Capri Global Capital Ltd (NSE:CGCL) Q2 FY23 Earnings Concall dated Nov. 07, 2022
Corporate Participants:
Ravikant Bhat — Senior Vice President, Investor Relations
Rajesh Sharma — Managing Director and Chief Financial Officer
Analysts:
Akshay Doshi — InCred Capital — Analyst
Anuj Narula — JM Financial — Analyst
Shreepal Doshi — Equirus Capital — Analyst
Ashish Kumar — Infinity Alternatives — Analyst
Unidentified Participant — — Analyst
Presentation:
Operator
Good day, ladies and gentlemen, and welcome to the Q2 FY ’23 Earnings Conference Call of Capri Global Capital Limited hosted by Go India Advisors. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]
I now hand the conference over to Mr. Ravikant Bhat from Capri Global Capital Limited. Thank you. And over to you, sir.
Ravikant Bhat — Senior Vice President, Investor Relations
Thanks, Michelle. Good morning, everyone. This is Ravikant. I shall read out a brief disclaimer for today’s call. The discussion on today’s call regarding CGCL’s earnings performance will be based on judgments derived from the declared results and information regarding business opportunity available to the Company at this time. The Company’s performance is subject to risks, uncertainties and assumptions that could cause actual results to differ materially in future.
Given these uncertainties and other factors, participants on today’s call may observe due caution while interpreting the results. A separate disclaimer is available on Slide 2 and Slide 3 of the Q2 FY ’23 investor deck. Participants may please note the same.
I now request our MD, Mr. Rajesh Sharma to present the opening remarks. Over to you, sir.
Rajesh Sharma — Managing Director and Chief Financial Officer
Yeah. Thank you, Ravikant. Good afternoon, friends and seasonal greetings to all of you. I once again take the pleasure in welcoming you all to Capri Global’s post-earnings conference call. We declared our reviewed consolidated results for Q2 and H1 FY ’23 on Friday, which is 4th November, 2022. I hope you had a chance to go through the investor deck.
With our Rights Issue process yet to be concluded, we will have to restrain ourselves once again from giving you specific forward guidance. I hope our discussions today around CGCL’s performance during Q2 and H1 FY ’23 will provide you all with sufficient clarity and keys to understand the direction of Company’s progress. In this commentary, reference to P&L and balance sheet aggregates, as well as the ratios shall refer to consolidated values.
Let me first start with our business performance, please refer to Slides 6 and 7. Assets under management increased 47.4% year-on-year and 11.4% quarter-on-quarter to touch INR77,692 million. The share of retail loans was 74.3%, slightly lower than 76.2% noted in Q4 FY ’22. After a seasonally soft Q1 FY ’23, we have seen a pickup in the momentum in the retail loans. Secondly, the growth in wholesale, specifically Construction Finance segment has been front-ended due to a strong sanction — sanctions pipeline.
Having already achieved the targeted AUM for FY ’23, in H1 FY ’23 itself, the CF segment shall try to sustain AUM at current levels. The share of retail loans therefore could improve in the H2 FY ’23. In Aug ’22, we achieved an important product milestone. We launched our gold loan business through 108 exclusive branches expanding to 182 branch locations in seven states and UT by the end of Q2 FY ’23. Gold loan AUM constituted 1.8% of AUM in Q2 FY ’23 and took a more meaningful 10% share in the disbursals during the quarter.
To reiterate that what we have said here and the other forums, the launch of gold loan business and ongoing scale-up shows our commitment, as well as execution capability for the new products. Disbursals touched INR14,860 million, growing 57.2% year-on-year and 35.9% quarter-on-quarter. Disbursals in H1 FY ’23 stood at INR25,793 million and were up to 70% year-on-year. Disbursals in both MSME and Housing picked up sharply.
Including gold loans, the shares of retail disbursals was 48% compared to 35% in Q1 FY ’23. Lagged data from industry data-books like MSME Pulse and NHB’s Housing report shows a rising and firm trend in credit over past one year in the segments we operate in. Our strong disbursal momentum also reflects that. As part of our growth strategy, we have begun expanding in Uttar Pradesh taking our branch network to 13 from 5 in Q1 FY ’23. We have added new footprint in Uttarakhand with the addition of three new branches.
We have also gone deeper in Rajasthan and Madhya Pradesh, adding new branches in both the states. Our non-gold loan branch network stood at 145, up from 117 in Q4 FY ’22 [Phonetic] and 123 in Q1 FY ’23. Details on our network expansions are given on Slides 29 and 30. The car loan distribution business continued with its strong momentum. As shown in Slide 12, the loan originations touched INR13,634 million, up four times year-on-year and 44.7% quarter-on-quarter.
Total originations in H1 FY ’23 stood at INR23,055 million. To place this in perspective, originations for entire FY ’22 stood at INR17,022 million. I shall discuss the fee contribution from the vertical while commenting on the earnings performance. As of Q2 FY ’23, the car loan distribution business had a presence in 322 locations in 29 states undertaking compared to 279 locations across 25 states undertaking in Q1 FY ’23. The vertical has six exclusive branches and at all other locations, it operates through a feet-on-street sales force.
I shall now turn to our earnings performance, I shall be referring to Slides 14 to 17. The net interest income or NII increased 29.5% year-on-year and 14.1% quarter-on-quarter to INR1,528 million. This was reflected in the net interest margin, which improved 49 basis points Q-on-Q to 8.87% [Phonetic]. The NII for H1 FY ’23 was up 25.6% year-on-year to INR2,868 [Phonetic] million.
We have begun increasing lending rates in both the retail and wholesale segments. These rate hikes were undertaken during August 2022. As the semi-fixed portfolios become eligible for reset, we shall consider re-pricing yields on these loans. The pass-through on the wholesale side is faster across the book with an average hike of 25 basis points to 30 basis points.
Let me now turn to non-interest income. In this regard, I would like to offer some historical perspective. Between FY ’18 to FY ’22, the share of non-interest income in the net income averaged 14.5% with FY ’22 [Phonetic] being the highest at 19.5%. This contribution has increased and stood at 29% and 26% in Q2 FY ’23 and H1 FY ’23 respectively. The non-interest income has become increasingly prominent over last one year as we built two key product lines, incomes from which are considered under this head, the net fee income from car loan distribution business and the income on assigned portfolio under the co-lending mechanism.
Under FY ’21, both these income streams did not exist. In FY ’22, these income streams contributed 7.1% to CGCL’s net income. In Q2 FY ’23 and H1 FY ’23, both these income streams have contributed 16.1% and 16.8% respectively to the net income. Given these strengthening drivers, the non-interest income during Q2 FY ’23 increased 180.4% year-on-year and 49% quarter-on-quarter to INR610 million. Recurring fee income tied to business operations constituted a significant 86.7% and 90.8% of non-interest income in Q2 FY ’23 and H1 FY ’23 respectively.
I shall now turn to the operating expenses. We have been highlighting the upfront costs we would incur on the manpower and operational costs for the gold loan business. Expectedly, the cost income ratio got pushed further to 60.4% in Q2 FY ’23. As highlighted on Slide 16, adjusted for the expenses incurred on gold loan vertical, the cost income ratio would have been 49% in Q2 FY ’23. Similarly, the cost divided by average AUM ratio compresses to 5.7% from 7% we have reported.
A better way of looking at our cost average divided by average AUM ratio is to include the average car loan origination AUM in the average AUM. The cost divided by average AUM then declines to 6.1% and 4.9% in the above scenarios. As mentioned at the outset, we are refraining from giving forward guidance on where we expect cost income ratio to settle.
However, I would just highlight the fact that the gold loan business is now operational and shall contribute to the spread and fee revenue in H2 FY ’23. This is a high yield business, and as highlighted on Slide 9, the disbursal yield in this business during Q2 FY ’23 was 15.1%. I hope this offers you a perspective on the cost income ratio.
Secondly, despite the sharp increase in our operating expenses, we have reported an increase in our operating profit by 4.3% year-on-year and 6.4% year-on-year in Q2 FY ’23 and H2 [Phonetic] FY ’23 [Phonetic] respectively. This is important as it shows our ability to improve our incremental profitability at a consolidated level even when we are at an operating leverage disadvantage.
When — as it come to the credit cost and asset quality, we reported a net credit cost of INR40 million in Q2 FY ’23. This includes INR15 [Phonetic] million net write-off and a release of INR10 million in ECL provisions. This is a sharp deceleration from INR246 million we reported in Q1 FY ’23. The H1 FY ’23 credit cost INR286 million is only marginally lower than H1 FY ’22 credit cost, which was INR289 million. During Q2 FY ’23, we recovered INR145 million from previously written-off cases. This includes a major recovery of INR138 million including interest from a write-off we took in Q3 FY ’22.
Cumulatively in H1 FY ’22, we have recovered INR154 million from the written-off basis. To reiterate our stance in this regard, our approach to write-off is prudent. We have firm and adequate collaterals that should help us recover our dues. The Stage 3 assets stood at INR1,781 million lower than INR1,840 million in Q1 FY ’23 and marginally higher than INR1,715 million we reported in Q2 FY ’22. The Stage 3 ratio stood at 2.36% [Phonetic], lower 35 basis points Q-on-Q and 89 basis points year-on-year.
Our provisions on Stage 3 assets were 28.6%. The standard restructured assets constituted 2.3% [Phonetic] of AUM. Around 50% or INR900 million plus of restructured assets have exited moratorium. As we speak, 75% of the pool has begun servicing regular EMIs out of this restructured pool. We expect the remaining pool to exit moratorium by Q1 FY ’24.
Turning to bottom-line, our consolidated net profit after tax increased 22.1%, both Q-on-Q and 7.3% year-on-year to INR563 million. The H1 FY ’23 net profit is up 4% to INR1,023 million. Here I would like to draw everyone attention that despite a gold loan losses for the quarter two, which is almost about INR24 crore. We have achieved a increase in the overall profit.
Had not gold loan losses would have happened, the profit could have been about INR75 crore. We reported a capital adequacy ratio of 26% for CGCL and 39.1% from CGHFL. The capital adequacy ratio of CGCL has declined 9.8 [Phonetic] basis points year-on-year as we set ourselves on a rapid growth path over the past one year. The proposed capital infusion through INR12 billion Rights Issue will be timely and augment our growth equity. We hope to communicate the timeline of the capital raise in near future.
Before concluding, a word on our digital and tech initiatives. We have recently hired senior leadership positions in data analytics and digital partnerships. While the brick-and-mortar nature of our business is unlikely to change, technology shall increasingly play a crucial role in how efficiently we run these businesses. All our tech initiatives shall remain focused towards that end.
With that, I conclude my commentary. We shall now take questions.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Akshay Doshi [Phonetic] from InCred Capital. Please go ahead.
Akshay Doshi — InCred Capital — Analyst
Yeah, hi, sir. Thanks for taking my question. Sir, my first question is that the MSME share of overall AUM has been declining in this quarter and you have guided previously that to remain it in the range of 45% to 50%. So sir, now along with our gold loan admissions growing high. So how will this shape up going ahead? So that’s my first question. And also sir, on the disbursement under the MSME sector, that has been also declining in this. Sir, any specific reasons on that part?
Rajesh Sharma — Managing Director and Chief Financial Officer
So cost income ratio while it is coming down, overall, it is looking higher. But gold loan will also start contributing the way the [Indecipherable], every brand become a breakeven and start contributing after 18 months of time. So this is an investment phase. However, our growth in MSME demand continued, our MSME and affordable housing are obviously good drivers.
So I don’t see that MSME disbursal growth has gone down. If you look at our MSME disbursal during the current quarter have been about INR312 crore as compared to previous quarter of INR182 crore, which is about 71% growth. If we talk year-on-year basis, the last year same quarter was INR240 crores and this current year is about INR312 crores. So it’s again 30% up on Q-o-Q basis. So I think MSME is going to remain our key growth driver.
Akshay Doshi — InCred Capital — Analyst
Okay, okay, sir. Sir, my second question is that, sir, how much of the co-lending we would have done till now and any new tie-ups here? Also, sir, with the co-lending gold loan and car loan businesses, what sort of return on equity and return on assets do you think to come in the next few quarters?
Rajesh Sharma — Managing Director and Chief Financial Officer
So co-lending, we have — we have various partner, a new partner headed by Punjab National Bank. So far co-lending happening are still not entirely technological interface with the bank, which is under development at the bankers’ end. That’s actually the pace will pick up. However, we have already done about INR350 crores plus of co-lending, and that has grown even in past few months.
It is not possible to give a target on that because that there is so many factors. But steadily, we are growing about 30% [Phonetic], 35% [Phonetic] plus, which is likely to increase with the addition of the new partner in the previous months, which has been activated. As regards ROE and ROTA, at the moment, it is not possible for us to give any guidance. But overall basis, we need not to put any much capital, only 20% of capital allocation happens of the overall profitability.
For every INR100, while the spread comes from INR80 and this bank partner lends and 20% of what he lend, only that much capital is required. So typically, for every lending of INR100, while our capital is required only on our share of 20%, whereas the spread comes in that INR100 [Phonetic]. So it will be very, very high ROE accretive.
Akshay Doshi — InCred Capital — Analyst
Okay, okay. Thank you, sir. That’s it from my side. All the best.
Operator
Thank you. [Operator Instructions] We have the next question from the line of Anuj Narula from JM Financial. Please go ahead.
Anuj Narula — JM Financial — Analyst
Hello, sir. Thank you for providing me the opportunity to ask the question. So I have a couple of questions. One is on gold loan business and another one is on car loan distribution business. So the spike on opex front is mainly attributed towards your expansion plans in gold loan business verticals.
Now you have plans of getting over 1,500 branches in the next four years, five years. So how much more opex do we expect here? And how would our cost income look like in the next couple of years? Also how many branches are we planning to open in FY ’23 itself? And what sort of gold loan AUM are we targeting by the end of this fiscal year?
Rajesh Sharma — Managing Director and Chief Financial Officer
Your voice is — has broken a little. Can you repeat it again, please?
Anuj Narula — JM Financial — Analyst
Sure.
Operator
Mr. Narula, I would request you to use your handset please.
Anuj Narula — JM Financial — Analyst
Yeah, sure, sure. Am I audible now?
Operator
Please proceed.
Rajesh Sharma — Managing Director and Chief Financial Officer
Yeah, it’s better.
Anuj Narula — JM Financial — Analyst
Yeah, sure. Yeah. So the spike on the opex front is mainly attributed towards your expansion plans in gold loan business verticals. Now you have plans of getting over 1,500 branches in the next four years, five years. So how much more opex do we expect here? And how would our cost-to-income look like in the next couple of years?
Also how many branches are we planning to open in FY ’23 itself and the gold loan AUM we are targeting by end of this fiscal year? And another one on the car loan distribution as well. So in this, like just wanted to understand like on this with car loan distribution business, what’s our strategy for growth here? And how are we different to other peers working in this space? Will we expand our bank networks to more banks for distribution of this product? Thank you, sir. These are my couple of questions.
Rajesh Sharma — Managing Director and Chief Financial Officer
So if you talk about our cost income, cost income, if you talk about excluding the loans, it has come down from 59% to 49%. However, gold loan this year, our target is to open about 550 branch. Next year, similar number of branches we wanted to activate. So the till end of FY ’24 March, the expansion will continue. And then expansion will slow down, that list will not be that sharp because by that time, we should have achieved our balance sheet incorporated.
Our gold loan banking starts contributing after a year of 18 [Phonetic] months, so till that you have to keep investing. However, we see clearly that margin from car loan as well as the MSME and affordable housing will keep growing, with the more increase in the original growth because that is also growing at the pace of 35% [Phonetic]. So with that, we don’t see much pressure, plus we are intend to increase capital by pure price issue also.
So in combination of everything — and gold loan will contribute is a high-yield product. It is a product where we make the maximum number of money in terms of scale wise. And with the more branches, I think sizable, we will be able to build to what we are aiming for. As far as the co-lending partners are concerned, co-lending — car loan origination partners are concerned, at the moment, we are saying, we might add 1 or 2 more. But more focus is with the PSU banks where their pricing is lower. And quality and collection efficiency in other aspects, we are able to pitch in for them and is a win-win situation for customers, for bankers and products.
So that is why private sector is already doing in a good way. The PSU banks are also growing the reserves and the rate of interest will also attract to it. So we’ll help in with collaboration with our existing distribution networks and it’s a pure income base. So as I said, this year, we should be able to do INR100 crore gross from this and INR30 crore should be the contribution from this vertical alone to the bottom line.
Anuj Narula — JM Financial — Analyst
Got it, sir. That’s helpful. Thank you.
Rajesh Sharma — Managing Director and Chief Financial Officer
Yeah, thanks.
Operator
Thank you. [Operator Instructions] We have the next question from the line of Shreepal Doshi from Equirus Capital. Please go ahead.
Shreepal Doshi — Equirus Capital — Analyst
Hi, sir. Good afternoon, and thank you for giving me the opportunity. Sir, my question was with regards to gold loan business, so as it’s mentioned in the presentation, the disbursement yields are close to 15%. And if I look at our overall business yield for the business — for our Company is close to 14%, 15%. The second part or the second observation that I would want to add here is that in the gold financing space, we are already seeing such high level of competition from banks and better cost of fund player.
Then what is it that pushes us to enter a landscape, which is already — which has already seen moderation in yields as your yields are also close to 15%, so doesn’t give you an abnormal profits from what you’re already making? And then because these branches are exclusive branches that we have added and we aspire to further move that up significantly in the coming second half. So what is it that sort of motivates us to extensively do this business?
Rajesh Sharma — Managing Director and Chief Financial Officer
Yes. So what you say is very correct that gold loan business is a competition coming in and there might be a margin compression. But if you look at the key [Indecipherable] the customers who are not settled by the bank, and whether be it MSME, be it affordable housing, be it our gold loan, the product and philosophy remain the same catered by — borrowing money from banks, we don’t want to target the customers which can be catered by a bank. So we are targeting a particular type of customers who do not have adequate income group and how do we cater to them.
Now if we are able to operate in North and West, where still gold loan business is growing much faster than gold loan business growing in the Southern India, I think there opportunity exists. Plus as you know, we have already passed earlier a small bank license. It help us to acquire more customers, to know their behavior, can we do the cross-sell to the data and everything else from the home loan or MSME loan or any other product in the future.
So keeping an eye at some point of time applying for a small finance bank clients. And also acquiring more customers, we want to add this. I still believe that many players who are doing earlier, if you find some new ways to reduce our costs with the help of technology, with the help of other measures, still there is a large business to build a book of INR10,000 crores, the INR5 lakh crore [Phonetic] or INR4 lakh crore market, which is still growing at 10% [Indecipherable] it can be profitability I believe that. And this is going to contribute towards our profitability, our customer acquisition, overall strategy to serve the customers who are not settled by the bank.
Shreepal Doshi — Equirus Capital — Analyst
Sir, my second question was with respect to our approach in the gold financing. So are we more urban focused, semi-urban or rural? And what is — like how are we — what is our hiring strategy with respect to employees? So if you could just throw some color on the approach of that business model in that business model.
Rajesh Sharma — Managing Director and Chief Financial Officer
Our business model about gold loan or overall?
Shreepal Doshi — Equirus Capital — Analyst
Gold loan, sir, gold loan.
Rajesh Sharma — Managing Director and Chief Financial Officer
See gold loan business is a model where our model is going to be — where a customer walks in our balance sheet. This is not a model that you can target the customer by reaching out to them. In MSME affordable housing [Indecipherable] houses are being built or being sold or the industry [Indecipherable] MSME bank. In case of the loan, you have to make people aware about the brand that we do this. And in the geographic you have to be deeper from deficit operating excellence and cost perspective, we have to be deeper in the geographic operating so that our costs lower.
And these are typically down from branches where a team of people, we are valued. And we know how to do a better service come around quickly in the next time 15, 20 minutes with the loan. We and customers would be working in the branch, we need them in the same time. Your price there [Indecipherable] offering the loan, and immediately, you see that in the bad account, we are able to auction the loan and recovery of these. So what we see here, I think this model is not something about great idea, it is going to be about efficient execution.
Shreepal Doshi — Equirus Capital — Analyst
Got it, sir. Thank you. Thank you, sir. Thank you so much for answering all the questions.
Operator
Thank you. [Operator Instructions] We have the next question from the line of Ashish Kumar from Infinity Alternatives. Please go ahead.
Ashish Kumar — Infinity Alternatives — Analyst
Thank you, sir. I know there have been some discussions around gold loan, and I missed that. I think the question which I have is that we’ve seen these repeated rounds of competitive intensity in the gold loan business. And a number of new entrants do not kind of end up making it because the operating costs do not justify the throughput per branch. So why do we believe that we do have a right to win in that business? And especially — and this question is especially in the context of the fact that the whole gold loan financing business has been seeing tremendous competition from the banks. I have seen, let’s say, the ROEs for the market leader dropped from 28%, 29% [Phonetic] to 16%, 17%, and some of the well-established names looking at low double-digit ROEs.
Rajesh Sharma — Managing Director and Chief Financial Officer
So I think north and west, as I said, will continue to grow. It will not have that the comparison concentration what India has. [Indecipherable] marketing base or entire MSME alone, 45 branches are in the Gujarat, Rajasthan, Maharashtra and NCR. I believe, as I said, we look over our market size is close to INR400,000 crore, which is 10% annually. In two have profit of a profitability answer is yes. And even though it makes a ROE of 16%, 17%. That is perfectly all right. That’s why we are targeting higher. But on a conservative side, even we take that I think in a secure portfolio where we now press ancillary return when you do that earlier, we are very, really confident after [Indecipherable] I think in that kind of basis, we win 16%, 17% ROE, we are absolutely happy about it.
Ashish Kumar — Infinity Alternatives — Analyst
All right. Okay. I think I get what you are trying to do. Okay, wish you all the best.
Rajesh Sharma — Managing Director and Chief Financial Officer
Thank you.
Operator
Thank you. [Operator Instructions] We have the next question from the line of Ambrish Kumar from [Indecipherable] Capital. Please go ahead. Mr. Ambrish Kumar, I have unmuted the line, kindly proceed with your question.
Unidentified Participant — — Analyst
Yes. Sir, thank you for the opportunity. Since there is so much discussion on gold loan. Just one more question on that. So is this gold loan business totally separate from your other lending businesses? Or is there any commonality between the customers so far? And if that is the case, how much? So for example, your existing MSME customers, they are also borrowing against the gold collateral or what is happening there?
Rajesh Sharma — Managing Director and Chief Financial Officer
Sir, your voice [Indecipherable] so maybe at my end, can you repeat your question, please?
Unidentified Participant — — Analyst
Sir, my question was, if this gold loan business of yours, is it totally separately new business? Or is there any commonality between your existing customers and this gold loan business? For example, are your MSME customers also availing new loans against gold collateral or not?
Rajesh Sharma — Managing Director and Chief Financial Officer
So we see that how much customer [Indecipherable] customer will come for a gold loan, how much customer will come for a gold loan will come to MSME? It is very difficult to comment. Some percentage may be common in future. But at the moment, we have just started our — out at the moment target is to build an inventory that crop in can be done. But yes, there are any customer of MSME for the [Indecipherable] for example, a shop people who is able to get a good discount, say, at their peak season Diwali.
And they want to avail it to INR50 lakh loan for 60 days without moving the task, it is a whole loan product, which can give them the money in one hour or — for 60 days also in a timely basis. And then again, we can repay it. So there are many MSME customers we see across all other players [Indecipherable] utilize that cash discount, which is much more attractive than the [Indecipherable] their profitability. So there could be some segment which we have seen happening in other gold loan companies. But are we targeting that thing? We are not targeting that thing. That’s the additional upside [Indecipherable] vertical standalone has to deliver its target. That is the way we are going to track it and that is the way we are going to operate it.
Unidentified Participant — — Analyst
Okay. So second question is not related to gold loan, it is related to MSME loan. So what has been the top-up loans disbursed in the last quarter or so to these MSME customers?
Rajesh Sharma — Managing Director and Chief Financial Officer
Can you repeat it, please?
Unidentified Participant — — Analyst
Sir, top up loans to MSME customers, just trying to understand how is the demand…
Rajesh Sharma — Managing Director and Chief Financial Officer
Yes. So top up loans unless the customer’s property lending has [Indecipherable] but unless customer’s track record is more than 36 six months, in an overall basis, you don’t encourage a top up. Top up is only given to our existing customers with excellent track record or if some customer has a property value of INR50 lakhs, which will be only taking time [Indecipherable] because you don’t give them that [Indecipherable] more. And we will come again, and he will see a cushion in top up [Indecipherable] then we can consider. How many customers take in the top up loan, I think it is less than 10% at the moment.
Unidentified Participant — — Analyst
Okay. Got it, sir. Thank you so much.
Rajesh Sharma — Managing Director and Chief Financial Officer
Thank you.
Operator
Thank you. As there are no further questions from the participants, I would now like to hand the conference over to Mr. Rajesh Sharma for closing comments.
Rajesh Sharma — Managing Director and Chief Financial Officer
Yes. So as I said during my initial remarks, we’ll continue the demand focus on serving the customers which are not settled by the bank. Our key driver is going to remain an MSME affordability. Gold loan will be addition, there will be a good fee income contribution from the car loan distribution business. There is a pure field play and is going to contribute to almost 1%, 1.5% in the ROE. So that is, again, a no risk no [Indecipherable] in the pure distribution business.
We clearly see that in next five years, we intend to build a very quality — high quality book, secured book and continue to grow on our strategy, which we decided two years back portfolio, which is good in quality and focus in growth of 25% plus. And borrowing the gold, I think all the year, we have continue doing that. If we collectively got our growth rates at a five years [Indecipherable] it will still be 25% plus. We continue to remain on that part, and our capital adequacy ratio has been remain high, which clears [Indecipherable] our group.
Our liability side has been very, very strong with the competitive cost in housing finance, we get money from NHP, it’s less than 4%, and that helps us to get better margins with customers. In MSME and NBFCs file we have more than 25 lenders which keeps lending us typically and some of the [Indecipherable] cost is better than many, many companies of our peers. So liability side has been very, very strong for us. So overall, we are quite confident to achieve our growth and maintain our asset quality. Thank you so much.
Operator
[Operator Closing Remarks]