IIFL Finance Limited (NSE:IIFL) Q4 FY23 Earnings Concall dated Apr. 27, 2023.
Corporate Participants:
Kapish Jain — Chief Finance Officer
Nirmal Jain — Managing Director, IIFL Finance Limited
Monu Ratra — Executive Director and Chief Executive Officer
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
Analysts:
Anusha Raheja — Dalal and Broacha — Analyst
Renish — ICICI Bank — Analyst
Nishant Shah — MLP — Analyst
Mona Khetan — Dolat Capital — Analyst
Sanket Chheda — DAM Capital — Analyst
Nischint Chawathe — Kotak — Analyst
Pruthul Shah — Anubhuti Advisors — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the IIFL Finance Limited Earnings Conference Call. We have with us on the call today Mr. Nirmal Jain, Managing Director, IIFL Finance Limited; Mr. Monu Ratra, CEO, IIFL Home Finance Limited; Mr. Venkatesh N, CEO, IIFL Samasta Finance Limited; and Mr. Kapish Jain, CFO, IIFL Finance Limited. [Operator Instructions]
I now hand the conference over to Mr. Kapish Jain. Thank you, and over to you, sir.
Kapish Jain — Chief Finance Officer
Thank you very much. Good afternoon, everybody. I hope you and your family is safe. Thanks for joining us on this call — quarter four earnings call for fiscal 2023. I’m Kapish, I’m the group CFO for IIFL Finance. On the call, I am accompanied by Mr. Nirmal Jain, our Managing Director; Mr. Monu Ratra, our CEO, IIFL Home Finance; Mr. N Venkatesh, CEO of IIFL Samasta Finance.
I now hand over the mic to Nirmal to comment on the economy and the group’s overall strategy and plans. Over to you.
Nirmal Jain — Managing Director, IIFL Finance Limited
Thank you, Kapish. And welcome on the analyst call for the full year FY 2023. So to start with my views on the macro economy. Today, there are divergent views about India’s macro economy and prospects, primarily because there are concerns about high inflation in the US and Europe and the impending or kind of moving recession there and there, also the regional [Phonetic] slowdown in — back home.
But if I — my first — my timely — my personal view is that things are good. In terms of macro, stabilities are far better than ever before, because on one hand, inflation seems to have peaked out and therefore, even interest rates seems to have peaked out.
And we saw that the last policy — last MPC basically paused the interest rate hike. And not — and this is backed by current account deficits coming off after peaking in September. And obviously, the oil imports at a lower prices are helping us. So foreign exchange businesses are in good shape and the currency is also stable relatively. If monsoon is good, then I think the rural demand also will come back.
GDP growth, maybe 6.5%, 7%. I mean, the potential of India is much more. But in the world that is today, India is really the sweet spot. And on the whole, given the stable external environment, stable politics and the economy doing generally well and just peaking out, outlook should — outlook for the economy, financial services as well as trade market is positive and optimistic.
Now, in terms of — there are many concerns here or many times people talk and ask questions about the bank credit growing too fast. What is the sort of a co-lending, or data becoming available to everybody, how would NBFC sector grow. So I just wanted to put some numbers in perspective.
So banking sector credit is around INR140 lakh crores today. And out of this, if you see the mortgage by itself is around — something like INR24 lakh crores, INR25 lakh crores, which is — so if you really look at our share in the overall mortgage is about 1%.
Given our vast network of branches, obviously, there is a huge potential to tap for us to grow also. And the mortgage by itself in India — the mortgage to GDP ratio is 11%, which is among the lowest. So, obviously, mortgage is grossly under penetrated.
In the last quarter, we have seen some slowdown in the affordable home loan demand, primarily because of interest rate increase as well as the commodity price increase where the cost and the prices have not come down to make up for the interest rate increase, but this is a temporary figure as we see the interest rate fall thing should come — the demand properly can accelerate again.
Overall, mortgage industry did well and the luxury segment actually grew much faster, but affordable sector has tumbled as long-term potential, as I said, as the peritins 11% of GDP, which is 60%, 70% in many developing countries and was — has been above 100% in some developed countries like US. So there’s a long, long way to go.
Then if you look at MSME sector than the industry, the MSME created by banking sector, is about INR35 crores, INR40 crores to manufacturing and another INR35 and INR45 lakh crores for services. Together it’s INR70 crores, INR80 lakh crores and still everybody agrees from the government to banks to reserve bank that this credit in this sector is grossly underpenetrated.
So again, there’s a long, long way for this industry to grow and the size of business that we have at this point in time is very, very insignificant compared to the potential. Even our golden and microfinance business is primarily cater to MSME customers because they’re all small businesses and for income-generating activity.
Now the question is whether the entire potential can be get by banks or there’s an opportunity of the niche in which we operate. So in my view, again and bought our experience has been for the last few years that we have a network of branches and people, they get into very small ticket loans. So if you look at our ticket size on loans in business or MSME, digital loan of INR3 lakhs or 4 lakh or INR13, INR14 lakh rupees for affordable homes at 50,000, 60,000 rupees of gold loan.
So there’s a much bigger market bases, which banks still have to tap. And these are the customers which are dividend for bank — many times they require access to the customer where the — the loan branches that we set up are leading branches with just carry the loan. The cost structure is very come back if they were to have a similar kind of loan mobilization sort of system, it would be far more expensive for them.
Also in data, while the data for everybody, but people still have to learn how we use data. And there are very large number of parameters that people use and is continuously evolving learning and emerging algorithm that works further. And obviously, we have invested in technology, and we believe that we are early movers in using the new technology infrastructure of account aggregators, the projects and data by way of alliances with large technology players as well as our own organic marketing and getting customers.
So the digital infrastructure, the digital investment that we have, the branches that we have and people that we have — that basically gives us a mode to continue to grow our business.
Now, we expanded our network of branches and people in the last two years were aggressively. We can now slow down this expansion and still we have enough capacity to sustain growth of our targeted growth of 35% in our loan as well as our income and bottom line.
Last year has ended, we have grown our profits and loan AUM in line with our target. One change that we have seen in last — probably most of analysts and investors who are watching us would see in the last couple of quarters, the co-lending is increasing. And obviously, the relative share of direct assignment and securitization will — well as come down to that extent.
In terms of accounting, which we follow India, in case of assignment, we have upfront the estimated value of what is already of the book, but in case of co-lending, the excess interest accrues quarter-after-quarter. So what we will see probably over the next few quarters is that the co-lending income, the excess interest or the difference of interest that we get will keep growing. The upfronting will keep reducing. And basically, that will — impact on the whole will be probably lesser and lesser as we go along.
Also, in last quarter, as we have received for the last few quarters, the COVID impact now is over. Our asset quality is back to the normal levels, which is even applying or having implemented RBI’s new circular and more stringent norms for income and asset quality. We are still at 1.8% in GNPA, which is well-below our target of 2%, and NNPA is a little above 1% and where again, our target is to keep it below 1%.
Asset quality can further improve in the next few quarters. In terms of cost of funds and our margin, our margins have improved because there has been a systemic interest in and obviously, that allows us to increase the pricing of our product as well. Most of our products are small dots, which are relatively where it’s not very difficult to pass on the interest rate hike.
But our cost of fund has not gone up in proportion, primarily because our rating and credibility with the banks has improved. Our international credit rating also has been upgraded Also, we have fully repaid now the dollar zone, which is the MTN bonds we have issued in 2020 in aggregate about 400 million out of 30 million prepaid before March and remaining 270 has have now been paid on, I think, April 23rd, with hedging and everything all included, the cost was very high at around 11%. That probably — that should also help us in continuing the increase in cost of funds, which is the impact of a rate increase across the system.
We try to provide as much information as possible in our presentation as well as call. So many that if people have some downs of some questions or queries about the data or changes in number, I’ll really appreciate if they can raise this on this call, because I’ve seen some comments on social media, which is about digital loan. When digital is just about 3% to 4% of our portfolio. And the numbers for Q3 and Q4 has changed and the reason is as follows. It is not because of discontinued business, but there are some small portion of LAP, which was done, but we thought that there’s a conflict in classification will take LAP as a primary classification. And, therefore, you will see that the Q3 numbers of LAP, the LAP has relatively lesser GMP as compared to unsecured digital loan.
So the Q3 number of LAPs, which was earlier 3.9% has gone down to 3.48 as part of digital loan, which was LAP has moved to build, and correspondingly, the digital loan of GNPA, which were reported 3.34% for the last quarter have gone up to 4.18%. It’s small INR600 crore, 700 core crore portfolio of LAP, which has digitally done.
Now we are classified as LAP instead of digital loans, and there’s nothing to get excited about the 3% to 4% of loan in terms of how we present the data. We’ll answer all your queries either by mail or we can talk to our Investor Relations department or ask us a question on this call. So with this, I hand it over to Kapish to take you through the details of the financial numbers, and then we’ll take Q&A. Thank you.
Kapish Jain — Chief Finance Officer
Thank you. Thank you very much, Nirmal. So first, I’ll take you through the quarterly performance numbers, followed by annual. So as mentioned, by Nirmal for the quarter, the consolidated loan area for the group moved up by around 26% and on a quarterly basis, moved up around 12%, moving around INR62,638 crores.
And I have further dissect the aerial growth in core products. Gold loan and AUM and home loan AUM grew by 28% and 23%, respectively. Micro trends, which is more like a muted segment has grown by around 59% in this year with the improvement in the entire regulatory framework, this came into the segment.
Digital loan and loan against property grew by around 33%, 18%, respectively. So overall, the core loan portfolio grew by 29% to 0502 and the non-core in line with our strategy had further shrunk by around 11% Y-o-Y and 4% Q-on-Q. And this is something which will still continue — going to be muted.
The non-core segment now comprises 95% of the overall AUM, a mix of — mix up — so they’ve gone by around 2.1% and currently non-loan core AUM is comprising of 4.9% has come down. So in accordance with our capital optimizing strategy, 38% of our AUM is either assigned or under co-lending. And the assigned loan offsetting trends is around INR16,979, up 19% Y-o-Y and 7% Q-on-Q.
Impressively, the co-loan, the co-lending book has increased around INR7557 crores by fiscal 2023, up from 2845, a 156% jump. And this is something which we have in agreement with multiple banks and across our products, primarily gold and the home loan businesses.
During the quarter, we also added two new relationships in co-lending IDBI Bank and Indian Overseas Bank for co-lending of gold and micro labs, respectively. So for the quarter, our reported profit before minorities stands at around INR457 crores, up 43% Y-o-Y and 8% on a quarter-on-quarter basis.
In this quarter, we also added across our businesses, 300 branches and around 1200 employees across — it has led to a higher cost-to-income ratio of 43%. But going forward, our strategy is to monetize our branches, make them more operational and more efficient along with other cost drive initiatives that we are working across the franchise, which should enable us to report a lower cost to income as we work towards this entire fiscal.
Our cost of borrowing increased by 38 basis points Y-o-Y compared to a 250 basis point repo high that you saw and almost more than half of that has also been passed on through the NPA and high credit bank. And 14 basis points sequentially to around 8.93 is the cost of borrowing. Gross NPA, as Nirmal mentioned, stands at around 1.84, down from Y–on-Y 1.6, Y–o-Y and 0.24 Q-on-Q and net NPA is around 1.1%.
The diluted earnings per share for the quarter stands at around INR10.8, up 28% on Y-o-Y and 9% quarter-on-quarter. Just to briefly highlight, this enablement on the cost of borrowing was possible only by maintaining healthy liquidity. We continue to maintain healthy liquidity and the liquidity number stands at around INR9,356 crores.
During the quarter, through various sources the days and aggregate funds INR80 crores, term loans, bonds and through refinance and we also did around INR3981 crores of direct assignments by selling retail loans to bank.
Our gold loan at home initiative, which is really progressing fine, saw significant traction during the year with disbursement more than INR1,000 crores. And then which has been improved as well in that business. We now have a monthly run rate above INR100 crores, which consists of 3.5% of our total gold loan AUM.
With this, I will now discuss the annual performance for the year fiscal 2023, a consolidated fact before minority was INR1,607 crore, up 25%. And our pre-operating provision — a pre- operating profit was INR2,831 crore, which has again showed an improvement of around 24% Y-o-Y
As I mentioned, 95% of our loan is retail, of 67% of the loans are PSL compliant. And the rest are largely gold loan, which is again zero risk weighted asset for the bank. More importantly, the retail and the PSL loans are of significant value in the current environment. Here we can sell down with the kind of asset performance that we have demonstrated to this market, we have hold a very good relationship on those lines from business delivery and performance perspective as well.
Overall on these assets, the collection, recovery is something we entirely own from driving the whole element for the bank, while the risk on the trade is completely passed and which has been reference today.
Our consolidated ROE for the year stands at around 19.9% at a lower gearing because of the ad inclusion of INR200 crores of primary capital that came in our subsidy company IIFL Home. And then we reported ROA of around 3.3%. Our capital adequacy stands at around 20.4% in the NBFC and a very healthy 47.3% in the housing finance subsidiary as of 31st of March. As you can see, our CRE is well above the minimum threshold which is needed. And with our off-balance sheet strategy and the internal approvals, we believe that we should only be able to improve with that as we progress.
For the year, our average cost of volume increased by 30 basis points to 8.8% on an average basis. Gross NPA, as I mentioned, at around 1.8%, which is shaped below the guidance that we gave over 1% earlier. With the implementation of expected credit loss or IndAS provision coverage on NPAs stands at around 1.67 provision. And our earnings per share are for the whole year was around — is around INR39.5 per share, up 25% and the book value is around INR231, which again moved by 40%.
We have a positive ALM thereby inflows cover or exceed most of the expected outflows across all our buckets and a net gearing stands at around 3.5x, which is down by 4.2 from fiscal year back in FY 2022. Loans classified as digital loans are part of the unsecured loans business with an active customer count of around 3.9 for fiscal 2023.
That’s what I have, and we’re happy to take more questions. With this, I open the floor for Q&A, and we’re happy to answer all questions that you have or we’ll come back to you in case this today.
Questions and Answers:
Operator
Operator: Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Anusha from Dalal & Broacha. Please go ahead.
Anusha Raheja — Dalal and Broacha — Analyst
Yes. Thanks for taking my question. Congrats on good set of numbers. Going forward on FY ’24, a couple of outlook on the credit growth side, how do you see panning out? And what will drive the growth? And in current fiscal, we have seen MFI within very strong growth and digital loans as well, so broader, what the growth drivers in each of the segments? And also, if you can elaborate more on the margin side. I think given so far well managed on the margin side, how do we see scenario panning out in FY ’24 because I think many of the notes are facing the heat on the funding cost side. So what will be your outlook on that?
Monu Ratra — Executive Director and Chief Executive Officer
Thanks, Anusha. And one is on the credit growth side, as I said, that we expanded our network quite significantly and also invested in technology. So our target or our — the goal is basically 25% credit growth. In terms of margin, we are prepared for some bit of upward pressure on the cost of funds. But hopefully, we should be able to mitigate by savings and cost to income as we slow down our expansion.
I mean to put things in perspective, we may — we would have set up almost 900,000 branches last year. This number may be about 150 or 200 more than that. Now why 100, 150 or up to 200 is what we do in micro finance business in particular, is that the larger branches we split them two from better risk and operational control. And there may be certain strategic locations, which are very good. So I think the number of branches will be just about maybe around 15% we talk about it was last year. And therefore, cost-to-income ratio should mitigate the upward pressure on cost of funds. But still relative to our peers, we should be better off because we have paid off our high-cost dollar bonds and with our rating and credibility being better, we should be able to negotiate better than the lenders.
Anusha Raheja — Dalal and Broacha — Analyst
Okay. So still on — I mean, on the spread side, how do we see it, you’ll be able to maintain FY 2023 levels? Or
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
I think we should — will be able to maintain the spread at FY 2023. And for everybody, what we have done now on net interest margin, we have given the net interest spread, which is a difference in percentage cost of borrowing and percentage for fully yield. Because when you say net interest margin — and when you say net interest margin might include investment income and the denominator they don’t match. So I think the spread that we’ve given in our presentation now is more relevant and more indicative of what is our actual margin we should be able to maintain that next year also.
Anusha Raheja — Dalal and Broacha — Analyst
Okay. And how much was the benefit of this high-cost bond that you redeemed?
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
So these are almost the total cost was — and maybe Kapish will give you some small — some details there.
Kapish Jain — Chief Finance Officer
So — Nirmal mentioned, this was around $400 million of high-cost bond volume that we had, some bit of it we paid last year and the remaining we paid in February of this year. Its a double-digit number to 11%. And we also recently and in the press release, we also got another INR100 billion. Obvious landed cost is around 9.2%. So I think we save about 180 basis points on this what we have repaid.
Anusha Raheja — Dalal and Broacha — Analyst
Okay. Yeah on the branch expansion side, you said 150 to 200 for the total branches or only for the NSI.
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
Total branches will be 150 to 200.
Anusha Raheja — Dalal and Broacha — Analyst
150 to 200.
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
Gold, home loan and MFI output together.
Anusha Raheja — Dalal and Broacha — Analyst
All together. Okay. So that will be the run rate for the next year
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
Together, we had about 900 branches.
Anusha Raheja — Dalal and Broacha — Analyst
Yes.
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
Yes. Sorry?
Anusha Raheja — Dalal and Broacha — Analyst
Yes. So 150, 200 that should the run rate that we might expect over the next one or two years?
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
Yes, this year, for sure. And then let’s see how the opportunity in environment outlook is for next year. So our annual plan for this year, we want to slow down — next year, also, I don’t think we need to accelerate because we need to make the existing range productive. And then once we get the cost-to-income ratio to a more comfortable level and then we can embark upon the next phase. And that is also depends on the economics and the business environment in defending time.
Anusha Raheja — Dalal and Broacha — Analyst
Okay. Sir, honestly, on the asset quality side, I guess, what is the credit cost internal is that you’re working on? Because I guess you had mentioned that it would be closer to around 200 basis points order. So any change in that number? Or are you looking at it?
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
So I think we should be — maybe this quarter, probably we are at the run rate of 220 basis points. But going ahead, I think we should be at the target rate of INR200 or lower.
Anusha Raheja — Dalal and Broacha — Analyst
Okay. Okay. Done sir. Thanks a lot.
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
Thank you. Thank you, so much.
Operator
Thank you. The next question is from the line of Renish [Phonetic] from ICICI Bank. Please go ahead.
Renish — ICICI Bank — Analyst
Sort of operate correction, the release from ICICI. Yes, so two questions. So one is on the — in fact, in impact on the gold loan yields, it is a new discussion on time charges comes into it. So any assessment how our gold loan yield should impact because of the [indecipherable]?
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
We’re already seeing all our products, and we don’t — I mean, there’ll be a negligible impact. There will be no impact because we are not really charging penal interest now.
Renish — ICICI Bank — Analyst
Okay. So you have already picked your product
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
That’s right.
Renish — ICICI Bank — Analyst
Got it. And sir, secondly, in your opening remarks, you…
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
We never had significant component of this, but we have further treat our products again not depend on when there’s any more.
Renish — ICICI Bank — Analyst
Got it, sir. Sir, secondly, in your opening remarks, you’ve been mentioned about sort of unloading the utilization and building more of a collecting book, so accounting wise, of course, the funding of income will go away. So [indecipherable], how do you see like to be sustainable ROE, ROE sort of looking like in ’24 and beyond just considering the sort of premium numbers.
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
No. So I think we’ll be able — will sustain our ROE. As I said that this is — as it tapers off for a period of time, the co-lending the surplus of co-lending also will keep growing. So whatever working we have done internally, I don’t think there’ll be any negative impact. So we should be able to have maintained the profitability as well as ROE growth.
Renish — ICICI Bank — Analyst
So basically, ROE around 20% on a sustainable level.
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
At 25% growth in bottom — I mean, the profit cost, 25% growth in the top line as well as bottom line. So that is what I think we had indicated, so we are on track. So we — at this point in time, we don’t see any threat to that.
Renish — ICICI Bank — Analyst
Got it. Sir, on a, let’s say, ongoing basis, what should be the split between on balance sheet and off balance sheet?
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
So yes, that’s a good question. Normally, it’s 60-40. Now in the home loan because we raised equity and we are sitting on a significant liquidity there. So probably this year in home loan off booklet go down a little bit. But over medium term, we can say 60-40 and probably they can go to 55, 45 also. So 45 off book. But in the entry, the home loan piece because we have much higher capital equation liquidity. This year, probably there may be a drop in the off book there.
Renish — ICICI Bank — Analyst
Okay. So at consol level this year should be 65, 35?
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
At consol level, this year also probably will be in the range of 60%, given take 10 percentage in there.
Renish — ICICI Bank — Analyst
Got it, got it. And then going right, it could be 40%.
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
Yes.
Renish — ICICI Bank — Analyst
Got it sir. Thank you.
Operator
Thank you. The next question is from the line of Nishant Shah from MLP. Please go ahead.
Nishant Shah — MLP — Analyst
Hi. Thanks for the opportunity. This is Nishant from Millennium Capital. So I had a question on just the gold loan business. Like the larger kind of like peers alluded to like the competitive pressure now kind of easing off a lot of the old teaser loans, which are given out at like lower yields also are running off.
You’re seeing much better growth at IFFL, but like the yields seem to be quite stable like sequentially, like minor debt as well. Could you talk about that, about your business back what is kind of driving the growth? What is driving the kind of like relatively somber margins?
And just like a broader industry comment on, where do you see the competitive intensity in the gold loan business because, some of the other banks, which have reported very kind of on like gold loan growth. So, any comments on like the competitive pressure deltas. Yeah. Those are two questions.
Kapish Jain — Chief Finance Officer
No, good question, Nishant. Thanks. So the competitive pressure is easy. That’s a fact. And I think that should also in fact, reduce the pressure on pricing. I’ll come to that in a minute. And the bank, basically the bank’s golden portfolio is around INR90 crores, which is direct gold loan portfolio.
And some banks actually when they have every loan with the corridor of gold is still they classify every gold loan. So I would think that the bank gold loan portfolio is even bigger than that.
So obviously, they have a much larger maybe every [Indecipherable] close to about INR90 crore but in terms of our pricing quarters, and even so far our portfolio has grown quite well quite aggressively and there significantly larger disbursement of the new loans which have been at a competitive rate, one.
Two, as I just said that the penalties we are removed in terms of distribution of the changes in policies that are going to take place now. So that has impacted our yield slightly. Also in terms of product, if you have a monthly income in a product which are not bullet loan then your yield is slightly lower.
The impact of the price increase or the ease of competitive pressure also will happen only for the incremental business and not for the portfolio as much. So we should see a slight visual improvement, but it was 17.5%, 18% is what probably long-term also will be maintained.
So while competitive ease from new players, but bank actual competitive investment is aggressive. So if you — I think on a medium to long-term basis, might be 50 basis points here and there, but this is a yield bank and there will be.
Nishant Shah — MLP — Analyst
Understood. Fair enough. Yeah, that’s it for me. I’ll come back in the queue for the micro finance.
Operator
Thank you. We have the next question from the line of Mona Khetan from Dolat Capital.
Mona Khetan — Dolat Capital — Analyst
Yeah. Hi everybody. I had a couple of questions on the gold book. So we had the sale of about INR20,000 to INR21,000 crores. How much of this would be outlook?
Kapish Jain — Chief Finance Officer
Out of the current book of INR20,000 crores, maybe half of it will be outlook. But I’ll give the number precise number. Just one second. Output INR7,000 — no sorry INR8,330 crores and which is on slide number 13. So that is on book and the balance is on book.
Mona Khetan — Dolat Capital — Analyst
Okay. And if I have to look at the breakup of the AUM, Yes, if I have to look at the breakup of this gold AUM by ticket size, what will be the share below 1 lakh between INR1 to INR3 lakhs and say above 3 lakhs, it’s a good helper.
Nirmal Jain — Managing Director, IIFL Finance Limited
Actually INR1 lakh, we are — 33%. INR1 to INR2 lakh is 26%. So less than INR2 lakh, we are 59%. INR2 lakh to INR5 lakh is 33%, and greater than INR5 lakh is 17%.
Mona Khetan — Dolat Capital — Analyst
Okay. Greater than INR5 lakh is 17%.
Nirmal Jain — Managing Director, IIFL Finance Limited
1-7, 17% is above INR5 lakh. 83% is below INR5 lakh.
Mona Khetan — Dolat Capital — Analyst
Got it. And just finally…
Nirmal Jain — Managing Director, IIFL Finance Limited
60% is below INR2 lakh.
Mona Khetan — Dolat Capital — Analyst
Got it. And finally, again, what share of AUM would have probably yield below or equal to 12%?
Nirmal Jain — Managing Director, IIFL Finance Limited
I think maybe will be around 40% — sorry, 400 crore is below of this, so about 20%. 20% is below 12 or below 12%.
Mona Khetan — Dolat Capital — Analyst
Okay, Sir. Thank you so much. That was useful.
Nirmal Jain — Managing Director, IIFL Finance Limited
Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Sanket Chheda from DAM Capital. Please go ahead.
Sanket Chheda — DAM Capital — Analyst
Yes. Hi, Sir. Congrats on a good set of numbers. My query was then to the point that you alluded that you said the focus is now more on co-lending maybe the upfronting related income would be less, and that’s usable in the revenue from operation lines that we report on net gain on the recognition. But this quarter, there have been sharp uptake on the fee and commission income and other income. So is that because of the co-lending thing wherein –?
Nirmal Jain — Managing Director, IIFL Finance Limited
Yes. No, there are two, three things there. One is that the disbursements are higher. So there’s an amount of processing fee that is on disbursement to co-lending and see cross-sell of insurance also peaked in this quarter. So historically, also our Q4 fee and commission will always be higher.
Sanket Chheda — DAM Capital — Analyst
Okay.
Nirmal Jain — Managing Director, IIFL Finance Limited
So the cross-sell insurance also comes here. I think last quarter, we did — the insurance that has done it like maybe more than what we do in the previous three quarters. So that co-lending as well as disbursement in its all these three combined.
Sanket Chheda — DAM Capital — Analyst
Okay. Okay. So, on the — Sir, net gain on amortized category, so since the gains are coming down, do we expect the loss on de-recognition also to moderate or come down as we move ahead and reduce the focus there?
Nirmal Jain — Managing Director, IIFL Finance Limited
Loss of?
Sanket Chheda — DAM Capital — Analyst
In the expense, we also report net loss on de-recognition, right, on the financial instruments?
Nirmal Jain — Managing Director, IIFL Finance Limited
So normally, there will not be a net loss of de-recognition because, okay, that can happen and supposing that you have assumed certain longer tenure of the loan and the loans get repaid without any pre-payment or whatever much sharper. But normally, we are conservative on the whole. So it’s unlikely that we’ll have any significant loss there. There can be a few crores here and there on a quarter-to-quarter, sometimes that we gain. Sometimes it will be lessen but this is not be a significant number.
Sanket Chheda — DAM Capital — Analyst
Sure, sir. And lastly, since we are talking about some operating…
Nirmal Jain — Managing Director, IIFL Finance Limited
What has happened in this thing — okay, sorry, just to explain one thing that Q4, we were impacted more by the MCLR increased by the bank, which are higher than the rate increase that we passed on, particularly in our mortgage book. So what happens is that when we do co-lending and then we do assignment, the interest rate which is committed to the bank and which goes to bank, many times are linked to MCLR.
Now if you look at our — our oil would be a pass only 150 basis points. And so we actually when we pass on the cost increase, we are — we had to take into account two, three things. One, particularly the home loan, we don’t want the assets to default to increase. Two, we also have a long-term customer where the goodwill as well as repeat business as three hours we can afford and what is the capacity to sort of adjust which is our margin as well as what we need to pass on. And if we look at the environment and do that. So I think that, in fact, also come last quarter. But hopefully, this quarter onwards, as we have seen that the bank MCLR will not increase or might be corrected, I think — so that negative effect will also not be there.
Sanket Chheda — DAM Capital — Analyst
Sure. Sir, very clear. And lastly, I wanted to ask that since we are guiding that maybe operating efficiencies should start to kick in when we are riding for a lower cost-to-income and also this year, despite, say, the cost of funds moving up, we have managed to clock about a little more than 3.5% ROA. So as we move ahead in FY ’24 or FY ’25, do we see a possibility of waiting 4% in terms of ROA with operating efficiency taking in? And maybe at some point, credit costs also may be normalizing update. So do we see that for
Nirmal Jain — Managing Director, IIFL Finance Limited
Consistently improve our ROA and that trend would continue. So whether — I mean, maybe four or closer to 4 is what we should target this year.
Sanket Chheda — DAM Capital — Analyst
Okay Okay. Got it, sir. Wish you all the best.
Nirmal Jain — Managing Director, IIFL Finance Limited
Thank you.
Operator
Thank you [Operator Instructions] The next question is from the line of Nischint Chawathe from Kotak. Please go ahead.
Nischint Chawathe — Kotak — Analyst
Thanks for taking my question. Still be or probably in the fourth quarter, how much rate hikes would you have that for your customers?
Nirmal Jain — Managing Director, IIFL Finance Limited
Sorry.
Nischint Chawathe — Kotak — Analyst
In the fourth quarter, that is last quarter, how much of rate hikes would you have done for your customers?
Nirmal Jain — Managing Director, IIFL Finance Limited
So we have done 150 basis — Monu, correct me if I’m wrong, in the home loan we have taken 150 basis points.
Monu Ratra — Executive Director and Chief Executive Officer
So yes, sir, but he’s asking only on Q4. So
Nirmal Jain — Managing Director, IIFL Finance Limited
So in Q4, I don’t think there is any rate hike, is there.
Monu Ratra — Executive Director and Chief Executive Officer
Yes. There was just a 25 bp rate hike, that’s it
Nirmal Jain — Managing Director, IIFL Finance Limited
25-bps rate hike in Q4. And that is relevant only for home loan because in other products, we don’t do any rate changes.
Nischint Chawathe — Kotak — Analyst
But even in the other products, you would have increased rates for incremental customers, right?
Nirmal Jain — Managing Director, IIFL Finance Limited
So in micro finance business, we increased 100 to 200 basis points. It depends on state to state. And — so home loan we take a 25% rate hike in microfinance also, but microfinance happened over the last three, four quarters. So in digital loans, I think we would have taken a rate hike of about 100 basis points. But it’s a small business, yes.
Nischint Chawathe — Kotak — Analyst
So broadly across — across products, we are around 100 to 125 over the entire year.
Nirmal Jain — Managing Director, IIFL Finance Limited
On a the basis of the basis because home loan is almost half of it — will be about maybe 50, 60 basis points.
Nischint Chawathe — Kotak — Analyst
Yes. For the fourth quarter, you mean
Nirmal Jain — Managing Director, IIFL Finance Limited
That’s right. Yes.
Nischint Chawathe — Kotak — Analyst
Okay. And the 100 basis points you said 100 to 200 microfinancial solely in the fourth quarter.
Nirmal Jain — Managing Director, IIFL Finance Limited
No, I think there’s equal quarter. So if you see that the portfolio yield of the product for them that will basically tell us — give me one second. Yes. So our portfolio yield in the micro finance has gone up from 23.2 to 23.8, so a 60 basis point increase there
Nischint Chawathe — Kotak — Analyst
But again, these are fixed rate loans, right? So, lot more for customers.
Nirmal Jain — Managing Director, IIFL Finance Limited
Portfolio. But yes, the — term is also high, but these are fixed rates, you’re right.
Nischint Chawathe — Kotak — Analyst
Sure. So, over a four-quarter basis, very broadly over a four-quarter basis, 100 to 125 in more success likely what you are saying?
Nirmal Jain — Managing Director, IIFL Finance Limited
On the incremental loan, yes.
Nischint Chawathe — Kotak — Analyst
And in the fourth quarter?
Nirmal Jain — Managing Director, IIFL Finance Limited
— has gone up only by 40 basis points. But because — what you are right because this is on the new loans. So, the new loans will be 100 to 125 basis points.
Nischint Chawathe — Kotak — Analyst
The second question is really on leverage. Based on your conversations with bankers or rating agency, what kind of a leverage are we comfortable with? And do they see this as upon network? Or would it be just on loan some balance sheet upon network, how do they really see those? Thank you.
Nirmal Jain — Managing Director, IIFL Finance Limited
So our — I think they’re comfortable with up to 4.5, five times maybe in NBFC about 4.5 and in HFC can be up to six, seven times also they are comfortable with. And this is basically done based on on-balance sheet. The off-balance sheet assets are not part of this, but this is also, again, network to your debt on balance sheet, there is a relevant number. So, when question arises whether in gearing or investing the — or the assigned pool should be taken. Now, if you really look at it, when we assign it, it becomes part of the bank’s risk balance sheet because they’re required for risk-weighted, and they have to take that as — they are to actually allocate this capital and take that part of their gearing. So, it can’t be double counted. And many times in many countries that is bundled assets are for 10 times, obviously, there’s a true sale along with the risk, then the seller basically get dropped the balance sheet publicly without any gearing or without any risk capital.
Nischint Chawathe — Kotak — Analyst
And from a regulatory point of view, there is no cap or no restriction?
Nirmal Jain — Managing Director, IIFL Finance Limited
Yes, regulatory point of view, unless you take along with risk, you won’t get the priority sector advantage also.
Nischint Chawathe — Kotak — Analyst
Got it. And there is no cap in terms of how much — from an NBFC, how much should be on-book, off-book per se, there is no cap right now?
Nirmal Jain — Managing Director, IIFL Finance Limited
No, there’s no cap.
Nischint Chawathe — Kotak — Analyst
Got it. That answers my questions. Thank you very much.
Nirmal Jain — Managing Director, IIFL Finance Limited
Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Pruthul Shah from Anubhuti Advisors. Please go ahead.
Pruthul Shah — Anubhuti Advisors — Analyst
Yes, thank you for the opportunity. Given that you have provided for the guidance of 25% in topline and bottom-line, and also guiding about 20% ROE. But my question is with respect to the net NPA. So, we are above like 1%. We have around 1.3% of net NPA, so going forward next year and beyond, what is the level that we can expect in case of net NPAs? Would it be going down to, say, 0.7%, 0.8% or it will remain higher, given that we are lending to, say, MFI segment, which has a higher yield. So what’s the understanding of this net NPA part? What is the guidance about it?
Nirmal Jain — Managing Director, IIFL Finance Limited
We would like to bring it under 1%. Now we really can’t guide you to 70%, 80% or 90%, but it will be under 1%.
Pruthul Shah — Anubhuti Advisors — Analyst
Okay, okay. Got it. Thank you.
Nirmal Jain — Managing Director, IIFL Finance Limited
In basis points to be two digits and not three digits.
Pruthul Shah — Anubhuti Advisors — Analyst
Okay. Got it. Thank you.
Nirmal Jain — Managing Director, IIFL Finance Limited
But our provision coverage is significantly more than 160%. So what is happening in net NPA, if we are really aggressive in State 1 and State 2 net NPA have come down. But in terms of our total provision is significantly more than our gross NPA. So supposing if I want not to provide the management overlay and I said that all is provisioned against stage can become zero, but that is more like a technical or optics. But partially speaking, our provision coverage is almost 160%?
N. Venkatesh — Chief Executive Officer, IIFL Samasta Finance Limited
167%.
Nirmal Jain — Managing Director, IIFL Finance Limited
167%. So what it means is that the total provision that we carry on the books is 1.67 times our GNPA. Yes.
Pruthul Shah — Anubhuti Advisors — Analyst
Okay. Got it, sir. Thank you.
Nirmal Jain — Managing Director, IIFL Finance Limited
Thanks.
Operator
Thank you. [Operator Instructions]
Nirmal Jain — Managing Director, IIFL Finance Limited
I think it’s over now. So maybe we can conclude.
Operator
Yes, sir.
Nirmal Jain — Managing Director, IIFL Finance Limited
As we have no more questions, I think we may warp up.
Operator
Yes, sir. We do not have any further questions. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Nirmal Jain — Managing Director, IIFL Finance Limited
Yes. Thank you very much. And I think it was a very meaningful conversation that we had. In case you have any further queries, feel free to write to us at our Investor Relations, email ID and we’ll be happy to answer your questions and keep the engagements going. Thank you.
Kapish Jain — Chief Finance Officer
Thank you so much. Have a good day everyone. Thank you so much. Thank you everybody.
Operator
[Operator Closing Remarks]