Ujjivan Small Finance Bank Ltd
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Ujjivan Small Finance Bank Ltd
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Ladies and gentlemen, good day, and welcome to Ujjivan Small Finance Bank Q4 FY '24 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Rikin Shah from IIFL Securities Limited. Thank you, and over to you, sir.
Thank you, Musa. Good morning, everyone, and welcome to Ujjivan Small Finance Bank's Q4 Earnings Call. I'm delighted to welcome the entire management team of Ujjivan Small Finance Bank, who will discuss the earnings and the business performance followed by an interactive Q&A. The management team is represented by Mr. Ittira Davis, MD and CEO; Ms. Carol Furtado, Executive Director; Ashish Goel, Chief Credit Officer; MD Ramesh Murthy, Chief Financial Officer; Martin PS, Chief Operating Officer; Vibhas Chandra, Head, Micro Banking; and Sanjiv Banwal, Company Secretary and Head of Regulatory framework.
With this, let me pass on the call to Mr. Ittira Davis. Over to you, sir.
Thank you, Nitin, and good morning, and welcome to our Q4 earnings call. I'm pleased to announce that Q4 has been another strong quarter for the bank, closing the financial year on a strong note. Bank has raised the bar to improve benchmarks, which is evident through its healthy growth and strong profitability. There were several developments post the book closure.
As you know, we have received RBI approval for the appointment of Mr. Sanjeev Nautiyal as the Managing Director and CEO of our bank, with effect from 1st July '24. He will join us on the 1st of June as President in the interim.
He's a seasoned banker with over 3 decades of extensive experience in retail, SME, financial inclusion, operation, HR, international banking and Treasury. Previously, Mr. Nautiyal held the position of Deputy Managing Director in State Bank of India handling financial inclusion and micro markets. And also, he was earlier Managing Director and CEO of SBI Life Insurance.
I will be stepping down from the MD and CEO position with effect from June 30, 2024, but will continue to be associated with the bank as an adviser.
With the approval of the RBI, Carol Furtado has taken over additional responsibility as Whole-time Director. She's now an Executive Director of the bank with effect from 1st of May 2024.
We have successful did the merger process between the bank and the holding company. The shares will be credited to the shareholders of UFSL and trading sector to start this week.
Here, I would like to highlight that the merger has benefited all our shareholders. The book value per share has increased by INR 2.6, resulting in a book value of INR 29.06 as of March 31, 2024.
Additionally, owing to the strong profitability of the bank for financial year '24, the Board has recommended a final equity dividend of INR 1.5 share. This will be subject to shareholders' approval in the ensuing AGM.
Speaking about business, we continue to expand our presence geographically. We have 123 branches during the financial year, taking the total branch count to 752 spread over 26 states. We aim to add around 50 more branches during financial year '24/'25.
During Q4, our loan disbursements stood at INR 6,681 crores, growing 11% over the last quarter. This resulted in full year disbursements reaching INR 23,389 crores with a registered increase of 17% year-on-year.
Our gross loan book grew by 24% year-on-year and 10% Q-on-Q.
Customer acquisition remains strong, and we have acquired around 2.7 lakh new microfinance customers in the last quarter, taking the total count of new customers to 10.5 lakhs for financial year 2024. This is around 12% higher than what we acquired in the previous year. This increasing acquisition reflects the untapped potential of the customer segment.
We have graduated about 1.4 lakh customers from group loan to individual loans in financial year '23/'24.
And the individual loan growth will continue to outpace group loan growth. More than 80% of the current IL customer base are from our existing GL customers who continue to have good record and thus graduated to the individual loans. We see strong demand and believe this trend should continue in financial year '25 as well.
The growth in affordable housing, including micro mortgages continue to be strong. We disbursed INR 730 crores for fourth quarter and INR 2,284 crores for the full year, witnessing a growth of 45% on a year-on-year basis, and our book is now a INR 5,000 crore book on the affordable housing.
We had piloted a new LOS for the affordable housing vertical in Q4 '24, which was successfully launched across the country in April this year. This will help us improve efficiency, reducing manual interventions, enabling digital onboarding of customers, improve productivity and streamline the approval process.
We have added prequalified top-up loans to the product suite for our existing customers, and a number of existing customers are already eligible for this loan.
Similarly, our micromortgages book has grown well, we see this momentum to continue in the next year as well.
With regard to the MSME business, the transition is nearly complete. We disbursed INR 128 crores in the fourth quarter which is a significant improvement from just INR 24 crores in the first quarter.
Our new pan-India MSME book largely comprises of LAP products. The LOS for the same is planned to be launched the first quarter. This will lead to significant improvement in critical metrics such as productivity, turnaround time, et cetera, helping us scale the product much faster.
Financial year '25 will also witness country-wide launch of fund-based and nonfund-based working capital offerings. To further augment the product offerings, we are closely working with 4 fintech partners, of which 2 are already onboarded in the fourth quarter. And as supply chain finance business from fintech partners gains traction, it will add to the growth of the MSME vertical as this is a high-yielding book.
Our FIG business continues to contribute to our secured base with quarterly disbursements of INR 546 crores in the fourth quarter. We continue to invest in our emerging businesses such as gold loans and vehicle finance business. Gold loan will now be offered from 250 branches by the end of financial year '25 up from 60 currently operating branches, and vehicle finance will deepen its presence in the existing 8 states to more traction to grow their business.
We will continue to invest in technology and human resources to make products readily to be scaled up. In line with our long-term objectives, we continue to grow our secured book, which increased to 30.2% as of March '24, up from 28.3% in the previous quarter.
Q4 has been a strong quarter on the liabilities part as well. Total deposits have grown strongly to INR 31,462 crores, registering a 23% year-on-year growth and a 6% quarter-on-quarter growth, reaping benefits from our increasing branch presence, enhanced service levels and improved business productivity.
Additionally, our focus towards retail deposits has helped us garner INR 778 crores of CASA this quarter, registering a double-digit growth of 10% sequentially. Our total CASA book now stands at INR 8,335 crores. Our CASA ratio improved to 26.5 against 25.5 in the last quarter.
The benefits of brand campaigns and introduction of value-added products during the year has also fueled this growth. Our retail term deposit growth continues to outpace bulk term, growing by 7% and 36% for the quarter and the year, respectively.
We have recently increased our [indiscernible] by 25 basis points for the 15 months deposit bucket to offer a more competitive rate to our customers. We believe the key to a customer base and reaching a diverse set of customers lies in embracing mix of physical and digital journey.
2 digital live products, namely fixed deposits and savings accounts were introduced in the second half of the financial year, mobilizing INR 75 crores of deposits. During the first quarter of this financial year, we will be introducing digital initiatives such as smart statements, video banking and WhatsApp banking.
Furthermore, we aim to offer end-to-end digital services experiences for our customers in select areas.
In financial year '25, we will continue to invest in targeted brand campaigns. The focus towards building retail and granular deposit base and leverage our digital channels will continue.
Our MSME business will also contribute towards building current accounts as the asset product suite is designed towards meeting our customers' requirement. We will also offer escrow accounts to our current account customers.
Our, Hello Ujjivan application is gaining acceptance among our customers with total downloads reaching around 7.8 lakhs. The loan acknowledgment from our repeat and top-up group loans has also started to pick up. A total of 1.28 lakh loans were acknowledged this quarter, which forms 33% of total repeat and top-up group loans.
We are also exploring offering insurance products via Hello Ujjivan currently offering 1 insurance product, but we hope to add a few more in the future.
I'll look at the financials and margins. This quarter, we were able to benefit from our past efforts, resulting in expanded margins. The expansion was a result of 3 factors: improved cost of funds, optimal system liquidity and continued benefit from asset book repricing. The result in NIMs for the quarter was 9.4% against 0.8% in Q3 and 9.1% for the full year '24, and this is in line with our previous guidance.
While the asset book repricing will continue to benefit us, the cost of funds will stay elevated as a result of our recent hike in the 15-month deposit bucket. The cost for the quarter was 7.2% against 7.5% in the last quarter.
There is also a onetime benefit of 17 basis points in cost of funds due to interest reversal on the term deposit post the reverse merger. Currently, around 75% of the book is in the highest bracket while around 15% of the book sourced between September '22 and February 23, and 10% of the book source between -- pre September '22 is yet to be fully repriced.
The cost-to-income ratio for Q4 '24 remained at 56%, slightly elevated as investments in infra and technology continue. Going forward, we believe it will remain at a similar level as investments continue to form a strong base for the bank.
Pre-provision operating profit remained strong at INR 519 crores, growing by 26% year-on-year.
Coming to asset quality. The collections continue to be strong, around 99% levels. The credit cost continues to move towards normalized levels. Credit cost for the quarter is INR 79 crores versus INR 63 crores in the previous quarter.
Our asset quality remains robust with GNPA at 2.1% and NNPA at 0.3%.
Slippages for the fourth quarter were at INR 175 crores against INR 140 crores in the third quarter.
For FY '24, slippages are at INR 480 crores with upgrade and recoveries of INR 224 crores.
Bad debt recovery remained strong at INR 141 crores in financial year '24. We have written off INR 65 crores during the quarter.
We had write a credit cost of sub-100 basis points for the last financial year, and the bank remained well within the guidance.
During the second half of financial year '24, we have seen credit costs normalizing. This includes an external factor of loan waiver campaigns in some pockets of Northern India.
Further, as the book vintage increases and with credit cost normalization continuing, we expect credit cost to be in the range of 1.4% to 1.5% for financial year '25.
During FY '24, bad debt recovery was INR 141 crores on the back of strong collections, a strong collection team and intensified legal activities. We will want to continue these initiatives during the current year as well and expect to recover around INR 100 crores.
PAT for the quarter was INR 330 crores, resulting in a full year profit after tax of INR 1,281 crores growing by 17% year-on-year. This has resulted in a healthy return on assets and return on equity of 3.3% and 24.8% for the fourth quarter.
For the full year, return on assets is a remarkable 3.5% and a very good 26.1% for ROE for the financial year '24.
RBI has recently outlined the eligibility criteria for qualifying to apply for the universal bank license. We are pleased to confirm that the eligibility criteria will come out as planned, bases the Board guidance.
Now a guidance for the current final financial year. We estimate our gross loan book to be between 20% to 25% for financial year '25 while deposits will grow in line with our asset growth and our CD ratios will maintain those of the financial year [indiscernible]. Later in the year, a firmer number will be given on the exact growth, whether we are on the higher end or the lower end of the 20% to 25% growth.
Financial year '24/'25 will be a year of sustained business performance and profitability. We expect NIMs to stay around the 9% and the ROE at around 22%. These are early indicators, as I said, with firmer guidance to follow [indiscernible]. Thank you. Over to you.
[Operator Instructions]
The first question is from the line of Rajiv Mehta from Yes Securities.
Congrats on good quarter. So my first question is on the asset quality. So while the slippage in run rate was slightly higher in the quarter, it could be because of Punjab. But the upgrades and recoveries quantum was quite lower in Q4. Any specific reason why upgrades and recoveries were lower?
And second associated question is, we are continuously seeing reduction in onboard of all connection team in micro banking. Can it have any future bearing on connection efficiency? Maybe OD collections or maybe infill recoveries and upgrades?
I'll answer the first question, which is our slippages. So if you have noticed, our slippages have consistently been in the 0.5%. There was a minor reduction, I would not say a reduction in the fourth quarter. And there is no specific reason for that. It has been more or less flat.
As far as the size is concerned, we had actually increased the deal size in Q3, and we brought it back to the normal level in Q4. So you would see a Q-on-Q reduction, but the team has been based on our assessment of the overall book-to-bill recovered. So we see that this number will continue. So this -- the collection fee trend is to continue during this financial year.
Okay. So you are implying that this cost guidance of [ 1.41 ] kind of captures a very usual steady-state is wells upgrades and recovery run rate going forward, right?
In fact, we had, even have said that we will be see normalization of the credit cost. And we saw that the credit costs were normalizing quarter-on-quarter. And we expect that this will be a steady state.
Just on the April ticket size across products. When I look at affordable housing, excluding maple, [indiscernible]excluding fintech channel, there has been some increase in ticket sizes when I look at Y-on-Y comparative. So anything specific which is driving your -- that's number one. And this cost of the [indiscernible] in this quarter and you said there was a onetime benefit of [indiscernible]. So excluding this, how would have cost of fund moved in this quarter?
Okay. The average ticket size in group loans has gone up margin. We contribute new customers' contribution revenue from 43%, 39% and we saw an increase in the repeat loans from 32% to 39%.
The increase in ticket sizes in group individual loan ticket size increase across as we are graduating group goes to individual loans at a higher ticket size.
This increase was about 3%, so it's not a very significant increase in the ticket size of individual loss.
No, my question was on the ticket size of affordable housing ex of LAP and MSME of fintech show in the presentation. So they have gone up.
Affordable housing, last year, it was about 12.6 and we've seen [indiscernible]. So that's a partial increase, 14 lakh is what we are normally underwriting these days. The [indiscernible] remained, however, between 12 lakh to 15 lakh.
Most of our business is coming. That business segment of 12 lakh to 15 lakh. Now it could be slightly on the 14 lakh range or the 13 lakh range, but that's not a significant movement. The bank remains the same. Customer segment -- on MSME, yes, we have seen a slightly higher ticket size.
We launched LAP product in Q1, and that has stabilized over the last 4 quarters. In the last quarter, we saw a significant traction, and we want to be in that range of [ 14 to 15 ] lakhs. So that's the segment in which we started to see the scale up happening. We will continue operating the range of 14 lakh to 15 lakh.
Sorry I just missed it.
We continue to operate at that would [indiscernible]
[Operator Instructions] The next question is from the line of Nidhesh Jain from Investec.
Firstly, on MSME loan, can you, can you explain -- can you just give some details on fintech partnership that we, what is the book size that we have from that partnership, whether that [indiscernible], et cetera? And what is the customer profile that we are targeting on the MSME fintech vertical?
I mean fintech, we recently started this portfolio, and we have already tied up with 2 partners, and there are 2 in the pipeline. And the book size is very small. We are also hoping to grow this through the fintechs and also on our individual capacity.
Okay, sure. And in the MSME vertical, what is about the [indiscernible]the originating loans?
This is a combination -- we are doing the semiformal LAP. We started this portfolio -- we started the portfolio sometime in May of last year. Our strategy is to get customers from the semiformal, semi-urban areas and grow the portfolio there.
Okay. Okay. And how should we put of funds going forward? This quarter, the runoff -- so adjusted for one-off probably the cost of 27.4%, please. How should we project cost of funds in FY '25?
Cost of funds, we'll see a market because we have recently announced a rate hike. TD rates have increased by about 25 basis points in March '24. However, compared to compare Q-o-Q, we have seen a substantial reduction in cost of funds. We have earlier said that around 17 basis point reduction is due to interest rate reversal on the holding companies and while the balance 8 basis points is due to improved CASA and retail deposits. So our view is until the reported starts coming down, we assume the cost of funds to remain elevated. We don't wish to predict as several external factors come into force on the cost of funds.
From a modeling perspective, we should start 0.4% as a starting number and there should be a marginal increase in cost of fund from that number in FY '25. Is that right?
Or closer to around 7.3 because of tighter treasury management.
The next question is Pritesh Bumb from DAM Capital.
Just two questions is on the FIG lending, which we have seen a very strong growth. So if you can give some color what comfort we are having there, was it just a liquidity deployment? Is it short term, long term? If you can you give some color on that.
So the FIG lending is doing well for us. We have grown substantially there. Our portfolio size is around INR 1,730 crores. We will be taking this up a little further to balance our secured asset book. And the customer segment would be the NBFCs that we are targeting and the A-rated companies and AA-rated companies.
Sure. If you can just mention what kind of yields we will be getting. Is it Chattem, or is it like -- you said you'll increase it, but the lending which has happened is in nature or a decent tenure?
So on the FIG portfolio, we have exposure coming in from lending to MSMEs, vehicle finance, education sector and good loans. So these are the 4 tenders on all these 4 segments are different from each other, slightly higher tenure and gold loans are much on the lower side.
The yields, again, are risk calibrated because 95% of our portfolio remains [indiscernible] and above. So therefore, the ease are slightly on the lower side, but it is a risk-based pricing. And we will not dinette [indiscernible]the portfolio. It continues to be in the intent to 93% to 95% [indiscernible].
Got it. Second question was OpEx growth. We've seen this high growth this quarter. Any one-off there? And will we see [indiscernible] because suddenly, this quarter has been seen a sharp uptick?
Yes. I think the other operating expenses, there has been HR costs, which have been slightly higher because we have made some adjustments. And also, the premises costs because we opened quite a few branches in this part of the year. So it is something that is there. And the OpEx cost for the branches were primarily by way of rents and the salaries will remove. They will continue also because the that's part of the process.
We have also had some IT expenses, which are project related. See, IT expenses will continue as we upgrade because as you know, the regulator is now very, very keen to make sure that the technology is in line with what you're offering and the customers benefit from that and not lose out. So we are ensuring that our technology is state of the art and come up to the regulators' expectations.
So yes, going forward, these are things which I think bank, the whole industry has to take note of. And I think it is something that is very important. So we will be investing in that.
Got it. Lastly, we mentioned about liquidity usage this quarter. How much going ahead, we tend to use more, I mean, the LCR? So what will be the scenario, we'll keep or will not reach that number?
CR is not a question. We cannot afford to breach it. So I mean [indiscernible].
30% something right now? And will it be at the similar levels? Or will it go a little bit further or will increase the LCR? What is the stance on that?
Our average is to maintain around 140, 150. That's -- so 134 is good. 140 is good. That's the level. Not too much liquidity, but at the same time, something which is reasonable and good and safe.
The next is from the line of Ashlesh Sonje from Kotak Securities.
Congratulations. Two questions from my side. One is just a data keeping one. Can you share what is the outstanding technically written off book as on March '24 and also on March '23, if you have the number handy.
Sorry.
If you have the technical written-off book available as on March '24 and March '23.
In March '24, it is in the range of about INR 1,100 crores. That's the total book. But this consists of what we have done in the last 2 years, plus what we had done during COVID time.
Understood's. Would you have the number available for of March '23 as well?
I'll just come back to you.
Okay, sure. And secondly, the secured book is now at roughly 30% of the overall advances. How do you expect this to trend over FY '25 and '26?
So the guidance given for the 2 years is around 60-40. 60% would be in the [indiscernible] and 40 [indiscernible]. We Would be meeting that guidance in the next 2 years. We've already reached 0.2 [indiscernible] and we are seeing an increasing trend there. We've also introduced secured verticals, gold, vehicle finance, MSME and [indiscernible]doing well for us.
Understood. And if I can just squeeze in one last question. How are you accounting for the income from the off-balance sheet book, the IBPC and securitized loans?
On securitization, we take it into income. IBTC helps us in containing our cost of funds.
Okay. But the interest spread from the balance sheet book, would that be booked up? Will there be [indiscernible].
On a cash basis, on [indiscernible]
Okay. But you booked the interest spread on the entire interest income and interpret it.
Paying for this IBPC is a source of funds for us.
The next question is from the line of from ICICI Securities.
Just two questions from my side. One on the individual loan side, so we have been growing this space at accelerated pace from last 6 quarters. So can you just throw some light on, let's say, the part portfolio or maybe some sort of asset quality indicators in this book?
For individual loan, these are customers who have mostly graduated from group loans. We do about 10% to 12% of open acquisition on the individual loans .
Most of these customers have a 2- to 3-year track with the bank. So the asset quality for individual loans is better than the group loan asset quality. And that has also given us the confidence of growing this at a rate of 40%.
So in terms of are lower than the group loans are our average remains to be in the range of 1.3, 1.4.
And what are the yields we charge under this one?
It is again the base pricing that we do. The yields would be somewhere in the range of the group loan rates. [indiscernible] higher but be in the same band.
Now given we intend to grow our [indiscernible] book at a faster lift over the next 2 years. So how do you see this, I mean, behaving over the next, let's say, 6 to 7 quarters. I mean naturally yields under secure will be lower. One should look at the it's going ahead?
Yes. As the secured book increases, NIMs will come under a little pressure. But recently, we have got an upgrade on the asset -- on the rating from the rating agencies. So we will be using that to manage our cost but also using treasury to manage the fund process. So hopefully, it will not be much lower, but it depends on how fast the secured asset book is building up.
So we'll keep the market as if you see any changes coming up. But for now go with the guidance of 9%.
Okay. Okay. And lastly, on the deposit growth run rate. So in PTV mentioned about our deposit growth rate will be [indiscernible] the loan growth. But when we look at the CD ratio, which is still like 95%, 96%, doesn't it calls for an accelerated deposit growth than loan growth in the near term?
Yes. In the fourth quarter, our deposit growth was quite good, and we see that continue in the first quarter. So yes, I mean, our intention is to make sure that our CASA ratio, et cetera, moves up.
Our target internally is to the magic number of 30. But yes, in terms of the CD ratio, actually, based on the -- I think it is 87%. Of course, if you adjusted for the IBPC, then it's slightly higher. But for all practical purposes, IPPs are used to manage CD ratios. So I think you should look at the 87 rather than the 94 because that's how the regulator looks at it.
The next question is from the line of Krutika from Liberum Capital.
I just wanted your overall view on the MI pricing, are there any early warnings you're seeing in any geography? And in the low levels that you spoke about, what is contained in particular geographies are not demanding or you saw in selling out more than what [indiscernible]?
Can you repeat the question? The voice was not very clear.
Hi, can you hear me?
Yes, a little better.
Yes. I wanted to know on the [indiscernible].
Sorry to interrupt. Can you speak a little louder? You can use handset, please?
I wanted to know your view on the MSI cycle. If you're seeing any early warning signals in totes and even the favors that you spoke about in Northern India? Was it contained in particular geographies? Or did you see it spread more than what you had initially expected?
Yes. Okay. In some pockets, we have seen, especially in [indiscernible], as you mentioned, that the portfolio to -- to some extent, is impacted due to [indiscernible] in the second half of financial year '24. We expect this to subside by Q2 onwards. Our portfolio overall is performing well as we are mostly into urban and semi-urban, but seem to be a temporary thing.
And apart from these loan waivers, you don't see any signs of any early warning figures in other geographies or for some other reason?
So apart from there, we, our portfolio in Kerala has a little underperformed and it is at industry level as well and to an extent, Tamil Nadu as well. And we have slowly -- we have little slowed down also our MCA strategy to contain our repeat homes and repeat customers, but this is something which, again, I would say that it is temporary in nature, but we need to take cautious steps to ensure that our portfolio is safe.
Can you sort of pinpoint a reason for Kerala and Tamil Nadu underperforming and industry level reason really?
So there is no specific pockets. It's Kalata is -- we have a limited number of branches, a bit of presence in Kerala. And at the industry level also, we see a little stress and kind of a little over borrowing. And the cautious step, we have a little slow down in Kerala. But as far as in the strict pocket, we have concerns arising out [indiscernible] specific pocket.
Got it. Right. And my next question is on other income. We've done really well on other income. There's been sort of a catch-up with more focus on cross-sells has done well. Going forward, do we expect this line to continue outperforming in the next year? Do we now think it will grow in line with the disbursement for NII?
The other income will mostly be in line with our business growth. And we see insurance as an area where we could do well, including the CSLC and maybe a few more third-party products would come into the picture. This is a line item that would continue doing well for us.
I think there was -- in terms of the full year, there was a onetime effect in the insurance income. That will not be there in the current year. That's about INR 30 crores.
Got it. Got it. Can I just ask more question? If you expect any operating lease [indiscernible]to play out in the next financial year because I think you have upped the -- sorry, what is the number you have given for the numbers that you wanted to open in FY '25? And then a related question on operating leverage, it's going to play out?
Our branches next year FY '25 is 50 branches, 5-0.
Got it. And overall, at the company level do we expect in FY '25?
What is your definition of operating leverage, sorry?
If [indiscernible] fall below 55%.
Yes. Cost to income may pick up a little bit. As I said, we have got additional costs, which we have put in place because of the manpower requirements and the competition in the market and the market is a bit heated. So that will have some impact and also on the premises costs, which will be slightly elevated compared to the previous year, However, we can be rest assured that we are currently among the best in terms of cost/income in the small finance bank industry. And we hope to remain in that position or near the 1 or 2 in terms of the best in terms of that ratio.
The next question is from the line of Shailesh Kanani from Centrum Broking Limited.
So all my questions are answered. Only one question. Sir, on the recovery front from written-off accounts, we had guided during the start of the year that the number would be lower than last year. But this year, we have done, so any guidance on that front? How would be the recovery from the return of accounts?
Last year said that we will probably try to achieve about INR 120 crores, INR 110 crore to INR 120 crore.
But during the year, we found that we had a very favorable environment in terms of the [indiscernible] we had planned during the year. So on the micro banking side, we had local dollars. So there was a really supportive environment there. And most of the recoveries that we have got from the written-off [indiscernible] has been from either micro banking or from the affordable housing segment.
So because of the new traction on local dollars and the sale of possessed assets on the housing side that we were able to get a slightly higher number than what we have previously thought.
[indiscernible] anything between INR 100 crores and INR 110 crores. The [indiscernible] now quite good. So we expect much lower recovery from there. But from the written-off pool, which is immediately in the last 2 years, we'll probably get much higher recovery. So something in the range of INR 100 crores to INR 110 crores is something -- is what we'll target in this year.
Okay. Sir, just last question on my side. Since our initial lending book has grown very smartly this year and some of our peers have taken [indiscernible] book cover, so is the management contemplating anything on that side? And any views you can share with us?
So have we have had meetings to understand the entire CFM group product, the entire offering. We need a discussion with them, but we don't see that happening in at least the first 6 months. If at all, we decide to take the CGF cover, it will be in the second half but nothing decided as of now.
The next question is from the line of Rakesh Kumar from B&K Securities.
So the question was related to the refinance that we are availing. Number has slightly come down. So if you can elaborate on that, what is the plan that we have on the refinance development?
Yes. The refinance that we are taking from the various agencies, we are in discussion with the National Housing Bank and a few others. So we expect during this year, there will be an increase, but our loan book is also growing. So if you look at it as a proportion of the loan book, you might think that it might be coming down, but absolute numbers will be increasing. And wherever it is advantages for us and where it makes sense, we will be looking at the refinance, but the refinance doesn't come cheap. It's quite expensive. So we have to manage the cost as well. But it's a good source to have as a backup.
And so just to get a differentiated view, what is the cost of borrowing that we have excluding refinance and for the refinance itself if you can provide us the figure, the borrowing cost for these things?
We'll take that offline, and my colleagues will get back to you.
Sure, sir. Just addition, sir, other than paid lending, we have almost all the loans against which we can get a refinance. So is there any issue that we are not going ahead this front? Or if you can tell us -- because I understand that why we are not going ahead with this refinance thing. So if I add your IEC, I don't know like because the number is [indiscernible], your numbers [indiscernible]So if I take the IBPC number and your refinance number, as a percentage to your assets with your loans against which you can take this refinance, that number looks quite low as compared to other banks or the peer set. So just to understand that that's slightly better, sir.
IBPC, we are INR 2,500 crores. So INR 2,360 to be precise. And from other sources, it's not very much. But as I said, it's the costs which we have to consider. You see the thing is that we are very highly capitalized. So the thing is that with a 24% CRAR of that, we don't really need this refinancing as a source because net-net, it's a bit expensive.
As I said, we have to look at cost of funds. We cannot just do refinancing for refinancing sake. It has to make sense. And also when there is an asset liability mismatch, yes, some of these refinancings [indiscernible], and we will do. So as we grow our MSME book and our housing loan book, yes, we will work -- we will be looking at these refinancing to take care of the maturity mismatch. So yes, going forward, you will see more utilization of those sources. But for now, with our present level, we are quite well funded.
Yes, the point here, sir. Just sorry to explain this further. So it can also help you in the LDR number basically like you know. So the more refinance that you take, it will help you at that front also, I think.
Which number, sorry?
So the higher refinance number can also help at the LDR level, right, and the earlier calculation. So actually earlier, which I think the regulator will consider as considered to what you report in general. So India, it will get -- like to that extent, your LDR will also look lower.
We take your point. We'll have an internal with the treasury and others and see whether it really will help us. But yes, no, good point.
The next question is from the line of Mahesh Kabra from the SK Group.
Question is about the dividend. We are distributing almost this quarter's profit as dividend. And with the growth that we are projecting, soon we would need more capital to [indiscernible]
My question was about driven by what is the idea there.
Our profitability has been good. In fact, if you see the level of profitability we see has been able to keep up with the profitability levels and take care of the asset growth.
Now recently, the RBI had asked for additional capital to be put aside against some of the consumer lending, which is why there's been a slight adjustment in the CRAR, but we have enough profit generation in order to take care of the -- in the balance sheet. And we don't anticipate, based on our current growth expectations to be coming to the market for any additional capital in the near term.
Regulatory requirement is 15%. Internally, we have kept a guideline at the Board level of 20%. We are at 24%. So I think there is adequate cover there. And during the '24, '25, we don't need any additional capital which is required for building the balance.
Yes, I did that. Probably, we won't need capital even in '25, '26, but 25% growth in loan book and approximately 15% growth in net worth with 20% ROE and during distribution. Probably 2.5, 3 years down the line have to raise capital, right? Am I right here?
3 years down the road, yes, that is on our target. So from time to time, we'll have to raise capital. So are you suggesting that we don't declare any dividend?
I mean the banking company growing at 25%, I thought capital would be better, but I'm just understanding your thought process.
The industry is giving a reasonable level of dividends. We have to also -- our profitability is good. We are not giving [indiscernible] dividends. We are giving something reasonable. Maybe on the higher end, people do it between 12% and 15%. We are on the 15%. That is an annual feature, which the Board has to decide from on an annual basis. So this year, it's the highest profit, so 15% decided.
Yes, yes. And congrats on the group set of number.
Thank you.
The next question is from the line of [indiscernible] from Systematix Group.
So I had two questions. Since we have recently added 2 fintech partners for MSMEs and [indiscernible]pipeline. So assuming both of them are added, how do you expect the MSME book to grow?
And second would be that any expected date by which we can expect the shares related, you could guide on that?
So MSME, through the fintechs through our revised strategy, we will be growing as expected. And the last year, we did a lot of strategy, really look at it also on our customer segments and that and we've opened up a lot of product lines. We'll be able to see a good growth happening in this financial year. And this would also be a good enhancement to the growth of our current account book. So all in all, we are seeing a good uptake in the MSME book this financial year.
Regarding the [indiscernible].
Pardon.
Commencement of [indiscernible] Okay. Share trade in this one moment. Go ahead.
On the commencement of the trading, we are in receipt of the inferencing approval from the exchanges. Last Friday, we received it. During -- as we speak, we are initiating our coproduction documents with CDSL and [indiscernible] deal. We are very positive by [indiscernible], you will get the shares credited to your account, and the trading approval will be received in a day. So possibly by Thursday, Friday, we are very positive that the shares will be available for trading.
The last question is from the line of Sandeep [indiscernible] from [indiscernible] Peavine Capital.
Can you hear me?
Yes, yes, we can hear you.
So I think first, great result. Thank you, Mr. Davis for leading this time through very turbulent times. But a couple of things now that the merger has done, if you look at Page 34 of your presentation, the post-merger shareholding has a lot of retail investors. I'd just like to understand what's the strategy of the bank and the management with respect to sort of making this more institutional over time? I know that a broad shows, et cetera, but on flavor on that would be.
No. Some of the shareholders of the holding company are institutional shareholders. We have people like IFC, et cetera, who are there, and those will continue to hold these shares in the bank. But having said that, yes, you're right, we would like to increase the number of institutional shareholders. We have talked to a few people, and we hope that some of those discussions will fructify.
Right now, we have about 33% to our institutional shareholders, and we'd like to see that go up to a better number. But yes, that is the objective of the management to make sure that we get long-term institutional investors to take a reasonable share of the shareholding.
As that was the last question, I now hand the conference over to the management for closing comments. Over to you, sir.
Thank you, Muskaan, from Chorus for your support on this call. And also, more importantly, Rikin Shah has been from IIFL, who has been supporting us. As this is my final session with you guys in the last 8 quarters, thank you for all your interesting questions and also being part of the journey. And I wish you all the best. Over to you.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.