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IIFL Finance Ltd
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Ladies and gentlemen, good day and welcome to the IIFL Holdings Limited Q4 FY '18 Earnings Conference Call. [Operator Instructions] Please note that the conference is being recorded. I'll now hand the conference over to the management. Thank you and over to you, sir.
Good afternoon, everyone. On behalf of Team IIFL, I thank all of you for joining us on this call. I'm Prabodh Agrawal, Group CFO, accompanied by Nirmal Jain, our Group Chairman; R. Venkataraman, managing director; and Karan Bhagat, managing director of IIFL Wealth Management. I'll now pass the mic to our Chairman to comment on the overall group strategy and plans.
Good afternoon and welcome to our earnings call. So the year-end ended well, and we are very pleased to report that each of our core business has grown at more than 30% and at a consolidated level, we have even after [indiscernible] 17% group and post-tax profit, and 3 minorities of post-tax profit growth of 41%. And for the first time, we have crossed [indiscernible] profit after tax [indiscernible] at a consolidated level and profit after tax, but product [indiscernible] at distance, serving 1,152 groups. All our core businesses are benefiting from the underlying mega trends for financial sector, which are positive. If you look at IIFL, IIFL Securities and we are seeing that financial additional savings on one hand, and on the other hand, sustained economic growth, which is accelerating. And our business is creating a lot more wealth and giving the opportunity for [indiscernible] to get our market share. In IIFL Finance, as we know that public sector banks intimately are losing market share in the new credit and that is what is benefiting private sector banks as well as NBFC. And this is supported by the best in class talent that we are able to attract and retain, and also our continuous on technology is helping us grow our business at a sustained pace, maintaining quality of our [indiscernible] as well as this framework to tighten the control.With this, I'll pass it to Prabodh for a review of business and then we have heads of all our businesses here, my colleague, Karan Bhagat, [indiscernible] our business for any of the questions that you have.Prabodh?
Thank you, Nirmal. We are very pleased to report that 36% Y-o-Y growth in our group net profit to INR 318 crore for fourth quarter FY '18. Net profit after minority interest has grown by 38% Y-o-Y to INR 248 crore. Our net worth has reached INR 5070 crore. ROE was 19.8% and ROA was 2.4%. Group net profit for full year FY '18 grew 41% year-on-year to INR 1,162 crore and net profit after minority interest has rose 33% year-on-year to INR 911 crore. All the 3 segments of the company, there is an [ AFC ] wealth and capital market contributed to this strong growth.Discussing the NBFC numbers, in our NBFC business, loan AUM grew 40% Y-o-Y and 14% quarter-on-quarter to INR 31,163 crore. Profit after tax grew by 33% Y-o-Y and 10% Q-on-Q to INR 160 crore for a full year FY 2018, our profit after tax grew 31% Y-o-Y to INR 554 crore.The NBFC net worth is now 3,917 crore. Our Tier 1 CAR stands at 14.8% and total CAR at 16.2%. Primary drivers of our AUM growth are small ticket home loans, which grew by 61% Y-o-Y, small ticket MSME loans, which grew by [ 142% ] Y-o-Y and micro-finance loans, which grew by [ 252% ] Y-o-Y on a small basis. Besides these 3 fast growing products, we also recorded good growth in gold, savings, and construction finance loans. On the other hand, LAP and capital market loans are flat or declined Y-o-Y as planned. In home loan, our focus remains primarily on the self-employed section, which constitutes nearly 60% of our loan portfolio and home loans of ticket size under 28 lakh. The fastest growing segment in home loans is the affordable home segment or [indiscernible] with average ticket size of 30 lakh. [Indiscernible] loans accounted for 22% of our home loan disbursement in fourth quarter FY '18 and 12% of closing home loan AUM. Our [indiscernible] is specially designed to support the informal income segment and fulfilling their dream of owning a house.We continue to focus on digitization of our loan process with 40% of our loans being on-boarded and sanctioned on tablet application available with our sales team. The underwriting is automated on tap to give an instant sanction decision. This is called the jackpot loan. This initiative has also led to announcement in productivity of our support team and enabled IIFL to handle greater volumes of retail home loans in the future.Within construction and real estate finance, the mix continues to change towards construction finance or small ticket housing projects. As of the 31st of March 2018, we had over 6,200 approved housing projects, up nearly 1.6x from 3,900 approved projects a year back. All our construction finance loans and 50% of home loans are made through these approved projects. We expect that this approach will reduce our operating and [ freight cost ] going forward for our housing finance company.After a muted Q3 FY '18 when we were assessing the impact of [ radar ] we are now more confident of construction finance loans, with recent changes in the environment including [ radar ], bankruptcy court, et cetera. [ Radar ] has provided confidence to end customers and vendors on expected transparency, information and documents uploaded [indiscernible] with [ radar ] such as approved building plans, title deed, [indiscernible], construction stage updates, inventory, timeline of completion of projects, escrow account towards payment, et cetera, give us better control and comfort for [indiscernible] individual customers.We believe that the overall portfolio risk is on the decline, as our portfolio mix continues to become more granular with greater share of small ticket home loans, MSME loans, and microfinance loans. The increasing granularity is driving down portfolio risk, while at the same time helps to derive better yield versus large ticket lending. Detailed loans, including consumer loans and small business finance constitute nearly 85% of our loan book. Another strong characteristic of our loan book is the larger portion of loans that are compliant with RDA's [indiscernible] lending norm. About 14% of our home loans, 16% of LAPs, 19% of commercial vehicle loans, 14% of MSME and nearly all of our microfinance loans are PSL compliant. In aggregate, nearly 40% of our loans are PSL complaint, which we can sell down to banks at attractive rates, which could possibly impact our profitability and CAR. The share of securitized book currently stands at 11% of our AUM.Our average cost of borrowing declined by 7 basis points Q-on-Q and 44 basis points Y-o-Y to 8.4%. The availability of funds has considerably tightened over the past few months and there is a corresponding rise interest in the cost of borrowing. Many [ POC ] banks are holding back sanctioned lines of credit. We are starting to borrow a mix of term loans from banks and bonds with an endeavor to lock in longer tenure funds at fixed rates.Our NIM was at 7.1%, expansion of 20 basis points Q-on-Q and 4 basis points Y-o-Y. Lowering borrowing costs and rising share of high yielding SME gold NMFI loan helped support our NIM, partially offset by higher share of lower yielding retail home loans.Medium and high yielding assets currently constitute 51% of our AUM versus 46% at the end of March 2017. This includes microfinance loans, MSME loans, gold, CV, and construction finance. The other half of AUM consists of relatively low yielding assets, including home loans, LAP, and capital market loans. We believe our AUM mix is well balanced, with some scope for the share of high yielding assets to go up. Cost income ratio was 42.9% and [indiscernible] our [ bid loan book ] ratio at 3.54%.Many of our small ticket loan products are office intensive, including gold, MSME, and MFI. As the share of these products rise, it puts an upward pressure on our operating costs. Still, we believe that we can contain the cost ratios on the back of operating leverage and digitization benefits.The number of NBFC branches has grown 24% Y-o-Y to 1,378 compared to 1,112 a year back, as we added branches in RHSP, gold, and microfinance businesses. Our GNPA is at 1.7% of loans and net NPAs were at 0.8% of loans, both having declined Q-on-Q. Sequentially, NPAs declined for every single product. This was due to the combination of constant improvement in [indiscernible] underwriting standard and concerted collection efforts.Some details on digitization. We have continued out focus on digitization, encompassing every aspect of customer loan journey. Of the total 5.43 lakh loans disbursed in fourth quarter, 97% were on-boarded digitally, with EKYC, undertaken for more than 90% of all bookings. We are focused on back-end process digitization through multiple innovations, as well as partnerships, helping us achieve process efficiencies. With 40,000 mobile app downloads in fourth quarter and 2.5 lakh cumulative downloads, our asset loan mobile app is growing steadily, fulfilling account management and servicing needs of customers. Additional final vertical classified under MSME loans, 90,000 customers were acquired in fourth quarter versus 50,000 in third quarter. All the customers were closed digitally in [indiscernible] through paperless mode.In analytics, we are driving user created [indiscernible] and automated decisioning for our small ticket loans. 65% of small ticket MSME loans last quarter came through in same decision rule. Our digital finance business is entirely underwritten using automated scorecard. On the host [indiscernible] side, we have monitoring tools with 2 early book it collection triggers. We are using analytics driven cross-sell and top up.As our book gears up and season cross-sell contribution will also increase significantly. Analytics triggers are also being used by our cost control unit to eliminate fraud applications in pre-disbursal space, as well as for initiating 2 active [indiscernible]. Some commentary on the wealth management business. IIFL Wealth [ PAC ] grew by 37% Y-o-Y to INR 103 crore. Our assets under advice, management and distribution have grew 3% Q-on-Q and 39% Y-o-Y to reach INR [ 1,32 ] crore. We had 14 bankers in the quarter, taking the total number of bankers to 313, to further drive the growth momentum.IIFL Wealth offers a broad range of production services to participate in the larger share of the client wallet. This includes financial productivity solutions, advisory, brokerage, asset management, credit solutions, and estate planning.We raised net new money of INR 25,053 crore in FY '18 versus INR 22,535 crore last year. During the quarter, the team garnered AUM or commitment in excess of INR 4,000 crore in wide-ranging of products. AIFs grew 52% Y-o-Y to INR 11,736 crore. The total commitment in our special opportunities fund, which investments in pre-IPO and IPO situations is now INR 8,700 crore. Our new affordable housing fund was launched in the last quarter, which also received and outstanding response with a commitment of more than INR 1,360 crore. IIFL Wealth Finance, which offers loan against securities and margin funding to high net worth individuals grew its loan book 15% Q-on-Q and 85% Y-o-Y to INR 6,701 crore. Average lending rate for this book is around 10.3%. Finally, on the capital markets, our average daily cash turnover was up 39% Y-o-Y to INR 1,563 crore, higher than the 30% Y-o-Y growth and exchange caps are lower. Our average daily total turnover, including F&O, was up 69% Y-o-Y to INR 17,455 crore. Our MSME market share in the cash segment remains around 4% and in total, around 2%. We are continuously enhancing our offerings on digital and mobile platforms for retail customers in our broking business. Our mobile trading app, IIFL Markets, has had over 1.5 million downloads. Presently, about 41% of our retail broking customers trade through the mobile app.FY '18 was the year for assets in the investment banking business in conception, and we were ranked number 1 in raising equity for private sector companies. The investment banking team completed 27 transactions during FY '18, including 11 IPOs and 8 follow-on offers involving listed companies. A number of private equity and pre-IPO transactions were also closed. There is a substantial pipeline of transactions in various stages of execution.With that, now, we'll open the floor for Q&A.
[Operator Instructions] And your first question comes from Viral Shah from Credit Suisse.
This is Sunil Tirumalai from Credit Suisse. Thank you for the opportunity. My first couple of questions are on the wealth management fees. If you look at the quarterly number, there seems to be some softness in the yield Y-o-Y and OpEx seems to be growing much faster. So the PBT, actually the growth isn't much. Sort of PAT seems have to come about because of a lower tax rate.So if you can comment on all these and the outlook on these items.
Thanks. So I think from a [indiscernible] perspective, as well as activities, I think Q3 was fairly strong. So as you see, both went up Q1 and a Q2 perspective, growth in Q3, Q4 is equally strong. But I think from a growth perspective, you're right, quarter 4 is more or less around the similar numbers as quarter 3.But from an asset gathering perspective, I think very difficult to look at it quarter-on-quarter. The momentum continues to be strong. Typically, the assets, depending on flows first half typically tends to be stronger for assets. And flows typically tend to be stronger in the second half. Retention really is a 3, 4 business point kind of movement. So nothing really structural in terms of change of [indiscernible]. It's just another factor of the activity in the quarter.
If I may follow-up there, so 65 basis points of [ Cr printed ] retention yield on the fee-based activities. So that's, Y-o-Y, it's a reasonable decline. I think also the year we've seen steady decline. So is that something as a trend or where this should settle?
I think fee basis, income on wealth management side, including asset management, will be in the region of 65 to 70 basis points. [ CRV ] where's the asset management, assets also start becoming larger and larger. The net asset management is in the region of 50 basis points for direct cost. Wealth management will continue to be in the region of 75, 80 basis points.So the mix will continue to be in the region of 65 to 70 basis points. So as wealth becomes larger, as asset management becomes a slightly larger portion, I think this will settle around the 60 basis points, 65 basis points, 67 basis points region.
Got it. And Karan, also, if you could comment on what you think is the potential impact from SEBI's rules on reduction and the distribution charges from B15 to B30. And also, I think some of the AMC earnings from redemption penalties, the caps have also been brought down.How does that impact distributors like yourself?
The first level, I think the first -- from a distribution perspective, the impact is not too large. From an asset management perspective, there could be a bit of an impact. But from our own asset management [indiscernible], most of our assets currently are on the alternative [indiscernible] fund side as opposed to being on the mutual fund side.So the immediate impact on us as a manufacturer is not really there and really, our distribution in the B15 before this was not very, very large. So the B15 changing from B30 is not going to impact our distribution model very [indiscernible].
Got it. And my last question is on the lending, especially on the home loan side. So this approved project strategy, it seems to be doing well. I just wanted to understand what is the scope in terms of the 6,000 odd number of approved projects? How higher can it go and where do you think the market leaders are in terms of the number of [indiscernible] that they have? Thank you.
Yes, this number can grow high many times. You have a [indiscernible]. In many times [indiscernible]. I don't know the numbers but you can certainly check with us. It might be something like INR 500,000 at least. This number can virtually climb any time because we have our network in almost 1,000 cities and towns. And I know it's immediately [indiscernible] different sizes.So I [indiscernible]. The two after that we, can continue to add close to 400 to 500 [indiscernible] every quarter, that kind of opportunity is still there given the number of projects all across India. And many of these projects are now actually seeing better sales compared to what they've seen after the last two or three years.
The next question is from the line of [Indiscernible] from [Indiscernible] Securities. Please go ahead.
Just wanted to understand your -- any strategy that you have for cross sell to the [ end side ] customers. You have around 500,000?
Typically, they start at [indiscernible] and then they agree to [indiscernible] becomes more acceptable. And then over a period of time they take smaller [indiscernible] and so small, and some of them also qualify for a grant [indiscernible].So I mean just from cross-sell, you can tell [indiscernible] one product, but typically, it will be people that know how to do it [indiscernible]. So we will do it but with [indiscernible] you have too much [indiscernible] fee income. But that actually, if everything [indiscernible]. But it's very small. I know the basic term is [indiscernible] around active [indiscernible] of these things. But there's really (unintelligible) the opportunity for that. But the [indiscernible] cost connected in our [indiscernible] greeting these customers in real time.
And my second question is with respect to your wealth management business. I just want to understand your asset depletion has been lower than your net new income, net new money. So how do we understand that and how do we look at it going forward in FY '19 and FY '20?
So I think we are looking that quarterly. It might be a little difficult because it has its own elements of mark-to-market also. But I think looking forward, I think around about 25,000 to 30,000 [indiscernible] of net new money in a year is the number we should be working on. Obviously, that will need to be adjusted for the mark-to-market on the existing stock of money.
Okay. Sure. And a data keeping question. What's the present number of RNs that you have and what is their average vintage?
The exact vintage I will come back to you but it's in the region of 4.3 to 4.4 years. I might be off by 0.1 here or there but it should be around number. The vintage will be around 4.3 to 4.4 years. Every year, I would say this progressively kind of going up and the number of relationship managers will be in the region of 315 to 320. And we would be adding approximately 40 or 50 relationship managers through the first half of the year.
With a similar vintage or higher vintage?
No, no, debt limit to vintage (unintelligible) to vintage in the organization. The average vintage will be much, much higher because we are really [indiscernible] in joining us [indiscernible] start with. So if I look at the average vintage, if you talk about the average professional experience, that will be not [indiscernible] so sure on an average. But when I say 4.5 years, I'm talking about debt vintage on an average with the organization.
And in terms of your institution securities, does this work as your split between domestic and offshore?
[Indiscernible] the brokerage from [indiscernible].
Yes, yes.
[Indiscernible] the business then [indiscernible] year.
Correct. But would you have a split between your domestic flows and your [ FAI ] flows, right?
I think it's more - it's about equal [indiscernible].
Okay. And your strategy going forward to maintain the [ EELS ] on your institution securities business?
So I mean you're expecting to move in tandem with market in [indiscernible]. But in the last 10 years there has been a real decline and I think a point in time has come that [indiscernible] because I think the domestic market will keep rising and they're the group [indiscernible] to capital [indiscernible].So I think now, we start with looking at a plateau just of the [indiscernible] what you've seen a decline in the last year.
Okay. And what are your blended deals [indiscernible] institution brokerage business?
This is [indiscernible].
Yes.
I don't have the number actually. Let me [indiscernible].
The next question is from the line of [ Jay Vivy ] from [ GS Investment ]. Please go ahead.
A few questions from my side. Really [indiscernible].
Pardon the interruption. Sorry, your voice is not clear.
Hello, is that better?
Yes, much better. Thank you.
So basically, I wanted to inquire about our wealth management segment. I believe we are the number one in this particular segment. Would like to know about the increasing competitive intensity in this and appropriately sized for us, and what are the USV or mood for us in this critical segment?
So USV [indiscernible] will essentially be a combination of all three things. We need to continuously to have the better of people and relationship managers. From a products perspective, I think innovation will be very, very critical because the launch or testing new ideas essentially allows clients to start with us.Then once they start, the comprehensiveness of the platform, which will then include strong advisory, open architecture, solution-based platform, estate planning, corporate finance planning, all of that coming together with strong product and strong set of people will be [indiscernible]. It's a little abstract. There are no specific moat to decide as such, but essentially, the moat will be a unique combination of these three things always being available at the time.
And I wanted to have your rationale behind the proposed merger of YFL and how will it add value to the shareholders?
I think this isn't the last thing [indiscernible] comment to. So we have previously [indiscernible] they are distinct in terms of a set of customers as well as people that they manage. And if you see our core philosophy for more than two decades has been to attract people [indiscernible] and we are very liberal [indiscernible].And what has happened is the three businesses are independent. It allows us a lot of flexibility to attract talent, in particular the top management talent of [indiscernible]. It also gives us a lot of flexibility because all the businesses have different growth strategies, different risk framework, and a different business plan as well. And also from a regulatory framework, also, they become different [indiscernible] and because that is from a different [indiscernible]. So it is now [indiscernible] all the regulatory [indiscernible] basically -- you need all the regulatory [indiscernible] for any [indiscernible]. And so I think in an environment where even the analyst media from a governance perspective prefers a clean structure with a business, which is very clearly identified around the [indiscernible] structure where equity [indiscernible] another [indiscernible] kind of collaborative structure. That is not what has been preferred.So I think from governance, from management, from [indiscernible] business growth, as well as just management, we thought it appropriate to disaggregate these businesses.
Okay. And lastly, we, I believe are one of the organizations which has been way ahead of others in terms of IT usage. If you could just throw some light on what edge our IT division gives to us and what are the plans in the future?
So as you can see, our [indiscernible] business has been moving predominantly to IT platform and with a lot of innovative [indiscernible] platform [indiscernible] even in low [indiscernible] a lot of our processes and [indiscernible] numbers with you. The predominant part of our loan processing has been completely developed. And a lot of work is happening in data analytics where [indiscernible] our credit underwriting [indiscernible] division writing mechanism using the [indiscernible].So I think it's being used in every aspect of our business, in the back end, in the front end, as well as in intelligence. So I think that will -- this is like [indiscernible].
Last question, in terms of the rising interest rates, what has been our strategy, and how are we coping with it? And will it be having some short-term negative impact on us?
It's difficult to say but at this point in time, I think most of our raw metrics are with a proving interest rate and we have the flexibility to pass on the increasing interest rate. So as long as it's moderate, it's fine. But if it [indiscernible] then it might affect even the [indiscernible] growth for this year [indiscernible].But at this point in time, I think where we expect it will be moderate, right, if at all that we arrive at the great interest rate going forward.
Lastly, congratulations on your acquisition [indiscernible]. I think you bought it at the worst of the time and I believe is that tailwind back now for the MFI sector and is it performing nicely now?
So MFI sector is performing well, whether that tailwind [indiscernible] headwind.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.
Just a couple of questions. Now, on the broking side, just trying to understand what would be the dependence of the broking business with the wealth business in terms of how much broking volume would be contributed by [ fill rate ].
Zero basically because now [indiscernible] have got its own booking time and which is part of [indiscernible]. So most of the customers are being migrated, but the brokerage share is [indiscernible] there.And [indiscernible] going forward is already doing -- its broking card is already active. So whether customers will be on-boarded [indiscernible] already on-boarded that would be 100% very soon. So [indiscernible] customer group I think is part of wealth.
And that would be like, I mean just to get a rough idea out of the 210 crore, how much could that roughly be?
[Indiscernible].
I'm looking at the fourth quarter number and I'm seeing that
Around about 12 to 14 crores. It would be about 6% to 7% of [indiscernible].
And that is completely booked into the wealth business itself?
90% already booked in wealth, 10% will be coming in IIFL, but then where to the offsite person for the brokerage. So 90% of that comes back to wealth. So you can assume 100% is booked in wealth.
If I look at your broking income or I can call it capital market-related income, this income was up around 25% odd but your cash market values were up around 35%. So how should we think about it and if you can share, what is the contribution of the [indiscernible]?
What happened in cash market, the delivery margins [indiscernible]. So the brokerage, what you get from delivery is almost maybe almost 6x, 7x, or 10x the [indiscernible] volumes. So that is the volume growth. What happens is a high volume growth intra-day doesn't lead to [indiscernible] increases of operating income.
So this is -- what you can say is this quarter essentially was a lot more of intra-day and this is I guess [indiscernible].
I see operating income growth [indiscernible] like maybe slightly more intra-day but [indiscernible]. But you know what happens that when your market volume goes up or down, the significant data up or down will be [indiscernible].
On the Wealth side, now on the MF distribution, I believe last year, your income was around 25% of the agency income. This year, given the fact that the overall MF industry did very well, could the ratio have actually gone up? I mean I understand obviously you're putting a lot in the other segments, but I mean given the fact that the mutual fund industry did so well this year?
So again, what's happening is mutual fund flows in our segment, and we have the super high net worth segment, has actually not been phenomenally strong in the last six to eight months compared to [indiscernible] an actual number is strong. But compared to the little bit [indiscernible] investment funds and PMSes, the flows have been relatively flow.So the new incremental flows are going more into new independent multi-managers on the alternative investment fund side and PMS side as opposed to going into the mutual funds space. So I think that number will remain around about that 20% to 25% kind of number.
Last two questions. One was your guidance on the loan growth in the wealth NBFC and the other one was in terms of how many employees would you have in the wealth management business? I know you have 450 [indiscernible] but what is your total employee account?
We have 340 [indiscernible].
Sorry, 340.
[Indiscernible] 340 [indiscernible]. Total level of employees including investment team across both active management and wealth management would be around about another 65, 70 people, and another 250 odd people, yes, across the business. So around about 700 [indiscernible].
Sure. And any guidance on the loan growth in the wealth NBFC?
The way to look at the loan book in the wealth NBFC would be broadly tracking around about 5% to 7% of the assets there. So on a broad basis, on the lower end, round about 5% of the assets. At the higher end, 6% to 7% of the assets is the way to look at it.
So just one last question was on the advisory business. If the realization in advisory lower than the realization in the rest of the business? And what - how do you see the share of advisory going over a period of time?
So right now, share of advisory business in terms of revenue is next to zero. Clearly, most clients are on platforms where they work as both distribution as well as advisory clients. So I really don't like to pay advisory fees. We're obviously aware of the amount of fees they're implicitly paying in distribution. So effectively, where the account is managed is a combination of distribution and advice.And unless and until it becomes ready to do one of the three, we don't really see a scenario where clients pay for advice and still consider to be a combination of both distribution commissions as well as advice. So currently, in our current setup, it's more management fees on asset management products as well as management fees on PMSes. But advisory fees from clients is next to zero.
The next question is from the line of [ Ashwan Valas-Ramania ] from HSBC Asset Management. Please go ahead.
I had a couple of questions about the [indiscernible]. So firstly, in terms of your borrowing mix, the CV borrowings is up 35%, which earlier used to be around 20%, between 20% and 25%. So what are the kinds -- would this be the kind of peak levels on the CV borrowing trend. But you'd go up, you might go further up here, or what is the kind of mix that you are looking in terms of between CV [indiscernible]. So that is one question.And the second question was on [ EELs ] site. So in LAP and SME, in particular I think yielded more up over the last quarter what you disclosed in the presentation. So just wanted to understand, because I mean given the competition incrementally what [indiscernible] in the last segment and how is the [indiscernible].
Okay, on the first question on the borrowing mix, actually, the share of CV has gone up in the last fortnight or last month in March, because actually, we had some large bank loan [indiscernible] we paid off and because they were maturing. And also some MCV which matured, which we have paid off. And that was substituted by some structured borrowing at that point in time because the long-term borrowing market is not possible to do that long-term borrowing in the month of March.But the situation is correcting in the first quarter, it [indiscernible] to correct, where the share of our bank loans and MCV will go up and the share of [indiscernible] will come down to the [indiscernible] level of between 22% and 25%. So there are some larger bank loans, which are on the pipeline, which [indiscernible] have already happened but will happen by June end.So that is not a normal mix. It's a little of an aberration in the margin. On the second question of the yields, the yields will grow up gradually. We have already raised on our home loans by about 20 basis points for new loans and on existing loans, we are raising it with effect from 1st of July. So that's happening. And similarly, yield on LAP will also move up as quarter borrowing goes up.
[Indiscernible].
Sorry to interrupt, your voice is breaking up.
Just wonder on LAP, you will incrementally also be doing a similar way to [indiscernible] 12.5%, 13%, which is beyond book yield is about 12.8%.
So incrementally it is slightly lower. Yes, 11.5%.
Okay. Because over the last quarter, I mean [indiscernible] increase [indiscernible].
So there is no LAP [indiscernible] kind of growth has slowed down significantly on a Q-on-Q, Y-o-Y basis. That's a product, which we have said in previous calls also that because of the [indiscernible] pressure, that product is less attractive compared to say a [indiscernible]. And therefore, the share of LAP has been declining.
So in the [indiscernible] investment, maybe we [indiscernible] as appropriately runs down.
The next question is from the line of Dhaval Gada from Sundaram Mutual Fund.
Hi, congratulations on a good set of numbers. Just one question, what is the impact of [indiscernible] on various businesses?
So we have done a very [indiscernible] businesses. There won't be much impact and some small positive impact, one negative impact. But generally, on a [indiscernible]. So as [indiscernible] trying to [indiscernible] here to get the first. So I mean activity [indiscernible] actually because many companies have started doing that in combination in their business. And it if it changes then you don't have a [indiscernible] to get back to that [indiscernible] standard.But as far as we are concerned, I don't think any impact [indiscernible] negative back to [indiscernible] on our reporting number.
Even on the wealth business, there won't be any meaningful impact is it?
No, there's no meaningful impact. We actually ran the numbers. So the incremental impact on the account of exercised options, everything is left there, 0.1% of the revenues and so on and so forth, 0.1% or 0.2% of the revenues.
The next question is from the line of [ Deepak Pogar ] from Fire Capital. Please go ahead. Hello, Mr. Pogar, your line is unmuted. Please go ahead.
My question pertains to your wealth management business. So currently, I think we currently are at about 1 lakh 32,000 crore of basically asset under management in that particular business. So any sort of growth or what sort of growth outlook we are look at basically for next maybe 1 to 3 years timeline?
We're hoping to grow the asset base at a CAGR of around about 25% to 30% every year. And commensurately, with a little bit of compression on years and a little bit of operating leverage coming up, we are hoping to be able to deliver 25% CAGR growth in OpEx.
Come again, I could not get your second part? Can you repeat, please?
So I said we are hoping to be able to sustain a growth of 25% to 30% in assets offset by a little bit of decrease in retention of assets, aided by some increase of operating leverage, enabling us to c continue to grow [indiscernible] 20% to 25%.
Okay. So it's profitable, maybe we are looking at 20% to 25%. And similarly, on the NBFC side, what sort of -- in finance, what sort of loan book growth we are looking at?
So it would depend on the credit growth [indiscernible] look at 20%, 25% book growth.
[Operator Instructions] The next question is from the line of Viral Shah from Credit Suisse. Please go ahead.
Sunil here. I have a follow-up question. The NBFC within the wealth business, the spreads used to be quite high earlier. It's kind of becoming reasonable now. On a cash rated number, it comes to about 500 basis points. It still seems a bit high given the kind of business you do. So where should the spreads over here settle?
So I'll give you a quick synopsis. We broadly have net lending is a grade of around about 10.1% for [indiscernible] average borrowing cost, particularly [indiscernible] 7.95 to 8.10 depending on the quarter. So on the loan book itself, it has a spread of [ 490 ] basis points. So that's the equity plus a little bad debt driven from the IPOs during the quarter.So around about 10% of the income currently out of the NBFC book is dependent on the kind of IPOs, which come through the quarter. And the rest of the fund-based income is essentially the interest of the residual network to be consolidated and would be ex-NBFC. So all of those four things put together is what is giving you that number.
Understood. Thank you. So the tax rate in the wealth management has been a bit low for the last few quarters. What's happening on that?
So actually, it's a function of two things. It's a function of the carry being booked here for the year. That effectively allows us to kind of enable the tax rate to go down a bit because the long-term capital gains in the form of carry effectively doesn't get taxed. This year, we booked around about 40, 45 [indiscernible] of carry through the year.The other thing, which has helped the tax rate this year, is the NBFC because it is a new entity not to last year. Effectively had a revenue of less than 50 crores. The tax rate for the NBFC is currently almost 25%. So that 25% will go up to a normal tax rate next year. So the next year tax rate will be around about 2%, 2.5%, 3% higher than what it was for this year.
Okay. Understood. And my last question is on the lending book. The OpEx outlook here, I think it was a -- I thought it was a bit higher for the quarter. Any one-offs and what is the outlook? Thank you?
So actually, for a long time, people are [indiscernible] and it resulted, we are about 1,000 [indiscernible] but in last quarter was [indiscernible]. Last two quarters, we set up almost 200 new branches. And obviously, these 200 new branches will require enough people also. And I think because we are seeing a [indiscernible] grow the network and get wider and deeper. And we are seeing that many of the new branches become break even in a year's time. But we're seeing first new quarters, the OpEx cost goes up, but we have seen [indiscernible].Also, you should note that if you look at our cost income ratio, it might go down for [indiscernible] business segment and it will still go up on a weighted average basis because cost income ratio tends to be higher for businesses like gold, SME, and enterprise. All of these are small ticket businesses [indiscernible] 2,000 -- the ticket size in gold, [indiscernible] average is the ticket size in SME and [ 35,000 ] is the ticket size in MFI.So these businesses are growing faster and we are expanding our network here. So each of these [indiscernible] this is a high costing [indiscernible]. So you see weighted average cost income ratio going up. Last couple of [indiscernible].
That was useful color. And finally, how do you see the loan book mix changing all the time? We've seen home loan increase in share and some of your focus areas increase in share. But how do you see this going forward?
So as we've been talking about for the last almost maybe two years, there are focus -- so LAP is getting defocused because we think the risk is not priced in because of competition that just needs to come down. Overall, [indiscernible] a very key focus [indiscernible] home loan, the [indiscernible] sector and [indiscernible] every ticket size is currently falling. So our incremental home loan is in the region of being very [indiscernible] ticket size.So home loan is [indiscernible] growth and other than that, these MSMEs, MFIs, these [indiscernible] loans, these are the faster growth segment within the loan portfolio. A couple [indiscernible] is cyclical so we are seeing an uptrend. So in this uptrend of cycle, you might see a faster growth. So in terms of if you are to divide all our businesses in two categories then you will see slower growth in capital market, construction, real estate, and LAP, and you'll see faster growth in the other segments.
[Operator Instructions] The next question is from the line of [ Chegan Shamista ] from [ Motilla Uval Securities ].
I wanted to understand what the percentage of active clients in your retail brokering business?
Percentage of active client in our regional brokering business would be around 25% to 30% of the client.
25% to 30%. Sure.
On a monthly basis.
On a monthly basis, is it?
Yes.
[Operator Instructions]
Okay, we can conclude now. Thank you.
Thank you, sir. Would you like to add any closing remarks?
Thank you so much for being on the call and we have our Investor Relations [indiscernible]. If there are any more queries, please feel free to send an email or talk to our Investor Relations department or at any point in time. Thank you so much.
Thank you. Ladies and gentlemen, on behalf of IIFL Holdings Limited that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.