IIFL Finance Limited (NSE: IIFL) Q4 2025 Earnings Call dated May. 09, 2025
Corporate Participants:
Kapish Jain — Chief Financial Officer
Nirmal Jain — Managing Director
N. Venkatesh — Managing Director
R. Venkataraman — Joint Managing Director & Co-Founder
Monu Ratra — Executive Director and Chief Executive Officer
Analysts:
Sukriti Jiwarajka — Analyst
Niharika Karnani — Analyst
Deepak Poddar — Analyst
Anusha Raheja — Analyst
Abhijit Tibrewal — Analyst
Harshit Khadka — Analyst
Abhishek Murarka — Analyst
Hitaindra Pradhan — Analyst
Mohit Jain — Analyst
Aswin Balasubramanian — Analyst
Gokul Raj — Analyst
Presentation:
Operator
Thank you. Ladies and gentlemen, please stay connected. The conference call will begin in next few minutes. Thank you, ladies and gentlemen, good day and welcome to IIFL Finance Limited’s Q4 FY ’25 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to the management team of IIFL Finance Limited. Thank you, and over to you.
Kapish Jain — Chief Financial Officer
Thank you. All right. Thank you very much. This is Jain here. I’m the CFO at IFL Finance. I welcome everybody on this call today and for spending your time with us. On this call today, I have Mr Nirmal Jain, our Managing Director; and Mr Venkataraman R, our Deputy Director and Co-Founder; Mr Venkatesh, who is the CEO for IIFL Samasta; and Mr Monu Ratra, who is the CEO for IIFL Housing Finance. I now hand over this call to Mr Nirmal Jain to give a perspective on the overall macro sector and economy and also on company’s going-forward strategy. Thank you.
Nirmal Jain — Managing Director
Thank you, and good afternoon, everyone, and thank you for joining us today. So let me begin with a brief overview of the macro-environment. India continues to be among the fastest-growing major economies globally, driven by resilient domestic consumption, a robust financial ecosystem and deepening credit penetration, especially amongst MSME and retail borrowers. So the sector remains a critical pillar in this growth story. And although the regulatory environment has become progressively more stringent, pushing all of us to raise the bar on compliance governance in this. That said, the past few days have brought heightened geopolitical with Pakistan following serious cross-border hostilities. While the situation is evolving and we hope for a swift de-escalation. The immediate impact on the broader financial market and domestic economy is difficult to assess. Against this backdrop, I’m pleased to say that Finance has demonstrated remarkable resilience and agility. After navigating the regulatory embargo on gold loans in the first-half of the year that has gone by, Q4 has marked a decisive turnaround for us.
Our consolidated profit-after-tax after-tax was INR251 crores, which is quarter-over-quarter up 208% and our AUM in aggregate rose by 10% sequentially to INR78,341 crores. We expect to see acceleration in profit and asset-base in FY ’26 as well towards the normal trend-line that is our pre-RBI embargo levels. Saw a significant 40% sequential growth, reaffirming our customer loyalty and, while MSME role, which is our strategic focus for the future, continued their steady rise, up 18% year-on-year. Home should also maintain healthy momentum, reinforcing our leadership in the affordable housing finance segment. I’m also very happy to report that asset quality has improved further with our GNP declining to 2.2% from 2.4% in the previous quarter and our capital adequacy as we computed from the consolidated is robust 29% at the group level, well-above regulatory norms. However, we are conscious of the individual company-wide and capital adequacy levels, especially for the parent entity, where we expect direct assignments and co-lending to pick-up during the course of the year. Most bank partners have held back awaiting RBI’s final guidelines in co-lending and which we expect in this quarter and buffer of over INR5,200 crores, which ensures that we are well-prepared to meet our growth requirements as well.
On the funding side, we mobilized close to INR8,500 crores in the quarter, which included the MT and the medium-term loan dollar board issue of INR325 million, which was topped up by another INR100 million to INR425 million in aggregate and a successful domestic entity placement of about INR1,500 crores during the quarter beyond the numbers, we have made significant strides in fortifying our compliance framework in-line with RBI’s scale-based degradations for upper layer NBFCs and this includes tighter board level oversight, automated compliance systems, proactive monitoring and reporting, and this reaffirms our commitment to governance and transparency. We are equally focused on leveraging technology for growth and efficiency. Our digital strategy is driving faster room disbursal, superior customer experience and smarter risk management. With 4,900 branches now digitally integrated, our digital model will allow us to scale sustainably and we plan aggressive investment in digital as well as AI technology in the current year to maintain our edge in the sector. Looking ahead, we expect to build-on the momentum of Q4 and drive profitable growth across key segments. We believe that our strong balance sheet, our disciplined execution and clear strategic focus will enable us to deliver sustainable value for all the stakeholders in FY ’26 and beyond.
With this, I hand over to our CFO for a detailed financial update.
Kapish Jain — Chief Financial Officer
Thank you very much, Nirmal. Ladies and gentlemen, for the quarter-four of fiscal FY ’25, as mentioned by Nimbal, the consolidated profit-after-tax before controlling interest was INR251 crores. It was down 42% Y-o-Y for reasons already mentioned, and it’s up 208% on a quarter-on-quarter basis, led by the growth that we have in our loan book as well and at AUM level as well. We recorded pre-provision operating profit of INR651 crore, which is down 35% Y-o-Y, up by 22% on a quarter-on-quarter basis. Going for the quarter, consolidated loan AUM, while it degrew by 1% on a Y-o-Y basis, it was up by 10% on a Q-on-Q basis at 78,341. If I further dissect the AUM and talk about of our core products, which is home, gold, MSME and micro, on a Y-o-Y basis, it was flat at around 1% growth and 10% growth on a Q-on-Q basis, which is 76,654 as of 31st of March ’25. The mix stands healthy with home taking a lion’s share of 40%, gold running back to its last year of around 27% and microfinance has de-growth in-line with the way the sector has performed over the last one year. Our gross NPA has improved to around 2.2% and SNP at around 1%, which is down by 10% — 10 basis-points and 15 basis-points respectively if I compare with the same-period last year. Our ECL provision is driven by India and our provision coverage ratio on our NPA stands at around 100%. Being quarter-four and with the increase in the momentum in our business and as our assigned portfolio becomes more mature, where we see some momentum coming in our assignment and co-lending asset book growth as well, which is marginish from growth in this quarter and the de-growth was more because the book was running down due to the embargo in the previous quarters.
So the assigned loan book stands at around INR12789 crores, up 3% Q-on-Q and down 22% Y-o-Y. And the co-lending book has gone up by around 15% Q-on-Q and down 10% Y-o-Y basis at INR10,600 crores. A brief on our liquidity, our cash-and-cash equivalent committed credit lines from banks and institutions stands at around INR5,216 crore, adequate not just to meet our near-term liabilities, but also to support our growth momentum and we also find good traction in our penetration for new lines of credit from various institutions, including banks. As always, we hold a positive ALM, thereby inflows cover and exceeds the outflows across all our buckets and net gearing standing healthy at around 3.4% — 3.4 times. Our annualized ROE for the current quarter stands at around 7%, while ROA stood at 1.6%. So the basic earnings per share for the quarter was 4.9 per share. As of 31st of March, we hold a healthy capital adequacy of around 18.5% in the NBFC housing finance at 47.2% and microfinance of 32.4%, well-above the threshold of 15% regulatory defined.
So with this, I come to the end of my presentation and I hand over and open the floor for Q&A. Thank you very much.
Questions and Answers:
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press R&1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press R&2. Participants have those handsets while asking a question. Thank you. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We will take our first question from the line of Sukriti Jiwarajka from Laburnum Capital. Please go-ahead.
Sukriti Jiwarajka
Hi, can you hear me?
Operator
Yes, please go-ahead.
Sukriti Jiwarajka
Okay. My question is on this MSME unsecured book that you are doing in those traveling entities. And now and sorry if you’ve covered this before in previous con-calls, I’m seeing the book has grown at 3 times over the last two years, 21% yield, 8 lakh ticket size. I’m just not able to understand this category of loans. So these are MFI yields almost? What sort of MSME is taking these loans and why?
Nirmal Jain
Yeah. So these are the — okay, these are the loan for which government is also pushing banks to meet their target and then there is the insurance coverage on this kind of loans also and our own coverage will be effective in last quarter. Now coming back, I mean, maybe Karu sharply to your question, which is that what is the profile of these customers. So these are typically small shopkeepers, ancillary units who borrows these levels. So normally the higher working capital banks will be very application, but normally these small customers get. So they are typically shopkeepers, traders, freight operators, you know, small service providers like also. So these are the kind of customers.
Sukriti Jiwarajka
So are these working capital loans, what is the tenure?
Nirmal Jain
So tenure typically is between 12 to 24 months and mostly, yes, you are right, we are working capital loans. I mean, some of them can take you for expansion also for capex also.
Sukriti Jiwarajka
Okay. And I just couple of follow-ups on this, right. So are you doing this from your own balance sheet or because you said banks have a requirement, is this a shutdown for PSL?
Nirmal Jain
So we have been — so as you rightly said in the new portfolio and has accelerated in the last couple of years a lot. So banks have a lot of good appetite for this. And we’ve been talking to various been engineering the as well as basically, we are negotiating with several banks. So maybe this year probably will see that there’s a significant co-lending in the year, isn’t.
Sukriti Jiwarajka
Today that INR2,500 crores is on your balance sheet.
Nirmal Jain
Sorry, what is it?
Sukriti Jiwarajka
Today this MSME unsecured is on your balance sheet, right?
Nirmal Jain
MSME unsecured is largely on our balance sheet.
Sukriti Jiwarajka
Got it. And how big like you’re saying you want to grow overall MSME at 25% 50%. So honestly, this book is looking very risky to me. I just want to know if I’m not understanding this properly because it’s a little long for working capital in the tenure? And is this something that you want to grow at 30% as part of your MSME? How big can we take?
Nirmal Jain
Growth will be in the secured part of portfolio, which we had guided last year also. So our secured portfolio has been much smaller and that is where we intend to grow faster. And that — so the growth will be primarily more driven by bank partnership. And if you really see then in terms of target, we will probably bring down our second portfolio and focus more on secured.
Sukriti Jiwarajka
Any early performing signals in this portfolio because I think you’ve slightly taken a reduced growth in the last two quarters?
Nirmal Jain
I’m sorry, hello, can you please repeat?
Sukriti Jiwarajka
Sorry, any earlier signals in this portfolio that you’re seeing because I have seen that you sort of flattened growth in this book in the last two quarters. So any early signs of early volume signals that you’re seeing?
Nirmal Jain
So what has happened is, as I said that unsecured is what we are slowing down. So you could have seen that our unsecured portfolio is basically going down or is not growing or maybe will grow at a slower pace. Secured infrastructure is a team that we are putting in-place for last few months. So for secured portfolio, typically it’s a lab product for which you have a different set of people, then you build your network for title verification, technical as well as sort of valuations, all those things. We were also doing some of these were also sourced by the microfinance company that also has slowed down in last year significantly. So we’ll see a big or maybe a significant ramp-up in the secured portfolio in next few quarters.
Sukriti Jiwarajka
Got it. And my last question on this is the insurance coverage about your product.
Nirmal Jain
Every ticket price will also go up over the next year, yeah.
Sukriti Jiwarajka
Got it. Got it. And the insurance coverage, is it similar to how that CGFM new works for MFI for this?
Nirmal Jain
Yeah. So there are two schemes which government has, but broadly similar.
Sukriti Jiwarajka
So in after two years.
Nirmal Jain
Hello. Sorry, about 3%. So basically, but it’s a significant coverage which government provides for anything MSME.
Sukriti Jiwarajka
Okay, okay, okay. Thank you. That’s it. Thank you.
Operator
Thank you. We’ll take our next question from the line of Niharika Karnani from CapGrow Capital. Please go ahead.
Nirmal Jain
Yeah. Hello. Niharika.
Niharika Karnani
Yes, very well. Yeah. Sir, yeah, my question is also on the MSME sector. So we have highlighted that we’ll be growing our MSME book by 25% to 30% and ROE from the current 3 point — overall 3.4% to 15%. So just wanted to have an idea as to what focus would be around what parameter? Will it be on growth or credit quality? What would be your focus?
Nirmal Jain
Credit quality is focused, but if you see the loan growth because we are getting our lost business. So last quarter, technically we have grown by 40% quarter-over-quarter, but it’s mostly we are trying to recoup our and the lost customers. So gold loan will be a significant contributor to our profitability as well as growth, where we expect that we’ll probably get back earlier level and also exceed that and getting back on the trend-line growth. MSME is a new segment, which again we leverage our golden branches. We have been working on this segment for quite some time. Our distribution capacity is significantly higher, but last year because of the gold loan and after that MFI and then certain other things we had held back, but on a low-base given our distribution capability. So you see the growth appears higher, but it’s something which is — within our capacity.
Niharika Karnani
Understood. And one more question here. On the MSME part, what kind of ROE is expected here given we’ll be growing this book year?
Nirmal Jain
So ROEs we have given our guidance on an overall basis and that also assume that our co-lending NBA will continue at a level which is — which historically has been there prior to ban, which can accelerate, which can so as one. But it’s primarily, you know, many of our overheads and costs are also combined because we use the same infrastructure, we use our HO and technology and many other functions are combined. So you know, just to do an allocation. So we have not done the allocation to figure out ROE separately.
Niharika Karnani
Understood.
Nirmal Jain
But most of the cost one infrastructure is together, so we look at it holistically.
Niharika Karnani
Got it. And one last question here. Again, in the MSME sector, so what would be our focus there, whether we’ll focus on the cost part or will we try to reach-out to as many as possible customers there?
Nirmal Jain
No. First one was focus on which part?
Niharika Karnani
So it’s kind of cost versus retail in case of MSME.
Nirmal Jain
So in case of MSME, we leverage our — our infrastructure and also the DSE channel for lab. But cost we are conscious of, but our advantage is that we already have infrastructure of branches across the country, which we can leverage. So we don’t have any plans to aggressively increase our cost base at this point in time.
Niharika Karnani
Got it. Got it. Understood. Thank you.
Operator
Thank you. We’ll take our next question from the line of Deepak Poddar from Sapphire Capital. Please go ahead.
Deepak Poddar
Yeah. Hello, sir. Thank you very much for this opportunity. Am I audible?
Operator
Yes, please go ahead.
Deepak Poddar
Okay. Great, great. And sir, just wanted to understand how are we looking at ROA for this year FY ’26?
Nirmal Jain
Closer to 3%.
Deepak Poddar
Closer to 3%. And I mean, what will — because you are still guiding for a credit cost of 2.5% to 2.7%, right? Is that right? I mean, so at that level of credit cost, how are we maintaining still ROA of 3%? I mean what will drive that? Because on your normal level of credit cost, it’s little on the higher-level.
Nirmal Jain
No. So last year, credit cost of 3.1, our NIM will also improve because we see that interest-rate cost seems to have peaked down and will be in a liquidity type situation, we paid higher price and also in the mix when the gold loan is the significant driver, we’ll see the NIM improvement and — sorry?
Deepak Poddar
Please continue. Please continue.
Nirmal Jain
Yeah. So I think there is a NIM improvement, the volume growth and continued co-lending and partnership with the bank. So these are the key drivers.
Deepak Poddar
Cost-income also improve.
Nirmal Jain
Cost-to-income is our — cost-to-income will also improve with the volume. But okay, we also have plans to make certain aggressive investment in AI and technology benefits of which will improve over a period of time. But yes, cost-income will improve definitely compared to last year. But if you can bring it to FY ’24 level, I think that’s a good target.
Deepak Poddar
Understood. That’s very clear. That’s very helpful, sir. That would be from my side. Thank you so much.
Operator
Thank you. We’ll take our next question from the line of Anusha Raheja from Dalal & Broacha. Please go ahead.
Anusha Raheja
Yeah, congratulations, sir on good set of numbers. See, I want to understand on this category, what will be on the loan side post? I think you have recooked the previous levels closer to used to be 24,000 odd and you are closer to around INR21,000 odd crore now. So how do we see the loan book growth over the next two years time also on the branch expansion side and the changes that you have done at the level so that we are complying with the RBI norms, if you can highlight some of the important ones? And also in the last quarter you had said that you are being competitive in terms of pricing the core loans in order to attract the customers. So how is the scenario right now? And at the margin level, how do we see a margins panning out to the gold loan?
Nirmal Jain
Yeah. So gold loan growth will be fairly strong this year as well as next year, but underlying assumption is the gold prices will remain firm. So a significant part of gold loan industry growth is also driven by significant increase in the gold prices, which obviously increases your loanability against the same. So that is one. So our margins will be inching up, we’ll get back to our normal margins quarter-after-quarter this year as well as next year. So we are competitive and market is very competitive. There’s no questions about it. And you have to really make sure that operationally you are efficient and use technology to save cost to make sure that you make-up for the competitive pressure on the margins. So I believe that gold loan this year and next year will do well because for two, three reasons. One is good price reform, two, unsecured lending has become difficult and more expensive. So many times the gold loan NBFCs are lending at 80%, 90%, 90% and you have very aggressive set of unsecured lenders, sometimes fintech and then the NBFCs and customer always get distracted. So I think that will also be one of the factors. And third is obviously the economic growth and the credit under-penetration. So all these factors will drive growth and the growth is there, the margins are maintained.
Anusha Raheja
Okay. And sir, in terms of branch expansion.
Nirmal Jain
Branch expansion see, at this point in time, we ought to shred our existing branches and get them to productivity level, which is comparable with the best-in-class. So there’s still some time away. But you know, branch expansion is still requires our approval. And what we probably know that has to be evaluated how quickly we regain our loss business and start growth path from there. But we are open to branch expansion, if not in the first-half and second-half of next year. Maybe it’s going to happen in the next six months, but if things were as planned, then we start expanding from later part of this financial year or next year.
Anusha Raheja
Okay. And sir, how much is the LTV now in the loans incrementally?
Nirmal Jain
Maximum is 75 and average will be 69.
Anusha Raheja
At the origination?
Nirmal Jain
At the origination, it’s between 70 and 35.
Anusha Raheja
Okay. And sir, on the asset quality side, you said that I just wanted to understand how the asset quality behavior is panning out across the segment in the MFI Home Loans and on the home loan side as well. And related question is the credit cost estimate is 2.5 to 2.7, right? So previously it used to be close to around 200 basis-points. So is it that you assuming a pain in MSI to continue in this fiscal — in this entire fiscal? So just want to understand the broad rationale for a higher credit cost estimate?
Nirmal Jain
Okay. There is some bit of pain in MFI that they linger on and unsecured NSME portfolio also can have, you know, I mean because the high-yielding portfolio. So it can always have slightly higher credit losses also, right? So these two factors are there primarily for the estimated of GL credit losses this year.
Anusha Raheja
And do we expect a normalization for probably in FY ’27 on the credit cost side?
Nirmal Jain
So just want you to fire our portfolio. As our portfolio mix will also change in this year, we’ll see that next year probably credit cost would get back to our earlier levels.
Anusha Raheja
Okay. And sir, just lastly on the off-book assets. So we have seen a good growth on the co-lending side. Can you — if you can just help us understand it used to be closer to 40% of the total AUM? So how do we expect the co-lending and assignments happen in FY ’26, and I think that will definitely have a good impact on the P&L.
Nirmal Jain
So I think we are right now at 30%. Our endeavor will be to go back to 40%.
Anusha Raheja
In FY ’26?
Nirmal Jain
That’s right. So, by the end of FY ’26 I can say.
Anusha Raheja
And within that, the share of co-lending will be higher.
Nirmal Jain
Yeah. We have come up with a new draft guidelines for co-lending for which they invited for comments till I think 12 May, which is Monday. So let’s see the final set of guidelines and then we’ll know-how co-lending will evolve.
Anusha Raheja
So model one is you know that is not workable less for the new. So you are in that model, right?
Nirmal Jain
See the okay, it’s like little more complicated, but that, but the thing is that for gold loan, you know what happens for home loan mortgages is no problem because you have time. Gold loan is a small loan product will instant. So I’m sure that all gold loan companies have submitted that feedback to RBI and also the industry Association. So let’s see the final guidance and then we’ll figure out what will be the VA versus co-lending target for this year?
Anusha Raheja
Okay. Got it, sir. Thanks.
Operator
Thank you. We’ll take our next question from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Abhijit Tibrewal
Yeah, good afternoon, sir. Thank you for taking my question. So first thing is again on this FY ’26 guidance that you have put out in the presentation. Just wanted to understand when we are guiding for interest spreads of 6.9% to 7% versus 6.7% in FY ’25, I mean, what are the underlying drivers for that? Basically what I’m trying to understand is earlier during the call, we spoke about doing more secured. You have also given a guidance that MFI is not going to grow very highly. This year you guided for 5% to 10% growth. So is it coming from a change in-product mix or is it some benefit of cost of borrowings that you are baking in for higher guidance on interest rates? That’s the first question.
Nirmal Jain
Good question. So last year because of gold loan balance, the relative share of gold loan has been significantly lower in the average assets as compared to the year before. We ended at 24%, but if you take the year everything, it was even lower because all the growth has come in last six months. So the first-six months was declining trend and we had come down to almost 10,000, which is about maybe 12%, 14% of the same. So the mix of FY ’25 is little skewed with lesser for much lesser share of gold loan than normal. So if you fix that, then also you see a slight improvement or like reasonable improvement in the margins. So that is one. Secondly also we see that the interest rates have picked-up in last quarter and last after the was lifted, we have paid much higher interest cost and cost the liquidity requirement was faster as we are our business than what we could really get from our usual tradition sources. Also till recently, now RBI has improved liquidity in the system very significantly. But still a couple of months back, including our site, NBFC money, cost of funds had gone up. So these factors played last year also when we did the issue of which are significantly higher-cost fully hedged. So if you adjust for that, then you see this improvement.
Abhijit Tibrewal
Got it, sir. Thank you. Sir, the second question that I had was from Manu, sir, more particularly on the housing finance business. If you could just share two things. One is what is the one plus DPD that we are seeing today in the housing business? And sir, I mean, last year arguably was a very tight year, particularly for unsecured, but of late, we’ve been seeing some tightness in collections in the affordable housing side as well. While we do a very wide spectrum of products. In the 4th-quarter, we’ve reported a minor asset quality deterioration, which again by any width of imagination is not bad. But I mean, what is your view? I mean, are we seeing early signs of some spillover from unsecured into the affordable housing segment now or is it just some seasonality, some weakness in government spending, which is leading into lower earnings in the hands of customers and which is why some tightness in collections that we are seeing today.
Kapish Jain
Yeah, hi. So I’ll answer them. So I’ll go one-by-one. Yes, there has been a unsecured has gone through its cycle of the pain and we did see that in our — the secured small-ticket of secured loans, the micro lab loan, we did see some spill coming out there, which was there. So that’s why you see relatively our growth in the secured MSME has been pretty flattish. So we were cognizant of that and I think we proactively looked at it to be more watchful of that portfolio is concerned, but I’m sure as things even out, we should be start doing that business again in a slightly different moderate slightly increasing the average ticket size and maybe yield expectations to soften. Barring that as far as the overall asset quality is concerned, I think it’s holding on well except this — this micro lab segment, which we saw in the home finance business. And I think the Q — if I see this, our performance of our ex the secured business, actually our asset quality has improved from the previous year as well. So I think the pain is behind us and now we can expect a pretty consistent growth from here on and we have become a sizable AUM of nearly INR40,000 crores now.
Abhijit Tibrewal
Got it, sir. Thank you for that. And the last question, rather two last questions that I had was one again for Nimal, sir. Just wanted to understand, I mean, who is heading our gold loan business now? And in gold loans, again these draft guidelines that came out on gold loans. I just wanted to understand how are we positioned with regards to the LTV, more importantly, the LTV guideline — the guideline that came out that the 75% LTV has to be maintained throughout the tenure of the loan. So A, what is our readiness and if at all there is any impact that you see here? And lastly, lastly for Venkatesh, sir. So just trying to understand, I mean, last quarter Q3, we had taken very-high credit costs in the microfinance business this quarter again, I mean while the credit costs have come down, how should we look at the credit cost trajectory from here on? How are we looking at credit costs for the full-year FY ’26 in the microfinance business? Thank you so much.
Nirmal Jain
So, Abhiram is actually in the gold of the business. And what question? LTD — yes, actually gold prices are up significantly. So instead of 75, say you bring it down to 70 or whatever, then more or less will be covered throughout. But then that just is recalibrate the loanable values become effective. And it to my mind, you asking that, okay, good prices, not INR1 lakh rupees, but say INR90,000 or INR95,000 rupees and which they were just a few days back. And of course, the business at that level was also healthy. So I think the gold prices are farming strong, so that probably will allow the industry to mitigate this change in LTV competition process.
N. Venkatesh
With regard to the micro finance credit cost for the FY ’26 that Guardrails one was implemented in July one and Guardrails two came in on April 1. if you look at the present book has been performing well so hopefully most of the things would be done and dusted by this quarter, and we are looking on an average credit cost of around 5% for FY ’26.
Abhijit Tibrewal
Got it. And so, lastly this Tamil Nadu bill that came out, are you seeing any early impact just like we saw maybe in Karnataka earlier when that ordinance came out. While I while I appreciate it is not applicable to registered and regulated entities but any anything that you’re seeing some disruptions in Tamil Nadu because of this bill that was passed recently in Tamil Nadu?
N. Venkatesh
There was a huge buildup in the media with aspect to this and post that the bill was introduced in the assembly and happened but abruptly the bill was hitting in the Tamil Nadu which even many of us were not even aware of it vis a vis to Karnataka. We had a lot of preliminary discussions with the various government departments and all those things but nothing has played out so far in the Tamil Nadu case visa vis what we saw in Karnataka. So Tamil Nadu has remained status quo.
Abhijit Tibrewal
Got it. So, it’s fair to say that Tamil Nadu collection still holding up well. Nothing outright alarming that you’re seeing in Tamil Nadu just yet.
Nirmal Jain
Yeah, that’s right.
Abhijit Tibrewal
Thank you so much and I wish the team at IIFL the very best.
Nirmal Jain
Thank you.
Operator
Thank you. We’ll take our next question from the line of Harshit Khadka from RoboCapital. Please go ahead.
Harshit Khadka
My question is already answered. Thank you.
Operator
Thank you. We’ll take our next question from the line of Abhishek M from HSBC. Please go ahead.
Abhishek Murarka
Hi, good afternoon everyone. So, Nirmal one question on this gold loan now, last couple of quarters we’ve ramped it up back to 21,22,000 crores on a quarter, on quarter basis. Are we likely to see this a ramp up now or are we back to a level where we are comfortable, and we can grow more at a equal pace or even pace rather than just trying to recover lost ground?
Nirmal Jain
Yes, actually the market seems good and we’ll have a growth momentum continuing even if we have after recovered our loss ground. So, I think the momentum seems good in this year.
Abhishek Murarka
Okay. And then you know, following up from that. So, if you look at your tier one and then parent entity, it has come down very sharply last couple of quarters because you’ve ramped up the portfolio and you saw this reverse effect last year when the portfolio ramped down, your tier one went up. But if you continue this growth momentum 13.8 can fall pretty sharply. So, at what level do you do you say that now it’s urgent to raise capital or infuse capital at the parent level.
Nirmal Jain
So, Abhishek, this I think will focus on one is that the portfolio sell down which is DA as well as code ending which you know, because of these RBI guidelines most of the banks have put in a hold. And other than that we should also look at subordinate bond. But for tier one also we are open, let’s you know, at appropriate time we can look at it for sure. That’s something which the board and shareholders have to make an assessment and which will do that every quarter to see where do we stand.
Abhishek Murarka
Right. Because with this growth and maybe even 1.5% depletion, you’re back to 12.5, 12.4 level where you were earlier, before the ban. And that is also.
Nirmal Jain
So, that’s what I’ve said in my own team remarks that we are conscious of that. So, we have to work on. So, if you look at our historical trend and our current off balance sheet asset, they are significantly lower. So, the earlier questions were answered first is that if we get back to that level then we should be safe.
Abhishek Murarka
Fair enough. Okay.
Nirmal Jain
Now this question arises if you are not able to sell down the assets or get the co lending partners for the growth. So, I believe that we should be able to do that and that is what our first priority is.
Abhishek Murarka
Okay. And in gold now we started off with slightly lower yields than earlier basically again to recover the ground. But now do we see that normalizing now should we incrementally do we do business at higher yields? Just to just from a profitability perspective now that we are back to 21,22,000 crores.
Nirmal Jain
So, yield has started improving. If you see this quarter is up by 20 basis points on the portfolio level. And so, okay there are competitive pressures which we cannot ignore. So, it might include a slow pace but still it has some more room to improve.
Abhishek Murarka
So, at the ground level have you increased deals? That’s the question. Or will you increase yields or will you keep it where it is and just run.
Nirmal Jain
We have. So, we don’t as of now we don’t have any product or any scheme less than 1.2% per month which typically most of the golden Companies will have 99 paisa or 83 paisa also which equivalent of 9, 10% or 12% as of now we are not doing new loan of less than around 15% or so. We can look at the reduction on a technical or a strategic basis but the voting itself is higher at this point in time.
Abhishek Murarka
Okay, okay. Okay. The other question is on microfinance in 4Q is there any write back? When I see the provision number, it’s actually quite low. Qoq. I don’t know, maybe I missed something.
Nirmal Jain
No, what you said is right. So, there are a couple of things. one is that we had a sell down to ARC in which there are some gains or a write back. two is we also reduced our state three coverage from I think 83 to…
Kapish Jain
70.
Nirmal Jain
And trying to bring it more realistic. So, these are things that are helpful.
Abhishek Murarka
How much would have been the write back due to the ARC sale?
Nirmal Jain
I think 50, 60 crores.
Abhishek Murarka
50 60. Okay.
Nirmal Jain
Yeah, I don’t have. It should be in the range. Yeah.
Kapish Jain
Okay.
Abhishek Murarka
Okay. And even if I on your stage 3?
Nirmal Jain
87.9% we have brought it down to 70.5.
Abhishek Murarka
Yeah, correct. So, around 18. So, that would be around 60 crores. if you were back at 87, 88 and another 60 crores here, so 120 crores. You would still be lower than your, than your 3Q provisions. Where, as you know most of the MFIs. If you know, if I see the 3Q provision, 4Q provision is pretty much similar to 3Q. So, it’s because of better experience, better recovery. Can you throw some light on that?
R. Venkataraman
Yeah, if you look at how it’s panned out and post October, how the collection things have improved, that’s whatever the management overlay we had. We have actually that rollback is based on that and that’s the reason you can see the change in the provisions what we have done.
Abhishek Murarka
Okay, so how much overlay which was. Okay, okay. So, around 125 crores. That’s what you said, right? Just to get the number.
N. Venkatesh
Yeah, that’s it.
Abhishek Murarka
Okay. Understood. Yeah, yeah, exactly. So, now, now it is pretty much similar to last quarter which. Yeah, that, that’s. That’s fair. Okay. And in 1Q do you expect like 1Q 2Q how do you expect this credit cost to trend in MFI?
N. Venkatesh
The credit cost, if you look at it, it’s actually if you look at it, as I explained earlier, whatever the lending post, the guardrail. So, things have improved, the asset quality has improved. So, we are almost seeing. We are at the side of it. If you look at a zero bucket collectionpercentage also it’s increased, and we are seeing the forward flow has decreased considerably. So, we are going to see an improvement in. quarter two will be much better. Quarter one we may have slight thing and quarter two from onwards we’ll have a better trajectory.
Abhishek Murarka
Okay, Venkat is one more question. Sorry. Just squeezing it in. In Karnataka 4Q saw a very quick recovery, right? Especially in March. How have April and so far may been. Have collection efficiencies fallen below levels which you would expect normally or they have just fallen in line with seasonality or they are stable. How has that moved?
R. Venkataraman
No. There’s not much of anything fall maintaining and in some states we are seeing the improvements. Karnataka is held on to the. Whatever we have. We have in the month of March.
Abhishek Murarka
Okay. April is similar to March.
N. Venkatesh
Yeah, yeah.
Abhishek Murarka
And how much would that be, the number?
N. Venkatesh
Both we would have hit around 96% in collection efficiency in Karnataka.
Abhishek Murarka
Understood, understood, right? Thank you. Thank you so much everyone.
Operator
Thank you. We’ll take our next question from the line of Hitaindra Pradhan from Maximal Capital. Please go ahead. Can you please unmute your line and go ahead with your question please?
Hitaindra Pradhan
Yeah. Just wanted to understand your that mode please.
Operator
Your voice is not very clear.
Hitaindra Pradhan
Yeah, yeah. So, for the microfinance business can you give us your SMA1 and 2 numbers for quarter three and quarter 4, and also your gross and net slippages for quarter three and quarter 4.
Nirmal Jain
There was slight entries.
Hitaindra Pradhan
Okay, okay, I’ll. I’ll have a look. And also in terms of your overall opex do you have any guidance of how, this should trend in the first half and the second half as we sort of grow our…
Nirmal Jain
Opex the.
Hitaindra Pradhan
C/I ratio in the first half and second half, are they going to be meaningfully different? Given that you also mentioned some investments that you are planning.
Nirmal Jain
It will not be materially different because we’ll have some other cost savings also and these expenses spread out.
Hitaindra Pradhan
Okay. And for the new proposed gold loan regulations, so in case we have a a falling goal prices scenario, then do you see that as a big an impact on your gold loan business?
Nirmal Jain
Fall significantly? I think there’ll be impact on the industry as a whole.
Hitaindra Pradhan
Okay. Okay sir, that’s all from my side.
Operator
Thank you. We’ll take our next question from the line of motion. Mohit Jain from Tara Capital. Please go ahead.
Mohit Jain
Hello, can you hear me?
Operator
Yes, please.
Mohit Jain
Yes. Yeah, so I wanted to just have a clarification in terms of the microfinance management overlay that we carrying of 125 crores. So, we have exhausted the entire overlay and going into next year we are not having any overlay left.
N. Venkatesh
Right. But if you look at the things we have, we have a drink of around 70 odd% right now. And given the historical things we are still much ahead if we have around 7% overlay over there.
Mohit Jain
So, because my understanding was that ECL is based on the recent data and if I am reducing the rate last year the rates, the losses on the ECL rate would have been much higher. So, it’s very surprising to see because if it is overlay we can use it. But it’s really surprising to see the model throwing a lower loss rate, you know, for this year?
Nirmal Jain
So, we have taken conservatively up significantly last year.
Mohit Jain
Okay. Okay.
Nirmal Jain
Increase. So, now they are brought back to normal level.
Mohit Jain
Okay. And this is done for both stage 2 and stage 3 because in stage 2 also we are seeing a lower rate as compared to previous quarter.
Nirmal Jain
Yeah. There’s a slight lower rate for stage 2 also.
Mohit Jain
Okay. Okay, sir. And just one thing. On the home loan part you said the increases in the NPA in stage 3 is because of the micro lab. How much of our home loan portfolio, in the home loan portfolio, how much proportion is the micro lab out there?
Monu Ratra
Yeah. Out of this total book which we have, it’s about 2,400 crores.
Mohit Jain
Thank you.
Operator
Thank you. We’ll take our next question from the line of Aswin Balasubramanian from Franklin Templeton Mutual Fund. Please go ahead. Ashwin.
Aswin Balasubramanian
Am I audible?
Operator
No. Please use your handset mode.
Aswin Balasubramanian
Is it better now?
Operator
No, it is very feeble.
Aswin Balasubramanian
Hello.
Operator
Hello, Aswin.
Aswin Balasubramanian
Yeah. Is it better now? So, I’ll probably go ahead with my question.
Nirmal Jain
Yeah, go ahead, go ahead.
Aswin Balasubramanian
So, I just wanted to check in terms of the standalone market borrowing and compared to bank borrowing. So, want to just understand three months, what would have been the sanctions from banks as well as beyond March.
Nirmal Jain
Aswin, your voice is little, not audible. But if I understand and you’re saying that the borrowing mix has changed. Yes. So, we are trying to reduce our dependence on the term loans which are primarily from banks. Going forward, we’ll try to make it more and more balanced.
Aswin Balasubramanian
Right. And in terms of the liquidity on the balance sheet would be increasing that efficacy in the standalone book, considering that the mix is going to move more towards market.
Nirmal Jain
Yes. Instead of probably will increase our liquidity a little more from current levels.
Aswin Balasubramanian
Thank you. And just to understand, with regard to my first question again now, with regard to my first question.
Nirmal Jain
In this quarter.
Aswin Balasubramanian
Would you have got any lines from a bank since March, for example?
Nirmal Jain
I can’t hear you. Bank lines since March. Yeah, okay. Of course we got. We’re getting new bank lines and I will give some data in the press release also. So, this is a continuous process. April is generally a slack month. Normally people wait for the full year result, which is today. But there are quite a few things in pipeline. The bank liquidity has improved and there’s a really positive response from the bank to all our loan applications.
Aswin Balasubramanian
Thank you.
Operator
Thank you. We’ll take our next question from the line of Gokul Raj from Bavaria Industries Group. Please go ahead.
Gokul Raj
Hello?
Nirmal Jain
Yes, go ahead.
Operator
I’m sorry, the participant line is disconnected. Ladies and gentlemen, to ask a question, please press RN1 on your phone. As there are no further questions, I now hand over the call to the management team for closing comments. Over to you, sir.
Kapish Jain
Thank you very much for all the participants and their active participation during the call. For any further questions, please reach out to our investor relations team and we’ll be happy to address all your further queries in case anything is remaining. Thank you very much.
Nirmal Jain
Thank you. Thanks a lot.
Operator
Thank you. Thank you on behalf of IIFL Finance limited that concludes this conference. Thank you for joining us. And you may now disconnect.