Piramal Enterprises Ltd
NSE:PEL
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Piramal Enterprises Ltd
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Ladies and gentlemen, good day, and welcome to Piramal Enterprises Limited Q2 and FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hitesh Dhaddha, Chief Investor Relations Officer from Piramal Enterprises Limited. Thank you, and over to you, sir.
Hi. Good evening, everyone. Hope you are safe and in best of your health. I'm pleased to welcome you all to our Q2 and H1 FY 2023 Earnings Conference Call. Our results materials have been uploaded on our website, and you may like to download and refer them during our discussion.
The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks that our businesses face.
On the call today with us we have our Chairman, Mr. Ajay Piramal; Mr. Rupen Jhaveri, Group President, Piramal Enterprises; Mr. Jairam Sridharan, MD, Piramal Capital and Housing Finance; Mr. Yesh Nadkarni, CEO of Wholesale Lending; and Ms. Upma Goel, CFO of our company.
With that, I would like to hand it over to our Chairman and would request him to share his initial thoughts.
Good evening. I hope that all of you have had a safe, healthy and joyous Diwali. I'm pleased to announce that we have completed the demerger of Piramal Pharma, well within the guided timelines, creating 2 separate sector-focused listed entities of the Piramal Group into financial services and the pharma sector. This is the first quarter wherein we are reporting the results of Piramal Enterprises Limited as a listed RBI-regulated NBFC, and our discussions going forward will be focused only on the financial services business.
Also, now PL being a sector-focused entity, we have also significantly enhanced disclosures on the business over the last few quarters.
Let me now comment on the performance of the quarter. Despite a reduction in the wholesale AUM by 12% to INR 38,908 crore, our total AUM has grown 35% from prior year due to the DHFL merger, and it is now INR 63,780 crores. And our revenues grew 37% on a year-on-year basis to INR 997 crores, primarily driven by a healthy growth in the retail lending business. Retail loans are now 43% of the overall loan book as compared with 12% premerger. Given that this was the first quarter post demerger, INR 5,888 crores worth of assets were moved from Stage 1 to Stage 2, largely completing the asset classification cycle. We believe that we are now largely well-provided for Stage 2 and Stage 3 assets. An additional provision was created of INR 1,399 crores and a fair value loss was taken of INR 1,048 crores on our wholesale book during the quarter.
Our total provisions as a percentage of wholesale AUM increased to 13.1% from 8.8% last quarter. Hence, there was a net loss of INR 1,544 crores during the quarter as compared with INR 395 crore of recomputed net profit for the second quarter of FY '22 for the demerged financial services entity. We continue to have a strong balance sheet with a capital adequacy ratio of 23% and net debt to equity of 1.9x. Despite creating the additional provisions over the last few quarters, our company has an equity base of INR 27,506 crores in Q2 FY '23. In addition, there are significant pockets of value embedded in our balance sheet where we expect value unlocking to take place in the coming few quarters.
Coming to the retail performance. This is a milestone quarter for us as we successfully completed 1 year of our DHFL integration journey. Over the last 1 year, our loan book has grown and with diversification. The retail loan book has grown over 4.5x from the premerger level to INR 24,872 crores with retail now already at 43% of the overall loan book. We are now much closer to our stated target having 50% of our total loan book as retail in the near term. We are building a diversified and granular retail portfolio at an average ticket size of nearly INR 12 lakhs with a large part of the book comprising of secured lending product.
Our disbursement growth during this quarter has been impressive. Quarterly disbursements grew across all the product categories by 8x year-on-year and 62% quarter-on-quarter, to reach INR 3,973 crores. We are already much ahead of our earlier-stated guidance of INR 2,500 crores to INR 3,000 crores by the third quarter of FY '23. Over the last 2 quarters, as our disbursement grew higher than the runoff, it has resulted in a growth trajectory for our retail AUM, where we ended this quarter at a 12% AUM growth. This performance has been driven by various endeavors we took in the last few quarters. One, addition of new branches; 2, adding multiple new products to diversify our retail portfolio. 3, activation of branches to sell multiple products. And fourth, growth in the customer base through the digital lending business, enabling in cross-sell opportunities.
In the 1 year since the DHFL acquisition, we have opened 64 new branches and shut down 22 branches, resulting in our branch network going to 343 branches now. We are now present pan-India across to 93 cities and towns in 27 states of India. We aim to be present at 1,000 locations through 500 to 600 branches over the next 5 years. We have also launched multiple new products now offering 11 retail products. During the last few months, we entered into microfinance via the business corresponding model. During the quarter, we also launched branch-led personal loans to salaried individuals in Tier 2 and 3 towns.
Apart from launching new products, we have also been focused on making our branches activated with multiple products. Nearly 82% of our branches are now selling products beyond just the home loans, hence, not only housing and secured MSME loans disbursement grew 6x in the last 12 months but also the disbursements into the nonmortgage loan categories have been much higher, seeing much higher traction, though from a low base to INR 1,358 during the quarter. Nonmortgage loans had a 42% share in our overall retail disbursements.
As of 30th September, we have 20 live partnerships with fintech OEMs and aggregators under our digital embedded finance business. Our digital offerings have enabled us to significantly expand our customer franchise to $2.2 million, giving a substantial cross-sell opportunity. We achieved cross-sell disbursements of INR 945 crores over the last year. The asset quality of the acquired DHFL book remains in line with our expectations. We continue to make recoveries from the POCI book. We continue to invest to strengthen technology and analytics to further enable us to build scale and maintain a healthy asset quality in our retail businesses.
I will now come to the wholesale business. Our focus on recoveries and monetization of Stage 2 and 3 Stage 3 loans, and while the Stage 3 loans remained stable at INR 5,888 crores -- sorry, while the Stage 3 assets remained stable, INR 5,888 crores worth of assets moved from Stage 1 to Stage 2, largely completing the asset classification cycle. We have been working towards making our wholesale book more granular, progressing on the same. Exposure to the top 10 accounts reduced 33% since March '19 by INR 6,050 crores. And now no account exceeds 10% of network as of September 2022. Our wholesale AUM has further reduced by 12% in the last 1 year to INR 38,908 crores. We will be increasing our focus on recoveries monetization of the Stage 2 and Stage 3 loans, which will further moderate the wholesale book size in the short term. In addition, we will continue to remain vigilant across our portfolio and have well provided for Stage 2 and Stage 3 assets.
I would like to comment on the quality and granularity of our Stage 1 assets. Post these movements of loans on Stage 1 to Stage 2, our Stage 1 loan book is much more granular as the average ticket size of the Stage 1 wholesale book is lower at INR 189 crores per loan. Over 90% of the Stage 1 wholesale book is into asset-backed SPV OpCo loans in real estate. Our Stage 1 book largely excludes promoter holdco corporate lending transactions. Over 78% of the Stage 1 real estate book is with large and medium developers and over 60% of the Stage 1 real estate book has limited and no completion risk. We believe that this is an opportune time to build the real estate book.
While efforts are being made towards largely completing the recognition cycle on the existing wholesale book, we are also investing to build a granular cash flow and asset-backed real estate and mid-corporate lending business that will give loans to well-capitalized promoters. We will build this book in a calibrated manner while capitalizing on this market cap. We are cognizant of the trends in the real estate industry that are now favorable to grow this business.
Real estate lending is a large market of INR 4.5 lakh crores with supply of credit significantly lower than the demand, offering significant growth potential for select players like us that have continued to remain strong even after a prolonged prices environment. From a cyclical perspective, we believe it's a good time to build up the real estate book as the developer consolidation has resulted in a better quality ecosystem, which is now a lot more capitalized. A few major NBFC [ stroke ] HFC has vacated the space. We are also witnessing the beginning of a growth cycle as affordability is at an all-time high and inventory levels are bottoming out. Leveraging our retail setup, we will also be selectively entering into Tier 2 and Tier 3 markets, which are relatively underpenetrated. Within the corporate mid-market lending book, we have already built a book of INR 800 crores with an average ticket size of INR 50 crores.
On the liability management, our ALM is well-matched with positive gaps in all buckets. Due to our strong balance sheet and healthy liability mix, our average cost of borrowing stood at 8.8% for the quarter. With 80% of our liabilities being fixed in nature, we continue to maintain our cost of borrowing despite a rising interest rate environment.
To conclude, the demerger, which is a long awaited event by the investor and analyst community, has concluded successfully, creating 2 sector-focused entities, giving an investor an opportunity to choose the entity they would like to invest in. The DHFL acquisition turned out to have delivered better-than-expected results in the last 1 year. The retail business is continuing to deliver on its growth path, already taking the loan mix much closer to a retail 50%-50% wholesale now. The wholesale business has also largely completed the asset classification cycle now and has also well-provided for Stage 2 and Stage 3 loans.
Our healthy mix of liabilities is helping us gradually bring down our cost of borrowing over the last few quarters despite the adverse rate environment, and our balance sheet remains strong with a capital adequacy ratio of 23%. With this, we continue to remain committed to our FY 2027 aspiration, doubling the AUM from FY 2022 level with strong growth in retail disbursement, keeping the net debt to equity 3.5 to 4.5x, in this process making the loan book more detail-oriented with a loan mix of 2/3 retail and 1/3 wholesale. We will continue to work towards creating long-term value for our shareholders. Thank you.
Should we open it up for Q&A?
Yes.
Yes, let's do that.
[Operator Instructions]
See, when -- while the question queue assembles, there is one quick clarification that we would like to offer in case it wasn't entirely clear. There was -- there are 2 metrics which we want to reiterate the absolute numbers. The total amount of provisions and fair value adjustments that have been done during the quarter is INR 3,311 crores. The second clarification is on PAT, in case it wasn't clear, the net loss during the quarter was INR 1,536 crores. So those are 2 numbers there was a little bit of confusion in the original call. So I just want to clarify for everybody's record. Thank you. We can go to the question queue now.
The first question is from the line of Abhijit Tibrewal from Motilal Oswal.
The first one was on the wholesale assets. So I mean the way I look at it, we have moved around INR 5,900 crores of assets from Stage 1 to Stage 2. So 2 things that I wanted to understand here. One is, I mean, we are still saying that this will largely complete the asset recognition cycle. So the emphasis is still on largely completing and it is still not completed is what I'm able to understand. So I mean, how do we -- how should we read it? That's the first question.
The other thing is, I mean, while we say that we are very well-provided for Stage 2 and Stage 3, really can be fair to say that given that we have now moved this INR 5,900 crores of assets from Stage 1 to Stage 2, the idea will be to monetize these assets which are now in Stage 2 rather than over a course of time moving then to Stage 3 which will again warrant higher provisions in Stage 3.
And the third question again on the wholesale assets is we talked about taking a prudential write-off of about INR 360 crores during the quarter. So what were these write-offs about? And if you could also give some color on this INR 5,900 crores that you moved from Stage 1 to Stage 2. What was the nature of these wholesale assets? Was that in real estate and non-real estate? And whatever, basically whatever color you can provide. And the last question is in your P&L you've talked about net loss on fair value changes, which is included in this INR 3,300 crores of provisions or credit costs that you have reported, what are these net loss and fair value changes?
Okay. So, Abhijit, like 5 questions that we heard and what you said. Between me and Yesh, we will try and take all of them. Let me take the first half at it, and then we'll keep trying to take all of your questions. The first question is the most important question, I think, that the user phase largely completed on our -- on the asset recognition cycle. I think you're worrying about the word largely. The way I frame it is, our emphasis is on the word completed, not on the word largely. We are in an uncertain business. So there might be some new things that might come up in the next quarter that we are completely unaware of right now.
But as far as we are concerned, this was our first quarter as a financial services company entirely. It was our effort to go into the market with as clear an articulation as possible of what the overall level of stress is in the book. I know that there has been a lot of conversation and speculation about what could be potential levels of stress. Our intent was that in this first quarter, we should be very clear about what that is. We did a full-pledged analysis internally. And what you see is a reflection of that. Unless something kind of dramatically changes, we believe that we are done from the perspective of recognition of pockets of threat.
So please focus on the word completed, like the word largely is just to keep some completely unforeseen events in mind. And so that's as far as the first one is concerned. You had a question on fair value loss and what fair value loss is. Fair value loss is essentially again the same intent of saying that in this our first quarter as an FS company, we got to make sure that the FS sort of balance sheet reflects all kind of potential problem areas. So when we look at the investment book and we looked on the assets and to try to see what is the best sort of mark-to-market adjustments that we might need to make, that is what is reflected as fair value loss.
We are clubbing it with the provisions item and giving you the full number of INR 3,300 crores, roughly INR 1,000 crores is in that fair value adjustment piece and about INR 1,300 crores just under that is -- INR 2,300 crores is in the provisions pool. What was the other questions? Prudential write-off. It's about INR 300 crores -- INR 350 crores of prudential write-off that was done during the quarter. Prudential write-off is essentially those accounts where we had 100% -- we had made 100% provision and we want from the perspective of Stage 3, managing the Stage 3 book and ensuring that it reflects the right accounts there.
We have gone ahead and actually prudentially written off those accounts. As you can see, even after that prudential write-off, our provision coverage ratio in Stage 3 is well north of 60% at an overall level and at about 74%, 75% at the wholesale level. So we are fairly well provided even after the prudential write-off of about INR 350 crores that we did during the quarter. You had a question on what was the nature of assets that were -- that moved from Stage 1 to Stage 2. They were largely real estate assets. There are -- and there are 18 assets in all, which comprise this group that you see here. Anything you add there?
I just wanted to add a couple of points to what Jairam said. This is Yesh here. I think the movement of assets from Stage 1 to Stage 2 is driven purely by our desire to change our stands to get more proactive with regard to the management of these assets. Therefore we say that these are not necessarily those assets which are not performing in order. So I just want to make sure that, that's clear to everyone. The common theme that we have seen in these assets as we manage our portfolio is that these are some of the larger and lumpy assets on our book. And then we have seen some kind of stress at the group level mostly and in some cases at the underlying assets.
We have seen performance-related delays and so on and so forth. So this really is our overall strategy of being proactive about categorizing them as such on Stage 2 of our book and systematically resolving them as we go from here. So that's the background I wanted to add. That actually leaves the Stage 1 part of our book, which is roughly INR 270-odd crores in size. But I think I just wanted to outline a few points as it relates to the belief we have and which is -- this is a very high-quality book, which is a performing book and which is why it is Stage 1. And we sort of bringing the assets that I just referred to earlier to Stage 2 is again clearly the demarcating between the 2 buckets that we have in our balance sheet.
So Stage 1 assets really are INR 130 crore-plus our loans. This is really a granular, super granular part of our wholesale portfolio where the average size per loan is in the range of INR 190-odd crore as Chairman alluded to earlier. These assets are well-secured in terms of the underlying loan structures, security structures. These are senior secured [indiscernible] assets mostly where the assets and cash flows are mortgage to us. This book is very well-seasoned. A significant part of this book doesn't have construction development risk, which is a key differentiator in risk as it relates to real estate assets. And these projects lastly are backed by established developers [indiscernible] well-managed balance sheets of our counterparties. [indiscernible] the opportunity of summarizing our Stage 1 asset as well -- Stage 1 portfolio as well while we describe Stage 2 in answering your question.
Just one small follow-up here. Would then it be fair to say that given that you moved this INR 5,900 crores of assets from Stage 1 to Stage 2, you would have done that because, like you explained, you were seeing some pockets of stress either at the group level or somewhere else. And then going forward, you would make some endeavor to maybe monetize this exposure. And lastly, for Jairam, during the opening remarks Mr. Chairman also kind of alluded to some hidden pockets of value. So this BPA and BPL that we still have on our balance sheet, which we created at the time of the DHFL acquisition and you have your conversations with tax experts or tax authorities progress in terms of whether you will be able to utilize it going ahead?
So managing these assets, categorizing these assets as Stage 2 doesn't make any difference to us whatsoever as far as management of these assets is concerned. And I think I'd just remind that these are self-liquidating amortizing loans, and therefore, the monetization of this asset is actually happening as we go. And that will not change at all. In certain cases, we'll be more focused on monetizing by way of considering various alternatives like recapitalization of the underlying FTEs or refinancing our exposure or any other means that we may consider appropriate in resolving it. But there is no differentiation whatsoever between Stage 1 and Stage 2, Stage 3, other than seeing the fact that Stage 2 we would have even more focus...
The one thing that I would add to that, Abhijit, is that the moment you move something to Stage 2. You, in some sense do that because it increases your ability to make provisions on those accounts. And once you have made a certain higher level of provision on that account, it increases your degrees of freedom in terms of potential ways in which you could resolve the account. So things like refinancing the account with somebody else becomes a lot more feasible once you have moved it to Stage 2, once you've made a certain amount of provision on it, and hence you have some room for negotiation with any potential buyers, right? So it does increase degrees of freedom a little bit.
So -- but operationally, as Yesh was mentioning, on the ground we will keep trying to, all sorts of tricks to try and -- to try and work the account as appropriate. Your second question on pockets of value. The pocket of value, you heard chairman talking about it, that we expect value unlocking to take place in the coming few quarters. We remain fairly confident of that. Our confidence on some of those pockets of value has, if anything, increased in recent months. So we -- you know of 2 or 3 of these like that are there. We continue to of course have the retail pose book from where we continue to get -- to get collections and recoveries. We continue to have the investments in -- on our book of Shriram, et cetera, where the [ top ] reduction is proceeding and is likely to close imminently.
And the moment that happens, there's a lot more liquidity that gets introduced into our holdings and potential MPM gains that come through. And the tax-related elements that you mentioned, both on the asset side and on the liability side, both of them, we have made good progress in our conversations. A meaningful part of the -- on the liability side. The contingent liabilities that we have got set up is, a meaningful part of that has already timed-barred. So we know that there are stronger reasons that are accumulating over time. So overall, I'd say that our level of confidence is fairly high.
[Operator Instructions] The next question is from the line of Kunal Shah from ICICI Securities.
Yes. So really with respect to this forward flow, what actually triggered that, okay, in terms of the development in last 1 quarter? And maybe also providing clarification in terms of maybe these [ RB ] assets wherein obviously to improve the resolution in the freedom of the effort, these are like equivalent to almost when we look at it, so more than 10%, 12% of the portfolio as such. So is it a pure management [indiscernible] or there were any other progresses with respect to these projects that present this recognition?
So let me start, and Yesh will jump in as well. So Kunal, there is, as you know, in India at Stage 2, while there are a lot of rules that you can set up about how accounts can move to Stage 2, but there is a level of discretion which you can apply and actually determining significant increase in credit risk of accounts. As we mentioned before, this is our first quarter as a financial services company, it is our desire to make sure that the financial services balance sheet is as transparent and clear as possible. So given this very significant milestone in the life stage of our company, it was our desire to actually look into the portfolio in some detail and identify accounts where if not at the account level but maybe at the parental level, there are some stresses sort of building up and make sure that the balance sheet is appropriately approved towards that.
We have adequate level of or more than adequate level of equity. So the provisions are -- we have the ability to actually take what hits are necessary right now, but the transparency and clarity on balance sheet was really important. As Yesh mentioned before, the INR 5,900-odd crores comes from roughly 18 accounts, so that tells you the size on average of the accounts that have actually moved, they are fairly substantially sized accounts. And that has certainly been -- that's certainly been a risk factor that has come through. And as we mentioned in the previous question, most of these are in the real estate sector. There are 3 broad categories of issues that have been used by Yesh and team to identify. I invite Yesh to speak about that, about what we have used to classify accounts as at issue.
I will reiterate that application of judgment in determining pockets of stress is what you're seeing reflected here. This is not 18 accounts that suddenly stopped paying in Q2. That's not what you're seeing here. Yesh.
Absolutely. And far from it. Look, I think that the core of all of this is our intent to get granular and the rest and also in line with our stated strategy of having 2/3, 1/2 mix between retail and wholesale. So these accounts really are lumpy accounts. And as I mentioned earlier, I think our objective was to really focus on definition of these accounts not because they are not performing in a stricter sense of the world, but because these are large risks on our balance sheet. And with the passage of time, we just want to granularize our portfolio. But that's what we focused on. I think as we reviewed our portfolio, we also have identified some of the assets where there are group level issues and therefore actually a speedier focus -- speedier resolution and focus on sort of monetizing these assets is what we want to really drive in the following quarters.
There is one addition. This is Rupen Jhaveri. In addition to what Yesh said, there are also some subset of these accounts because getting to the specifics, which are nearing specific resolutions and closures. And hence that required a certain type of provisions as well.
Yes. So if you look further, get granular in terms of this portfolio of INR 5,800 crores, have you done any ranking in terms of this stage of resolution and what -- so maybe if we want to just highlight it into maybe something which is in the red zone, something which would be in the green zone. So you mentioned some subset is there which is nearing the resolution, but there would be a few accounts, okay, wherein it would be really difficult and there could be further forward flows into Stage 3 as well. So any maybe qualitative comments on this entire portfolio?
See, let me say one thing. We -- just resummarize the INR 5,900-odd crores. There are 3 buckets of issues that are there. Bucket one is essentially issues at the -- at one level up, the parent entity of these companies where the group essentially is in some sort of financial distress, while the particular specific project might not be, but the parent is going through some trouble or the builder concern has been kind of put behind bars. We some of the examples in sort of one major southern city, for example, et cetera. So that's one category of issue.
The second category of issues is where we believe a resolution is possible or either through sale or some sort of other resolution mechanism. But that will come with a little bit of a haircut. And moving to Stage 2 allows us to make that provision, which enables you to do that. That's the second category. And the third category where -- is where genuinely there has been some amount of movement of the market against the borrower though they have not really kind of departed on payments yet, but their cash flows seem weak. Those are kind of the broad 3 categories. We aren't breaking down the INR 5,900 crore into these 3 categories. But to the bigger question that you're trying to ask, of the Stage 2, what do you expect to happen in terms of movement to Stage 3, right? That's the meta question that I hear you asking.
The way I frame this is, while one should expect some flow from Stage 2 to Stage 3, you're not going to see any imminent big surge and, B, you're not going to see a big amount of provision requirement if the account moves from Stage 2 to Stage 3 because even with the account in Stage 2, we have made fairly significant provisions aligned with what we think many of these accounts can in any sort of reasonable view of the world incur as LGD.
I'll just add one point to what you just summarized, Jairam, I'm Yesh here. I think it's also important to remember that these are real estate loans where your underlying collateral is senior secure mortgage on the land and the project, right? So it's not that we are seeing cases where the outcome is kind of binary [indiscernible]. And that's what I think the point that you're making about us having thoughtfully put this in categories and set aside the provisions that we have puts us in a position where we actually really go after the best possible strategy for results as we go.
Yes, sure. So, when we look at the provisions of almost 13-odd percent, and as you mentioned, these are collateralized at some places [indiscernible] as well. But then so what is the kind of stress? Okay, it's almost like more than 25-odd percent of the wholesale, which is really under stress. And when we are making this provisioning all through over last 4 to 6 odd quarters, the numbers which have been there in Stage 2 and stage 3 have been much, much lower, okay?
So is it like a deferred recognition, okay, which has happened on the entire wholesale book because situation has only improved in the last 6, 9 months, as you are saying like maybe when you are confident of growing the portfolio again on the real estate side, saying that affordability is improving, inventory levels are improving. But still, the recognition has not been there and provisioning is just inching up.
Yes. So Kunal, I'll reiterate what we said before. On the specific point of deferred recognition, I don't think this is a deferred thing. This is -- if you look purely at repayment behavior, these accounts wouldn't end up in Stage 2. Our intent this being our sort of first quarter as an FS company was to actually increase transparency and believability on the portfolio. And we have significantly tightened the norms in terms of moving to Stage 2. So, if anything, it's the opposite, which is that you've -- you pull forward potential events which can happen in the future and make sure that you've recognized all of them upfront. There is -- if we continue to have -- if we have continued to have the same policies based on pure repayment behavior of these accounts, you would have seen a very different picture during the quarter.
And to be specific, we put this note also in account. There were some changes in our credit policy, which has been recommended and approved by the risk audit and Board, which is now driving fairly model-based outputs in addition to specific subjective inputs that we need to have for extremely stressed accounts in Stage 3, et cetera.
[Operator Instructions] The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.
Is there some kind of -- you said there are some accounts in the Stage 2 that were closer to resolution. Some of it will take a long time. If we look 6 months down the line, let's say, by March 2023, would you expect a big chunk of these accounts to get resolved? Or is there some kind of time line you can put forward to how the process will flow from here on?
At this time, we will prefer not to. I think we can tell you that all efforts are on it. There are various teams working on each account. And all efforts have been made. Yesh already mentioned the segregation between recognition versus what the business and the management team need to do in terms of ensuring payments, recoveries, et cetera. The other point also that was mentioned, which I'll reiterate that in some cases, it's not like payments have stopped. It's just recognition today of some potential stress X months, X quarters down the line based on cash flow mismatches that we see versus what the builder may see. So allow us some time and they have the right time, we'll be able to share more information as time goes by.
The other piece to reiterate is what Chairman has mentioned in his opening comments, which is that with this and the other efforts that are going on our intent is for us to consolidate and reduce the size of the wholesale book overall over the next few quarters. So between now and March, certainly, the overall book will reduce. And yes, you should expect some of the reduction to come from Stage 2, a little bit from Stage 1 as well and so on, but you will see the reduction in the overall book in the next few quarters.
[Operator Instructions] The next question is from the line of Sanket from B&K.
So again, from wholesale fund, but basis your answers to the previous questions, it is right to assume that what you are suggesting is rather than looking towards how much stress or the extent of stress in the INR 6,000 crores addition in the Stage 2. Rather the way to look at it, these are the set of assets which you want to monetize? And rather than keeping it lingering fall, say, many quarters, you have taken the hit in one quarter in terms of recognition and providing it.
I think that's a good way to frame it. The way to -- I mean if you just look at our overall numbers, you can see what the total amount is between Stage 2 and Stage 3, right? And you can see the amount of provisions that we have made on that. So on essentially INR 11,000 crore portfolio in wholesale that is sitting in Stage 1 -- Stage 2 and Stage 3, we've got about INR 4,400 crores of provision. So 40% is -- we have covered on that Stage 2 and Stage 3 book. So that gives you a lot of room to achieve whatever kind of resolution you want to achieve within that portfolio.
Okay. So out of this INR 9,000 crore, particularly in Stage 2, is it that the entire would you look to monetize or maybe there is a portion which you feel will get regularized on its own? And just on your last...
[indiscernible] fairly quickly, man. See, these things -- these flows forward and backward will happen, account by account is very hard to be precise right now. However, on the full pool level, we know that on the full pool level we've got a lot of provisions. We've got 1/3 provision sitting on stage 2, 75% provision sitting in Stage 3. So we know that our degrees of freedom in terms of what they can do with management action is significant with this level of provision already in there.
Yes. I just want to add another point here. I mean, given the fact that we are stating now that we will shrink our footprint for the next few quarters to come, the bucket where you would want to focus on the shrinkage is Stage 2 clearly. That also directionally answers your question.
Just to give you one data point, and since this question was asked [indiscernible] in Stage 2, for example, we do have 1 transaction we're sitting in early November. That just got repaid. That's about INR 150 crores. So just giving you an example. So there will be some movements up and down, Jairam just alluded to it. So over some time over the next 1, 2 quarters, whether we got more clarity and you will reflect -- you'll see that on numbers.
Sir. One last question on wholesale. And then I have another question in general. So you to one of the last questions, participant question, you mentioned that maybe going ahead Stage 2 will come down and also Stage 1 may come down. So are there any assets in Stage 1 also that you look to monetize in the coming quarters?
Not as a matter of delivery strategy. But I would remind again that in our business, these loans are self-amortizing loans where [indiscernible] cash pay and this actually reduce through the passage of time, which basically means that if you're not adding new loans to that category with the passage of time, you will see the reduction. And that natural rate of attrition, I would imagine, would pan out for Stage 1 as well, but not at our end.
The only other element I would add is in some cases you would also see because these are good projects, there could be refinancing pressure from competing financing sources for the real estate builders. So there could be some [indiscernible]. But it's hard to gauge that behavior today.
Sure, sir. Sir, just one suggest, we have provided one very good slide on which is giving a flavor on Stage 1 asset in the wholesale book, it could be very helpful if we can provide some qualitative details if not [indiscernible] on the Stage 2 asset as well. So another question on -- so we have a lot of excess equity, right, which is a drive on our ROEs. And also, maybe we are looking to monetize the investments that we have done in [indiscernible]. Once that happens, maybe some inorganic acquisitions look more probable for us to put that equity in [indiscernible]. Are there any assets in evaluation or qualitative comments like which segments would be put on that front?
So I'll take that. Yes, we do recognize that there is excess equity/potential monetizable cash in the near future. If you just look at the history of this group for the last many decades, it is a group that apart from strong organic growth, it has managed multiple inorganic acquisitions. And the latest and the last one being DHFL, as you very well know. We time to time we'll absolutely look at inorganic. We do think the financial services market is highly under-penetrated in the segments that we're in, including newer segments that we may enter in. So we're actively engaged in pretty much multiple M&A dialogues. Nothing specific to discuss at this stage.
The next question is from the line of Bhaskar Basu from Jefferies.
Just a couple of questions. Firstly, just wanted to get -- was there any posted gains which was netted off against provision in this quarter of INR 334 crores? And how much was that?
A little over INR 100 crores, a little over INR 100 crores, Bhaskar.
INR 100 crores. So that is in -- so the number is a net number, right?
Yes, a net number, correct.
Okay. And could you give some details around the fair valuation of investments, what was it regarding exactly? I may have missed it in the [indiscernible] some color would be helpful.
Yes. Look, I think you should treat the fair value of -- fair value losses to that provisions effectively as part of our AUM. So there are certain instruments which are effectively loan but they categorized more as fair value instruments given how these -- from an accounting standpoint, how they work. So if they have variable rate attached to it. There were some loans that may have been enforced and we own assets/investments. So it's a combination of 2. But from your vantage point, and hence that's the way we've shown in the IR debt together, effectively is the AUM hit on the P&L that has been taken.
So just to be clear, this is -- this also pertains to the loan book itself, right? Because you classify some of the loan, part of the loan book as investment.
This is pertaining to the same book. And I think you should treat them similar to the provision, got it?
The next question is from the line of Nischint Chawathe from Kotak Securities.
I'm just looking at Page 43 of the presentation. You have investments of INR 20,000-odd crores. Could you give some breakup in terms of these investments? How much of this is PTC?
Sorry, how much of this is what?
The PTC, the past through certificates.
PTC, very little. INR 255 crores as of September.
Okay. And this is the current value that you have. I mean this is the current value, right?
Yes, yes, post markdown volume. If there are any markdowns, everything is reflected here.
Okay. Okay. Okay. And the rest of it would be what, around INR 19,500-odd crores or whatever, actually INR 20,000 crores would be what?
So if you go to Page 44, if you're -- sure you have access. So we just show you the equity. I'll bridge it for you. So broadly speaking, we do have non-FS lending equity also against which there are assets, right? So Shriram, insurance, alternatives, okay? So that's a large part. And then, as we mentioned earlier, the AUM that we talk about is a combination of loan/investments which are investments pertaining to the lending book itself. It's just the categorization of those loans are in investments. So if you knock out these about -- how much is this, INR 7,500, INR 8,000 crores, the rest, you should really add it to our AUM. So when you add our AUM of INR 63,000 crores plus this you got -- and you add cash, you'll broadly tally to the number on Page 43. I hope that answered your question.
Yes, that's perfectly. On the net worth side, just to clarify, Shriram is on a mark-to-market basis, right?
So Shriram City Union is on mark-to-market. In terms of Capital because it is still not listed, so it's not mark-to-market.
Okay. So there may still be some [indiscernible].
Yes. So as Jairam mentioned earlier in the call, that there is a corporate action that been sanctioned at Shriram. And in the next few days, weeks, we expect Shriram Finance to be listed and the rest of the companies to be demerged from Shriram Capital. So yes, all else equal, and markets holding up with the value that they are, there will be some mark-to-market that one should expect. The exact number will be crystallized as of December 31.
Mark-to-market gains, just to be clear.
That's right. Yes. A lot has been discussed, I guess, on the Stage 1 and Stage 2 loans on the wholesale side. But just one last point is that is there a yield differential between Stage 1 and Stage 2? I mean just to broadly understand the return and risk profile of it.
No, no, nothing material, except that accounts which have shown some levels of stress, you would have interest reversals on them. So effective yields might end up looking lower, but growth yields are not materially different between the accounts on Stage 1 and Stage 2.
Sure. Just one last question. What is the incremental cost of funds last quarter and this quarter?
As you saw, the total cost of borrowing was at 80, we have raised very little money. The previous quarter, we raised about INR 1,000 crores at about 855 average.
Okay. And this quarter practically, okay, you did much. Okay. Sorry, just one last one is on Page 40 what is others, [indiscernible] 23%.
This order is nothing but just a categorization of the type of investors who hold the NCDs. The NCDs originally of INR 19,000 crore and change during the DHFL acquisition is held by a bunch of people. We can take it offline if you'd like to get more categorization. But large part of it is from that.
Yes. And if you see the footnote, I can give some more color on this front.
The next question is from the line of Sandeep Jain from Baroda BNP Paribas.
The question has been answered. Just one clarification on a previous question. When you said that the fair value loss was on the same asset, you want to say it is on the wholesale book only?
Yes.
Part of it.
Okay. So large part of it would be the wholesale book only. So okay. So that is the case. So was there any yield readjustment? Or what is the nature of that? If you can explain it?
No. So there will be no yield adjustment. These were assets [indiscernible] 100 in the last quarter, that 100 became less by the loss that we recorded. Some of these assets are not yielding anything. Some of them are yielding something. So in one case, for example, there was a bit of an interest reversal. So we recorded that. But because it's an investment it gets knocked off from the investment value itself, unlike a loan from a pure technical definition, which would come off interest income.
The next question is from the line of Yash Agarwal from JM Financial.
I want to know what is the interest reversal this quarter on account of the move then to Stage 2?
A little over INR 200 crores, roughly INR 230 crores.
Okay. And the movement to Stage 2, how does it impact your yields? Is this going to be a recurring phenomenon with the sort of...
No, no, change to Stage 2, moving to Stage 2 doesn't change the yield at all. So unlike movement to Stage 3 where interest recognition stops and happens on a cash basis, that is not the case in Stage 2. In stage 2 interest accrual happens. So nothing changes as far as gross yields are concerned.
So we should be back at broadly INR 700 crores pre-op number next quarter, assuming all things remain constant? Is that a fair assumption?
All goes well, you're right.
The only additional data point I would offer is as mentioned by Jairam and Yesh earlier and Chairman in the opening remarks, we are consciously bringing down the wholesale book. So the natural attrition plus any specific actions that we take will obviously bring down that book. So to that extent, you should expect similar ratios but adjusted for the AUM that we have.
Sure. Sure. Fair enough. Fair enough. And incrementally, as I'm seeing, I think retail quarterly run rate of INR 4,000 crores. So [indiscernible] INR 9,000 crores to INR 10,000 crores could be done in the next 2 quarters. So could we be 50-50 just by the end of this financial year and not what we've guided before?
It's possible, like we're not changing our guidance on this regard, but your math works.
Got it. Got it. And if I were to forecast a credit cost for the next 2 quarters, given the fact that we've already taken a substantial hit -- would it be like a very minimal number incrementally, the credit cost going forward?
Let's see. We have not -- we have tended not to guide on credit cost till we actually achieve kind of full stability with respect to this book. It's not something that we want to do. Your -- the fact that you mentioned are correct that we have done a fairly substantial level of provisioning. We are pretty much done on the recognition front, provisioning. We have taken a fairly substantial level. And as we mentioned before, between Stage 2 and Stage 3, we are 40% plus provided. So let's just leave it at that and then we'll see as the quarters comes.
Okay. So to put it in another way, what is the steady-state retail book credit cost that you're having till now?
See, for the kind of mix that we are talking about in retail steady state, which should be maybe 2, 3 years from now, we are probably talking about the credit cost around 1.5% to 2%.
The next question is from the line of [ Ari Kanth ], an individual investor.
I just wanted to know the share value is highly weaken on after the demerger when compared to the last few years, the real value of the enterprise. And as per my previous information [indiscernible] value unlocking will be happening as I was getting after few quarters. Is it dependent on the asset movement from Stage 1 to Stage 2? If yes, what is the timeframe of this asset movement from Stage 1 to 2, then to Stage 3? And the second question I have is on the Shriram Transport monetization cash which will increase the liquidity you're saying. Is there a specific time line, I mean what would be in the future?
I can take the Shriram point first. At least I didn't follow the first question, if you can kindly repeat. On the Shriram one, as I mentioned earlier, there will be the corporate action and hence there will be some liquid shares available for majority of the holding that we have because we'll also have some illiquid holdings in non-NBFC assets. As and when the time is appropriate, we will look to monetize it. We've anyway mentioned earlier that it is a noncore asset. So this is definitely not a long-term holding for us. I apologize, at least I couldn't follow the first question unless somebody...
Yes, the way I'll answer your question is, see, our job as an executive team is to do what we think is in the best long-term interest of the firm and continue to take steps and actions which maximizes that long-term value. I know as specific individual investors, the short-term or medium-term movements in share price does matter to a lot of our owners. However, it is beyond our can to be able to influence that or manage that. We will -- you will continue -- you should continue to expect the management team to steer your firm towards long-term value creation. And hopefully, along the way, the adjustments in multiples, et cetera, follows.
The next question is from the line of Bharat Sheth from Quest Investment.
I have only one question. Last year we had acquired a large piece of the land against of our lending. So what is the status of monetization of that piece? Where do we stand currently?
So we are actively looking at engaging with potential development partners. That land, obviously, as you know, is a very large piece of land. It can be developed in pieces. There are certain critical items to take care of, including a bank settlement, including 1 or 2 other [indiscernible]. So active -- not derivation, active movement on those, unfortunately, I cannot give you a specific time line on what will happen. Bur we can assure you that full efforts are being put on it to start toward the path to monetization.
Any value that do we put?
The value that we have is on the balance sheet. So outside of that, at least that's the value we believe, whether it's more or less what we realize ultimately will be a function of what the plans on development over the next few years will be.
Thank you. Ladies and gentlemen, due to time constrain, we take one last question from the line of Vivek Ramakrishnan from DSP Mutual Fund.
Hi, this last question might take a little time. We've missed all the exciting developments on the retail front because of the wholesale questions. I see a real diversity of products coming about. And I don't -- I mean what is the commonality in theme in terms of all the products because some are physical and some are very branch-based. And in fact in microfinance [indiscernible]. So how is the product -- are each of these products going to thin scale? Is that the plan? Or is there something that will fall off and you're going to concentrate on a few products?
See there are 2 broad sort of connecting themes across all of these. Number one is serving the, what we call the budget customer of Bharat. That's the core underlying theme, which says the budget customer of Bharat what are the various products that the customer might need and we want to be present in all of those categories. We don't want to be sort of product-specific, but segment-specific. And whatever that segment needs to be adhered to, we adhere to offer that, right? That's one connecting thing.
The second connecting theme is that from a capability standpoint, where we believe we are differentiated versus where many of the competitors are is on tech and analytics where we believe that we have a world-class team. And given that we are starting when we are starting, i.e., sort of in this era as opposed to 5 years ago or 10 years ago, our ability to set up a particular kind of tech architecture and a particular kind of analytic work benches is significantly different from what even the most tech advanced banks and NBFCs out there are able to do because they have legacy problems, which we don't have.
So any kind of product line which maximizes our ability to flex that muscle of [indiscernible] would be quite happy to do. So for example, the digital originations that you talk about are exactly of that variety. Even microfinance. Today, in microfinance, a credit person of our sitting in a central location can see a video that the sales RM on the ground is taking off the village or off the hut of the borrower. And as the video is streaming, we can have an AI engine here, which is reading every image that is coming through and identifying assets that the potential clients own, running it through an ML model and instantly figuring out what the potential credit rating of that client is and giving that as advice to the credit person sitting in the central office, right? That is capability that is incredibly hard for an established large firm, whether a bank or NBFC to be able to do.
We are able to do that because we are starting now, and we have that in our DNA of how we are setting up that business. So those are the 2 big connecting threads of what you're seeing in the product mix. The why of it though, the why we need a product mix is that we firmly believe that we are in the kind of business where cycles tend to come. And we want to be diversified enough that no cycles in any single product can have a significant material impact on the overall outcome of the retail business. And hence, we are building a portfolio that is sufficiently diversified and can deal with all parts of the credit cycle as and when they might come. Right now, of course, we are in a very benign part of the cycle. So everything looks great. But we want to build a portfolio that is robust enough to survive any scarce in any part of the retail business in the years to come.
Okay. So would it be right to say that the disbursement pie chart -- bar chart that you have will start eventually looking like the AUM chart as well in terms of diversity?
Yes. In terms of -- directionally, the diversification on the AUM will absolutely grow. You will see more and more colors on that pie chart that you see on the AUM side. However, remember that secure businesses and longer duration businesses tend to be more sticky on the balance sheet compared to the unsecured digital businesses, et cetera. So the digital type things will always contribute more to disbursements than they will ever contribute to AUM. The AUM will always be a little bit more secured heavy than what you see in the disbursement chart.
Thank you. I now hand the conference over to Mr. Hitesh Dhaddha for closing comments. Over to you, sir.
Thanks, everyone, for joining the call. In case you have more questions, please feel free to reach out to the IR team. Thank you.
Thank you. Ladies and gentlemen, on behalf of Piramal Enterprises Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.