JM Financial Ltd

NSE:JMFINANCIL

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the earnings conference call of JM Financial Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Vishal Kampani. Thank you, and over to you, sir.

[Vishal Kampani, executive]

Thank you. On behalf of JM Financial, we extend a very warm welcome to all of you to our earnings call conference -- our earnings conference call to discuss the financial results both for the fourth quarter as well as the year ended March 2024. We have uploaded our results presentation, press release and financial results on our website and stock exchanges.

I hope all of you have had a chance to go through the same. I will now take you through the brief highlights and then Nishit, our CFO, can take you through the numbers. I'm very pleased to report that we've reported our highly -- highest ever operating revenue for the year ended 2024. And this is largely on the back of strong momentum in our investment banking and our platform, AWS and Retail Mortgage businesses. We have been the #1 franchise in IPO and QIP for FY '24. And we have also seen the highest ever profitability in our integrated Investment Banking segment. The ROE for the Investment Bank for FY '24 stood at 25%.

Our AWS business has gained strong traction. Our mutual fund AUM has crossed INR 8,000 crores currently. And for the month of May, it is almost INR 5,000 crores plus in equity assets. The Brokerage business has done very well with average daily turnover upwards of INR 55,000 crores, which is up 70% Y-o-Y. And our steady margin trade finance book is up almost 120% to INR 1,400 crores.

We have made further investments in digital as well as our Asset Management businesses, and we'll continue to do so over the next 2 to 3 years. During the quarter ended 31st March 2024, we have recognized a loss amounting to INR 985 crores on account of fair valuation of investments and loans in our Distressed Credit business. This was primarily related to one large account, which is approximately INR 847 crores. And this large recommendation was due to a change in resolution strategy and plan, which we had operated in the last 2 quarters, 3 quarters and the subsequent events that have happened post the balance sheet date.

Adjusted for this provision, we have reported our highest ever operating PAT in the history of the firm for FY '24, which is INR 984 crores. Strategic update, I would like to take you through the strategic direction for the various businesses as discussed and approved by the Board of Directors. The Wholesale Credit businesses, which we combined our real estate lending, our bespoke/corporate lending, our distressed credit, which we did through our ARC, as well as our financial institutions financing have seen a significant shift in the risk adjusted return, especially for wholesale focus financials.

In light of the same, it is thought prudent to refocus our expertise in the Wholesale Credit business by pivoting them from its on-balance sheet nature, on-balance sheet business model to more of a distribution-led syndication-driven business model. We are seeing a lot of opportunities in the entire syndication and distribution space in the private credit side and we feel that over the next 2 to 3 years, the opportunity will be significantly expanded in the Indian market and will be as large as our equity franchise, which completely runs on a distribution and syndication platform.

So we are very excited. We have some great people, some great teams. And over the next one year, we would pivot these teams on a syndication and distribution-led model. We are also seeing an opportunity in the alternative investment fund space for some of these businesses, and we will very closely plan on how we can even pivot some of our balance sheet investments on an alternative credit platform.

The group will sharpen its focus to further scale its fee and commission generating high growth, high ROE business, which are investment banking, institutional equities, retail, high net worth investors facing asset management, mutual funds as well as Broking and Investment Advisory businesses. These have an adjusted profit after tax of approximately INR 500 crores, and this INR 500 crores is absolutely purely based on fees and commission, and it does not rely on any leverage to generate this profit. The affordable housing focused Retail Mortgage business continues to be an integral part of the group and has demonstrated strong performance over the last few years. And we are targeting an AUM of over INR 6,000 crores in our Retail Mortgage business by FY 2027.

As the gradual pivot from on-balance sheet lending to a distribution and alternative structure takes place over the next 3 to 4 years, we expect an incremental cash release of approximately INR 2,000 crores over and above almost INR 3,000 crores of current cash that we are holding in both of our NBFCs.

With this, I will now hand it over to Nishit to take you through the numbers, and then we can focus on Q&A.

[Nishit Shah, executive]

Thank you, Vishal. We reported our highest ever consolidated revenue in the year ended March 31, 2024 at INR 4,832 crores, an increase of 45% year-on-year. The adjusted pre-provision operating profit stood at INR 1,915 crores, an increase of 48% year-on-year. During the year, we had taken a total impairment loss of INR 562 crores in the Wholesale Mortgage business. our profit after tax adjusted for the loss on account of the Distressed Credit business stood at INR 984 crores compared to INR 704 crores in FY '23. It represents an increase of 40% year-on-year.

For quarter ended March 31, 2024, our revenue stood at INR 1,276 crores with a year-on-year increase of 46%. The increase is across fees, commission and brokerage income. Our adjusted pre-provisioning profit for quarter ended March 31, 2024, stood at INR 669 crores, an increase of 129% year-on-year. We have taken provisions of INR 257 crores in the Wholesale Mortgage business for the quarter. Profit after tax adjusted for the Distressed Credit business loss stood at INR 345 crores compared to INR 165 crores, an increase of 110% year-on-year.

As on 31st March 2024, the consolidated net worth, excluding minority interest stood at INR 8,438 crores, which translates to a book value per share of INR 88.3 per share. The consolidated loan book stood at INR 12,917 crores, which is down 17% year-on-year on the back of some repayments during the end of the financial year. The breakup of the loan book as on 31st March 2024 is as follows: Wholesale Mortgage. Wholesale mortgage constitutes 38% of our loan book, which is approximately INR 4,917 crores. The loan book has seen a decline of 42% year-on-year.

Lease book financing. Lease book financing loan book which includes corporate and promoter financing book constitutes almost 23% of the total consolidated loan book. The loan book stood at INR 2,936 crores, an increase of 11% year-on-year. The financial institution loan book constitutes 11% of our total loan book at INR 1,477 crores, a decline 7% year-on-year. Capital Markets loan book comprises 3% of the overall loan book, which is approximately INR 348 crores, a decline of 67% year-on-year.

The Retail Mortgage loan book constitutes 25% of the total loan book at INR 3,239 crores, a year-on-year increase of 59%. We are happy to state that we achieved the highest ever quarterly disbursement of INR 449 crores in this segment during the quarter ended March 31, 2024. The above loan book breakup does not include the SEBI MTF loan book, which is part of our Brokerage entity at INR 1,410 crores.

Coming to asset quality, the gross NPA ratio of the Lending businesses stood at 4.7%, net NPA at 2.2% and SMA-2 stood at 1.6% as of 31st March 2024. The pre-COVID loan book stood at INR 306 crores, which is 2.4% of the total loan book as of 31st March 2024. The comparative numbers for March 31, 2023, stood at INR 1,571 crores. On a consolidated basis, our debt-to-equity stood at 1.5x. Our cash and cash equivalents stood at INR 4,769 crores as of March 31, 2024. During the year ended 2024, we raised INR 3,585 crores through long-term borrowings. Our borrowing comprises 86% from long-term sources and 14% from short-term sources.

Moving to segment results. The first segment is our Integrated Investment Bank. The Integrated Investment Bank focuses on all our institutional, corporate, government and ultra-high network clients. The business lines include investment banking, institutional equities, private wealth, PMS, fixed income, private equity funds, balance sheet as well as our international operations.

Within investment banking, it includes equity capital markets, private equity, debt capital markets as well as advisory business. We are happy to state that JM Financial has been ranked #1 in big tables for IPO and QIP issuances for the financial year '23-'24. The pipeline of transactions is extremely robust. For the year ended March 31, 2024, the segment reported revenue of almost INR 2,000 crores, which is an increase of 52% year-on-year. The profit before tax stood at INR 911 crores, which is an increase of 87% year-on-year. And profit after tax stood at INR 706 crore, which is an increase of 90% year-on-year. The ROE and ROA from these segments stood at 24.6% and 9%, respectively.

For Q4 '24, the segment reported revenue of INR 605 crores, which is 1.25x increase compared to last year, profit before tax of INR 395 crores, which is 2.8x increase compared to last year and profit after tax was almost INR 300 crores which is an increase of 3x Y-o-Y. Our Private Wealth segment caters to high net worth individuals and has assets of almost INR 68,000 crores, which is an increase of 21% year-on-year. PMS assets have increased by 61% year-on-year to INR 1,759 crores as of 31st March 2024.

The second segment is Mortgage Lending, which is again subdivided into wholesale mortgage and retail mortgage. Wholesale mortgage includes construction finance, project loans, loan against security as well as structured financing solutions for real estate developers. Retail mortgage includes affordable home loans, small ticket loan against property as well as education institution loans.

For the year ended March 31, 2024, the Mortgage Lending segment reported net revenues of INR 842 crores, a pre-provisioning profit of INR 657 crores. The impairment provisions in our Wholesale Mortgage business for FY '24 stood at INR 562 crores compared to INR 137 crores in FY '23. Profit before tax from this segment stood at INR 88 crores and profit after tax post noncontrolling interest stood at INR 31 crores.

For the quarter ended March 31, 2024, the net revenue and pre-provisioning profit stood at INR 229 crores, and INR 173 crores in this segment. Impairment provisions for the Wholesale Mortgage business for the quarter stood at INR 257 crores compared to INR 48 crores in Q3 FY '24. The loss before tax for the quarter stood at INR 86 crores and after tax and noncontrolling interest stood at INR 33 crores. On the Retail Mortgage business, we have built a very granular retail mortgage book of INR 2,104 crores across 17,500 customers with an average ticket size of 11 lakhs, carrying an average yield of 13.2% and loan to value of 58%. Our book is well spread across 9 states and 112 branches.

The third segment is a combination of Distressed Credit and Alternative Credit businesses. It largely includes our Asset Reconstruction business. On the Distressed Credit business, our AUM stood at INR 14,500 crores. For the full year, March 31, 2024, the segment reported adjusted net revenues of INR 162 crores and adjusted profit before tax of INR 80 crores.

Profit after tax adjusted for the loss on account of valuation of impairment, fair valuation of investments and impairment of loans post noncontrolling interest stood at INR 47 crores and reported loss after tax stood at INR 527 crores. For quarter ended March 31, 2024, the adjusted net revenue stood at INR 27 crores and adjusted profit before tax stood at INR 11 crores. The adjusted PAT post noncontrolling interest stood at INR 7 crores, whereas the reported number stood at INR 567 crores.

The fourth segment is Platform AWS. The business is completely focused on providing an integrated investment platform for all individual clients of the company. It comprises of asset management, wealth management and securities. This platform is Internet-enabled and digitally focused. We are in an investment phase on both asset management and digital businesses, the financials reflect the investments made in these areas.

For the year ended March 31, 2024, the Platform AWS business segment reported revenues of INR 978 crores, which is an increase of 75% year-on-year, profit before tax of INR 117 crores, which is 4x as compared to last year, profit after tax post noncontrolling interest stood at INR 90 crores, which is an increase of 2.5x year-on-year.

For quarter ending March 31, 2024, the revenue from this segment stood at INR 300 crores, an increase of 99% year-on-year. Profit before tax stood at INR 58 crores compared to a loss of INR 13 crores for the same period in FY 2023. Profit after tax and noncontrolling interest stood at INR 46 crores versus a loss of INR 6 crores for the same quarter last year.

Our network includes -- has expanded to 814 locations across 215 cities through our own branches as well as a network of franchisees. Our Elite Wealth business caters to affluent clients, and we have about 53 advisors across 8 locations. The AUM stood at INR 1,901 crores demonstrating a 55% increase year-on-year. Our Retail Wealth business which predominantly deals with retail customers through a network of 13,500 active independent financial distributors stood at INR 28,795 crores, recording an increase of 21% year-on-year.

We are happy to report that the closing AUM of JM Financial Mutual Fund has increased to INR 6,189 crores as of March 31, 2024, an increase of 2x over last year. Within this, the closing AUM of equity schemes almost grew 4x to INR 3,857 crores as of 31st March 2024. Our current AUM has crossed INR 8,000 crores while equity AUM has crossed INR 5,000 crores.

With this, I would like to conclude, and we are happy to take further questions. Over to the moderator.

[Operator]

[Operator Instructions] The first question is from the line of Heramb Hajarnavis from SeaLink Capital Partners.

[Heramb Hajarnavis, analyst]

Vishal, congratulations on record operating revenues and profits. My question relates to the strategic announcement that the company has made. And I was wondering if you can comment on the factors leading to this decision, what metrics you think would allow investors to track progress on the strategic shift, and finally, do you believe that such a change of focus on what sounds like more fee-paying segments should also lead to a change in the valuation framework for the company to more of a fee-based multiple than a price-to-book multiple? So if you could just comment on that, I would appreciate it.

[Vishal Kampani, executive]

Thank you, Heramb. That's a very interesting question. So let me just give some background, as you would have observed in the last 1 year, 1.5 years, we have been discussing with our investors on calls as well as in meetings on the strategic direction of the Wholesale Credit business. And at the same time, I'll just point out some significant sort of changes that have happened over the last 12 to 18 months, one which I've been consistently speaking about is the competitive intensity is sort of back in the business, especially from a lot of AAA-rated NBFCs, number one. Number two, lot of banks which is pushing down in some of the segments of clients that [indiscernible] to.

Number two is there is a big gray area around land financing and approval financing. What we understand is that banks have subduing land and approval financing and it is not very clear from a regulatory perspective whether NBFCs are allowed, not allowed or will be allowed to engage in land and approval finance. Land finance has been close to almost 15% to 20% of our book. And if we extend that to approval and initial sort of preconstruction finance, that's another 15% to 20% of book.

So largely 30% of our book, which is the higher-yielding part of the business that we do between 30% and 40% is sort of a business model which will have to pivot out of balance sheets of both banks as well as NBFCs. Third, some interesting new draft sort of regulatory paper, which substantially increased provisioning requirements on real estate and infrastructure sectors, and if you specifically see, real estate, it is -- the paper talks about 40 basis points provisioning cover expanding to almost 500 basis points, which is an increase of 12.5x.

Assuming that there is some relaxation on that, it is still a pretty significant number. I think on average, our provisioning will be closer to between 1% to 1.5% or slightly higher. So even if there is relaxation from 500 basis points on standard assets to maybe 303, it mean there is a doubling of provision on standard assets that we already have on balance sheet as well as the same provisioning would apply to all standard assets that we put on balance sheet.

This kind of shaves off close to almost 1% plus of ROA effective immediately on new loans and existing loans. And for the -- we are seeing a lot of AIS and a lot of private capital that are being able to do the land finance and the approval finance. And real estate developers have realized that when they're taking early-stage financing, it's just easier to do that from an AI platform than doing it from an NBFC platform for reasons not just related to pricing and the regulatory forbearance at least with banks in terms of doing land financing, but also it's more longer-term capital with a lot of relaxation on interest servicing.

And the last challenge and the most important challenge is that for the success of -- long-term success of any good wholesale credit business in a country, I think the recovery time lines on these assets needs to be very tight. And our experience specifically after the IL&FS crises followed by the COVID waves, as well as all of the geopolitical tensions where we had a lot of issues in the commodity cycle, we realized that whatever we model in terms of our model that we can recover NPA in 18 months, we realized that the recoveries of these NPAs take almost 3 years to 3.5 years.

And this becomes kind of a pretty heavy burden on the NBFC balance sheets because it's like deadweight capital sitting on your balance sheet, which is not utilized and you're not recovering that deadweight capital back into cash flow. So that again puts almost 1% of pressure on incremental ROA that you may generate on the business over 3 to 4 years.

And another challenge we face on the NBFC side is that many of these assets, which don't do well are either early stage or in the middle of construction where there is an external event that has hurt the assets. And as an NBFC, you have to provide capital to re-correct the asset, working capital or construction finance to re-correct the asset. That working capital is classified as NPA. So that again becomes a challenge because you're trying to put more capital behind an asset which is already struggling and then you have to provide that as NPA, which creates an issue on your liability side because your NPAs rise and then your cost of liabilities go up.

So all in all, we figured that this is a business that needs to pivot our investors, both on the equity side and the credit side need a clear message. And therefore -- we had a lot of deliberations in the last 6 months. Many of these questions were actually pointed out by investors to us, whether on our earnings calls or in our private meetings. And Finally, we have taken a decision both at our NBFC Board level as well as our listed company Board level, and we will pivot these businesses. We have great teams, great expertise.

We've learned a lot in the last 10 years, 12 years in the upcycle and the downcycle. And I think we'll be able to make fabulous sort of investment banking-led distribution and syndication business, and we will have a strategic AIF in the group, specifically for land financing and approval financing, where we have a ton of client relationships, and we'll be able to use those relationships to give them money from an AIF perspective.

So that is sort of the strategic shift in the real estate book. And while we were primarily discussing real estate, we also figured in the last 6 months that similar things apply to many of the other businesses. Look at Distressed Credit, for example, we have to -- we are probably the only ARC in India, which took turnarounds and reconstruction pretty seriously. And RBI built and allowed these licenses in ARCs from a perspective that ARCs would actually turn around assets, provide them reconstruction capital and bring units back to a condition, and I think we had kind of taken that very seriously and we invested a ton of money to restructure and reconstruct many of these assets.

And again, we realized that from a balance sheet perspective, the liability in Distressed Credit business can be very fragile. And a lot of people who lend on a distressed credit platform, lend on group strength, they lend because of JM Financial group backing in ARC. And we realized that, again, the time lines to sort out these assets and the outcomes on what we consider the right valuation, the outcome is actually pretty lower compared to what we've modeled in the last few years. So again, the turnaround and the reconstruction sort of assets, we will pivot to an AIF model as well as a syndication and distribution-led model. RBI has allowed us to do 2.5 -- 97.5% structure. And that again, marks many of these assets on to a fee-based model.

So again, we will go completely leverage-light on the ARC. We will use our balance sheet to acquire only opportunistic retail MSME assets, which portfolio has done very well. And most of our turnarounds and strategic sort of initiated with partners for distressed assets will be more into our AIF platform. We built an [FISD] business again that can scale nicely from INR 1,500 crores to around INR 3,000 crores to INR 4,000 crores. But again, we are lending to NBFCs. Some of the NBFCs who have borrowed from us [indiscernible] fintechs and unsecured players.

And again, we are seeing a big shift in the terms of risk reception, especially for fintech and unsecured players from a regulatory perspective and generally, what we are hearing in the markets, and the idea there, again, is that can this secularly be a large business? Can we make a INR 10,000 crores or INR 15,000 crores business over here? And the answer is, no. And therefore, this will morph again into a syndication distribution business, as well as we will create a specific AIF, which is hybrid kind of AIF where we will take 80% exposure in credit and 20% exposure in goods, fast-growing sort of NBFCs in specialist areas.

Our Bespoke business, which is corporate as well as our Promoter Finance business, which works with the investment banking world has already marked very successfully into both a successful sort of distribution and syndication-led initiative. And second, it's already built an extremely good AIF. We're expecting to close at over $100 million in commitments very soon. And that actually has nicely sort of integrated both, as I said, on the investment bank side in terms of origination and distribution on AI side. So a similar model will be adopted for all of the wholesale finance business.

So if you fast-forward, say, 3 years from now, we will be extremely balance sheet light in terms of, literally our net debt to equity will be 0 in the next 3 years in both our NBFCs. We will not hold cash. We won't hold leverage. And therefore, our incremental borrowing requirements will be very closely linked to transactions which will be sold out, which will be distributed. We don't see the need to be in the project finance in the long-term financing space. We are hoping that we would be allowed to do the land business again from the -- from RBI very shortly, and that is a business we will continue doing, which supports our capital markets and our wealth business. And as I said that in both these NBFCs, we are currently holding around INR 3,000 crores of surplus cash. And over the next 3 to 4 years, we will generate more than INR 2,000 crores of surplus cash already from the rundown of the book as well as other initiatives, which will grow profit.

So this is kind of the whole strategic shares. I'm glad you asked that question so I could take the opportunity upfront in the call and kind of explain how we are looking at the business. And on the -- it's a very interesting thought on price to book versus fee. And I kind of agree with that. I mean, when we see our valuation, when we see the way people view us, there are lot of investors who will be very keen to see a leverage light and a fast-growing sort of company, which is focused on more granular businesses and that would more [cross] into PE model. So in a sense, yes, your observation is correct. That would be the idea to move away from price to book-led sort of valuation over the next few years and be driven more by PE and FPE adjusted to growth-led valuation.

[Operator]

The next question is from the line of Himanshu Upadhyay from BugleRock PMS.

[Himanshu Upadhyay, analyst]

The first question was, in the last quarter, you had hinted that INR 5 to INR 5.5 can be picked from the ARC side on book value of JMFL. After this write-off -- is the majority of write-off done? Or this was unexpected and the INR 5 write-off remains? Secondly, we will be infusing INR 600 crores in GM ARC, will the partner also be putting capital in GM ARC in proportion to their stakes? Or we are raising our stakes, first question on the ARC?

[Vishal Kampani, executive]

Yes. Thank you. So we will be putting -- we have done a rights issue of INR 1,000 crores. We are going to be putting almost INR 600 crores from our group into the rights issue. Our partners have an option if they want to participate or not in the rights issue. Our rights issue will close tomorrow, so we will have that answer tomorrow if they're participating or not. If you were to ask me, I do not think they will participate. Many of them have -- few of them have fund of -- end of fund rights issues. I think their fund life has been completed. And that means that with our contribution, our stake in the ARC as a group will significantly go up. If none of the others participate, then our stakes will go upwards of 80% in the ARC.

On the question of provisions, no, we do not expect any exceptional provision like the one we have had for Bombay Rayon. We will have normalized provision, which will be part of the business and much more granular and smaller in nature. Second point, there is only one significant asset which we still need to resolve in our ARC. Rest of them are almost in final resolution stages. Many of the turnaround assets have been sold last year. I mean, if you noticed that, we also had almost INR 860 crores plus of recoveries last year that we have done. We expect a very, very similar number, in fact, maybe even higher number of recovery to be done this year.

So it's just that the cash flow is coming in, but what values have been recorded at higher levels before have to be adjusted for where the transaction is closing. So the only significant assets which we need to resolve is actually Unitech. I think our exposure in Unitech is somewhere between INR 350 crores and INR 400 crores. And we are hoping that some action will happen. The case is in Supreme Court. The only sort of positive I would alert in Unitech's case is that unlike some of the manufacturing assets, whether it is Bombay Rayon or whether it is Nitco Tiles, or Bheema Cement where we've attempted a turnaround, we've not been as successful, and therefore, we are selling these assets and taking a write-down.

The only case in the real estate assets, specifically in Unitech and some of the other, the valuation of the underlying land and sort of mortgage assets have substantially gone up. So we expect that any resolution that is done -- because of the valuation of the land parcels haven't gone up, we would expect that the resolution should be pretty sort of positive.

The only challenge over there is going to be time lines, right? Also happy to resolve -- report that Nitco, which is one of the assets which we attempted turnaround has been fully resolved, and it is completed from our end. And similar to that, we expect at least 3, 4 other assets will be fully resolved and completed over the next 12 to 18 months. Yes, to your pointed question, yes, if no one participates, which is what we expect, our ownership in the ARC will be upwards of 80%.

[Himanshu Upadhyay, analyst]

And the first question, that INR 5 to INR 5.5 is concluded or do you think there is -- that remains?

[Vishal Kampani, executive]

That is concluded. That is completely concluded. So both of the sort of guidance that I gave in my November 6th call of last year, which was roughly INR 5.5 for the ARC, another INR 1 for credit solutions. Both are completed. We do not see any abnormal provisions in any of these companies going forward. And you will just see normalized provisions, which should be part of ordinary business over the next 2 to 3 years.

[Himanshu Upadhyay, analyst]

And last thing, then I'll join back in the queue, we want to focus more on the Asset Management business, okay? And growing assets is easy, but making profits is difficult as more than the manufacturer, distributor has the share in fees or expenses, okay? What is your strategy? And what do you think, who your customer segment will be? And what will be your distribution setup so that you can have better market share or, let's say, the profitability part on the fee side for the customer, and what can be the breakeven levels because for both the business, we have been continuously investing, the mutual fund and PMS or alternate sites? So some thoughts on that.

[Vishal Kampani, executive]

Yes. So just to report that, our Private Equity Alternative business is already broken even. In fact, it was profitable this year. So that's a very good sign. Our Mutual Fund business, if you just go back in history, 2 years or 3 years ago, we did not even have INR 500 crores of equity assets and that number today is gone to INR 5,000 crores.

Mutual funds, the rebuilding of our mutual fund is a 5- to 6-year plan. But I must tell you, I'm very encouraged by what we have been able to do in the last 2 years. The fact that we're able to grow our AUM 10x, even though the base is small, it's a pretty significant number. Also, the number of distribution partnerships that we've had is significantly expanded in the last 2 years. To a pointed question on where do we think we will breakeven, I think we should be able to breakeven once we achieve close to INR 15,000 crores equity AUM. Today, we're at 5,000, we expect that we should be able to generate that kind of AUM assuming market stay in the pink of health in the next 2 years.

Coming to your PMS, again, our PMS losses have significantly narrowed this year. I think last year, we made a loss building the PMS business of almost INR 20 crores. And this year, the number is down to INR 2 crores. So hopefully, that if the markets continue with their strength, we have a great outcome in terms of the elections, which we will know next week, then I'm hoping, fingers crossed, that the PMS business actually makes money this year.

So I think we are seeing good outcomes. Also, we had a big discussion in our Board as well as the strategic need that we had of our entire leadership, which was earlier in February of this year, I'm really discussing what JM Financial's brand stands for. And we realized that the JM Financial brand is extremely strong in broad capital markets, and it's not a strong brand for project finance businesses.

And therefore, all of our attention over the next 3 to 4 years will be very clearly focused on really building and deepening our business on investment banking, wealth management, asset management, private equity alternatives, the broad equity space and the private credit space and much, much larger focus on building AUM on the one side, much larger focus on building AUMs on the asset management side and significant amount of focus on being even a bigger investment banking business.

And I've been saying it for the last 3 years that this entire decade is going to be extremely profitable for investment bankers. It is very similar to the business built by large investment banks in the late '80s, all the way till 2007-'08, and I see a very strong 10- to 20-year bull market where strong investment banks will make insane amount of money here. And so we will focus on that, expand the market, bring innovative products and be very good at what we do.

In addition to that, we are very excited about our Retail Mortgage business, that's granular, going very well, has access to low-cost liabilities, and we want to bring our cost of funding even lower in that business. It's another reason why strategic shifts from doing more retail mortgages and less wholesale mortgages. The cost of liabilities for wholesale mortgages is almost 150 basis points above retail mortgages. And as we pivot from on-balance sheet to off-balance sheet, it will bring down our cost of funds even further for our home finance business. So very excited about that. We've been very confident that we will double our book investment years in that business.

[Himanshu Upadhyay, analyst]

No. See, coming back to the question on the asset management, what would be the yields to what you are targeting? And how is your distribution going to be different than what others are or you want to go the same channel where 60% would go to the distribution channel, and you may get 20% or 30%, 40% as a product manufacturer?

[Vishal Kampani, executive]

Yes. So I don't think there is any big significant shift in the way distribution is done. There are obviously digital distributors, which have become very large in the last 5 years. Product by product, the yields are very different. If you look at alternative products, they've sort of earned yields of between 1.75% to 1.8%, cross yields. If you look at mutual fund products, we already have a flat base ratio based on AUM with SEBI, which you're very well aware of.

Distribution costs will continue when you're growing at the earlier stages and they breakeven by the time you're almost $1.5 billion, $2 billion in AUM. If you want to grow faster and you're not very disciplined about costs, then you can add more AUM at the cost of distribution, which we are not planning to do.

And on the PMS side, again, the yields are 1.5% to 2%. Also, there is a significant portion of carry income that we will generate on the alternative and the PMS side over the years as the markets continues to do well, which we've not factored into the yield calculation that we've given you. And also don't forget that we are also a large distributor. So in a sense, if distribution profits are to go up, it will take us longer to build asset management, but then our distribution business will make more money. So in a way it's going to hedge.

Today, our share of our distribution in terms of what we distribute JM products is still significantly low compared to competition, not that I'm alluding that they're going to increase it substantially, I think we will still be open architecture and very merit-based in terms of our distribution business. But yes, we are hedged on both sides because we are building distribution and building products.

[Operator]

The next question is from the line of Vijay Shah from Insightful Investments.

[Vijay Shah, analyst]

I was just wondering, given the fact that we already have a significant cash pile on the balance sheet and as we pivot over the next few years from more fund base to AIF-led model, and as you mentioned, that we'll release even further cash as things go by, I was just wondering if any clarity on how we propose to deploy this capital, whether it will be used towards investing in some of the businesses or with higher payouts? Just wanted to get your thoughts.

[Vishal Kampani, executive]

Yes, good question, very good question. So I think it will be a combination of both. I think we will have higher payouts, and we will also reinvest some of this capital back into as our contribution into AIF. We have very strong teams in place. So I don't think recruitment of incremental people is required. It's just about a pivot, these guys, the team that we have are very well experienced in terms of handling credit and they can do that in the AIF space as well. But it's about our contribution into the AIF, we will be, as I said, investing more in digital, investing more in asset management, investing more in wealth management. We'll continue to do that. We will invest more capital into our Brokerage business because we want to be a larger player in loan against shares and margin trade financing. And yes, net of that, the surplus capital, we'll look to distribute that back to our shareholders.

[Vijay Shah, analyst]

So just to -- so do you -- is it fair to think that over the next few years, the payout will go up gradually?

[Vishal Kampani, executive]

Absolutely correct. That is a very, very fair assumption.

[Operator]

The next question is from the line of Chintan Shah from ICICI Securities.

[Chintan Shah, analyst]

Sir, just a broad question from my end. So considering that we have kind of shifted a little on our strategy on the mortgage lending to going off book versus on book. So would it be fair to say that probably now our focus over the next 2, 3 years would be more on -- from the 4 segments of business which we operate, focus will be more on the AWS and investment banking and from the retail and from the lending only the retail lending whereas wholesale mortgage and ARC would be let of a focus. Is that a fair thing to say?

[Vishal Kampani, executive]

Yes. So let me tell you, yes. In a way, that would be the correct assumption to make that our focus will be more on the investment bank and the asset management, wealth management, securities platform as well as our retail HFC. These 3 would be the growing segments. But doesn't mean that we are pivoting to build a larger private credit distribution and private credit AIF business. It doesn't mean that we are going to focus less on it. In fact, we will focus on it with even more vigor frankly because we want to make sure that our brand and expertise, which we built over the years is significantly huge in building those 2 businesses.

But yes, the shift really is on balance sheet. The risk will not sit on balance sheet. The risk will sit in funds and the risk will move in terms of distribution to other players who want access to these opportunities. So that is how I would put it. So simply said, you can simply say that the capital which we have, we will believe, specifically in JM Financial Credit Solutions will be used more to build AIF and to build more distribution-led businesses. And that would generally be overall as part of an asset management kind of business. And the capital that we have in JM Financial products will be used largely to support our investment bank, where we'll continue to do business for promoters as well as vast business for many of our ultra HNI clients. And we will use that strategic capital even to underwrite trades and hold those trades from a shorter-term perspective on our book. So the pivot for the two NBFCs, JM Financial Products is more to align itself only to work at investment banking last in for needs and Credit Solutions will pivot completely to an asset management alternatives platform. If that helps the kind of understanding and you can fit those boxes into your mind.

[Chintan Shah, analyst]

Sure. That was quite helpful. And sir, secondly, on the retail lending piece. So we have seen an exceptionally strong growth in the retail lending, and that is over the last 1 or 2 years the book has been built from scratch to sizable size now, and we expect it to cross INR 6,000 crores. So sir, what is the kind of sourcing mix, -- is it completely in-house? Or are we doing it with the help of DSAs? And also, are we leveraging or doing cross-sell to our existing customers from the retail brokerage? So how does the sourcing work? Any thoughts on that would be helpful.

[Vishal Kampani, executive]

Yes. I have Manish Seth present on this call. He is the CEO of our HFC and he's built the entire business from scratch in the last 7 years, and he will just give you a good perspective in the next 5, 7 minutes on how we are looking at this business overall as well as to your specific question on the sourcing of customers. Manish, over to you.

[Manish Sheth, executive]

Thanks, Vishal. So basically, this business is build in last 7 years. As of now, we are present in 112 cities, and we have done THE highest ever disbursement in the last quarter. So to give you our answer, our sourcing is majorly done by our own people, which are DSAs on the ground. Of course, some specific markets like Gujarat, we have to use DSA because that is more of a DSA-led market. Having said that, the business is very, very granular. Our yield on the business is around 13.5%. Our cost of fund is around 8.5%. And incrementally, we are getting funds from everywhere. We get -- we have about 1,300 employees. As we speak, around 27% of our liabilities is funded by [ MHD ] which is specifically made towards economically weaker section and LIG Group, and that is the focus what we are being. Second question is, there is no cross-sell these are the customers originated by JM Financial Home Loans on the ground. They are the first time customers of JM Financial Group. There is absolutely no common cred between any of the group companies and JM Financial Home Loans.

[Operator]

The next question is from the line of Truesh Sanghi from Prosperity.

[Dhruvesh Sanghvi, analyst]

Just one slightly on the critical side here, and pardon me for that. This entire episode reminds me that anything that can go wrong, will go wrong and has gone wrong with us in the company. Of course, the future looks better because now the focus is there. But I'm just trying to understand, considering the RBI action, is there any chance now that, that affects the IB activities and the license there on the harshest possible thing coming and biting us on the main business?

[Vishal Kampani, executive]

That's a very good question. So let me first clarify that there have been a lot of unnecessary rumor around that. And I've clarified this myself at the highest levels in both SEBI and RBI. There is absolutely no impact on our merchant banking license. Any of our licenses, except for the public issue of debt license. And we've given figures in the past in terms of what is the impact on public issue of debt in terms of revenues. So there is absolutely 0 impact on any of our licenses. From SEBI, we have 6 licenses. And even the matter on public issue of debt, I think our RBI investigation is the special audit is almost completed and I think we should be able to have a discussion with Reserve Bank on the same whenever they are ready for the discussion. And we are also in progress of our audits with SEBI, and hopefully, we should even complete them in the next 3 months. SEBI themselves have given a time line of 6 months, which completes on September 4 of this year. And you would have seen that we've completed a lot of transactions in the last few months in any case. And all of those transactions have either been with SEBI or RBI being regulators who've approved these transactions.

[Dhruvesh Sanghvi, analyst]

Okay. Fine. Second piece out of the IB profits of INR 706 crores, I think around INR 500 crores is mainly transaction and commission income. So the remaining INR 200 crores will be broadly some sort of lending income in that entity, right?

[Vishal Kampani, executive]

Yes. That is largely capital markets and LAPs business and the bespoke business, that is the interest income we keep on our books for the transient period before we sell down the loans. And also some returns from our treasury business, which is captured in the INR 706 crores.

[Dhruvesh Sanghvi, analyst]

So does it not -- I mean, will we not plateau, therefore, automatically because these incomes will be going away and it will only scale down. So this -- I mean, you have to rebuild only from INR 500 crores and not -- I mean, INR 700 crores is not the base. It is the INR 500 crores which is the base, and maybe...

[Vishal Kampani, executive]

No no. That is correct. Yes. So fee and commission perspective, INR 500 crores is the base, but that's not the way we should look at it. I mean we are challenging ourselves to build from [ INR 700 crores ], can we do more distribution? Can we ultimately do more transactions? Our market share in private credit syndication, for example, is very low compared to borrowed and equities. It will not even be 5% of the market. So can we take that to 10%, 15% over time. Third, don't forget that not an investment bank on the wholesale mortgage space, there's been a lot of sort of provisions and as I said, that we've seen delayed activity on resolutions, but there is activity on resolution, right? One fine day we're supposed to recover all of that cash. So that also will come back and hopefully in terms of the profits there. And third also, you have to factor on the AWS side. There is a lot of investment that has happened in mutual fund as well as digital. And we'll continue doing that over the next 18 months to 2 years, we don't want to stop that.

[Dhruvesh Sanghvi, analyst]

Sure. Sorry, one question on the recovery side. You used right or that there is a lot of dead weight capital that gets built over the next 5 years or 3 years, what kind of capital which is not today being guided or counted, like if you can give us a rough sense on if even 50% of things get back or we are able to resolve it, what kind of money will come back in the next 3 years additionally over and how what you said?

[Vishal Kampani, executive]

Yes. So if you just look at our provisioning, if you just take the net NPA numbers that we are holding today on balance sheet, the net NPA number is roughly INR 286 crores. And I'm fairly confident that we should recover over and above our net NPA numbers. We have very healthy provisioning. And we don't need to actually provide at these levels because net of provisioning of security covers are very healthy. But the idea is the delay that we have seen in the last 2 to 3 years or attempting to make recovery, we feel it's prudent that we keep higher provisioning and work based on almost 50% to 55% provisioning instead of a 30% to 35% provisioning. So a pointed answer to your question is approximately INR 300 crores.

[Operator]

The next question is from the line of Chirag Sureka from UTI Mutual Fund.

[Chirag Sureka, analyst]

In terms of JM Financial where we have an exceptional item, so on that, if you can just elaborate in terms of how many accounts were there? Have we taken the exposure of markdowns to the full extent? Or have we just written down the value to the recovery rating. And if there's a split between loans, and if you can provide more details on the particular transaction.

[Vishal Kampani, executive]

Yes, we can provide it to you separately. Basically, the exceptional item is one account. We have all the details separately. You can reach out to Nishit, because it will just take 15, 20 minutes if I have to explain the history of the whole account. But this is the only large account that we've had across the group. We don't have any exposure of this size anywhere. This was taken pre-ILFS. It's a textile company called Bombay Rayon. And we were supposed to sell down this exposure. We had interested parties in place almost at term-sheet stage and ILFS happened. And because of ILFS all their exposure got stuck in our books. And then we gave it working capital to revise the assets. We worked extremely hard in the last 5 years to try and divide the assets, sell few of the assets. But I think the COVID waves as well as the commodity cycle completely increased the working capital requirements for this asset dramatically. And then last year, somewhere in July, August, we took a call that we do not want to invest more money behind many of these turnaround assets. This is a large one. It's a very similar story is there for NITCO and many of the other accounts. And we'd rather sell these assets because we know that the sale of these assets will completely take care of our liabilities, and it will be prudent to take a decision to sell assets and pay down liabilities and invest more into them in the hope of turning around them. But -- so this is the large account. And as I said, there are no more accounts of any significant size across our ARC or our wholesale current business. It's much more granular portfolio. And we are also in a very sweet spot where we'll be able to completely delever in the next 2 to 3 years. But if you need more details, you can please reach out to Nishit, and we'll connect you with our ARC CFO, he will be able to give you absolute details.

[Chirag Sureka, analyst]

Sir, just a follow-up in terms of the credit business. So where we had to take some additional provisions and the provision on the book has increased. But have we taken some write-offs as well for the accounts that we were not able to resolve or has there been incremental slippages?

[Vishal Kampani, executive]

Yes. So we have taken some technical write-offs, specifically because we don't want the NPA number shooting at a whack. And in many of those write-offs, we will still be able to recover, but we had to take those technical write-offs because we don't want higher NPAs.

[Operator]

The next question is from the line of Rishikesh from RoboCapital.

[Rishikesh Oza, analyst]

For FY '25 and FY '26, what sort of provisions as well as ROEs do we see for lending in the ARC business? I understand you have already mentioned normalized provision. So can you please quantify them too?

[Vishal Kampani, executive]

Yes. So it is hard to kind of quantify because if we have some part of our book which is going to be coming back, we'll also have a write-back of many of those standard asset provisions that we have on our books. So it's very difficult to give a number because even if we have incremental provisions to the tune of say INR 10 crores, INR 15 crores, INR 20 crores, I think we'll have enough of write-back coming in. But there is no significant provision that we need to make, number one. What was the second question?

[Rishikesh Oza, analyst]

7

About ROEs for both the business lending as well as ARCs?

[Vishal Kampani, executive]

Yes. So the ROEs obviously will be kind of capped. We'll have some recovery that will happen in from the NPA portfolio over the next 18 months. The ROA still will be very healthy because we will generate enough of fee-based revenue to pivot our model. But because leverage will go down, there will be cash generation and therefore, the ROEs will not be significant. But I think that's the incorrect way to look at it because when we are pivoting the business model, you just have to look at cash. You don't have to look at what the ROA or ROE from that business will be because we won't be going on balance sheet lending as much. So the way I see the business is that is -- and as the first person, I think [ Hiram ] asked that question, it's a very pertinent question, that there is a large fee-based income, which is growing and doing very well. There is an asset management business, which is being invested in. The fee-based income is valued largely on a PE basis and the asset management on an AUM basis. And most of these two NBFCs that we have will hold cash. So you just add that as cash plus treasury, which partly we will use to invest in AIS and partly will distribute back to our shareholders.

[Rishikesh Oza, analyst]

Okay. Okay. Just one more question. If you could please share what sort of PAT and ROEs we do for investment banking, wealth and broking as an individual business. I understand we include private wealth and PMS business into investment banking and we club Elite and Retail wealth into broking and AMC?

[Vishal Kampani, executive]

Yes. So I think what we're going to do is we are also going to make that more granular in terms of our results coming from June. So what we really make in investment banking and equities and fixed income and private credit versus what we are making in pure wealth management broking and distribution and what we are making in asset management, but you can reach out to Nishit if you need some more granular details on how the split between investment banking, wealth is within the investment bank.

[Operator]

The next question is from the line of Pallav Garg from Star Health.

[Unknown Analyst]

Just one question on the provisions taken in the solution. So if you can elaborate on that? And on the -- the second one on the level of the SMA 2. Do you have included [indiscernible]

[Vishal Kampani, executive]

I can't hear you clearly.

[Operator]

May may we request that you use your handset please. You're not audible, sir.

[Unknown Analyst]

Yes, I am on my handset, is it audible?

[Vishal Kampani, executive]

So the first question was on the SMA 2 for Solutions right. We already have that, I think, in our presentation. It's 1.6%. Yes. [indiscernible] that these numbers are on a much lower book, which is our wholesale mortgage book is now almost close to less than INR 5,000 crores, is INR 4,917 crores, and this book used to be INR 7,000 crores. So in a sense, the asset quality has done very well relatively because in a declining book, if you're able to maintain similar ratios of NPA and SMA, is actually very positive.

[Operator]

The next question is from the line of Manoj from Geometric.

[Manoj Dua, analyst]

So just one suggestion first, like we do on con call in every 6 months, and we release press release and the results of all the division, it takes how 20, 25 minute of the time. And I would request management to do call regularly and not to read all the results, which we already can read on the PDF on the stock exchange. Now I want to congratulate the management on taking up pivot. I know it's very difficult to change something which we are blood and sweat into it. My question is now for the investment banking. So you have told that the opportunity size is huge in this thing. I don't have any benchmarks in India. How big can an investment banking company can be. So can you give me a road map for 3 to 5 years, if you assume that the market is in the pickup of that market is not so bad, something taken normalize or something. How much profit can generate -- and we can generate from the investment banking thin road map for 3 to 5 years? That's my first question.

[Vishal Kampani, executive]

Yes, sure. So I think let me say -- let me give you a few macro points, I think, which will help you understand how large the opportunity is. I think you would have seen the size of our market cap, right? The size of India's market cap is almost $5 trillion. And the last $1 trillion got added in the last 6 months. And the earlier trillion before that took almost 18 months to 2 years to add. And with GDP growth being around 7%, 7.5%, 8%, we're looking at almost a market cap in the next 5 to 7 years of $10 trillion, quite comfortably. The market will double, it should grow at 12% to 14% compounded over the next 5 to 7 years. Obviously, I'm assuming there is no major economic shock or assuming no sort of election results which can shock us all. So the point is that in this kind of expanding market, the opportunities for all kinds of capital markets and advisory business grows multi forayed. Simple example, just private equity, global and local private equity have invested almost $250 billion to $300 billion across equity and private credit in the last 5 to 7 years in India, right? If this smart money has to grow at even 10% to 12% over the next 5 to 7 years, that means the value of their $300 billion in assets will be close to $600 billion to $700 billion. All of these assets will be either sold or they will go for IPOs or they will be refinanced or they will be merged with strategics. This private equity universe world offers us almost $700 billion of deal volume over the next 7 years, which is almost $100 billion of deal volume every year, right? This is not the classic client that we used to have who will do business every 2 years or 3 years to do a deal every 2 or 3 years. These houses are doing deals, multiple deals every year. That's a big dramatic change. The whole investment by private equity, sovereigns, pensions is a big dramatic change, and they are really the growth drivers of India Inc. in the next 6, 7 years. Second, even corporates, large corporates, the top 100 corporates of the country are aggressively growing, putting in a lot of efforts to build businesses, new sectors, whether it's EVs, whether it is renewables. And there are so many other segments where we are seeing dramatic amount of growth. Look at credit, just purely in credit banks, financials, retail NBFCs is growing dramatically, will need terms of capital. So I think as we just progress from $1 trillion to $5 trillion, which has taken us the last 17 years to achieve. The $5 billion to $10 trillion is going to be achieved in market cap in the next 6 years. So if we did -- if we had an investment banking opportunity to drive $5 trillion of market cap in 17 years, the same $5 trillion are going to be driven in the next 5 to 7 years. So you can imagine that we will have doubled the volume of business to execute. And we are seeing this in every space. M&A, we've closed 2 transactions in the financial space last month. One was a fintech company, and the second is an affordable housing finance business. And one was sold to a strategic group. The second was sold to private equity. So wherever I just lay my hands in our offices, there is massive deal activity, and we are very excited by it.

[Manoj Dua, analyst]

And do you want to put some number and how much of it we can be in any stage of period, 3, 5, 10, whatever?

[Vishal Kampani, executive]

I would think -- I would maintain that there could be an odd year of cyclicality, but keeping that odd year side, I think the business should easily multiply in the high teens.

[Manoj Dua, analyst]

Okay. So our group who was known to be very conservative in terms of process, lending and all these things. And I'm not able to understand we have gone wrong in terms of processes, the RBI has scolded us in terms of ARC provisions and in terms of mortgage provision, it is just reminding of my early days of driving when my friend recommended you are driving slow and risky. So what has gone wrong in that. So we were considered to be very conservative. We have higher provisions. We have got RBI thing. Can you describe what has happened in that whole period?

[Vishal Kampani, executive]

So I think the RBI thing is completely delinked to what we do in provisions, right? Provisions come from delay in recoveries as well as delay in estimated valuations of assets specifically on the ARC side. And we had -- if you have been following us, then you would have seen that right in October, November, we had guided that there will be higher provisioning over the next 2 to 3 years, and we'll take a decision whether we upfront all of that or we don't, and we were very clear on that. So there was no noise around RBI when we gave that guidance to investors on November 6th. So first thing first is there is no linkage between what the regulator wants to check and correct in our processes versus what we want to do in terms of provisioning. Third, there has been a shift in the way the regulator is observing these project finance and real estate and infrastructure lending. They have come with a circular, which I don't know you followed or not you've read on all, but I would invite you to read that circular in detail line by line. It will help you. And there is a clear shift in the way regulator wants higher capital requirements in businesses, which are going to be taking wholesale exposures to real estate and infrastructure. And we understand that the regulator will have a much better perspective than you and me on this call in terms of how they want to protect the fast expanding economy where a lot of credit can go to risky sectors. And I think we will follow the line in terms of how the regulator is thinking about it. And therefore, we have to adjust and pivot our business model. And there is nothing wrong in doing that. And as I said, that we have tons of expertise that we have built. We have some fabulous people who understand these businesses very well, and I'm very confident that they will be able to pivot to an asset management-led model, a market-led model, a distribution-led model from an on balance sheet-led model. And coming to your RBI question, already answered in my earlier sort of question that the special audit is, I think, almost completed, and we look forward to hearing with them. And I think it is better that you hear once the regulator is clear and they form their views at that point in time, then me making any comments today.

[Manoj Dua, analyst]

My last question is we guide people for creation of wealth. We have the vast possible structure I believe in the terms of we have some subsidiaries and all the things. And you -- most often, you also pointed that it's very difficult to peel it valuation and that any plan to simplify the structure so that wealth creation per shareholder has to be because I believe the investment banking business itself is not justifying the valuation in the trading, but now we have to add also believing we have -- won't work much.

[Vishal Kampani, executive]

I think our guidance at least on all of the investment banking and asset management and brokerage business has been bang on. 2 years back when I was on a call with investors and a lot of people asked me that will be able to get AUM in your asset management or PMS business? And I think those AUMs have grown tenfold. So that clearly tells me that our brand is strong as long as we have good people, good processes, and we're giving good returns. Our shareholders will be happy. I mean our unitholders will be happy and they will keep participating in many of those funds. Our investment banking profits are guided that we could almost double our profits in 2, 2.5 years, and that's actually happened. The guidance has been wrong specifically on the wholesale credit and it's been a tough environment. I think we were wrong in terms of estimating in what time frame we will be able to recover many of our assets. And yes, we took a sort of calculated risk that we will be able to turnaround assets, but we could not do so. And a large part of that was COVID. I mean COVID comes once in a 100-year history, but as a balance sheet, we don't want to take those risks going forward. We also feel that the structure of the liabilities that we have in India is very fragile, and we don't want any sort of fragile liability exposure sitting on our balance sheet. In terms of structure, you can just ignore. You can just convert both our NBFCs, JM Financial products and JM Financial Credit Solutions as cash holding machines. They will just generate cash and keep cash and distribute that cash to invest that cash in AI over the next 2, 3 years. So from a structure perspective, ignore them. Once we ignore that as a business unit, you morph into very clearly a PA-based valuation for the company and plus cash, which is being generated from investments and it will be used for distribution to shareholders or asset management investments. We've discussed the demerger. See, if we have to demerge our wholesale credit business, we should be only doing so if we are going to grow that business substantially. It's us going through a whole demerger structure, giving the wholesale credit business out to investors and then not having a strategy whether you want to grow that business. That was in consideration maybe a 1 year, 1.5 years ago. We have some private equity investors who are sitting in that business. And the idea is that if you are pivoting the model, then there is no use. There's no use to try and demerge that and give a share, which is not going to be very attractive. We rather just pivot the model completely to IB and AWS and retail mortgages, which we are anyway as discussed on this call on the journey of doing it.

[Manoj Dua, analyst]

Okay. Are you open to buy back if the -- we can ignore all this as you told. Are you open to buy back and the valuations are not improving as a part you are giving back to the shareholder in terms of the dividend in state of open to the buyback?

[Vishal Kampani, executive]

See, we've already given a dividend this year of INR 2, and we are happy increasing that dividend. And yes, at the right time, we'll discuss with our Board, and we can consider a buyback, but I cannot be committed to any sort of buyback strategy. All I can say is that as we generate more profit and as leverage is going down, distribution of profit will go up.

[Manoj Dua, analyst]

Okay. And what is the right to win or right to grow in retail mortgage, and like because it's a very competitive area? So given to keep on what is our right to win or right to grow in that area?

[Vishal Kampani, executive]

Yes, I have Manish on the call. He'll take that question.

[Manish Sheth, executive]

So on retail mortgage, I agree with you, it is a competitive business environment. But to be very honest, the market size is so large. So the only thing what we have to do is focus, focus and focus only on 4 things, which I already keep telling my team. So if you focus on people, products, processes and policies. I think anybody who is trying to deviate and grow faster than the market will end up making mistakes. The idea is to be more and more granular, be more and more leaner to the customer -- the important thing and diversification. So I think we are at presently in 7 to 8 states and roughly 112 cities that I was saying earlier on this call. None of the branches doing business more than INR 1 crore, INR 1.5 crore a month and which is giving me more comfort because I'm not building any risk in any of these branches, so to say. So to answer your question, again, it is not something which we have to do differently. Only thing what we have to do is do it consistently in terms of policies and processes and don't be...

[Vishal Kampani, executive]

And I know last thing I'd like to add is boss in India, every single business is very competitive. I think if you can show me a business where there is less competition, it's -- I think it's hard to find. I think our wholesale business... sorry.

[Manoj Dua, analyst]

I think I used to believe for the last few years that our wholesale credit business, we have extremely right to win. I don't know. You had already said in that call...

[Vishal Kampani, executive]

See, you have a right to win, but you cannot go against the changing market dynamic, right? It is -- we can even today, we can grow -- if you want, we can grow, but the risk-adjusted returns don't add up, right? The fact is when we are seeing how much time it's taking to recover money and what it adds up in terms of your leverage costs going up, right? And if you have higher provisioning requirements, which are coming from the regulator, which actually hits your ROA directly by over 100 basis points. I think one has to be very practical, right? Ultimately, every single dollar invested here, one is about growing capital, second is also about protecting capital. And I think at JM Financial, whatever we've done considering all of the circumstances over the last 4, 5 years, we've tried to do a fantastic job at protecting your capital. I mean, despite taking such a large amount of provisions, we've kept the balance sheet very, very strong. We've kept profitability going very strong. And I think we've realized very clearly what our brand stands for and ultimately, where your competitive intensity -- in a competitive intensive market where will your brand win. And we clearly feel that the JM Financial brand will win in the investment bank, in wealth management, in asset management, over some of the other businesses. Those are our legacy businesses, and we are very strong. And we're also encouraged by the response we've got in the last 2 years in wealth and asset management both. And we also feel that -- the last 7 years when we evaluated what we've done in the retail home finance business, our affordable housing business, I think we've built a very, very good business. And as Manish rightly said, the market is very large. There is low-cost funding available, even though it's competitive, I think we have a niche and we will be able to do very well and make it much more profitable over the next 3 to 4 years.

[Operator]

The next question is from the line of [ Vivek Kumar ] from Bestpals Research and Advisory LLP.

[Unknown Analyst]

Just mortgage that you're pivoted, so don't you think this is more competitive? And if you see Piramal Enterprises, in their investor call, they are very positive on this mortgage lending as a lending business, but I'm not asking you to compare yourself with them. But if you can throw light why some people are not pivoting and why some are pivoting? Is it just regulatory? Or is there any other cost advantages that they have? Just to understand if you can -- if you are already aware of something.

[Vishal Kampani, executive]

No, I would not like to comment on anybody else's strategy. I'm just -- I'm commenting on what we are seeing every day in the market. We are seeing for many of our clients, construction finance, rates have come down dramatically. We're seeing that we are not as NBFC being able to do or will not be able to land an approval finance. If for example, it's a regulator that sold banks not to do land and approval finance, I think we as significantly large NBFC in the space should understand that there is a reason why they don't want land and approval finance to be done on NBFC balance sheet. So it's rightly to pivot that business onto an AIS model. If provisioning requirements are going to go up, it takes away 1% of sort of hit on ROA. And the way we've seen delayed resolution, and we were expecting a lot of regulation in the last 2 years, this has been pushed out by a 1 year to 18 months, that again takes another 50 basis points to 1% on ROA. So just from our understanding and looking at -- we started building this business in 2011, '12. We've come almost towards dozen years of being in the business. We just think that a lot of it is better done in a distribution-led format, and some of it is done better in an AI format. So that is our decision. If anybody else wants to participate in that risk, that depends on how they are looking at the risk and on their cost of funding advantage is and how they want to build the book. So I just think retail granular assets like affordable housing finance are much better in terms of long-term credit quality that financing costs are lower. The ROAs are more defendable, their NPAs are lower. And eventually, the valuations for such businesses will be higher. And for us, our JM Financial brand is a capital markets brand and not a project finance brand. Yes, we could have been a little late in arriving in that conclusion, but I'm glad we have arrived.

[Unknown Analyst]

So what parts of our balance sheet will be lending or will complete -- except the retail mortgage, there will be no lending or will have is what part of our...

[Vishal Kampani, executive]

We will continue lending against shares. We will continue doing loan against shares in promoter finance. We are not stopping that business at all. So that will continue in SEBI MPS format in our Financial Services brokerage business and the loan against share promotor finance will continue in our NBFCs, but that's not project finance, right? That is financing against liquid collateral. You're really in the liquidity financing business. You're not in the project financing business. You're not giving out corporate or real estate loans, which are maturities of 4 to 5 years. Bulk of the maturity, which is it in our books will be not more than 12 to 18 months or maximum 24 months. We're really very risk-light and with a fabulous ALM because we have long-term equity and we have it on a long-term borrowing going out to FY '31, '32, '33, '34. And you build a nice distribution business and grow much more in private credit. That's the strategy. So for all practical purposes, you can assume that within the next 2 to 3 years, both our NBFCs will be net debt 0. Our retail mortgage business will continue to grow, and that will kind of double the AUM in the next 3 years. And the last business and the margin trade finance business will continue the way it's been growing. That will continue.

[Operator]

Ladies and gentlemen, due to time constraint, that was the last question of the Q&A session. I would now like to hand the conference over to Mr. Vishal Kampani for closing comments.

[Vishal Kampani, executive]

Yes. So thank you. Once again, all of you, I think we've had a good 1.5-hour session. And I'm glad that there were lots of interesting questions around our strategy as well as our results, was more important our strategy. And I'm hoping that we as a management team could answer most of those queries. And if there are any further questions, please do reach out to Nishit, and we can answer them off-line. So thank you, everyone, for participating on this call.

[Operator]

Thank you. On behalf of JM Financial Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.