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IIFL Finance Ltd
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Ladies and gentlemen, good day, and welcome to the IIFL Finance Limited Q4 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference to Mr. Kapish Jain, Chief Financial Officer at IIFL Finance. Thank you, and over to you, sir.
Thank you very much. Ladies and gentlemen, thank you very much for joining this call. This is the quarter 4 earnings call for IIFL Finance. On the call today, we have Mr. Nirmal Jain, Founder and MD of IIFL Finance. We have Mr. Monu Ratra, who is the CEO for IIFL Housing Finance. We have Mr. Pranav Dholakia, who is the Chief Risk Officer. Myself, Kapish. And today, we'll talk about the progress of the company with regard to quarter 4 and its performance including what's happening on the RBI side.
For a complete update on that, I'll now hand over the call to Nirmal. Nirmal, over to you.
Thank you, Kapish. Welcome to the call to review quarter 4 as well as the full year performance. Very unusually this time it has been delayed -- the results announcement has been delayed a little bit, but there we are. As you have seen the results of the full year, we have ended with a loan AUM growth of 2%. And primarily, there has been a decline in gold loan on a quarter-over-quarter basis by 5% because March is a peak quarter. And last year, in the fourth quarter, we had a quarter-over-quarter growth of 11% in gold AUM. So that impact, obviously, is there on our total growth as well as on our profitability.
I think we ended the year on a consolidated basis with a total decline of 6% on a Y-o-Y basis in our Q4 profit in the post-tax profit. And on a full year basis, our post-tax profit has grown by 23%. And we ended the year on a consolidated profit of INR 1,974 crores, which was a little short of our earlier guidance of INR 2,000 crores for the full year on a consolidated basis. This is prior to minority interest.
Now a brief update on the RBI embargo and then about the macro environment, and then also I'll discuss certain key aspects of the numbers before I hand it over to Kapish for a more granular and line-by-line discussion. So as you're aware, on 4th of March, we had an RBI order about basically a cease and desist for the gold loan disbursement and certain other activities with the gold loan business. And RBI's order has stated that they'll institute a special audit and based on the findings of the special audit as well as the inspection if they require, they will consider the review and they'll consider lifting the ban. The special audit has completed and special auditors have submitted the report to RBI. In terms of -- as far as the company is concerned, we are very confident that we have fully complied with all the regulations of RBI as well as we addressed all the deficiencies.
Besides this, we have taken several other steps internally in terms of strengthening the organization, hiring senior-level people, a few have joined and a few more are in the pipeline. Also basically, having a much stricter and stronger audit, and we are also in the advanced stages of having concurrent compliance audit along with more strengthened internal as well as -- internally, the audit which is required to make sure that the compliance is foolproof on an ongoing basis.
Also, according to policy changes, the Board supervision will now significantly be higher. And all the alerts and compliance will be updated to the Board as well and more regularly discuss any exceptions in this to make sure that there is no recurrence of any less on the compliance, so we have to meet and exceed whatever expectations RBI can have from a regulated entity like us.
Coming back to the macro environment, macro environment is very positive. The democratic government is back for the first time. And obviously, the reforms continue. What the buzz and the activity that we have seen at the ground level is also very positive. The first announcement has been about affordable housing, which again is positive for our housing finance business.
In terms of financial numbers, I think there are a couple of aberrations that I want to explain broadly before we -- of course, we'll take them up in questions and answer if required as there may be more questions on the same. One is about the gold loan NPA because there's a significant spike in this quarter. But as far as the spike is concerned, in my opinion, there is no increased risk for a medium-term or long-term risk in that business as such.
There are certain rollover cases. Historically, if the customer account -- customer has not paid in time, but if the gold value is enough to rollover with 75% LTV, that was being done. Obviously, that practice has been objected to and obviously, RBI has -- our auditors have taken in our view that those assets -- or those gold loans have to be classified as NPA. Not only those gold loans, but the linked accounts. So supposing there is a delinquency like this in one account of a customer and customer has taken 2 more gold loans, then all 3 have to be classified as NPA.
Now if you have rolled over these gold loans, then we also can't go back to the customer and ask them to liquidate or -- because we can't take that to auction till the rollover period is over. So it's a matter of 1 or 2 quarters because, obviously, when these cases come up for rollover, again, we shall not have this practice, which is not fully compliant with the RBI regulations. But what we intend to do is that once the rollover period is over, then either the customer has to pay or these loans will go for auction. And wherever customer can arrange for it, they can also get the balance transfer done. So that is about approximately INR 282 crores in the gold loan, and that has resulted in the spike in gold loans NPA, which, I think, will normalize in the next couple of quarters.
But what is really heartening and what is really positive for us to know that our loan book, which was around -- over INR 26,000 crores on the March 4th, has come down a little below INR 16,000 crores currently. And more than INR 10,000 cores of gold loans have been repaid by the customers and they have taken their jewelry, and we did not have any case of customer disgruntled or any asset quality issue or losses. And that actually has been a real trial by fire, which basically testifies that the systems and our credit underwriting has been fairly robust.
Other than that, I think there's a INR 200 crores of loss in a fair value. We had an AIF, which was actually -- tenure was expiring on the 1st of June, but the large investors basically opted for in specie distribution, and those debentures we also opted for the same, have been sold to ARC and broadly, there has been a fair value loss of around INR 150 crores there.
And also the SRs which we have with ARCs, they have been -- most of ARCs, valuations of the SR has been more conservative and there was almost a write-down of about INR 100 crores there. And there has been some provision write-back. So broadly, there is a INR 200 crores of it coming primarily from the AIF unit. Now our exposure to AIF is just about INR 5 crores, which is the minimum required as a sponsor. And all other assets have been -- the units have been redeemed and the debentures, which we received in specie, they have been basically disposed of to an ARC.
So with these two -- another question, which obviously will be there in investors' mind is how are our disbursements and the growth in the other businesses other than gold loan. So we have 3 more businesses, as you are aware. So in the month of March, obviously, because of the sudden shock, the business has slowed down after the March 4th. But in this quarter, home loan is more or less resumed and has become normal. And I think the disbursement in this quarter are expected to be similar to the same quarter last year, broadly in line.
However, microfinance still is under a little bit of caution in terms of availability of credit from the bank and growth that we want to basically have in this. We also want to make sure that this business also becomes foolproof in terms of compliance before we resume the normal growth. So the disbursement in this quarter compared to last quarter last year maybe about half and the book may go down a little bit in this quarter as well.
In terms of our operating costs, which again in Q4 since the RBI order came, we were on a growth path. And in particular, the microfinance business was also on an aggressive hiring spree for the branches that were set up in the quarter before. And March quarter typically also is a higher volume and higher costs as well in terms of the incentive bonuses, which have been committed or approved, they are also paid out. So the costs have gone up in the March quarter.
But now when we talk about this quarter, we have not retrenched any people. And obviously, whatever retrenchment is happening is normal course what was obtained even before the RBI order because we are very hopeful that we'll be able to resume our business. And even if it means operating cost or operating loss in terms of, maintaining the infrastructure, which is very important for us to do that because majority of the customers' jewelry and ornament, they are in the custody of our employees and our branches. So our branches and employees remain as it is.
And I must express my gratitude to all the employees because despite this uncertainty, they've been holding the fort with full commitment as well as confidence and faith in the company and the business, and they've been servicing the customers despite the fact that several lakhs of customers have closed their account. We did not have any customer service issue or any complaint from customer of any significance as such. So we hope that we'll come out of these crises and we'll have our compliance much stronger as we go forward.
I think with this, I'll hand it over to Kapish, and then I'll be back for Q&A. Thank you.
Thank you very much, Nirmal. Once again, ladies and gentlemen, a quick update on our financial performance in light of the environment that's currently there with RBI. The numbers are slightly muted. So for this quarter, IIFL Finance profit after tax before noncontrolling interest was INR 431 crores, down 6% Y-o-Y and down 21% on a quarter-on-quarter basis.
We recorded pre-provision operating profit of INR 990 crores, which is up 30% Y-o-Y and 3% on a quarter-on-quarter basis. For fiscal '24, IIFL Finance's profit after tax before noncontrolling interest was INR 1,974 crores. This is up 23% Y-o-Y and pre-provision operating profit was INR 364 crores, up 30% Y-o-Y.
Talking about the AUM, for the quarter, consolidated AUM grew by 22% on a Y-o-Y basis and 2% on a quarter-on-quarter basis to around INR 78,960 crores. Further dissecting the AUM, our core product driven by home loan, gold, digital loan, microfinance and LAP, so the gold loan had a de-growth. Microfinance in aggregate degrew by about 25% and 4% Q-on-Q. The segment now comprises of 97% on a retail book perspective because the CRE book degrew by around 31%. Our gross NPA is marginally high at 2.3% for the reason that Nirmal explained earlier, and the net NPA is about 1.2%, which is up by 48 basis points and 11 basis points, respectively, when we compare with the same period last year.
Our series guidance has been 2% of gross and 1% of NPA. We've slightly digressed there, but we're going to come back to those numbers in the soonest time possible. With the implementation of the excess credit loss under Ind As, our provision coverage ratio stands healthy at around 104%. And during this quarter, as Nirmal mentioned, the real estate AIF investments were matured and these assets along with 2 CRE accounts have been transferred to an ARC since there was a higher risk speaking with regard to recovery time for the ARC.
In line with our capital optimization strategy, 36% of our AUM is either assigned or co-lend to banks as of March '24. And going forward, we will see our relationship going forward in additional products like business loans and home loan payments on the co-lending side. The assigned loan book stands at INR 16,488 crores, down by 3% Y-o-Y and 12% on a quarter-on-quarter basis. Besides this, co-lending assets are at INR 11,639 crores, up 54%. Our quarterly average cost of borrowing has increased by 20 basis points Y-o-Y and 6 basis points to 9.13% as on 31st of March.
Now brief update on our liquidity position. So during this quarter, we raised INR 5,531 crore, prominent among them was INR 1,271 crores that we raised through the rights issue, we did -- and INR 500 crores that we raised through NCD that will be borrowed in the month of March.
Our cash and cash equivalents stand at around INR 6,559 crores, which is which is adequate for us not just to meet our near-term liabilities, but also to fund our growth as we go forward. We have a positive ALM whereby inflows cover or exceed expected outflow across all our buckets and our net gearing stands at 3.7x, not considering the INR 1,231 crores that we raised in the month of May.
Our annualized ROE for the quarter stood at 14.6%, while ROA stood strong at 2.9%. For the full year, it was 18.4% ROE and ROA of now 3.4%. Our basic earnings per share for the quarter is INR 9.8 per share and fiscal '24, it was INR 46.3 per share.
To summarize, as of March '24, our capital adequacy ratio for NBFC is 19.7%. If I would have considered the equity raise in the month of March, this capital adequacy would have been healthy at around 26%. Housing finance capital adequacy was 42.8% and Samasta was 24%.
So with this, I hand over the mic back to Nirmal for any Q&A that you open the floor now.
[Operator Instructions] The first question is from the line of Dhaval from DSP.
I just had two follow-up questions on the opening commentary. First is relating to the fair value impact. Just wanted to understand versus our last valuation, how much was the sort of cut down in our final realization? Just if you can spend a minute more to explain what led to this mark down, given that when the real estate market is doing reasonably well. Just any specific reason for the sort of reduction in the value? So that's the first question.
And second is relating to just given that bulk of the quarter is behind for 1Q, if you could just update on the liquidity position as well as on the growth across all the 3 businesses, how do you see that for the rest of year? And also, if you can give some perspective around assignment income, how that is likely to shape up in the current financial year?
Dhaval, so the mark down there's two components. One is ARC, the security receipts they have, and the second is a AIF unit that we sold. So in case of ARC, there's a valuation done by SR, there's a fair value, which is done every quarter. The real estate market is good, that is a fact and there's no denying on that. But this quarter-over-quarter valuation, they basically take the realization, the flow of interest and many other things. How rating agencies do this, I also don't have 100% insight into it, but these valuations are done on a quarter-over-quarter basis.
My perception is that given there's general caution with the regulatory stringency that we are seeing, people are becoming more conservative in terms of how they value their SR. But whatever we realize, we get our component of SR, which is maybe more -- typically is around 85% in many of transitions that we have done. So to that extent, this becomes like a temporary thing because ultimately, what you realize, the bulk of it comes to you, most of it comes to you.
Similarly, the second component is AIF, which is where we have like an real estate asset. So these units again, when they are sold to ARC, the typical 85% SR remains with us. And there again, because we have to do this transition a little quicker in the month of March, and everybody wants to be a little more conservative today when they value these assets. So the fair value was done every quarter, and we could have let it run the full course till 1st of June.
But there was concern about AIF, which RBI has raised several points in time that regulated entities should not have their loan accounts or these assets in AIF. Now these are little bit of a tricky case because RBI regulation said the last 12 months, these assets were transferred 3 years ago, but when they were transferred 12 months before they were on our books.
[Technical Difficulty]
Ladies and gentlemen, please stay with us. The management line seems to have disconnected. Ladies and gentlemen, we thank you for your patience. We have reconnected with the management. Over to you, sir.
Thank you. Sorry, for the disturbance. So the AIF also has been transferred as a negotiated value. And in case we realize more as the real estate market is good, then that would come as a gain on the SRs that we hold.
The second question about growth. As I said that the home finance, we are seeing that the growth is -- the disbursements have normalized. They're at a level maybe similar to what it was in the first quarter of last year. Maybe and going forward in the next few quarters, we'll see growth as the environment also has become positive with Prime Minister announcing the reinstatement of affordable housing scheme and the incentives for the same.
Well, I think the third question was about assignment income. So gold loan assignments have not happened, obviously, because of the RBI embargo. To that extent, assignment income will be impacted incrementally because whatever we could have got of this and the other income will run down over a period of time. And in housing finance, I think the assignments will go at normal course. But in any case, if you see our last year's housing finance, there was hardly any incremental assignment income, which is upfront is almost negligible, zero, is negligible. And therefore, we don't see any Y-o-Y impact there.
Nirmal, just one follow-up on the first point on the AIF unit. Just, these were transacted by 360 ONE for us and were largely sold to private investors, I mean, because I understand the maturity...
No, 360 ONE 61 is not involved in this at all. So there's no 360 ONE in this. It was straightaway sold to ARC.
Okay. Straightaway sold to ARC. Got it.
You know in the fund, I think 360 ONE had a INR 1 crore investment originally, but that remains. So there's no change there. But other than that 360 ONE has no involvement in this.
Understood. And just one final thing on the NSE stake that we bought, any update on that? Have we monetized that in this quarter or...
Yes. I think that has been bought in this quarter, June quarter, and by the end of the quarter, most likely it will be liquidated. And whatever gain or difference will be accrued in this quarter, June quarter.
The next question comes from the line of Anusha Raheja -- sorry, that's Deepak Poddar from Sapphire Capital.
Am I audible, sir?
Yes.
Now because of all this uncertainty, our costs have increased this quarter...
Deepak, sorry to interrupt, but the line for you is not very clear. Sir, please go ahead.
It's better now?
Slightly better, sir. You can proceed.
Okay. So I just wanted to understand now because of this uncertainty, even our cost this quarter has gone up, right, and even the cost to income is on a higher note. So how do we see that the cost-to-income in this year, FY '25? I mean will it normalize or will it stay at this range?
I think the cost-to-income also -- now, there are two. One is the total absolute cost might come down a little bit because although we have not retrenched or we are not reducing manpower as such, but the variable component may become lesser with the business and whatever cost control measures that we are taking. But cost-to-income ratio may remain a little more elevated because our gold loan book has run down.
And obviously, the income that we get, the net interest margin, which we are getting, say, on INR 26,000 crores from March, and actually would have grown further in the month of March, will be significantly lower. But once the ban is lifted, I think it will take a couple of quarters or a few months for us to try and get as much -- gain market share as much as possible. But because the income will be impacted, the total AUM is impacted, cost-to-income was impacted this year at least for -- this year negatively.
Correct. Absolute level, I mean, I think this quarter, it was around INR 1,060 crores, right? So on an absolute level, going forward, maybe it will be around that range only, right?
It should taper off a little bit with the savings and variable and whatever we are able to achieve. But it won't be significantly different, but it should be a little lower.
Okay. Okay. And I got that point. And on the gold loan side...
Our consolidated quarterly operating cost is INR 769 crores. INR 769 crores, that is the number that you're referring to, right?
Yes, this quarter, it was about INR 1,060 crores, right, on the operating cost.
No, I don't know which number you are referring to.
The consolidated operating expenses, right?
Consolidated operating expenses for the quarter is INR 769 crores. I think loan losses and provisions in this.
So it includes the fair value adjustment as well, right?
Okay. Fair value is one-off. So I don't think that INR 200 crores loss should not come back. I mean that is not recurring. The operating cost component is INR 769 crores, INR 1,000 crores. Fair value, as I explained, that is a one-off thing.
Fair enough. Got it. And do we have any kind of understanding on the gold loan side? I mean will the ban be lifted? Or how soon we expect it? So any kind of comment would be helpful.
Absolutely. Actually, it's all withheld, so I don't have any more insight into this. We are engaging with RBI and trying to satisfy and make sure that we meet all the requirements that they have.
Correct. Fair enough. And I mean, do we want to taper off the growth outlook that we have given earlier in terms of this year, 25% growth? So what may be the range we may look at right now, given the circumstances?
I don't think at this point in time, we can give an outlook or guidance on growth. First thing is this RBI ban is lifted. So our focus will be in compliance this year and the compliance risk management and control. So there's no guidance for growth that we can give.
The next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Sir, first question was on the SRs. What is the total quantum of SRs that we have on our balance sheet and against them, what are the provisions that we're holding today?
So SRs are valued at fair value. Every quarter, the ERPs basically do the valuation of them. And so we have SRs for all business in terms of microfinance, SME and construction. I think the standalone NBFC is a little less than INR 3,000 crores.
Okay. So in the standalone NBFC, we have total quantum of SR, which are a little less than INR 2,000 crores?
INR 3,000 crores, less than INR 3,000 crores.
INR 3,000 crores, okay. And versus this INR 3,000 crores of SRs, how much provisions will we be holding on this?
As Nirmal mentioned, they are marked down. So depending on the valuation that you get. There's a fair value, which is done, so basically provision is taken care of the fair value.
Got it. Sir, secondly, on gold loans...
So we have marked them down by almost INR 100 crores.
Sir, secondary on gold loans, I just wanted to understand, while you have already said, I mean the ball is now in RBI's court, but just wanted to understand after the special audit was concluded, what kind of conversations you've had with the RBI? And secondly, in gold loans, are you taking any cost rationalization measures?
We are having a very positive engagement with RBI. We are taking their guidance and trying to come up to make sure that there's 100% and highest adherence to their compliance. Cost rationalization measures, I said no, because we have fairly well-trained team and a business that has been built over the last 14 years assiduously. So we don't want to do any cost-cutting because customers' jewelry is in our custody, and we hope that we shall be able to resume business quickly. So at this point in time, I think we are running the entire infrastructure revenue. And we're doing all the necessary steps required to make sure that we retain all our people as much as possible.
Got it. And sir, in your opening remarks, you suggested, right, that gold loans are a little less than INR 16,000 crores now. This is as of May or as on date?
As of date.
As of date, they have declined to less than INR 16,000 crores. I mean, have gold loans seen -- especially employees in gold loans, have we seen any significant attrition in especially the frontline staff?
This is normal attrition, which has been there historically, but there's no additional attrition that we have seen. So in the entire crisis, we have been able to hold back our people and make sure that the customers are not inconvenienced and they are serviced properly.
Actually, it is just coincident that last year, we had announced the golden ESOP scheme, where many of our old employees were given 3-year bullet-resting ESOPs at INR 10, regardless of the stock price. Obviously, those stocks are significant in the money, and people expect to build their wealth, and that has been a good retention tool. But other than that, we are engaging with our people. And most of them are old, loyal, trusted people and they are fully confidence and faith in the company's business and our ability to steer clear of this.
Got it. And sir, my last question is again kind of circling back on liquidity and cost of borrowings. Understandably, you might not have had to borrow a lot incrementally after the gold loan ban. But how is it, the engagement with banks or that market participants going on after the ban?
And I think in your commentary or the press release, we said that we're now kind of thinking about more controlled AUM in growth. So understandingly until the time this ban gets lifted, it's difficult to really guide on AUM growth targets. But actually if start to kind of looking at more moderated growth going ahead, given that you spoke about gold loans will start going only after the ban gets revoked. In microfinance, we are again kind of looking at some calibration. So other than maybe digital loans and housing finance, we are seeing some moderation going ahead.
So I don't want to speculate about growth, and I don't think that it will be right to say it will moderate or not moderate. But what I'm trying to say is that we don't want to give any guidance to growth. And this year, primarily, we want to make sure that our assurance functions, which comprise of risk management, audit and compliance, this should become foolproof. This should become something like industry benchmark. And in terms of the organization goals, growth becomes secondary. But that doesn't mean that there's any guidance of a slowdown or acceleration of growth. But the best is that there's no guidance for growth. That is what how I would like to put it.
Secondly, in terms of liquidity, we have INR 6,559 crores in the liquidity as of March end, which is fairly comfortable. Even today, our liquidity is quite comfortable. And even before the crisis, we have always been conservative and kept our liquidity, which is enough to cover the contractual liabilities for the 6 to 12 months on the foreseeable period. So we have not faced any liquidity issue as such. And even continuing, I think liquidity is not the challenge right now, but what we need to put together is that once RBI's positive action is there, then we can resume our business.
Got it, sir. So just to sum that up, I mean, suffice to say that if at all we see any controlled growth going ahead, that will not be because liquidity is something that is constrained, is all that I was trying to understand.
I won't put an adjective of controlled growth, but yes, liquidity is not a constraint for whatever growth we have achieved, should not be.
The next question is from the line of [ Pranay Jhaveri ] from JNJ Holdings Private Limited.
Just one question from my side. Can you just elaborate on your comment earlier, which you made on microfinance?
In terms of what, what was the comment about microfinance?
Basically, you will see the book degrow or basically the disbursements are quite slow.
Yes, microfinance, basically -- microfinance growth has been slower in this quarter, in the current quarter that we are seeing. So microfinance business, historically, last few years have grown much faster. Actually, when we talk about growth, growth is neither a problem nor a solution, but when there is a growth that can be a source of the problem. And we'll be -- so what I'm saying is that we don't have growth as primary objective this year. Our primary objective is to make sure that our assurance functions are robust, our systems and processes are such that they are completely foolproof and they meet absolutely 100% the regulations in better spirit. So that is what the objective is.
Now in microfinance, there are 2 things that have happened. One is we are trying to make sure that our compliance is strengthened further there. And two is that after the RBI's embargo, the banks have been cautious in lending incremental credit to this business, microfinance. And we also see that as an opportunity to make sure that we make our systems and processes more robust and make sure that there is reassessment of our control system. So 1 or 2 quarters, the microfinance will remain slow, and that actually gives us an opportunity to make sure that our house is fully robust and properly modeled, but that is what my commentary on microfinance is.
Sir, just one clarification here, that would be helpful. So is this because of the embargo of RBI for the gold loan business or there is something to...
What happens is that yes, embargo of RBI for gold loan business, the banks have become cautious about lending to all the businesses. But in case of housing finance, we have raised equity capital and we have a fairly robust capital adequacy there. And also, it's an entity which is regulated by NHB as well and in terms -- so all the businesses work differently and separately. But microfinance credit lines have been impacted more.
So this would be on the liability side because we are hearing from the noise of RBI in terms of higher interest being charged. Is there something to do with that?
It's the microfinance sector, actually. So yes, there has been RBI concern about these things. And everybody I think, the association is also looking at it about the interest rate and the other things about the industry. See, this industry long term has tremendous potential, and it does a very -- it serves a very good social cause because people at the bottom of the pyramid, even if they borrow at say 22% or 24%, what is the current rate typically in the microfinance industry, their alternative -- this is my understanding, but obviously, I don't have any authentic research in my hand, but obviously, with our people, with our branches and whatever feedback we get from our customers, the alternative cost of funding for these customers at the bottom of pyramid would be significantly higher or complete nonavailability of capital. And even by paying this kind of interest rates, most of them see significant improvement in their living standards.
These are like handicraft or people who are like vegetable vendor or those who are doing certain cottage industry, for them capital is such a constraint that if some -- a small amount of capital also can basically change their lives. So the industry has a good purpose and a good cause, but there are certain regulatory practices, which may get tightened. And obviously, industry and regulators will work together for that.
Great. So to sum it up, do we see AUM degrowth?
In this quarter?
Not, for this whole year.
I don't think so. I think we should be able to catch up over a period of time, over the rest of the year.
So like a flattish year for microfinance this year?
See, I am saying it's difficult to give guidance, but what we have to do is that there is an -- the industry will grow, will participate in that. This quarter will be slow. But in the next quarter, as we get very confident about our assurance, we might be in line with the industry. So it's very difficult to give guidance, but we really have to see how things evolve from here.
The next question is from the line of Anand Laddha from HDFC Mutual Fund.
Sir, if you can give some more clarification on the value of SR? So what is the gross value of SR at the consol level we are holding? And what is the current markdown value of those SR?
I don't have these numbers readily with me, but we can figure out. So what happens in the case of SR is I don't think that -- the concept, the way it works, accounting and the index is, they are valued every quarter. They're just like you know the stocks or any other issuance for that matter and then you take the value. So many times values goes up with the accrued interest as well as the gains that are there, but I don't have those gross value mark down number. But we value at the basis the fair value what we get from the ARC.
Okay. But sir, we would at least have the marked-down value of those SR we are holding today?
No, I you why it became very difficult to do that because once you are SR and whatever repayment has come, that basically keeps adjusting the value. So the gross value supposed 2 years ago, 3 years ago, we have issued certain SR, there will be quite a few repayments done over a period of time. There may be small, small repayments but every quarter they come, so we have to keep adjusting the value. And plus, there's a pool which keeps changing over a period of time. So it's not really -- it is not an instrument which is static because if there's a repayment, NAV goes down. And then the mark-to-market is up or down, so it keeps changing every quarter and it's a pool. So some of the SRs would have been issued last quarter, some of the SRs would have been issued 2 quarters, 3 quarters, 1 year, 2 years back. So it's all, to segregate and find out gross value is really difficult. It will be very different for every SR.
Okay. So I'll take that offline. Sir, if you can give some clarification on the NSE transaction we did, sir? It's not a usual business transaction. So at one instance, we are taking a liquidity support from Fairfax, one of our large stakeholder, and at the end of the transaction, we are buying some equity from them. So if you can give some rationale for this NSE transaction?
So as per our internal treasury policy, out of the liquidity that we have, a small percentage can be put into, say, such as equity, IPO or other equity-related instruments, but with a short-term objective. Now this transition was contracted before the RBI order, which is before 4th of March. But I don't know, as a group, we have more than 2% of NSE in various funds of our 360 ONE and others. And therefore, the approvable process is a little longer and NSE took more than couple of months to approve the transaction. Now obviously, Fairfax have contracted the trade before the order and the approval came later, but both the parties were committed to honor the contract. And that's how the transaction was consummated after the order and that is when it came to the public as well as the limelight in terms of discussion.
But having said that, as I said, our treasury policy basically is to -- these equity instruments are only for short duration. So they will be liquidated during this quarter. So I think, I mean does it answer your question?
Perfect, sir. Lastly, on the NPA side. We have seen some increase in gross NPA in the gold loan as well as developer loans. So if you can include some color on the same?
So I think I explained in my preamble that gold loan, there are rollover cases, where earlier we took a view that if there is more than 75% of LTV cover, I mean the loan is less than 75%, we can take it as a new loan or we can deem it as a new loan. But auditors have taken a view that, that is not the case. And these have to be treated as NPA. But when we have rolled over for the customer, we can't really press the customers for repayment faster. So we have to wait for the rollover period to get over. So in this quarter or next quarter, they'll come back to normalcy. But as I said, in our gold loan portfolio, almost the book has sort of reduced by 40%, but we did not have any case of a customer complaint or a loss or any other problem for that matter, touch wood. So this is about the gold loan rollover.
In case of construction loan, there's one case, one loan of around INR 60 crores or so, where there is 1 quarter delay in the period, but we are faring strong quality over there, but they are happily classified as NPA because there's more than 90 days delay there. But that will be -- I don't expect any loss there. But it has spiked the CRE, GNPA for the quarter because now the book also has become smaller after the ARC transfer. So the smaller book, that INR 60 crores also becomes significant.
Perfect, sir. And lastly, sir, on the Housing Finance business, at least you don't have any liquidity challenge in that business and that business can continue to grow.
Yes. Monu is here with me. Maybe he can talk -- share his thoughts on this. Monu, the CEO of Housing Finance.
So in housing finance, usually as you know, the Q1s are a bit muted because of lot of changes happen. But keeping that in light, we are very much the way Q1s are and our disbursement of housing finance business are as usual as they would be in quarter 1. So this was as per our annual plan as well. So we are doing pretty fine there.
The next question is from the line of Anusha Raheja from the Dalal & Broacha.
Sir, you had AIF exposure amounting to around INR 1,200-odd crores, which was supposed to get matured. So. I mean, the loss there is notional or you have booked it, it's a realized one?
No, it is not -- okay. So this loss can be recouped if these assets basically realize -- almost 85% of loss can be recouped because there's a higher realization, then this SR, 85% share come to us.
And so in Q1, can you expect normalization in the gold loan NPAs? Or do we expect a rise in the NPAs in the gold loans to continue in the Q1 as well?
No. I think NPAs of gold loans will get normalized partly this quarter, partly next quarter, but hopefully next -- by next quarter, more or less, they will be in line with the historical normal trend.
And what resulted in rise in commercial real estate loans NPA?
The high NPA because there is one loan where the installments was not paid and it became over 90 DPD, so that will be classified as NPA.
The next question is from the line of Abhishek Murarka from HSBC.
So my question is on the standalone business. So in the period where there's a contraction in gold loans and you can't disburse, you'll still be maintaining the infrastructure, the people, branches, all of that. So that cost will obviously stay on the book. So is there any alternate business that you are planning to do in the meanwhile? Or just how do you plan to use that infrastructure? Or did you just maintain it and wait for the approval from the RBI? What's the strategy there?
It's a good question, Abhishek. So we thought and implemented, we deliberated and debated a lot on this. So one is that the people who are still in gold loan, while we have tried to change them in unsecured business loan as well as LAP and also they're cross-selling insurance and other products. But because their core is gold, and as we expect that in a short time, we should be able to resume our business, based on that premise, we have not disturbed their infrastructure.
But what we have done is that we have told our people to engage with customers and track them carefully, service them properly, so that whenever business resumes, we can back our own loyal customers as quickly as possible. So that's a call for us to take. So in terms of -- I don't think we'll diversify in terms of strategic focus, but the product that in any case we've been doing where we have the core competency, that is where we can use these branches more intensively because what happens is that if this is matter of two months and you -- any new business for that matter will take a few years to stabilize, go up the learning curve and get critical mass. So we just -- we thought that we stay put, we'll do certain cross-sell and mitigate the damage. But other than that, we will wait for the goal loan business to resume.
I was thinking of something like sourcing gold loan for a bank, where you can keep using your customers and you're not disbursing anything to the bank...
I think we can do -- we can become a business correspondent and source 100% to the bank. And that is not something, which is prohibited. Now the challenge is that every integration in terms of process technology is fairly long, particularly with banks because even in co-lending, it takes 6 to 9 months because almost the real-time KYC check and credit underwriting. So what is happening is that, we try to file a bill, but we realized that if the normal business offices will resume, say, in a short time, say few weeks, then it may not worked therefore to change the course because it's a huge effort.
And then when the co-lending starts, then we are already tried and tested for co-lending. So we can do all other activities quicker if we don't digress, that is what the thought is. But we have piloted. We have talked to few banks, and we are still working on it. We are keeping it ready as a backup emergency plan in case there's an inordinate delay. There the margins are also different and there are many other implications in terms of process flow technology and integration.
Got it. And in terms of the RBI conversation, while I understand there won't be any time line, you yourself might be a little unsure of the time line. But after the RBI comes back, then how long does it take for you to restart, let's say, whenever they come back?
So, okay, we have been engaging with RBI, so they will be supporting and they'll be helping us understand the issues and how to navigate. But whenever the ban is lifted, we can come back quickly because immediately in the next year, we can start the business. Now the question is that the bank credit line, typically banks also take some time to process the application, which will take about 1 month to 1.5 month. But we already have liquidity cushion. So the co-lending in many other -- these transitions can start very quickly, immediately maybe on the next day or within a week if I had to be -- maybe a little more conservative. But I think the business will start immediately and gather momentum as we go along. So within 1 month or 2 months, we'll try and get back to the disbursement level that we were, and within a few months, maybe 6 months, we'll try and get back. We'll hope or look forward to get back the critical part of our market share back.
Okay, sure. And just lastly, in terms of MFI. So till the time the ban lasts, you expect some liquidity tightness to continue? Or can that be independent of the ban and slowly lenders get comfortable and start lending more? How do you see...
See, microfinance you know -- Venkat has joined the Board, and we also got very marquee people on the Board. And we are -- the business model is also under review and making sure that is robust from long-term point of view. So hopefully, that business in terms of the disbursement pace should pick up from next quarter and will accelerate from there.
The next question is from the line of Dhaval from DSP.
Just few more questions. First is on this running cost of the gold loan business now, Nirmal, if you can just give some perspective around it. And also what's the potential runoff that we expect in the next couple of months? So that's one part.
And the second is on the NPA in the digital PL book. While the book is small, but just any thoughts of -- I mean seasonally, 4Q is normally a good quarter. So any specific reason? And are you seeing some bit of pullback in 1Q? Or it's...
I think you voice is getting muffled. Your first question was, what is the running cost of gold loan, right?
Yes, running cost of gold loan and the runoff that is expected in the next couple of months in the book. And the second question was relating to the digital PL book, we've seen a spike in the NPA in the fourth quarter, which is a seasonally good quarter. Just is that getting arrested in 1Q or it will likely deteriorate further? And what's the course correction that we are taking in that portfolio?
Okay. So gold loans, our standalone running cost is around INR 320 crores -- INR 360 crores in a quarter, which is around INR 120 crores per month. But that includes the top management costs as well as business loan and a significant part of the cost is difficult to separate. So that is one thing.
Second thing is about digital finance. That book has a higher yield and slightly higher losses also. But over medium to long term, I think business still is profitable and generates the required ROA. Now in that business, what has happened is that we have -- in terms of small ticket business loan, what we are doing is smaller and smaller. And because regularly your yield goes up, yield is maintained at a higher level and your NPAs may go up a little bit. So I think that is a character of that business.
But what we have done in that business also is that there are certain changes that we have done in terms of the credit underwriting process as well as the ticket size. So what you will see in this year is that ticket size might improve a little bit and the GNPAs will fall. So if you say from FY '24 and to FY '25 end, then our internal business strategic plan is digitally to bring down the GNPAs, which are between 3% and 4% to closer or maybe less than 3%, 2.5% or more closer to that. And that might, in fact, yield a little bit. But broadly, I think this should be in line with that. And the business will have robust growth this year also.
Understood. And maybe just one, on that runoff in the old book, that's roughly about INR 3,000 crores kind of number per month?
So runoff in the gold book is almost about 10% per month.
10% per month. And does it accelerate in the rest of the year because of the residual maturity being now relatively lower compared to where we started? So does the principal runoff accelerate as we progress month after month?
Not really because at any point in time, we have a book which has different residual maturities. So like suppose in March when we had a pause, so there would have been loads of Feb, Jan, December and going back. So broadly, there would be any acceleration in the runoff. But as the book goes down, the actual amount of runoff will also go down.
And just to the question that Abhishek asked around this alternate option, including the BC one that you talked about, at what point do you -- will we decide to sort of move in that direction? I mean, is there a particular time line that you have in mind around which we think of this INR 120 crores fixed cost that we have largely to reutilize that in other ways?
So I think maybe by September, hopefully, there are -- actually when we will be engaging with RBI and we are taking their guidance, they are very supportive and making us understand, and they also understand the problems and the issues that we are passing -- going through.
So I think what they have asked is also the compliance is done and they also want the business to resume and support. So there's no reason to be very pessimistic about this business as such. But still to answer your equation, if these things continue for 3 more months then we'll obviously look for -- or maybe 2 to 3 months more, then we'll look for alternate plans, which will be a significant cut in cost or auditing other businesses as such.
Understood. And our audit for FY '24, will be starting any time or it's already underway, the RBI audit?
So audit cycle started. So maybe the next year's -- I mean, FY '24 audit will start any time. We have no idea on that, but that can start at any point in time now. I think the cycle starts from July, if I am not mistaken. I think they are very ambiguous. I think they will take it up from July onwards.
[Operator Instructions] The next question is from the line of Gokul Raj from Bavaria Industries Group.
Any updates on the business front because there is only one...
Sorry to interrupt, but the line is not very clear. We are getting a slight echo as well from your line.
Is it better now?
Yes, much better, sir. Please go ahead.
I was wanting an update on the business loans because all the other 3 segments have been updated. So any update on the business loans?
Business loans has many segments, one is unsecured business loan, the second is supplies and financing, and the third is loan against property. On a smaller base, that business has been growing at a normal pace as it was growing in the last quarter. So that business on a relatively smaller base will continue to grow this year.
Okay. Because the standalone business -- the business loan in the standalone NBFC, has that had a huge impact? Or that is continuing as per your plan?
No. In the standalone NBFC, the business continues as standalone NBFC and so the disbursements are at normal pace.
That was the last question, ladies and gentlemen. I would now like to hand the conference over to the management for closing comments. Over to you, gentlemen.
Thank you very much, ladies and gentlemen, for joining this call and for your patient hearing. For any further queries, you may reach out to the Investor Relations team, and we'll be happy to address any queries that you might have any further. Thank you very much, and connect back with you soon.
Thank you so much. Thanks all investors for being on the call and your support. Thank you.
On behalf of IIFL Finance Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.