IIFL Finance Limited (NSE:IIFL) Q4 FY22 Earnings Concall dated Apr. 29, 2022
Corporate Participants:
Rajesh Rajak — Chief Financial Officer
Nirmal Jain — Chairman
Monu Ratra — Chief Executive Officer, IIFL, Home Finance
Analysts:
Saptarshi Chatterjee — Centrum Portfolio Management Services — Analyst
Sharadh Singh — Laburnum Capital — Analyst
Savi Jain — 2Point2 Capital Advisors — Analyst
Tejas Mehta — Omkara Capital — Analyst
Vikash Agarwalla — Bank of America — Analyst
Pratik Chheda — Guardian Capital Partners — Analyst
Abhiram Iyer — Deutsche CIB — Analyst
Vishal Singh — ICICI Securities — Analyst
Deepak Poddar — Sapphire Capital — Analyst
Presentation:
Operator
Ladies and gentlemen. Good day, and welcome to IIFL Finance Limited Q4 FY22 Earnings Conference Call. [Operator Instructions] I now hand the conference over to the management. Thank you, and over to you, sir.
Rajesh Rajak — Chief Financial Officer
Good day, everyone. I am Rajesh Rajak, Chief Financial Officer on behalf of team IIFL Finance, I thank all of you for joining us on this call. And accompanying are Mr. Nirmal Jain, our Managing Director; Mr. Monu Ratra, CEO, IIFL Home Finance, and Mr. N Venkatesh, CEO IIFL Samasta Microfinance. I’ll now hand over to Managing Director to commence on the overall economy, and the view, strategy, and plan.
Nirmal Jain — Chairman
Good afternoon, everybody. I am Nirmal, and a warm welcome to everyone on this call. So in terms of macro environment, the — currently the global news is not very encouraging because we keep hearing about increase in value in most of the large economy, war which is happening with Russia and Ukraine, also the resurgence of the pandemic or the fear of that, but amidst this, the good news is that India is going ot be the fastest growing economy in the world this year, and I don’t see there is too much of any contradictory news on that and given that the investors cannot ignore this, regardless of the news on [Indecipherable]. Having said that inflation, particularly PPI which has been around holding around 7%, 8% may taper off a bit given that the monsoon is a good expectation that there’ll be a normal margin this year.
Despite that and given that the interest increase in most of the countries around the world, we — most analysts would expect about could 50 to 75 basis points interest rate hike in India. Domestic credit growth has not been stopped, but it appears that it might pick up now in the next — in the remaining part of the year. For our increase in interest rate as that will impact growth, the key factor to watch is obviously the oil prices, but we hope that under the circumstances, it’s really unlikely that oil will grow significantly higher than $100. Then on some liquidity in India has been good and also Central Bank is committed to make sure the liquidity remains benign and that basically we’ll make sure that the growth momentum continues in the economy.
Coming to our company, if the economy does well, then there is a tremendous — there is a strong growth for credit as well and the sectors that we operate in, we have seen that the credit environment has improved significantly in terms of not only demand but also efficacy and the repayment. Last quarter, the quarter under review, we have seen that the Board for credit the loan AUM has grown by 10% which for one quarter is very significant. As you are aware that our strategy has been digital, where we basically focus on our physical network of branches as well as digitizing and trying to get efficiency as high as possible with the digital infrastructure as well as digital recovery ideas that we implement.
Our branch network grew last year by 731 branches, which required us to add about 8,500 people. After we actually received some [indecipherable], this has been the fastest ever growth in drive network as well as our people and we have done this keeping in mind that this tremendous vacant demand for credit, there is opportunity because many NBFCs, the large NBFCs are consolidated and the demand is picking up with the economy. We already had a good network of branches and we can see that the branches will be the breakeven in 12 to 18 months time, and it will take [Indecipherable] in the large network. We are fully aware of the world is going in terms of digital potential of or the rate growth can be processed and disbursed and our DIY loan, which are completely unchecked or without any human intervention, has been growing very strongly. Last quarter, it doubled over previous quarter, and about close to INR260 crores. These are focusing on MSME sector. We have seen that this digitally applied process and disbursed loan also that it should be an accretive behavior as well. And there is price will be very favorable. We expect a stronger trend to continue here.
Quite a few digital transformation initiatives in timeline, we are really excited about the opportunity that this is technology is offerings to complement the bad network that we have and make sure that we can leverage our brand got better and make the breakeven even faster and [Indecipherable]. So last quarter despite our existing investments in new branches, so out of 731, 175 branches went live in last quarter itself. And our opex quarter-on-quarter basis increased almost INR150 crores, primarily for new branches these were, and also the marketing spend that we will do to create awareness about these new branches. Despite this, we are really happy to report that our profit after tax has been all-time high for a quarter. Gross was INR320 crores. Our ROE is close to 21% and ROAs is 3% and now with the expanded network, we can look at accelerated growth as this year, our growth will slow down. And probably, maybe this year and next year and positively, our focus will be on making the expanded network more productive. In terms of regulatory environment, there been very positive development in MFA industry, and they’re very badly hit by COVID, and the regulatory changes which remove the carbon pricing as well as give more effectively in terms of size of loans and the types of loan will make the industry healthy and we also have a tremendous opportunity to make sure that our subsidiary company, which is in microfinance and one of the leading players in microfinance now grows well with these set of regulatory changes.
In terms of reported NPA, RBI circular, which came I think in 12th November in 2021 had an impact, but on a like-to-like basis, our NPAs have improved. So if you ignore the impact of circular, then our GNPA would have gone down from 2.5% to 2.3%. But in the last quarter, impact of circular was about 0.3%, and the reported NPA was 2.8%, but this quarter was the impact of full quarter and that is about 0.9%, and therefore the reported GNPA is 3.2%.
Our collection credit claims understand this process will align to the new RBI requirement over next two to three quarters and resume that — these will come back to our long-term trends and in upper outlook as well.
With this, I hand over to Rajesh who is — will take you through the details of IIFL results and then we’ll hold question-and-answer.
Operator
Participants, please stay connected in line for the management got dropped. Ladies and gentlemen, please stay connected while we join the management back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, you may go ahead.
Nirmal Jain — Chairman
Apologies for this. The line got disconnected. So Rajesh will just continue again. But one small thing I want to bring it to everybody’s notice that the advertisement that got published today in the newspaper, there was an inadvertent error and the quarter results through March, 22 were compared to March 31st, ’21, but actually, those are December 2021 and therefore, the quarterly growth that you see is Q-o-Q not Y-o-Y. Tomorrow, we’ll publish the revised advertisement with the correction. And we really regreted it.
Rajesh, you can continue.
Rajesh Rajak — Chief Financial Officer
Thank you. So our pre operating [Speech Overlap] Yeah. So we were at the subject of pre-provision operating profit, which was INR670 crores for the quarter, which is 40% up on a year-on-year basis and 10% on a quarter-on-quarter basis. A full year’s PPOP was INR2,346 crore, which was 17% on a year-on-year basis. This was also impacted by the — our large investment in a new branches. Otherwise, our total income was up 23% on a year-on-year basis, a loan AUM now stands at INR51,210 crores, which is up 15% on a year-on-year basis and 9% Q-on-Q. In fact, our loan AUM for core products have grown faster at 20% year-on-year and 10% in just one quarter to INR47,669 crores, driven mainly by small-ticket, home loan, gold loan, and microfinance loans.
We disbursed new loans during the quarter across our core products 40% higher than the previous quarter. 94% of our loans are retail in nature and 69% of retail loans are PSL compliant. We should note that gold loans are not classified as PSL loans under RBI Regulations. The large share of retail and PSL compliant loans are of significant value in the current environment where we can sell down these loans to raise long-term resources. In line with our capital optimizing strategy, 30% of our AUM is either assigned, securitized, or under co-lending as of 31st March 2022.
During the quarter, we tied up with SBI Bank and Union Bank of India for co-lending of home loans and gold loans respectively. We added over 730 new branches and 8,500 more people during the year as a result [Technical Issues] ratio has increased to 40% in FY22 compared to 35% in FY21, but this paves the way for accelerated growth in the future. Our annualized ROE for quarter four stood at 21.1% driven by annualized ROA of 2.9% despite large investment in growth causing spike in operating cost. Our capital adequacy ratio was at 23.7% and Tier ones were 16%, well above the statutory requirement of 10% and 15% respectively.
Quarterly average cost of borrowing declined by 28 basis point year-on-year and 14 basis points sequentially to 8.6%. Our gross NPA stood at 3.2% and net at 1.8% as of March ’22, this includes the impact of RBI notification dated 12th November 2021. With implementation of ECL model under India, the provision coverage on NPAs stands at 123%. Collection efficiency has improved compared to the previous quarter across all products.
During the quarter — now a brief update on the liquidity, we raised INR5,954 crores through term loans, bonds, refinance, etc., out of which INR1,464 was raised by refinancing, including INR1,200 crores from NABARD. In addition, loans of INR4,284 crores were securitized or assigned during the quarter. Our cash and cash equivalents and committed credit lines from banks and institutions at INR9,499 crores was at an all time high. It is adequate to meet not only all near-term liabilities, but also to fund the growth momentum. We have a positive ALM thereby enclose cover or exceed expected outflows across all buckets.
[Technical Issues] the quarter we also bought back INR50 million worth of overseas bonds at par, which were funded by corresponding ECB loan of maturity, which was not less than the maturity of the bonds bought back in line with RBI regulations. This will reduce the cost of transaction by approximately 225 basis points. During the quarter, we also successfully raised long term funds of $68 million from ADB to improve financial access to affordable green housing and lower-income women borrowers.
A brief update on our digital strategy. We continue to focus on digitization and analytics to improve customer experience and enable a convenient one-stop-shop for customers’ credit and investment needs. During the previous quarters, we had mentioned about digital DIY initiatives for disbursement through WhatsApp and app, more than 27,000 customers have been on-boarded till date under these initiatives. With the added DIY disbursement in quarter four, more than double at INR265 crores as compared to the previous quarter. Our gold loan at home initiative we started a year ago saw significant traction with disbursements rising 52% Q-on-Q to INR209 crores for the quarter.
Jhatpat Home Loans, our pan India product for instant home loan disbursement continues to do well as 100% of the home loans now are — were from Jhatpat Loans app. The corresponding percentage in Q4 of the previous year was 94%. IIFL Loans app is being increasingly used for various transactions by customers and has been especially beneficial in this time which gives customers ease and convenience of access. We have more than 2.1 lakh average active users on the app for the month of March.
With this, we come to an end to the update. We are now happy to take questions.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Saptarshi Chatterjee from Centrum Portfolio Management Service. Please go ahead.
Saptarshi Chatterjee — Centrum Portfolio Management Services — Analyst
Yeah, hello, sir. Thank you for the opportunity and congratulations on a good set of numbers. Sir, my question is on the home loan part. Can you give some color on the like salaried and non-salaried part, how the GNPA slated could be?
Nirmal Jain — Chairman
Monu? Is there in line Monu?
Monu Ratra — Chief Executive Officer, IIFL, Home Finance
Yeah, I’m there. Yeah, hi, good afternoon. Yeah, yeah. So our salaried home loan composition is almost about 62% and about 37% to 38% in self-employed and if you look at the AUM level, our salaried GNPA are hovering around 1% and the non-salaried ones are at about 1.9%.
Saptarshi Chatterjee — Centrum Portfolio Management Services — Analyst
Okay, but overall, it is around 2.6%, right, sir?
Monu Ratra — Chief Executive Officer, IIFL, Home Finance
Yeah. So that is at the loan book level. So I was referring to at the AUM level because — and that was also using the dispensation of the IRAC norms which are there. So I was referring to — at the loan at the AUM level, the one which you are seeing is at the loan book level because we have almost about 32% to 34% of our book is off book. If you want to see the color of the entire book then these are the numbers.
Saptarshi Chatterjee — Centrum Portfolio Management Services — Analyst
Understood, sir. Very helpful. Secondly on the MFI part, just wanted to understand that earlier across like quarters we have been mentioning around 100% provisioning on the MFI Stage 3 assets and this quarter listing, I think around 60% coverage. Is there any change in coverage provisioning?
Monu Ratra — Chief Executive Officer, IIFL, Home Finance
Yeah, Rajesh, you’re answering? Hello?
Saptarshi Chatterjee — Centrum Portfolio Management Services — Analyst
You’re audible.
Monu Ratra — Chief Executive Officer, IIFL, Home Finance
Yeah, so did answer the question?
Rajesh Rajak — Chief Financial Officer
Hello?
Saptarshi Chatterjee — Centrum Portfolio Management Services — Analyst
Yeah. [Speech Overlap]. It is MFI question on provisioning, sir.
Rajesh Rajak — Chief Financial Officer
Sorry, can you repeat the question? Because I think line was —
Saptarshi Chatterjee — Centrum Portfolio Management Services — Analyst
Yes, yes, sorry. Sir, actually, I just wanted to understand that last many quarters, we have been maintaining around 100% provisioning on the Stage 3 assets of the MFI. This quarter, we are seeing slightly lower provisioning. So is there any change on provision policy?
Rajesh Rajak — Chief Financial Officer
Yeah, so as you know, under Ind AS, the expected credit loss is ased on the probability of default and the loss given default. So when we — as the economy is opening up and we are looking at the past three years, data so it’s based on the past three years data and the model basically throws up this number that is required to have a lower provision. So as we know the post demonetization the stress that was there, so in the earlier number that was used in the model, even that period was being included, and now as we are going more into the future, the earlier periods are being excluded from the model and the newer periods where collection is now increasing better in the recent months is taking place, and that’s what’s being factored into the model.
Saptarshi Chatterjee — Centrum Portfolio Management Services — Analyst
Ok, sir. Understood. And last question is on the like home loans we have disbursed around INR1,000 crores of home loan in the co-lending model. Sir, can you provide us NIM and may be expected this co-lending part of home loan?
Rajesh Rajak — Chief Financial Officer
Yeah. So we have seen that typically the spread in these co-lending model is ranging anything from say 1.5% to 2% in the absolute interest spread, which we see at the moment and we have had a pretty last quarter on co-lending and we hope to scale it up much more this year.
Saptarshi Chatterjee — Centrum Portfolio Management Services — Analyst
Understood. And just to clarify, the co-lending part that you mentioned around I think close to INR3,000 crores in AUM, that is around — this is like I think 80% of that is mentioned, right? Other 20% would be included in the on-book.
Rajesh Rajak — Chief Financial Officer
Yeah, that’s right.
Monu Ratra — Chief Executive Officer, IIFL, Home Finance
Yeah.
Saptarshi Chatterjee — Centrum Portfolio Management Services — Analyst
Okay, sir. Thank you so much. And all the best.
Operator
Thank you. The next question is from the line of Sharadh Singh from Laburnum Capital. Please go ahead.
Sharadh Singh — Laburnum Capital — Analyst
Hello, hi, sir. Good afternoon, sir. So my question was — so large part of the growth is coming from the assignment book. So what is the sustainability of the partnership there and how are we looking to grow the loan book itself?
Nirmal Jain — Chairman
So actually, we have been doing this for many years now. And so, I mean there is a — and many banks, we have a long term understanding as well that every quarter we give them selling assets. And over a period of time as the co-lending grows, this will also decline. But I think at least for the near future, we — the co-lending business, the shift will be gradual. But within the co-lending BA together, we’ll continue to have higher and higher part of our book like we see 38% now growing there.
Sharadh Singh — Laburnum Capital — Analyst
Do we have an internal number? I mean what percentage of our book will be off book? Around two years —
Nirmal Jain — Chairman
Broadly 40% will be off book over next 12 to 18 months.
Sharadh Singh — Laburnum Capital — Analyst
40%, okay. And how are we looking about the in-house books, sir, the loan book?
Nirmal Jain — Chairman
No, in-house book — see what is happening, suppose you redo co-lending, so 20% remains in house. So that grows our in house. On balance is on book loans as well or on balancing book are loan as well. And also what happens that some of the loans — so in the co-lending model, the banks are having credit policies. So based on that, if the loan is shown, they will check it, and they also check it on a real-time basis as well as [Indecipherable]. So there is some credit which we are comfortable with and banks are not. So that remains is in our books.
Sharadh Singh — Laburnum Capital — Analyst
Okay. Okay. So eventually, we —
Nirmal Jain — Chairman
So credit, which are not in line with bank’s policies but we still want to do it, then they will remain on our books.
Sharadh Singh — Laburnum Capital — Analyst
Okay, got it. And sir, the second question was, so how do we look at the NIMs going forward? So — and the competition, are we seeing intense increased competition due which possibly the NIMs could be lower going forward given the interest rate expected, hike expected.
Nirmal Jain — Chairman
Actually, different products and a different structure of NIM and the competition as well as our mix. So gold loan till last quarter, the NIMs were under tremendous pressure. So if you look at our yield of gold loan, last quarter our loan has fallen by 1% over previous quarter. But this quarter, which from — starting from April we are seeing that competitive pressure is easy because everybody has realized that this gaming doesn’t anybody. So if you see the advertisement of gold loan last quarter, you will see those 49 basis points, 59 basis points per month. They are now all disappeared. So we expect the NIMs to improve in gold loan and business loan again is the type of small loans that we cater to where we should be able to easily maintain. So on a weighted average basis, we don’t see any challenge in at least in foreseeable future, maintaining around 7% NIM that we always had, 6.5% to 7% is that’s the maintain everything.
Sharadh Singh — Laburnum Capital — Analyst
Sir, where do you look at this table gold loan?
Nirmal Jain — Chairman
I think gold loan nimble improve now [Speech Overlap] 78%.
Sharadh Singh — Laburnum Capital — Analyst
In the gold loan, sir?
Nirmal Jain — Chairman
Yeah.
Sharadh Singh — Laburnum Capital — Analyst
Okay. And how do you look at the scenario in the MFI space going forward? I mean in terms of —
Nirmal Jain — Chairman
I think RBI has come up with a very sort of pragmatic policy structure and that was revised industry. See what happens, the risk is always there in any industry. But as we priced them. So earlier RBI kept at a 10% of above your cost of funds. MFIs have huge operating costs as well. And whenever there are cyclical or sporadic problems like cyclone, or demonetization, or COVID, obviously, this industry has suffered a lot. But what happens that typically I have a feeling that most of the industry players will improve their pricing by 200 to 300 basis points as which easily absorb the losses and the extra provision or write-offs, besides what has happened, the relaxation from say up to 75% again throught the remaining 25% is on the loans, the income-based criteria, as a cash flow based, I’m out of loan, all those things will allow — see what was happening earlier, suppose it is a good quality customer, you could not lend, say more than INR25,000 but it’s will lend INR1 lakh. That improves your cost as well as credit both very well. In any case, you would have been borrowing from say four microfinance companies earlier. So there are many changes that RBI has done, which I think will help this industry improve significantly this year and next year.
Sharadh Singh — Laburnum Capital — Analyst
So would it be fair to say we’ll be more aggressive in this space going forward?
Nirmal Jain — Chairman
No, we have been quite aggressive. So last year, we expanded our network very strongly. And now I think we need to make the network productive. So we have already done the aggressive bid. And I think, if we are able to spread the network, there’ll be a very strong growth this year.
Sharadh Singh — Laburnum Capital — Analyst
Sir, what I meant was would we loosen our underwriting given that we can price it correctly now?
Nirmal Jain — Chairman
No, no, no. No way, because see the — I don’t think you can compromise on underwriting norms in this case, whatever be the flexibility of price, the pricing flexibility is again competitive pressure as well because it’s not that in any district there’s only one microfinance company. So you have to be a — I think that little bit of flexibility that have come will only take care of the risk which was there in the business any case.
Sharadh Singh — Laburnum Capital — Analyst
Okay. And sir, one last question. How do we look at the credit cost going forward, in general, and especially in the MFI and the business loan segment?
Nirmal Jain — Chairman
So last quarter our credit cost was a very badly impacted by MFI and business loan because if you recollect, January and February were again COVID-hit months and RBI’s recognition has become much stricter. But — okay, I’ve been saying this, but it has not happened till now, but going forward we do see that the credit cost would go down.
Sharadh Singh — Laburnum Capital — Analyst
Okay. So could you give any guidance as to what can we expect on the credit cost?
Nirmal Jain — Chairman
It’s very difficult, see, the long-term historical trend before COVID was around 100 basis point, maybe 100, 100 into 25 basis. So if you take a higher share of microfinance and as we now 125 basis points. But look, to be considered you say at least this will stabilize around 150 basis points and not more.
Sharadh Singh — Laburnum Capital — Analyst
On an annualized basis, sir?
Nirmal Jain — Chairman
Yeah.
Sharadh Singh — Laburnum Capital — Analyst
Okay. And if I can squeeze in one more question, sir, you mentioned like the pricing will be a factor of competition, so are we seeing more competition than we initially would have planned for in the different verticals will be catering to, especially in the housing and the — housing, gold, and MFI? I mean, are we seeing more competition than we would have for the —
Nirmal Jain — Chairman
No. actually, the competition is not more. Competition is similar or is changing. So if you see housing, there were DHFL and maybe there was Indiabulls is more aggressive, there was also a Reliance Home Finance, those players are not there now, but obviously the existing NBFCs or other banks have become little more aggressive. I think India has a huge untapped market and in terms of pricing, like our home loan onboarding interest rate is 9.5%. So we are fairly competitive. So competitive intensity I don’t think is increasing and nor decreasing, so it stands where it was.
Sharadh Singh — Laburnum Capital — Analyst
In the MFI —
Nirmal Jain — Chairman
I talked about — see Microfinance — the last year — if you see microfinance standalone then our ROE and profitability is much below any acceptable level and that is about the industry as well. So that has to resuscitate back to a normal level where industry again sustain and grow. So that will change, that will come with these policy changes.
Sharadh Singh — Laburnum Capital — Analyst
Sir, what I was trying to ask, a large part of our growth is actually come from the gold loan space and I mean, so now we basically have INR16,000 crores book there. So could we see the growth, maybe a little tapering down in the gold loan?
Nirmal Jain — Chairman
Gold loan?
Sharadh Singh — Laburnum Capital — Analyst
Yes, sir.
Nirmal Jain — Chairman
See Gold loans, again, the growth is a function of gold prices because that determines how much of money can be borrowed against given the quantity of gold. So right now I mean many people think that most central bank probably might try to increase gold results and that can have upward pressure on gold prices or at least they’ll remain stable. In that scenario, I think it’ll continue to go at around 15% or so. But if the gold prices were to come down for any reason, then obviously this segment of business will be impacted or this industry will be impacted. See if you recollect 213, 2014, when the gold prices crashed, obviously all gold loan companies had been shrinking in then balance sheet, but it bounced back after some time. So it’s more a function of gold prices but if the gold prices remain where they are then in terms of volume or the tonnage what we say gold tonnage in our vaults should go at around 6% to 8% at least.
Operator
Thank you. Sharadh, I’ll request you to come back in the question queue. The next question is from the line of Savi Jain from 2Point2 Capital Advisors. Please go ahead.
Savi Jain — 2Point2 Capital Advisors — Analyst
Yeah, hello. I just wanted to know more on this fair value changes, what does it comprise of in this quarter? So there is a significant decline both Q-o-Q and Y-o-Y. So what is the composition of this?
Nirmal Jain — Chairman
Mostly, in the earlier quarter was IPO. So basically what happens that as an NBFC, we have also QIB to apply in an IPO. So some of the IPOs were our research is comfortable we apply and typically we sell on listing or in a very short period after that. So that was the income that used to come in fair value changes. But last quarter we did not have any IPO, or I mean, probably we did not apply any of the IPO.
Savi Jain — 2Point2 Capital Advisors — Analyst
Okay. And this —
Nirmal Jain — Chairman
Other than that we know they can investment, but we don’t have much financial investment in the balance again.
Savi Jain — 2Point2 Capital Advisors — Analyst
On the MFI business, it looks like we had a loss this financial year. Is that true?
Nirmal Jain — Chairman
No, we did not have a loss.
Savi Jain — 2Point2 Capital Advisors — Analyst
What was the MFA profit last —
Rajesh Rajak — Chief Financial Officer
So there was a INR48 crore profit for the year.
Nirmal Jain — Chairman
INR48 crore profit in MFI, but it is about the [Indecipherable] capital.
Savi Jain — 2Point2 Capital Advisors — Analyst
And with the — was there a loss this quarter in MFI?
Nirmal Jain — Chairman
No. This quarter what is the profit?
Rajesh Rajak — Chief Financial Officer
About INR5 crores.
Nirmal Jain — Chairman
So this quarter is like near breakeven INR5 crore rupees of MFI profit in the entire contribution.
Savi Jain — 2Point2 Capital Advisors — Analyst
And I saw that there is some INR300 crores, which has moved out of restructured book. Is that because of write-off because of prepayment?
Nirmal Jain — Chairman
No, because the restructure timeframe would be over mostly. So the — actually, see, the restructured book is of 938 has come down to 376, which in a way is good because that is what was at risk of GNPA and that basically had resulted in MFI GNPA to spike in last quarter. And up others are — so there are various — so in case of construction, real estate, I know that there is the repayment of one loan, but in the MFI what you see is that restructuring is over mostly. So the restructure time period is over.
Savi Jain — 2Point2 Capital Advisors — Analyst
Okay. And another thing was this on the standalone financials, there is a quite a significant decline in interest income q-o-q. What is the reason? Is that because of more assignment or — I mean, there’s quite a bit of decline.
Nirmal Jain — Chairman
Savi, there is — yes, that is also a reason. Another reason is that in quarter three, we had IPO funding. So there is interest income from that. And if you remember, in quarter two and quarter three, the standalone interest income was higher than quarter one because there was income from the covered bond trust. These are structures that we had created in 2019. So what happens is, that’s a standalone entity, the Trust also, and the incomes are there. Now when the Trust start concluded, the appropriation of accumulated profits in those trusts which were held in trust for the benefit of NCD holders, it was transfered to the standalone company in quarter two and three. So as there was no such transactions in quarter four, you see a decline. So combination of all these three things, the trust, the IPO financing, as well as the higher assignments during the quarter.
Savi Jain — 2Point2 Capital Advisors — Analyst
Okay.
Nirmal Jain — Chairman
Does it answer your question?
Savi Jain — 2Point2 Capital Advisors — Analyst
Yes. So that’s really talked about the trust thing which was then Q2 and Q3, did that also lead to additional profits in Q2 and Q3 or it was just a —
Nirmal Jain — Chairman
On a consolidated basis. So on a consolidated basis, it does not make much of a difference.
Savi Jain — 2Point2 Capital Advisors — Analyst
Okay. Okay, okay.
Nirmal Jain — Chairman
It gets mopped up, yeah.
Savi Jain — 2Point2 Capital Advisors — Analyst
Okay. And your — so you mentioned about this 150 this credit cost guidance. Is that — does that also hold true for like next year, the immediate next financial year?
Nirmal Jain — Chairman
Yeah, I think that should — I mean unless something unexpected happens, that should hold for next year.
Savi Jain — 2Point2 Capital Advisors — Analyst
Because we continue to provide for in the wholesale book and MFI also so —
Nirmal Jain — Chairman
So wholesale book we have provided last year. This year it has been mostly MFI and MSME.
Savi Jain — 2Point2 Capital Advisors — Analyst
The last quarter also we provided for in wholesale, right?
Nirmal Jain — Chairman
Last quarter — no, I think last quarter, significant part of it is MSME and MFI. Wholesale book also we’ve provided, incrementing little bit, but most of it has gone to MFI and the — so if you see, MFI and MSME would have taken breadth of our INR200 crores in the last quarter. And then there is some normal incremental provision which will continue in all businesses.
Savi Jain — 2Point2 Capital Advisors — Analyst
So this was only because of the third wave or because really, it was — all the provisioning is being
Nirmal Jain — Chairman
I think it was a combination of two things. Third wave, as well as RBI circular.
Savi Jain — 2Point2 Capital Advisors — Analyst
Okay. So basically we should revert to a normalized credit cost in the next financial year. And your — there is some reduction in securitization q-o-q. What is the reason for that? I think —
Nirmal Jain — Chairman
We did more assignments in business. So normally what happens that assignment or securitization, you can do one of the two things with whatever assets you have.
Savi Jain — 2Point2 Capital Advisors — Analyst
I think in securitization we need to retain — we need to provide some kind of first loss and the assignment, that is not the case, right?
Nirmal Jain — Chairman
See, securitization what happens that you get a lower interest rate, so you get a better read from your point of view because you’re selling assets, but there is some margin, maybe around 5%, which is given by your bank fixed deposit and that becomes like first clause guarantee kind of a thing, and that also locked off from the capital when you calculate your capital adequacy.
Savi Jain — 2Point2 Capital Advisors — Analyst
Okay. But in —
Nirmal Jain — Chairman
There is a formula but it has an impact.
Savi Jain — 2Point2 Capital Advisors — Analyst
In assignment, that is not the case?
Nirmal Jain — Chairman
Assignment that is not the case.
Savi Jain — 2Point2 Capital Advisors — Analyst
So all losses are gone completely —
Nirmal Jain — Chairman
You are securitizing [Indecipherable] so bank will checker in the price itself.
Savi Jain — 2Point2 Capital Advisors — Analyst
Got it, but if banks have like their experience is not as per expectation then they may be either reluctant to do more assignments or they may increase their costs of future assignments.
Nirmal Jain — Chairman
Yeah, that’s true. But normally, what happens they have a very detailed process to and they actually use rating agencies to find out the value or the losses, the probability and rating agencies basically go through granular data, and they have much — and given their experience, they have a very good fixe on this.
Savi Jain — 2Point2 Capital Advisors — Analyst
Got it. And one last question. You mentioned that MFIs will probably is the lending rate by 200 bps or 300 bps. So what is our increase? I mean, I’m sure it has already been —
Nirmal Jain — Chairman
It will vary from region,from state to state. And so in some cases, we were not even — earlier rates were lower than 10% also, I mean, our margins are less than 10% also, in some cases we have 10%. So it again depends on state to state, with some states where risk is higher due to price more. So it is not across the country on rate.
Savi Jain — 2Point2 Capital Advisors — Analyst
But can you like give an indicative blended increase? Is it like in 100 bps, or —
Nirmal Jain — Chairman
I think, yeah. So there will be some increase from 100 to 200 basis points, at least.
Savi Jain — 2Point2 Capital Advisors — Analyst
And that rate literally flows into the ROA, because there is no, I mean usually, the profile of the business increases significantly.
Nirmal Jain — Chairman
Yeah, as I said that even if suppose you’re on INR1,000 crore makes INR40 crores, INR48 crores is not generating even 4%, 5% of ROE. So obviously — and our case will be like a typical representative of industry as well. So and that is what RBI has also recognize that there has to be risk-based pricing because you can’t throttle the pricing when the risk is not controlled. So the whole industry should hopefully that would recover in this.
Savi Jain — 2Point2 Capital Advisors — Analyst
Okay, got it. And then. One last question if I may squeeze in, there has been a increase in NIMs but it seems counterintuitive given that we mentioned in gold loan, you would have seen a reduction in NIMs this quarter. So how is there an increase on an overall basis?
Rajesh Rajak — Chief Financial Officer
Yeah, so Savi, the proportion, if you see the gold loan has been the highest increase for the quarter and as well as microfinance and the digital financing. All these have an above average, above our average yield. So yes while individual product may decrease, the fact that these products are high weightage and in these products the yield by itself is higher than the average, you get a bump up on the average yield in the total.
Savi Jain — 2Point2 Capital Advisors — Analyst
Okay. Okay, that’s it from me. Thank you.
Operator
Thank you. The next question is from the line of Tejas Mehta from Omkara Capital. Please go ahead.
Tejas Mehta — Omkara Capital — Analyst
Yeah, hi. Hi, thanks for taking my questions, and congrats on a very good set of numbers. A couple of things I would like to know. So one is co-lending has started quite well now for us, almost INR2000 crore net addition is still a very good number, what sort of guidance can you give on co-lending for FY23?
Nirmal Jain — Chairman
So I think this has been our focus. So this will continue to grow. Very difficult to give guidance because as a concept co-lending in India is little new and we’ve been working with multiple banks. So we’ll try to maximize it, but it’s difficult to give guidance at this point in time. Right.
Tejas Mehta — Omkara Capital — Analyst
But can the current fourth quarter run rate be kind of maintained on —
Nirmal Jain — Chairman
Yeah, I think that run rate can be maintained.
Tejas Mehta — Omkara Capital — Analyst
Okay, got it. I think the other question is how long will be peak to see this gross NPA reporting the normalized after the entire impact of RBI norms has taken in?
Nirmal Jain — Chairman
I think we should take about two to three quarters.
Tejas Mehta — Omkara Capital — Analyst
So essentially, we can be further increased in the NPAs though not —
Nirmal Jain — Chairman
It should not happen because this quarter has full quarter impact.
Tejas Mehta — Omkara Capital — Analyst
Right. Okay. So [Speech Overlap] stabilizing at the current numbers from this point of view.
Nirmal Jain — Chairman
Now it should go down. And over a period of two, three quarters or maybe by this year, we should see it coming back to the — converging with earlier launch.
Tejas Mehta — Omkara Capital — Analyst
Got it. Actually, third question, which I would like to understand was on the opex side, so you said that this year you will go slow on the expansion front, any number on the number of branches that we’re looking to add or are we going slow now?
Nirmal Jain — Chairman
Last year we added about 800 branches, this year we’ll add about 250 to 300 branches.
Tejas Mehta — Omkara Capital — Analyst
Right, but the opex —
Nirmal Jain — Chairman
300 branches will get added because there are quite a few locations and solid pipeline.
Tejas Mehta — Omkara Capital — Analyst
Right. So opex as a percentage of assets was about 4.4% in the fourth quarter versus earlier, it used to be below 4%. So do you think over the next four to six quarters this number can go back to 4% or do you —
Nirmal Jain — Chairman
Yeah, sure. Certainly, would go back to 4% or lower.
Tejas Mehta — Omkara Capital — Analyst
Okay, got it. And finally just on — you announced that you all are — you all have applied to RBI for credit card, can you throw some light what is the game plan? What are you looking to do over here?
Nirmal Jain — Chairman
So credit card is opened — RBI is now opened the application or they started taking application from NBFC for credit card BPI. We have a base of 6.5 million customers. So there is a tremendous opportunity for us to — if the RBI gives approval to have these products in our portfolio.
Tejas Mehta — Omkara Capital — Analyst
Right. But do you as a — what sort of plan you have, I mean, is there anything on the drawing board right now? How will you approach this segment and what kind of scaling — scale up of the business you would like to see in this case?
Nirmal Jain — Chairman
So it’s very initial time. Its very fluid at this point in time. But there is a tremendous opportunity because in India, debit card penetration is almost 80% but credit card penetration this is just about 3%. So if you see the smaller towns, then the credit card is still — is not there with many people because when we say, 3% to 4% credit card penetration is really, really low. And so again like any other product, this product has not reached the smaller towns in India where we have a good network. So we see a great opportunity here.
Tejas Mehta — Omkara Capital — Analyst
Yeah. But the fact that while there are risk-adjusted returns are good, but it’s a product, which is unsecured in a small ticket size product and time and again we have seen banks making significant losses, everyone — every now and then, especially during crisis times.
Nirmal Jain — Chairman
No, I agree with you, [Indecipherable]. So the credit underwriting process has to be strong. The card is just a — the owner should be cautious [Indecipherable] But I agree with you that this business has that cycle and a lot of people have seen high profit, and high losses both. The owner should be cautious. I’m with you on that.
Tejas Mehta — Omkara Capital — Analyst
Great and just one last question, sir. On the home loan side, why is it that we saw such a significant spike up in the RBI related — new loan related home loan this quarter? Typically it’s supposed to be very safe segment and usually we’ll not see, we’re just trying to understand that what —
Nirmal Jain — Chairman
I don’t think we’ll have losses because — but if people have — only out of in a long given default is very low because of the [Speech Overlap].
Rajesh Rajak — Chief Financial Officer
Yeah. So if you see the home loan side, although they — these are because of the RBI norms, but almost 80% of it is in 30%, 60% DPD and another 5%, 10% is in the 0%, 1% to 30% bucket. So it’s only 10% which is in the 60%, 90%. So I think it’s just a change of habit which has to come into play. And I think in next two quarters, we should be pretty good. If you will see, if you would have taken away the — this impact aside, actually our GNPAs have gone down in home loans from the last quarter, but this one is — has changed a bit. And it was therefore, the entire quarter. So and it’s more of a behavioral thing and we should not see any losses there.
Nirmal Jain — Chairman
And it gets all the participants to register [Indecipherable] quite a few pipeline. And then we can come back in case you have more questions. So restrict one or two important ones and then again begin because the queue is becoming longer.
Tejas Mehta — Omkara Capital — Analyst
Thank you so much. Thank you.
Operator
Thank you. The next question is from the line of Vikash Agarwalla from Bank of America. Please go ahead.
Vikash Agarwalla — Bank of America — Analyst
Hi, can you hear me?
Nirmal Jain — Chairman
Yes.
Vikash Agarwalla — Bank of America — Analyst
Okay, hi. Thank you. Thanks for the opportunity. Just a couple of questions. One is on the disbursement and the AUM growth guidance. And sorry if I missed this earlier, can you share what’s the guidance on disbursement growth for different products for FY23?
Nirmal Jain — Chairman
So normally, we don’t have any specific guidance, but historically, as we have indicated that — okay, last quarter, we grew by 10% quarter-over-quarter, but under normal circumstances, we can grow by around 25% in terms of volumes.
Vikash Agarwalla — Bank of America — Analyst
Got it. And for AUM, what would it be?
Nirmal Jain — Chairman
Yeah, that’s for loan AUM only.
Vikash Agarwalla — Bank of America — Analyst
Okay, understand.
Nirmal Jain — Chairman
Disbursement can be a little higher. I mean disbursement number is difficult to track because every business has a different ratio of disbursement to loan book. But I think maybe loan book or loan AUM will be a more better indicator.
Vikash Agarwalla — Bank of America — Analyst
Understand. Thank you. And my second and last question is on the dollar bond side. You have made some purchase on dollar bond side very, very recently and you had mentioned in the presentation that this will reduce its cost of funds by about 225 basis points for that transaction. Can you explain the dynamics on what are the details, what that’s leading to this saving? And related to that question is, again, how should we look at the overall majority? I think still close to 300 — more than INR300 million outstanding maturing next year, how should we look at what’s the strategy in refinancing or repayment of that?
Nirmal Jain — Chairman
You know, the dollar bonds are quoting at a dollar rate, which is much higher than our cost was in the rupee terms. So suppose your dollar bond gives a yield of 7%, 8%, and then we can cancel the forward contract also if we buy them back. But the RBI regulations do not allow us to buy back in the normal circumstances. We can buy back only to the extent that we are raising another dollar loan of a maturity not less than the residual maturity of this dollar bond. So we had an opportunity to raise $50 billion ECB. So we basically use that money to buyback and then based on the maturity, there was another $2 million, $3 million release. So we bought that also back. So we are trying to negotiate another guidance tranche of $50 million from ECB loan, which is like in dollar, foreign currency loan. Then probably we can buy back more.
Vikash Agarwalla — Bank of America — Analyst
Understand. And for the remaining maturity bullet, what’s the strategy as of now? How you’re thinking about it?
Nirmal Jain — Chairman
So that’s what I’m saying, although the domestic liquidity we have significantly higher than — so our dollar bond now, outside will be around $300 million, our liquidity is $1.2 billion. So wherever — but I can’t use the liquid resources to buy back the dollar bonds. So we are looking for opportunities to borrow in dollars, and then we can use that to buy back the dollar bond.
Vikash Agarwalla — Bank of America — Analyst
Sure. And just one last small question is for this ECB loan, what’s the all in borrowing cost?
Nirmal Jain — Chairman
Yeah, I think as I know our [Indecipherable] that saving about 200 to 225 basis points all in.
Vikash Agarwalla — Bank of America — Analyst
Okay, understand. Thank you, Mr. Jain.
Nirmal Jain — Chairman
What happens that you take — you cancel the — that forward cover. You take a forward cover on this. Everything all adjusted on a net basis, it is about 2% or will be lower that.
Vikash Agarwalla — Bank of America — Analyst
Sure. Thank you.
Operator
Thank you. The next question is from the line of Pratik Chheda from Guardian Capital Partners. Please go ahead.
Pratik Chheda — Guardian Capital Partners — Analyst
Yeah, thanks for taking my question. So my question is more on the gold loan side. What we’ve seen in that we’ve gained quite a bit of market share in the NBFC space, but also comment the cost of yield within [Indecipherable] 120 bps. So is it fair to say that even we are sort of focusing on higher ticket loan where the risk from default is slightly lower? And also, could you just give a breakup of the loan book at the time of [Indecipherable] how much will it be above INR1 lakh at the time of disbursement? How much would be below INR1 lakh at the time of disbursements?
Nirmal Jain — Chairman
So our average ticket size INR70,000. So I don’t — it’s not that we are focusing on large ticket loan but we also look at cash flow and the purpose of the loan. So to some extent, what we are saying is right that we’ll probably try to have a lesser risk than, we’ll balance little. And having said that, last year, last quarter, last couple of quarters, more — there’s a tremendous pressure because of lot of competitive activity, competition activity in terms of interest rate, which it appears that in this quarter has settled down and most of those kind of schemes, the Cabredo or Hyperactive have withdrawn their schemes.
Pratik Chheda — Guardian Capital Partners — Analyst
Fair enough. So is it looking like — so are you like the similar to that — so the economy sort of opening up, banks are again sort of focusing on the non-gold part of their AUM rather than going aggressive on gold loans.
Nirmal Jain — Chairman
The banks continue to focus in gold loan, but that’s one of the products for them. And they have certain — I mean they cater to certain types of customers, and certain size of customers. So there is a huge market after — beyond banks.
Pratik Chheda — Guardian Capital Partners — Analyst
Sure. My second question is on business loans. So the collection efficiency is again at 97% level in this quarter also. So just wanted to know how much of this business loan book is secured. And what is your understanding on how much would be the ultimate loss on not even default basis, what is secured?
Nirmal Jain — Chairman
So last quarter again because as you know, January, February, two months were affected badly by COVID. Secondly, the unsecure is about one-third of the book, but there our interest yield is much higher. So the — in terms of like-to-like business, the GNPA comes down from 6% to 4.8% if you take the way we were recognizing GNPA earlier. I think long term, you should see about, unsecure losses can be around 3% to another 3%, but that is, you know properly taken care by the price that we have for this. These loans are typically at 21% to 24% interest rate.
Pratik Chheda — Guardian Capital Partners — Analyst
Sure.
Nirmal Jain — Chairman
There is security loan. It depends on the size the lab but can we can go down to 15%, 15% also.
Vikash Agarwalla — Bank of America — Analyst
Sure. All right. Thanks a lot. Thank you.
Operator
Thank you. The next question is from the line of Abhiram Iyer from Deutsche CIB. Please go ahead.
Abhiram Iyer — Deutsche CIB — Analyst
Hi, sir. Congratulations on a good set of numbers. Again apologies if this is a repetitive question and maybe I need a bit more clarification on this. But in terms of the GNPA increased due to the RBI norms, given the fact that the recognition is a point in time process rather than over a period of time process, what’s changed between December till March that the recognition norms have affected our numbers? Broadly speaking, shouldn’t all the effects be captured in December, In the December number because it’s a point in time calculation?
Nirmal Jain — Chairman
Yeah, Abhiram. The circular came on 12th November and the first set of EMIs that would have fallen due would be around 5th of December, right? So there is only one set of EMI which would have slipped into which were there, which had to be collected, and whereas for this particular quarter, you have — you would have all three, I mean, all the three months and including the three months of the previous quarter as well. So anything that would have fallen due in December, for example, if you don’t collect would have become an NPA as of March, whatever was in November would be in February. So there is a need. If you think of it in terms of funnels, so the amount in collection or the amount that is required to be collected in absolute terms to enable it to escape the NPA classification is much higher now compared to what it was earlier.
Abhiram Iyer — Deutsche CIB — Analyst
No —
Nirmal Jain — Chairman
I’ll actually explain that how these new norms work.
Abhiram Iyer — Deutsche CIB — Analyst
Yeah.
Nirmal Jain — Chairman
So supposing that your monthly instalment is say INR1 lakh, so for you to become NPA, you would have missed three instalments of in aggregate INR3 lakh, right?
Abhiram Iyer — Deutsche CIB — Analyst
Yes.
Nirmal Jain — Chairman
Now, earlier supposing out of these INR3 lakh you collect INR1 lakh, then you will say that I’ve collected the first month. So again, it’s 60 days, not 90 days, and it’s not GNPA. Now what RBI said that to take it out of GNPA, you to collect all INR3 lakh.
Abhiram Iyer — Deutsche CIB — Analyst
Okay, got it. Okay.
Nirmal Jain — Chairman
So you can’t say that I’m collecting the first month, second, and third month are pending. So it is like it is rolling over. So that is why — that is how the impact is.
Abhiram Iyer — Deutsche CIB — Analyst
Got it, sir. So broadly speaking, the 3-month — there is a 3-month delay in the applications, what you’re saying, which means that effectively all the norms application has been taken care of by much.
Nirmal Jain — Chairman
Yeah, that’s right. So earlier it was one installment, now it’s three installments, all three. Yeah.
Abhiram Iyer — Deutsche CIB — Analyst
Got it, sir. And the second question was something which was conveyed at the start of the call, it was mentioned that basically home loans for home loans, NPAs on — for salaried was around 1% on new level, and 1.9% for non-salaried level — non-salaried and whereas the NPAs for on-book portfolio is around 2.6%. So is that a concern that a better part of the book is sort of being securitizing and involved and co-lending versus what’s actually been on our book?
Rajesh Rajak — Chief Financial Officer
No, not really, if you see this slightly what numbers I have stated were — this is the — a like-to-like without these new RBI norms. This 2.6% is inclusive of the RBI norms taking into account. The differential is very marginal. So it is nothing significant. The difference between both of them is about 30, 35 bps. There’s nothing more than that.
Abhiram Iyer — Deutsche CIB — Analyst
Got it, sir. Got it. Thanks a lot. Thanks for the clarification.
Operator
Thank you. Next question is from the line of Vishal Singh from ICICI Securities. Please go ahead.
Vishal Singh — ICICI Securities — Analyst
Hi, thanks for taking my question. I have two questions from home loan disbursement. Sir, you mentioned that —
Operator
Vishal, sorry to interrupt you, your voice is not very clear. May I request you to speak through the handset?
Vishal Singh — ICICI Securities — Analyst
Hello? Am I audible?
Operator
Yes, go ahead.
Vishal Singh — ICICI Securities — Analyst
Yeah. So I just wanted to ask that you mentioned that in April gold earnings have raised the rate, have we also raised our gold loan rate? And if yes, then by how much? I mean what would be our lowest-rated scheme right now?
Nirmal Jain — Chairman
So they’ve not raised the rate, but they’ve withdrawn the schemes which you are — like absolutely low prices, like 49 basis points at 6%. All these gold company’s cost of fund is more than that. So those schemes now have drawn. So effectively, the yield which has gone down by 7% so that has bounced back to the earlier level, and over a period of time can further improve.
Vishal Singh — ICICI Securities — Analyst
Got it, got it. So for us, the interest rate will remain — I mean our rates will remain same but for other people —
Nirmal Jain — Chairman
But the effective yield — no because we also had a product, which was — so these are all previous products, the way the industry is operating is that you offer something at a very low rate and if there is one default or slight delay then increase the rate back to the next level, the next level, and go jumping scheme on the call. So we also had one of the product like this which we have now taken back. So I think the yield should improve basis points broadly. That’s what my estimate will be.
Vishal Singh — ICICI Securities — Analyst
Understood. And secondly, if I look in this quarter, like most of the growth has come on the back of co-lending book and gold AUM, which I am assuming that where we are offering lower yield. So now that I’m mentioning that the lower-rated schemes are gone. So will it have any on the growth or do you feel that there is like good demand outlook in the market and it seems that the competitive intensity from the pricing point of view is gone? So will be no impact.
Nirmal Jain — Chairman
No, impact will not be there from that point of view, but see, typically March quarter has a little higher growth for whatever region, historically. And maybe in this quarter people go leave during April, May. So I’m talking about last 10 year trend. So for not only us but all gold loan companies. So there are some seasonal variations in the volumes, but there’ll be more because of seasonality, rather than not because of the rate changes.
Vishal Singh — ICICI Securities — Analyst
Okay, understood. And just last question, I mean, have we auctioned gold, and if yes, then how much? And what would be our like our auction to loan book? I think we used to give it earlier in the presentation.
Nirmal Jain — Chairman
So auction that in normal court they keep happening and normally on the historical numbers have been just INR1 crore. So around from the — see what happens, the loan book and the average size of the — average tenure of the loan behavioral is about three to four months. Specifically, I think we are around 20, 25 basis points, but as good as a number in [Indecipherable].
Vishal Singh — ICICI Securities — Analyst
Okay.
Nirmal Jain — Chairman
But it is not very significant. It’s a small number.
Vishal Singh — ICICI Securities — Analyst
Understood, sir. Just last question. What would be our typical ROA or ROE in gold loan business only?
Nirmal Jain — Chairman
So normally difficult to calculate ROA, ROE in the fully allocated basis because most of our branches work for multiple products.
Vishal Singh — ICICI Securities — Analyst
Okay.
Nirmal Jain — Chairman
But it’s something very similar to the company averages.
Vishal Singh — ICICI Securities — Analyst
Got it, understood. Okay. [Speech Overlap].
Nirmal Jain — Chairman
Closer to 3% and average closer to 20%.
Vishal Singh — ICICI Securities — Analyst
Got it. Understood. Okay. That’s all from my side. Thank you.
Operator
The next question is from the line of Deepak Poddar from Sapphire Capital Partners. Please go ahead.
Deepak Poddar — Sapphire Capital — Analyst
Yeah. Thank you very much, sir, for the opportunity. Sir, I just wanted to — you mentioned our new normalized credit cost is at 1.5%, is that right? Because earlier, you used to say 1% is our normalized credit cost.
Nirmal Jain — Chairman
Yeah, that’s right. So new expected credit cost, we should try and conservatively estimate 150 bases points, because now the MSME and microfinance has grown little bit and historically, whatever we have seen, it is the last couple of years that whatever estimates you make, the cost will be higher.
Deepak Poddar — Sapphire Capital — Analyst
Okay. So —
Nirmal Jain — Chairman
But you’re right, historically, prior to COVID, we used to have around 100 bases points or maybe little less than that also.
Deepak Poddar — Sapphire Capital — Analyst
Okay. So what you’re implying is that at FY23, we are looking at 1.5% credit cost, is that what you’re implying?
Nirmal Jain — Chairman
Yes.
Deepak Poddar — Sapphire Capital — Analyst
1.5% credit cost. Okay. Okay, understood.
Nirmal Jain — Chairman
They — if everything is normal.
Deepak Poddar — Sapphire Capital — Analyst
Understood. And then something on the cost to income ratio now 40%. How do you see cost to income ratio in FY23?
Nirmal Jain — Chairman
So it was 35% prior of this expansion. So it will gradually slide back to that level.
Deepak Poddar — Sapphire Capital — Analyst
Gradually, by maybe next two to three years? It would be a fair —
Nirmal Jain — Chairman
I think may be four to six quarters, [Technical Issues].
Deepak Poddar — Sapphire Capital — Analyst
Sir your voice was not audible, sir.
Nirmal Jain — Chairman
I’m saying maybe upto two — one and a half to upto two years.
Deepak Poddar — Sapphire Capital — Analyst
Two years. So two years we are looking to go back to 35% kind of a cost to invest.
Nirmal Jain — Chairman
That’s right.
Deepak Poddar — Sapphire Capital — Analyst
Okay. So ideally, if your AUM is growing at 25% and cost to income is declining, your PPOP growth should outperform your AUM growth, right? That would be a fair assumption to make? Like if 25% AUM growth through our PPOP can grow at 30% rate?
Nirmal Jain — Chairman
Absolutely.
Deepak Poddar — Sapphire Capital — Analyst
Okay. Okay, understood. Yeah, that’s about it. All right. Thank you very much.
Operator
Thank you very much. That was the last question for today and I’ll hand the conference over to the management for closing comments.
Nirmal Jain — Chairman
Thank you so much. And if you have any more questions you can always get in touch with our Investor Relations or CFO’s department. Thanks for being patient and have a good day ahead.
Operator
Thank you very much. On behalf of IIFL Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.