh accounts boarded in first quarter FY '20 have been acquired digitally. We have focused on back-end process, digitization through multiple innovations as well as partnerships helping us achieve process efficiencies. We have integrated new CRM with IIFL Loans app. This helps in providing better service to our customers. On the annuity front, we continue to drive the use of credit scores in automated decisioning across products and single risk mitigation by developing and deploying behavioral scorecards for upsell and collection scorecards for collection prioritization. There is increased focus on cross-sell and win-back by using analytics to maximize cross-sell opportunities within the group and by deeper integration of cross-sell campaigns with CRM to improve lead conversions. New fraud scorecard is in place to eliminate fraud at pre-acquisition stage along with regular development and fine tuning of fraud triggers to manage fraud at both pre-disbursal and post-disbursal stage.

With that, now we will open the floor for Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) First question is from the line of Shubhranshu Mishra from BOB Capital Markets.

--------------------------------------------------------------------------------

Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [2]

--------------------------------------------------------------------------------

First question is with regards to your developer financing. I just wanted a little more flavor as to how many loan contracts and out of them how many of them are in the top 7 cities? And what proportion of these developer finance is still under construction? And how much is ready for completion in the fiscal '20? That's my first question, sir.

--------------------------------------------------------------------------------

Balaji Raghavan, IIFL Finance Limited - Executive Director of Real Estate Services [3]

--------------------------------------------------------------------------------

This is Balaji Raghavan here. I'll handle the construction finance and real estate financing for the group. Now to answer your questions, one is that we will have about 56 to 58 contracts which are there in the entire group of about INR 3,800-odd crores, which are currently live and running. The second -- to answer your question is that all of these projects would be under various stages of construction. Now some would be, let's say at a commencement stage of, let's say 10% to 15%, and some would be at a closure stage of, let's say about 80% to 90% and so on.

Now the moment the construction is completed, which is let's say 100% and the occupation is obtained, the obvious result of that being is that we exit the project completely. So that's where we are. Now as far as the percentages go, these would be equally spread across the various stages. Now there would be some which would be, I would say let's say 20% to 30%, some 50% to 60% and some which would be, let's say 70% to 80%. So it would be a little difficult to, at this juncture, to answer exactly specifically the number as to which stage would be where, but just to sort of give an overall view, this would be more or less equally spread across the various stages.

--------------------------------------------------------------------------------

Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [4]

--------------------------------------------------------------------------------

Sir, and how many in top 7 cities?

--------------------------------------------------------------------------------

Balaji Raghavan, IIFL Finance Limited - Executive Director of Real Estate Services [5]

--------------------------------------------------------------------------------

So all of them are in the top 7 cities. We don't have much which is beyond the top 7 cities. We have -- in fact, I would reduce that further. We would have most of our exposure focused in the top, about 4 to 5 cities as far as the construction...

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [6]

--------------------------------------------------------------------------------

So this is INR 3,800 crores portfolio. Then we have another INR 1,200 crores portfolio which is also classified as part of development real estate, which is done through HFC.

Now from a housing finance, we can fund only after the approvals have been received but these are relatively smaller projects so they might be in INR 20 crores, INR 25 crores.

--------------------------------------------------------------------------------

Balaji Raghavan, IIFL Finance Limited - Executive Director of Real Estate Services [7]

--------------------------------------------------------------------------------

Yes. So here the ticket size as Mr. Jain just mentioned would be in the range of around INR 10 crores to INR 12 crores where these are very small developers and very small projects and these might be, let's say in Tier 2 cities. However, the bulk of the portfolio which I am talking about, about INR 3,800 crores, would be in the top about 4 to 5 cities. These being namely Bombay NCR, Bangalore, Pune, in fact, it would be about 6 to 7 cities.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [8]

--------------------------------------------------------------------------------

Yes, 6 to 7 cities.

--------------------------------------------------------------------------------

Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [9]

--------------------------------------------------------------------------------

Sure. And my next question is with regards to your gold loan as well as MFI. Is there any Pincode correlation between both the businesses and the branches are coexisting, or there are separate branches and you're targeting different target market segments?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [10]

--------------------------------------------------------------------------------

So gold loan business, we started about 8 years ago and microfinance -- 9 years ago actually, and microfinance, we acquired the company about -- in a way, practically, we got full control and started expanding only 2 years ago. So we're trying to map out and have the synergies wherever physical locations can be together. But it was a -- as of now, the gold loan branch network is much more -- much wider.

--------------------------------------------------------------------------------

Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [11]

--------------------------------------------------------------------------------

Right. What I'm trying to understand is the future synergy that you find between both the businesses. Will the branches be co-located?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [12]

--------------------------------------------------------------------------------

Yes, so now -- the expansion that we have done in last 1 year, there are a few branches that are co-located. But one difference is that in microfinance, we go rural. But in gold loan, we are tier 2, tier 3 towns and cities. So there are some locations where there can be the co-location advantage. But okay, it's not something which is visibly qualified, (inaudible) which is there in some cases, but not all cases.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

The next question is from the line of Dipanjan Ghosh from Kotak Securities.

--------------------------------------------------------------------------------

Dipanjan Ghosh, Kotak Securities (Institutional Equities) - Research Analyst [14]

--------------------------------------------------------------------------------

Sir, just 2, 3 questions from my side.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Dipanjan, you're not audible.

--------------------------------------------------------------------------------

Dipanjan Ghosh, Kotak Securities (Institutional Equities) - Research Analyst [16]

--------------------------------------------------------------------------------

Am I audible now?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [17]

--------------------------------------------------------------------------------

Yes, I can hear you. Go.

--------------------------------------------------------------------------------

Dipanjan Ghosh, Kotak Securities (Institutional Equities) - Research Analyst [18]

--------------------------------------------------------------------------------

So first, I wanted to a get a sense of the assignment income booked in this quarter and also FY 2019?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [19]

--------------------------------------------------------------------------------

So in this quarter, it's INR 32.4 crores.

--------------------------------------------------------------------------------

Sumit Bali, India Infoline Finance Limited - CEO & Executive Director [20]

--------------------------------------------------------------------------------

In the first quarter of last year, it was INR 35 crores.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [21]

--------------------------------------------------------------------------------

In the full year, it was (inaudible) last year.

--------------------------------------------------------------------------------

Sumit Bali, India Infoline Finance Limited - CEO & Executive Director [22]

--------------------------------------------------------------------------------

INR 68 crores.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [23]

--------------------------------------------------------------------------------

Full year, INR 68 crores.

--------------------------------------------------------------------------------

Dipanjan Ghosh, Kotak Securities (Institutional Equities) - Research Analyst [24]

--------------------------------------------------------------------------------

Okay. Also just to get a sense also, the (inaudible), the book value sold in the last quarter, how much of the receivables are still pending? And how much have you already received?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [25]

--------------------------------------------------------------------------------

So there are [loans] still outstanding, and I think the total projection was around INR 400 crores. So more than half was received as per our schedule. But (inaudible) most repayment schedules, so they're paying as per the schedule.

--------------------------------------------------------------------------------

Dipanjan Ghosh, Kotak Securities (Institutional Equities) - Research Analyst [26]

--------------------------------------------------------------------------------

Okay, sure. And just 1 last clarification. So if I'm not wrong, the listed entity basically holds around 85% of the NBFC business, am I correct?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [27]

--------------------------------------------------------------------------------

That's right. 85% is listed entity and 15% is the CDC. And going back to your question about (inaudible) the receivables come to escrow from where we pick it up. So most of the premium and the other amount are still upfront. So the monthly installments come through a normal repayment of the loan juncture.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

The next question is from the line of K Siv Kumar from Unifi Capital.

--------------------------------------------------------------------------------

SivaKumar K, Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager [29]

--------------------------------------------------------------------------------

Can you take us through the movement in the GNPAs from the developer, [Construction Finance segment] as to how, what are the numbers you started with? What are reservations? What are the recoveries you made? And finally what are the numbers you ended with?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [30]

--------------------------------------------------------------------------------

So okay, there are many cases. And if you see from last quarter this quarter, it has fallen from the 4.4% to 2.9%. Our primary -- so some of the developers who might be in a 90-day plus, they might come back. Some of the cases that have been resolved were acquired by some other developers with some more collateral. There are also -- so what is a -- so probably you can see that there's a decline of about INR 140 crores accompanying that. As such overall, 1 or 2 cases are asset sale also.

--------------------------------------------------------------------------------

SivaKumar K, Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager [31]

--------------------------------------------------------------------------------

So because last quarter you said that you started with the INR 418 crores and recovered about INR 210 crores. So you are left with something like INR 205 crores. So now that number has fallen to what number now? Has it fallen to INR 150 crores?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [32]

--------------------------------------------------------------------------------

INR 139 crores, yes, INR 130-odd crores is the total number.

--------------------------------------------------------------------------------

SivaKumar K, Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager [33]

--------------------------------------------------------------------------------

Okay. So INR 205 crores has been now INR 139 crores over the quarter, right?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [34]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

SivaKumar K, Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager [35]

--------------------------------------------------------------------------------

Okay. And any updates [on recovery] that you got from the erstwhile write-off duty?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [36]

--------------------------------------------------------------------------------

Not in this quarter, actually. Last quarter, we had some, but not this quarter. Nothing of significance.

--------------------------------------------------------------------------------

SivaKumar K, Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager [37]

--------------------------------------------------------------------------------

Okay. Sir, and this INR 130 crores is spread across how many projects? How is the lumpiness in the GMP?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [38]

--------------------------------------------------------------------------------

Four projects.

--------------------------------------------------------------------------------

SivaKumar K, Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager [39]

--------------------------------------------------------------------------------

Okay. And going forward, sir, what's the outlook? Are you seeing additional sales coming within the books, or do you think it's the bottom?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [40]

--------------------------------------------------------------------------------

I think we have seen the bottom since we started recovering, but (inaudible) we have seen some recovery this quarter. So as I've explained in last quarter, we just think that our exposure is not in the Central Mumbai, where like volatility is just continuing for much longer. But we are mostly in the suburbs of the larger cities. So if you see our exposure in Bombay, Delhi, NCR, is all -- in (inaudible) Mumbai, (inaudible) or Thane or Boisar, maybe Andheri onwards. And there, we have seen that the project is executed, then we will book (inaudible), [depending on] price that they the sell. And there are other cities like Pune, Bangalore, they're also doing pretty okay. I mean not that their sales are booming, but they're not as bad as if everything is over. So they are moving.

--------------------------------------------------------------------------------

SivaKumar K, Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager [41]

--------------------------------------------------------------------------------

Okay. So you don't expect additional stress to be added to the GNPA number?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [42]

--------------------------------------------------------------------------------

Yes, I do (inaudible) a similar level, but it'll improve over a period of time.

--------------------------------------------------------------------------------

SivaKumar K, Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager [43]

--------------------------------------------------------------------------------

Okay. And since you're taking complete write-offs, what is the time frame you've spent for which you can see some recoveries coming back?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [44]

--------------------------------------------------------------------------------

With some of the write-offs, we'll see some recovery. Our services, all those things are all (inaudible). This next 2, 3 couple of quarters, we should see some recovery.

--------------------------------------------------------------------------------

SivaKumar K, Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager [45]

--------------------------------------------------------------------------------

Okay. So since there are 2 segments within the (inaudible) finance, one is for the HFC support, wherein you do more smaller-sized loans and all. And it would be difficult to say this happens in the NBFC, so you will continue the HFC, but you will scale down the NBFC part, right?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [46]

--------------------------------------------------------------------------------

For NBFC, we have not done anything incremental. But yes, you're right. We'll continue it. But even HFC in last quarter or last several quarters has slowed down, but it's largely for a longer-term strategy that might continue and NBFC will move to a foreign structured. So if you're aware that we have foreign a setup through our rent subsidy, which is asset management company AIF structure. So most of the larger projects will get funded through funds and the smaller projects, we can take it on our balance sheet.

--------------------------------------------------------------------------------

SivaKumar K, Unifi Capital Pvt. Ltd. - Associate VP & Fund Manager [47]

--------------------------------------------------------------------------------

Sir, one question on the business loans. We see that there's a slight bump up in the GNPA number. Anything that is concerning order, or is it just a seasonal phenomenon?

--------------------------------------------------------------------------------

Sumit Bali, India Infoline Finance Limited - CEO & Executive Director [48]

--------------------------------------------------------------------------------

So actually, this is Sumit Bali here. As we've said in the beginning, typically see that the Q1 numbers are slightly higher than the Q4 numbers. That's what is explained there. And typically, these do get resolved over the next 2, 3 quarters. And given the fact that the business (inaudible) the business grows into higher margin business loans, I think we have control of the book and you should the number moderate from here on.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [50]

--------------------------------------------------------------------------------

My first question relates to your funding thing. So is there any problem of asset growth in terms you are facing in terms of getting your funding or the liability profile? And what sort of securitization run rate are you going to maintain going forward?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [51]

--------------------------------------------------------------------------------

So funding, I'm sure everybody knows that historically, investors would take money from mutual funds by the CP. And also the bank term loans are more or less a little untouched. And that situation changed in last 9 months. To my mind, this is a correction which is overdue in a way that, I mean that figure is a different point of debate. But many of these short-term funding was -- the short-term liabilities are funding long-term assets, as is typical problem of finance sector which has played out world over in many different times and different countries. So that, in a way, has been -- in a way, it's a blessing in disguise to the industry. [It's an advantage]. So that is one part of it.

But as far as we are concerned, 85% of our loan book is retail. And this after tying up 3 months, 6 months depending on the period required almost entirely becomes eligible for being sold out to banks. And even the securitization assignment that we have done have been in the range of 9% to 9.5%. And most of the banks are very willing buyers. They are -- they need the asset as much as we need liquidity. So we haven't seen any issues there. But also I must add that recently, last couple of weeks, we have seen that the environment is easing, even banks can now make the short-term loans. ECB also has started moving. So there are a lot of new issues. What happened, the ECBs actually always depend on the cost of funding in dollar terms and also the arbitrage cost. So that also has become viable with the easing of policies and the [regulation].

So as I said that just a few minutes ago that I think the bottom or the worst should be behind us. And even the funding should become much better from here. So all sources should be open from ECB, to retail, to sort of bank loans, to securitization and assignment and also the onward lending guidance are very good because if you look, most our assets are less than INR 20 lakhs. And there, if banks lend to us, then that becomes their priority sector loan. These kind of guidance are there before 2008 actually. And I think with such a lot of controversy that they were taken away. But as they come back, so they -- then for banks, it's very -- it's win-win because for banks if they lend a pure term loan to us, it meets their priority sector lending loans. Most of the banks are not able to meet the 40% quota of priority sector, they end up paying penalty by way of low-cost deposit [to normal lender]. So I have a feeling that now that government are there, everybody has become concerned so it should get much better -- much easier from here.

--------------------------------------------------------------------------------

Sumit Bali, India Infoline Finance Limited - CEO & Executive Director [52]

--------------------------------------------------------------------------------

Just to add one more thing, if you see overall, the system liquidity also has turned positive for the last few weeks. So it's a matter of now adding the -- building up the confidence that liquidity will start to bring.

--------------------------------------------------------------------------------

Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [53]

--------------------------------------------------------------------------------

Okay. So the kind of growth, we are still maintaining kind of a growth we have seen in FY '19? Because that's what you have said in the past that you will look to maintain this kind of growth going forward, what we have achieved in FY '19.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [54]

--------------------------------------------------------------------------------

Yes. So the core, I think if you look at our presentation, we have divided our asset classes into Core and Synergistic. So as far as our core retail asset products are concerned, we expect to maintain the growth. And...

--------------------------------------------------------------------------------

Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [55]

--------------------------------------------------------------------------------

And [only 5%] growth is what we have seen, so is that what we are maybe just sort of looking at going forward as well?

--------------------------------------------------------------------------------

Sumit Bali, India Infoline Finance Limited - CEO & Executive Director [56]

--------------------------------------------------------------------------------

So if you see, even on the quarter-on-quarter, the core growth has been positive at 2% to 3%. The Synergistic segment has declined. So we will continue to grow that business. After the convening of the liquidity panel, we will look at that.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [57]

--------------------------------------------------------------------------------

[15% to 20% revenue] growth, I think should be a good assumption [on that target].

--------------------------------------------------------------------------------

Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [58]

--------------------------------------------------------------------------------

Sir, come again, I could not hear that last one.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [59]

--------------------------------------------------------------------------------

No, I think in the core growth assets that we have, we should look at on an annualized basis 15% to 20% volume growth.

--------------------------------------------------------------------------------

Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [60]

--------------------------------------------------------------------------------

That's 15% to 20% volume growth on the core. And your core asset would be microfinance, small business, gold and home loan, right, in that sector?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [61]

--------------------------------------------------------------------------------

That's right.

--------------------------------------------------------------------------------

Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [62]

--------------------------------------------------------------------------------

Okay. Okay. Understood. And due to PSL, because a large portion of our loan book will be PSL compliant, so how much impact does that have on our NIMs?

--------------------------------------------------------------------------------

Sumit Bali, India Infoline Finance Limited - CEO & Executive Director [63]

--------------------------------------------------------------------------------

So overall, if you see these 4 core growth segment of microfinance, MSME loan and gold loan, these are all well above 7% to 8% NIM products. And home loan typically is lower NIM. So on a combined aggregate basis to maintain NIMs between 7% to 8% is something which we are confident of.

--------------------------------------------------------------------------------

Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [64]

--------------------------------------------------------------------------------

Okay. This quarter it was around 8.5%, roundabout?

--------------------------------------------------------------------------------

Sumit Bali, India Infoline Finance Limited - CEO & Executive Director [65]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [66]

--------------------------------------------------------------------------------

This quarter (inaudible).

--------------------------------------------------------------------------------

Sumit Bali, India Infoline Finance Limited - CEO & Executive Director [67]

--------------------------------------------------------------------------------

This quarter, it was higher. 7% to 8% sustainable is what we...

--------------------------------------------------------------------------------

Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [68]

--------------------------------------------------------------------------------

7% to 8% sustainable. And even in terms of credit costs, this quarter was quite low. I think maybe also contributed due to your sale of assets of CV finance. So is this the, like going forward kind of a credit cost that one must look at?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [69]

--------------------------------------------------------------------------------

See, if you look at our last 12 years, our loan losses and provisions have been 0.4% every year. And so last quarter was an aberration where we took a larger write-off because we had onetime gain. We tried to use it and took write-offs and higher provision and (inaudible) selection here. So I think normally, under normal circumstances, [yes], our loan losses and provisions will be around 0.4%, 0.5%. Last year was an aberration, actually, last quarter was an aberration.

--------------------------------------------------------------------------------

Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [70]

--------------------------------------------------------------------------------

This is 0.4% to 0.5% per annum, right?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [71]

--------------------------------------------------------------------------------

Per annum, that's right.

--------------------------------------------------------------------------------

Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [72]

--------------------------------------------------------------------------------

Okay, okay, fair enough. Fair enough. Understood...

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [73]

--------------------------------------------------------------------------------

This is in line with what we see in this quarter.

--------------------------------------------------------------------------------

Operator [74]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of [Ashwin Bhalla Subramanian] from HSBC Asset Management.

--------------------------------------------------------------------------------

Unidentified Analyst, [75]

--------------------------------------------------------------------------------

My question was regard to the slide on ALM. So in that slide, in terms of the inflows which you've mentioned, is that coming only from the loan book? Or does that include the securitized portion as well?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [76]

--------------------------------------------------------------------------------

No. This is current -- so okay. The slide is based on if you don't do anything incremental and you get your repayments of existing loan assets as per the behavioral pattern what we have seen and all the contractual obligation to repay based on that.

--------------------------------------------------------------------------------

Unidentified Analyst, [77]

--------------------------------------------------------------------------------

Got you. And it does not include the off -- I mean, are the off balance sheet like both the liabilities and assets included in this? Or it's only the on balance sheet?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [78]

--------------------------------------------------------------------------------

It includes the committed off-balance-sheet influence also.

--------------------------------------------------------------------------------

Unidentified Analyst, [79]

--------------------------------------------------------------------------------

Okay. So like how much -- because like if I look at, let's say 1-year bucket, it comes to about INR 15,000 crores is what you mentioned at the intro. So in that, what would be like from the retail and then prepayments combined? And like what will be the remaining sort of number? Because like if I just divide that by the loan book, that's about 60% of the loan book, so I'm presuming that this includes the bank lines and like unutilized bank lines and other stuff also in this 15,000 crore.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [80]

--------------------------------------------------------------------------------

(inaudible). Just (inaudible) just one minute.

--------------------------------------------------------------------------------

Sumit Bali, India Infoline Finance Limited - CEO & Executive Director [81]

--------------------------------------------------------------------------------

So this includes -- the major inflows will include the term loans that we have contracted. So the total lines of committed credit is INR 1,945 crore. That is there. Then it will include the inflows that we expect from the securitization deal. So we have about 11,000-odd crores of securitization which was done. Now a lot of these are short term. Why you see in the first "less than 1 year" bucket is because about 4,000 crore of gold in outstanding, which will be -- all be received in the next 6 months. So yes, so that is what is reflected in the cash flows.

--------------------------------------------------------------------------------

Unidentified Analyst, [82]

--------------------------------------------------------------------------------

So basically these inflow and outflow both include the securitized portion also. I mean that is the understanding, right?

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [83]

--------------------------------------------------------------------------------

Yes, that's right, in both business.

--------------------------------------------------------------------------------

Unidentified Analyst, [84]

--------------------------------------------------------------------------------

Okay. Got it. And in terms of this committed bank lines, this is only term loans. Or does it also include like any securitization lines which you have that...

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [85]

--------------------------------------------------------------------------------

No, it's not -- this is money we have got in the month of July (inaudible)...

--------------------------------------------------------------------------------

Sumit Bali, India Infoline Finance Limited - CEO & Executive Director [86]

--------------------------------------------------------------------------------

Yes. And then it includes -- committed lines of credit include the overdraft facilities that we have at the bank which are undrawn and which also include some securitization deal which we have secured where we have received the letter of sanction but which have not been completed.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [87]

--------------------------------------------------------------------------------

Sorry. (inaudible) I'm sorry. This is a correction. [Secondary loan included] (inaudible) private loan.

--------------------------------------------------------------------------------

Operator [88]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [89]

--------------------------------------------------------------------------------

Okay. Then we can just wind up if there are no more questions, yes.

--------------------------------------------------------------------------------

Operator [90]

--------------------------------------------------------------------------------

Sure. As there are no further questions, I hand over to the management for their closing comments.

--------------------------------------------------------------------------------

Nirmal Bhanwarlal Jain, IIFL Finance Limited - Chairman of the Board & Founder [91]

--------------------------------------------------------------------------------

So thank you, all of you. And as always, if there are any more queries, questions, please feel free to get in touch with our investor relations. Thank you so much. Have a good day.

--------------------------------------------------------------------------------

Operator [92]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, on behalf of IIFL Finance, that concludes this conference call for today. Thank you for joining us and you may now disconnect your lines.