Indiabulls Housing Finance Ltd (IBULHSGFIN) Q4 FY22 Earnings Concall Transcript

Indiabulls Housing Finance Ltd (NSE: IBULHSGFIN) Q4 FY22 Earnings Concall dated May. 22, 2022

Corporate Participants:

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

Analysts:

Kang Zheng Gwee — Tahan Capital Management — Analyst

Abhiram Iyer — Deutsche CIB Centre — Analyst

Nilang Mehta — HSBC — Analyst

Ruhi Pabari — Reliance Nippon Life Insurance — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q4 FY ’22 Earnings Conference Call of Indiabulls Housing Finance. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

From the management team, we have Mr. Gagan Banga, Vice Chairman, MD and CEO; Mr. Ashwini Hooda, Deputy Managing Director; Mr. Mukesh Garg, Chief Financial Officer; Mr. Sachin Chaudhary, Chief Operating Officer; Mr. Ashwin Mallick, Head, Treasury; Mr. Ramnath Shenoy, Head, IR and Analytics; Mr. Veekesh Gandhi, Head, Markets, and Mr. Hemal Zaveri, Head Banking.

I now hand the conference over to Mr. Banga. Thank you, and over to you, sir.

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

Thank you. A very good day to all of you and welcome to the quarter four and full year fiscal ’21-22 earnings call. I hope all of you and your families are doing well and are safe. The year fiscal ’22 was to serve as a litmus test for Indiabulls Housing’s new asset-light business model and I’m happy to inform you all that we have made tremendous progress on this front beyond what we had ourselves anticipated. We laid it out on slides four to eight of the earnings update.

We began fiscal ’22 with the aim of establishing strategic co-lending partnerships with a set of banks and other financial institutions, implementing the technology integration, which is a lengthy and onerous process and began disbursals under the model from Q2 fiscal ’22 onwards. We were hopeful of scaling up the disbursals to achieving a quarterly disbursal run rate of INR1,000 crores by quarter three fiscal ’22 under this model. Against this, in H2 fiscal ’22, we disbursed retail loans of INR2,962 crores through co-lending and sell down, almost 1.5 times of our targeted disbursal run rate and that too at an impressive ROE of well above 3%. The scalability of this model is now established and in the wider market also, we see various banks lining up to establish co-lending relationships with multiple HFCs and NBFCs with the banks themselves also making investments in implementing the technology and digital platforms for co-lending.

We have a committed demand for disbursing INR15,000 crores of retail loans through co-lending with the partner banks in fiscal ’23. We’ve also scaled up our capacity and have added 1,200 employees in fiscal ’22 to scale up retail disbursals. We are currently capacitized to do over INR1,000 crores of retail loans per month. As employees get trained and productivity improves with vintage, we are on track to disburse INR1,500 crores of monthly disbursals by September ’22 and INR2,000 crores of monthly disbursals by March ’23 without significant proportionate increase in manpower. We have also successfully fully integrated the co-lending technology platform with two of our partner banks and are on track to complete tech integration with all of our co-lending partners within H1 of fiscal ’23.

Overall, we aim to disburse roughly INR15,000 crores of retail loans in fiscal ’23 and INR20,000 crores of retail loans in fiscal ’24 through co-lending and sell-down. Of this, only about 30% will stay on our balance sheet as it waits to get sold down in back-to-back co-lending assignments or the time it takes to achieve the six months of regulatory mandated minimum holding period if a transaction is held through the securitization bout. Thus on incremental retail loans, we will have an AUM of between 3 times to 4 times of what we carry on our books.

We’ve also progressed meaningfully on our track of establishing partnerships with global funds for setting up AIF platforms to recommence doing wholesale loans. We’ve already received SEBI approval for setting up an AIF fund with a fund size of INR2,000 crores in partnership with a global alternate investment firm. The platform will focus on lending to commercial real estate to tap the LRD opportunity, construction finance, residential and commercial projects, investing in stressed asset opportunities, and providing mezzanine finance wherever the opportunity presents itself.

We are currently in the process of identifying the assets to lend through this fund and expect to start disbursing in H1 itself. Of the loans disbursed through the AIFs, IBH’s participation would only be 5% to 10%, which will remain on our balance sheet while we will earn processing fee and annual management fee on the entire amount disbursed. A second AIF fund in partnership with another global fund with a fund size of INR5,000 crores is in the process of getting approval from SEBI. We expect the approval to be received by the end of this month, and again, aim to start disbursing within H1 fiscal ’23. We are also in the process of filing a third AIF fund with again a capacity of INR5,000 crores within May itself. Thus, we have created a capacity to disburse around INR10,000 crores through these AIF funds in fiscal ’23 and to scale it up, scale up the capacity to around INR15,000 crores in fiscal ’24. This platform has the potential to generate an ROA of 5% plus for the company. Fiscal ’23 will be the litmus test for this wholesale model, much like fiscal ’22 was the litmus test for our retail asset-light model.

Overall, in fiscal ’23, the company will be focused on resuming AUM compounding on the back of retail co-lending and sell-down and the wholesale lending through the AIF platform. We hope to compound our AUM in fiscal ’23 by 10% and fiscal ’24 by 15%. While we pursue both the tracks, we will continue with the exercise of de-risking the balance sheet through reduction of the legacy wholesale book. We are on track to reduce it further by 20% by the end of the calendar from March ’22 levels.

The third track that we have been working for the past two years is the institutionalization of the company. Towards this end, Mr. Sameer Gehlaut, the Founder, had relinquished the Chairmanship of the Board in August ’20, and later in December ’21, had reduced his stake from roughly 21% to 9% levels. As a further step towards this direction, Mr. Gehlaut resigned from his Non-Executive Director post in March ’22, thus making it a fully independent director-driven company with 60% of the Board today being independent directors. But subsequently, the Board and the shareholders of the company have also approved the de-promoterization of Mr. Gehlaut and his group companies, subject to receipt of all requisite approvals. We will conclude the process of de-promoterization by Mr. Gehlaut in calendar ’22, post which there would be an effective change of control.

As another step towards institutionalization of the company in April ’22, we have inducted Mr. B.C. Patnaik, the Managing Director of Life Insurance Corporation of India onto the Board of the company as a Nominee Director of the LIC, which is the largest institutional shareholder and the largest bondholder of the company. As I said earlier, with the induction of Mr. Patnaik, now 60% of the Board comprises of independent directors. We are also in talks with other such significant institutional investors who have their nominee directors on the Board of the company in order to bring direct institutional oversight into the operations of the company.

Together, the three tracks will govern the way we operate from fiscal ’23 and beyond and we look to regain our position as one of the largest originator of retail loans in the NBFC space and establish ourselves as a board-driven professionally managed company.

I will now cover the headline numbers for the quarter. Please refer to slide three. As at the end of March ’22, our assets under management stood at INR72,211 crores and our loan book stood at INR59,333 crores. Our AUM had been on a decline, as we had looked to consolidate our wholesale and high-ticket assets in order to de-risk the balance sheet. The AUM reduction has now ended and has formed the base to start witnessing a long-term steady AUM growth from fiscal ’23 onwards.

Since September ’18, on a gross basis, Indiabulls Housing has successfully repaid roughly INR94,000 crores of moneys to the financial system. As we did this, we have successfully de-levered from a net gearing of 7 times in fiscal ’18 to a meager 2.6 times now. Our capital adequacy at the consolidated level stands comfortably at 32.6%, of which Tier 1 capital is 27.2%.

PAT for the quarter came in at INR307 crores, an 11% YoY growth as compared to INR276 crores of PAT. PAT for the year is INR1,178 crores. It is pertinent to note that the company’s profitability has formed the base and has shown a steady track over the last five quarters now. Our strong capital adequacy, low gearing, high liquidity, and robust provisioning provide a strong base for the quarter for growth from fiscal ’23 onwards.

Please refer to slide nine of the earnings update on asset quality. As at the end of March ’22, our gross NPAs stood at INR2,318 crores, down from INR2,350 crores. In percentage terms, the number is higher as the denominator has declined, owing to the consolidation undertaken in the wholesale assets to de-risk the balance sheet. Our net NPAs are at 1.89% and our Stage 3 provision is 41% compared to 40% in the same quarter last year. The company has seen strong recoveries in the last three quarters, and on the back of the pickup of real estate sector, the company expects this recovery trend to continue through fiscal ’23.

Overall, our portfolio has behaved very well, which can be ascertained by the fact that under both the restructuring framework 1.0 and 2.0, we have restructured loans equivalent to only 0.26% of our loan book. Under the government guarantee scheme, we have disbursed loans, top-up loans of a mere INR214 crores till the end of March ’22, equivalent to only 0.36% of our loan book. This said, we will continue to proactively work and identify loan assets which we have also done in quarter four and will continue to provide for such assets, especially on the wholesale side so that the recovery can be done in an expedited manner.

Overall, I believe that the quality of our borrowers and loan assets has come through our performance in fiscal ’23, especially given the fact that this year also saw, mid-year, a change in the audit practice where from a single auditor, the company had to transition to two auditors and that has happened in a fairly seamless manner. As we move forward, we expect our gross NPAs to remain in the range of 3% to 3.5% for some time. For fiscal ’23, we expect credit costs to remain between 100 basis points to 150 basis points. From fiscal ’24 onwards, the credit cost should half from these levels.

Moving onto the next important pillar of our operations, liquidity and ALM management. On slide 11, we’ve given the details of the monies we’ve raised in fiscal ’22. We’ve raised a total of INR24,497 crores through various institutions across instruments and tenures. These include INR5,600 crores of over three-year term loans; INR10,820 crores of loans between one and three years. We’ve also raised moneys through retail NCD issues of IBH twice in fiscal ’22, raising a total of INR1,345 crores across both the issues. As I mentioned in my earlier calls, retail NCD issues will now be a regular perpetual source of fund-raising for us and will lead to greater granularization and retailization of our liability franchise.

We’ve already done one public issue of bonds in fiscal ’23 and intend to do nine more such issues, cumulatively raising around INR2,000 crores through this funding channel. Through securitization and loan sell-down, last year we raised INR5,214 crores. As a result of this, funding through loan sell-down, securitization, co-lending etc now contributes to 29% of our funding mix at the end of fiscal ’22, which is an all-time high and is in line with our asset-light model. As we scale up the asset-light model, funding through this route will contribute to an even higher percentage of our funding mix. We’ve also raised INR1,517 crores of equity/quasi-equity capital through FCCB issuance and sale of our remaining stake in Oak North. Thus, our funding program is also on a very strong footing, much like the profitability.

Over the past one year, on the back of our strong fund-raising program and the strength of our balance sheet, rating agencies CRISIL, ICRA and Brickwork, and very recently, international rating agency Moody’s have revised the company’s outlook to stable. While revising our outlook, Moody’s cited strong capital levels, high liquidity levels, and stabilization and access to funding as a rationale behind the outlook revision. Our cost of funds on book is now at 8.1%. Book yields are at 10.5%, enabling us to earn a spread on book of 2.4%. As we had informed the exchanges earlier this month, we’ve also increased our reference rate of our housing loans and loans against property portfolio by 40 basis points, in line with the repo rate for our existing borrowers, which will be effective from June 1, 2022. This will thus help us in maintaining our margins going ahead.

As I had informed during our last earnings call, in association with the ESG ratings firm Sustainalytics, the company has developed a sustainable financing framework for issuing sustainable bonds. Our total bond issuance program of INR3,000 crores would be largely targeted to sustainable bonds in calendar ’23 via both domestic and international markets. In total, the company will focus on the sustainable bond issuance and placing these bonds for extending loans to the affordable housing segment. As at the end of March ’22, IBH has a liquidity buffer of INR9,107 crores, which is 15% of its loan book, in line with our liquidity management principle.

Now coming to the topic of ALM management, I want to begin here by thanking our bond investors. I know that the USD bondholders in particular have been on a roller coaster ride with the price fluctuations of the bond over the last three years. From our end, we’ve always provided reassurance to all our debt investors that the company has a conservative approach to ALM management and we plan well ahead of due repayments, do not bank on refinance of any instrument, leave aside a maiden sort of an issuance that we did of USD bonds. As the term of the USD bond draws to a close, Moody’s has revised its rating outlook. On the upcoming USD bond repayments, as you all are well aware, we had voluntarily created a reserve fund for repayment of USD bonds falling due on March 28. As against our initial plan to transfer INR2,048 crores totaling to 75% of the total maturity proceeds, we first created a reserve fund of 100%. As per our recent stock exchange disclosure and the email sent to all of our bond investors, the company has fully pre-funded its dollar bond obligations into the trust and has irrevocably instructed the repayment trustee and banks to utilize the proceeds of pre-funded fixed deposits towards fully meeting the repayment obligations well in time.

The company has fully discharged its repayment obligations and handed it over to the repayment trust well in advance of its maturity date. The company has also made an offer to all holders of its domestic bonds bonds maturing up to June 30, totaling a sum of approximately INR800 crores to acquire these NCDs at par. We will continue to take similar proactive steps to manage our ALM, and where required, we will fund resource pools in advance of any large debt repayment. The company’s ALM management and liquidity planning does not assume refinance of domestic or international bonds or term loans and all of our lenders should make particular note of this. We will continue to maintain strong capital and liquidity positions to provide comfort and confidence to our bondholders and other stakeholders.

As per RBI’s master directions for HFCs introduced in February ’21, we are supposed to maintain a liquidity coverage ratio of 50% in high-quality liquid assets as are defined by the RBI. We have a total LCR of 241%, going strictly by these high-quality liquid asset definition. The actual liquidity available with IBH, which includes investments in overnight schemes of mutual funds etc is actually much higher. Our ALM as at the end of March ’22 is published on slide 10. The ALM is shown on a cumulative basis up to each bucket. We are positive across all buckets and we will have a positive net cash of INR8,587 crores at the end of the first year. Our detailed 10-year quarterly ALM is in the appendix slides of the earnings update on slides 21 to 25.

Moving on to slide 13, during the year, we have laid down objective targets for the company over the next 10 years to improve upon its operations such that they adhere to ESG best practices. We’ve also started taking operational steps within the organization as well as in partnership with external parties towards achieving these goals. We have engaged Centre for Environmental Research & Education to assess our current environmental footprint. We’ve also partnered with ESG rating from Sustainalytics to develop a Sustainable Financing Framework, which will support IBH’s sustainability efforts. The framework will be used by IBH for issuing the INR3,000 crores bonds in fiscal ’23, which are proposed. Our ESG sub-committee comprising of five directors with the Retired Supreme Court Justice, Gyan Sudha Misra as the Chairman will govern the process related to the use of [Technical Issues] and will be responsible for evaluating, approving, monitoring, replacing and observing the same. The company will also publish an Annual Allocation and Impact Report on the website of the company.

This was the update for the quarter and the year. The past three years have been testing ones for the company and the management. We’ve been at the receiving end of blackmailing attempts by extortionists. We appreciate that as frivolous as these attempts may be, they are inevitable in a democracy. Our entire focus has been to emerge [Technical Issues] such conflicts with our detractors on the basis of our merit. Unfortunately, our detractors tried to pull us down by locking doors of different regulators or legal authorities from time to time. However, we have stuck to our ground and refused to give in to such tactics. We’ve opened our books to all the agencies wanting to inspect us and have come out without any allegation sticking to us. Apart from some relatively minor operational aspects and penalties thereof, nothing incriminating with respect to any of the allegations has ever been found.

I would like to now briefly apprise you of the status of the various legal proceedings against the company and our approach to ensuring that all of this is put behind us holistically. With respect to the writ petition, famously known as the PIL, filed in the Honorable Delhi High Court, the court had directed the Government of India, which is the Ministry of Corporate Affairs and regulators National Housing Bank, Reserve Bank of India, and SEBI to conduct audits with respect to the allegations and file affidavits. All these agencies and regulators have now filed their affidavits and the prayer of the petitioners stand satisfied, thus making the matter infructuous. We are now waiting for the final pronouncements of the Honorable Delhi High Court. Given the fact that the prayer stands satisfied, all affidavits have been found, and as I said earlier, no allegation has been found to be true, we expect that on August 23, 2022 when the matter is supposed to be heard, assuming that it is heard, we will see the end of this story and we will be able to put this behind us.

The same blackmailers have been rehashing the same allegations and using various legal forum, etc [Technical Issues]

Operator

We request all the participants to please stay connected while we reconnect the management. Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

Yeah. Similar such attempt was made in the state of Maharashtra by filing an FIR. We had approached to protect ourselves in the Bombay High Court, and I am happy to say that on 4th of May, the Bombay High Court quashed the FIR, stating, we are of the opinion that the lodgment of the complaint against the petitioners and continuity of the proceedings is an abuse of the process of law. This order thus marks the end of the road for the patently false and malicious complaint that these blackmailers have been circulating over the last three years. Based on this FIR, the Enforcement Directorate had registered an ECI and initiated investigations. The Honorable High Court has placed — the judgment of the Honorable High Court quashing the FIR, which is the underlying offense has been placed before the Delhi High Court. The Supreme Court of India had recently ruled on the 5th of May that if the underlying FIR is quashed, the Enforcement Directorate should discontinue its investigations.

Given this recent Supreme Court judgment and a bunch of other similar judgments passed by the Supreme Court of India in the recent past, we believe that given the quashing of the FIR, especially given the language, which the judge has chosen to write his judgment on or the bench has chosen to write, we expect the Delhi High Court will also quash this investigation. It has been the company and the management’s unequivocal stand that we will not give in to malicious attempts of our detractors and we will fight it out with all our legal might. We have faith in the country’s legal system and believe that we will be absolved of all of these allegations in due course of time.

I also want to take this opportunity to specially acknowledge and appreciate all our shareholders who have shown confidence in the company and have stayed with us through thick and thin times. You had invested in one of the fastest-growing economies with amongst the lowest mortgage penetrations. There have been global headwinds, but despite the favorable macro and the global headwinds, we are very cognizant of the beating of our stock price, which is now trading at only 0.5 times of the book value. On top of that, this year, we’ve also not proposed any dividend in the backdrop of the RBI circular, which disallows dividend distribution if a company dips into reserves, which we had done in quarter one of fiscal ’22 and duly disclosed the same.

As management, I can only assure you at this stage that we are taking all the operational steps to put the business back on a steady growth trajectory. The management is focused on creating a strong retail franchise by transforming Indiabulls Housing to an origination and servicing machine by building a technology-enabled cost efficient, asset-light business model, which operates on low leverage, yet provides a strong base for mid to high-teen ROE.

As I mentioned at the start of the call, fiscal ’22 was a litmus test for this model, and we’ve come through, I strongly believe, with flying colors. Fiscal ’23, we are putting us through another challenge of getting the AIF platforms up and running. We are also working to bring in strategic investors into the company, so as to bolster capital, enhanced credit ratings, and further institutionalize the Board. We will continue to focus on creating a fortress balance sheet through the pillars of strong capital adequacy, higher provisions and higher liquidity.

In my experience and what I have seen of large banks and financial institutions, it takes around five years for large financial companies to transform business models. I believe we are now at about the end of this transformation. And thus, I would like to lay out today very finite goals for fiscal ’23 and ’24. We expect AUM to grow in fiscal ’23 by 10% and fiscal ’24 by 15%. I expect ROA to go back to over greater than 2% by fiscal ’24 and ROE to go back to 11%, 12% by fiscal ’24. Dividend distribution of up to 40% of PAT should also recommence. We’ve had a stellar track record of dividend distribution, but for the regulatory restriction, we would have loved to give dividends out in fiscal ’22 also. I expect that to recommence next year onwards.

To conclude, I would like to quote Vincent Churchill, success is not final; failure is not fatal. It is the courage to continue that counts. IBH and its management will continue to work towards uplifting the company and would request your patience and belief to support the company during this rebuilding.

With this, we are now open for questions. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Kang Zheng from Tahan Capital Management. Please go ahead.

Kang Zheng Gwee — Tahan Capital Management — Analyst

Hi, good morning. This is Kang Zheng from Tahan. I would first like to show my appreciation for the management for taking a proactive approach to addressing the May senior notes maturities.

Now, my first question is about the planned acceleration disbursements for retail loans to about INR150 billion in FY ’23, which implies about INR37.5 billion per quarter. Because this is quite a big step up from about INR28 billion to INR29 billion in the last two quarters. So I would like to understand what is behind the optimistic outlook? Is it from the increased disbursements under the co-lending partnership? That’s my first question. Thank you.

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

Hi, good morning and thank you for your support. Yes, we are getting a lot of confidence from the fact that the co-lending partnerships are now maturing. A very, very important and the longest hop for these relationships to mature and go to the next level was the tech integration, which, as I mentioned, we have finished with two, and the others, we expect to finish in the first half. Given this entire co-lending model now maturing, one has confidence. But I would also like to highlight the fact that the INR2,900 crores, INR2,942 crores is just the co-lending part. The disbursals are much larger. To put the disbursal number in perspective, just in the last quarter, which is quarter four fiscal ’22, we did a gross disbursal on the retail side of approximately INR2,900 crores. We’re already at a run rate of roughly INR900 crores a month and we expect that run rate to go up and settle at about INR1,200 crores to INR1,300 crores a month, which is a INR300 crores to INR400 crore jump for the full year, which is also big, but not so big or unachievable.

Fortunately, while the company had buckled down in the wake of COVID and other issues, we had not disbanded the most important physical infrastructure and we had not disbanded a large part of our credit team. So the core capacity is in place to actually do numbers which are in the ballpark of INR2,500 crores, INR3,000 crores. We will continue to merely add salespeople. As I mentioned on the call, we’ve already added 1,200 people. In the first half, we will again add about 1,000 people so that for the full year, we can get to this average of between INR1,200 crores to INR1,300 crores, which currently is at INR900 crores. Both co-lending and securitization have a slight lag to it plus, the month of January and a bit of February was also lost because of the new wave — a wave of COVID that we had. So if things are to remain normal in India, we don’t have any serious disruption with COVID. I think we are well in capacity to get close to about INR15,000 crores.

That said, the one very important realization that as management that we have is that there is no point of blindly chasing these numbers. We have to be cognizant of the fact that we are in an inflationary economy in a rising interest rate scenario. So the mandate given by the risk management committee to the team is, we have set ground rules as part of the risk management committee. We have set credit parameters and pricing parameters. And within these ground rules, the company has also created capacity to be able to achieve these numbers. Beyond that, if there is a marginal increase or decrease, that’s not going to really upset the transformation or disturb the franchise value which we are trying to create.

The focus at this point in time is completely on creating franchise value, on maximizing the number of relationships, on our co-lending side, our presence in various cities, our disbursals per employee and to focus on a very homogenous kind of a book in terms of its ticket size, loan to value etc rather than just blindly pursue growth. Given all of these considerations, I have confidence that we should be able to grow our AUM by 10% this year and that is the other area of emphasis and focus that we have as management. Thank you.

Kang Zheng Gwee — Tahan Capital Management — Analyst

Thank you for the explanation. I’ve got two questions related to your answer. So the first one is, how do you interpret the news that HDFC and HDFC Bank are merging because Indiabulls does have a co-lending partnership with HDFC. So have you seen that impact the rate of disbursements under your partnership?

And secondly, on asset quality, we see that ECR provisions have fallen quite significantly in the quarter, I think, about 40% QoQ, while your Stage 3 assets have remained relatively stable. So does this indicate a pickup in asset quality slippages and where are these coming from? Thank you.

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

Yeah. So the HDFC-HDFC Bank merger is actually a large opportunity, especially on the wholesale side. So our efforts of setting up AIFs in partnership with global funds in that sense is fairly opportune. On its impact on our retail co-lending model, for one reason or the other, the public sector bank partnerships and a couple of private bank partnerships have been far more remunerative for the company and a large part of our co-lending is happening with actually public sector banks and two private banks. So it will have practically no impact, the merger on the retail side. On the wholesale side though, it will — given the fact that banks have significant limitations and HDFC Limited already has a large exposure to commercial real estate, I believe that they would be largely vacating the space at least for the medium term. And we will thus get a good opportunity to get yields, which will be of interest to these global funds and still not compromise on credit. So all-in-all, I believe it’s an opportunity. As I said, fiscal ’23 is litmus test for the wholesale platform and as it gets created and starts disbursing. So I hope we benefit from the tailwinds of this merger as one of the largest players withdrawing from the space.

On provisions, as I’ve mentioned, we will continue to proactively deal, especially on the wholesale side with assets where we believe that some sort of correction or intervention is required. And the only way to deal with that is to provide for them, get them into a position where we can take control of the project and then give that control to somebody else. This proactive approach has allowed us to now get a substantial portion of our book to a stage where these projects are achieving occupancy certificate over the next 12 to 18 months. It has also allowed us to keep the headline gross NPA numbers within a tight range. These provisions have been created in the past to provide strength to management to proactively deal with such situations, which we will continue to deal. All I can say is that our focus would remain that whatever is the ECL model of the company, we stay provided ahead of that. Our Stage 3 provision coverage stays in the range of 40% to 45% and we will continue to use the excess provisions as tools to proactively deal with situations.

This strategy is also bearing fruit given the recoveries that we are witnessing. So through the year fiscal ’23, you will see this transition where more and more provisions are done for the wholesale book, recoveries from the past are done, and which is why I have the confidence that with the 100 basis points to 150 basis points of credit costs, we should be able to contain our gross NPAs in a range of 300 basis points to 350 basis points, which is essentially non-disruptive. This entire wholesale book consolidation and cleanup has thus far been done in the most non-disruptive manner, both from the underlying homebuyer, the company’s balance sheet perspective and we will continue with that track.

I hope that clarifies. Thank you.

Kang Zheng Gwee — Tahan Capital Management — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Abhiram Iyer from Deutsche CIB Centre. Please go ahead.

Abhiram Iyer — Deutsche CIB Centre — Analyst

Hi sir, congratulations on a good set of results. I had a few regarding your current liquidity position. Post the repayment of the USD bond, how much essentially liquidity would you carry on ballpark basis at the end of May? That’s question one.

The other question is, how are you finding funding conditions in May? We realized you obviously issued bonds in April, but since then, the lending rate has been increased. So is there an issue with your funding rate in May? Has it increased — are banks charging more now? And what kind of effect would we see this on NIM going forward?

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

Yeah. I’ll answer the second question first. The funding from our perspective is to be evaluated both from a flow as well as cost perspective. The flow in May is undisrupted and it is expected to accelerate as now we have disclosed our full year earnings, our balance sheet, etc can get shared with our lenders. So between now and June, we expect the pace to significantly accelerate. To the extent of the fact that banks have increased their MCLRs, that much of an extra cost would certainly come to us. As we had shared last quarter, our lead bank had reduced our spreads by about 100 basis points over the reference rate. The spread reduction is now coming through with other banks as well. And we would actually be — from a spread perspective, we would be pretty much unharmed. We’ve also proactively taken a step where we have increased our lending rates for our existing borrowers by 40 basis points in order to protect margins. So on both the availability of liquidity as well as margins, we should be okay at about 240 basis points, which is why I said that as the disbursals scale up and the AUM grows, we should get back to north of 2% sort of ROA over the course of the next two years.

Now, the other question in terms of liquidity. We continue to manage our liquidity at about 15% of our balance sheet, irrespective of events. This event was slightly blown out of proportion. We had a much larger liquidity event in September of last year, which was almost $1.5 billion. This was all of $350 million. And that was very smoothly handled. This has also been very smoothly handled because we continue to maintain our liquidity at about 15% and we continue to take proactive steps to make sure that that happens irrespective of any sort of a bunching, which may have taken place in the past. So this is not going to, in any way impact our liquidity principles or our ALM. And on the other side, I think our margins are fairly protected. Liquidity across the various instruments, which are relevant is flowing in. Bonds will have to be repriced in terms of new issuances given the new market realities. Last year, bonds contributed to about INR1,300 crores, INR1,400 crores. This year, they are expected to contribute to the extent of around INR3,000 crores. So it’s not the biggest needle mover in our scheme of things. The biggest needle mover is how we do on co-lending, on which I’ve spoken enough in terms of how that model has scaled up and the fact that we already have firmed up committed demand from banks of INR15,000 crores. So we are set for this year.

Abhiram Iyer — Deutsche CIB Centre — Analyst

Got it, sir. And just a couple of follow-on questions. One is, you also called for repayment of your NCDs till the end of June. Sir, the sort of runway is shorter than what was announced at the start of last year when you had called it September ’21. Are you looking for more NCD issuances first before you call for repayments, longer sort of term repayments? That’s one.

And the second is a more a bit of a technical question, sir. If you look at interest income specifically for the company, that’s sort of fallen significantly more than the on-balance sheet sort of AUM reduction. Is there any particular reason for that, whether issues with collections or should we expect this to sort of reverse going into the next quarter?

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

So as we consolidate our wholesale book, the wholesale book is obviously more remunerative and therefore the impact on the interest line will be therefore a little more than the actual reduction in the AUM or on the assets on balance sheet, which is we can’t expect that the wholesale assets run-off and yet we continue to maintain the same sort of numbers, which is why I have taken a calibrated stance and said that while we do all of this jugglery, we will maintain our spreads at about 2.4% and get back to ROA of 2% in due course of time. The spread maintenance will continue and we will have to use various tactics in order to maintain our spreads at where they are. Even though the new business of co-lending is happening at ROE of 3%, there would be some sort of pressure as the wholesale book runs down. And having done this math, we are confident of being able to maintain spreads at the current levels.

What was your other question? I’m sorry.

Abhiram Iyer — Deutsche CIB Centre — Analyst

This was regarding the runway of bond repayment.

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

Yeah. So as far as bond prepayments are concerned, the Board has taken a call that at the start of every quarter, we will announce a bond buyback program for that quarter on a regular basis, and that’s what we have been guided by, so every quarter. So you can expect the next bond buyback announcement in early July.

Abhiram Iyer — Deutsche CIB Centre — Analyst

Got it, sir. I’ll step back in the line. Thank you.

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Nilang Mehta from HSBC. Please go ahead.

Nilang Mehta — HSBC — Analyst

Thanks. Some of my questions have been answered. So I have just one question on this assets held for sale on balance sheet has gone up from INR14 billion last year to almost INR30 billion. So could you give some clarification regarding this?

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

So assets held for sale, Nilang, we hold a lot of PTCs for all the structured transactions that we have done and some of the PTCs etc would come in that line. So that’s broadly, as I understand, the reason why it has bumped up. I will ask my IR team to specifically give you the math in terms of what exactly is the deconstruction of this increase in assets held for balance sheet. Big picture, it would be coming from these junior NCDs etc that we are holding as an outcome of the various structured transactions that we have done.

Nilang Mehta — HSBC — Analyst

Sure. So would that be in investment side, investment line rather than assets held for sale?

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

Some of it comes here and some of it would be coming there. The exact breakup, we can provide to you separately.

Nilang Mehta — HSBC — Analyst

Sure. And Gagan, earlier, we’ve already had big four as our auditors. I noticed that our auditors have changed to some local firms. So any explanation or any rationale for that?

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

No. So they have not changed to a local firm, Nilang. We had appointed Ernst & Young as our auditor three years ago for a term of five years, which was the norm as prescribed by RBI. And you’re right, we’ve always had a big four, prior to which we had Deloitte. RBI, middle of last year, came up with a new guideline where it restricted the — for NBFCs, it restricted the auditor’s appointment to be for a period of only three years. It also said that the gap between an auditor to be appointed has to be at least two audit cycles, which is six years. And there has to be a joint audit now for balance sheets of a certain size and above. Thus, we could not use Ernst & Young, which had already done three years. We could not use Deloitte because they had not completed two audit cycles. They were auditing us till three years ago. We could not use KPMG. They are our technology advisers. So that was the other guideline that if there is any other appointment — any other work that the audit firm is doing for the company, it can’t be appointed at least for a period of one year. We could not use Grant Thornton because they are our internal auditors. We can’t use PwC given the RBI restrictions on appointment of PwC. So we were left with the second round of international audit firms. Mazars is one of Europe’s largest audit firms, and we appointed Mazars. And as a joint auditor, we had to give our banks comfort. So the other auditor is the stat auditor for PNB and a couple of other large banks. So this is basically the genesis of the change in the auditor. And as I mentioned, we’ve gone through three audit changes now over the last three, four years, and each of these audit changes have been pretty seamless, which is also a reflection of the management practices. And we are with Mazars now and I hope that we continue to have the same sort of practices as we move forward over the course of the next two years of their appointment.

Nilang Mehta — HSBC — Analyst

Okay. Thanks a lot for that. And just one last bit on Sameer’s de-promoterization because it’s been there for a while now. So what is pending on that front for him to be derecognized as a promoter?

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

So Sameer’s de-promoterization process started only — as per SEBI guidelines, you need to have a shareholding of below 10% before you can initiate the de-promoterization process. The shareholding change happened where Blackstone and other large institutions came in towards the end of December. We did not want to display any sort of knee-jerk or hurry. So it was proposed to the Board in March. After Sameer having made this disclosure that he intends to walk this path in December, he had set a timeline for 31st March, the Board considered it in mid-March and moved that forward. Subsequently, shareholders approved it on 18th of April. Now it is pending with lenders to approve. Most of our domestic lenders have approved it. Some of our international lenders have queries, which one intends to answer through the course of this week. Once that happens, we’ve also in parallel applied to the stock exchanges. I expect this stage of approvals to end within this quarter, and assuming that the requisite approvals are achieved by the end of this quarter, we will move to SEBI. SEBI may or may not refer it to RBI. We will obviously keep RBI informed independently. I would imagine SEBI will take three to four months after our formal application is made, which is why I have guided that one expects that by the end of the calendar, the formal de-promoterization will happen. In the parallel, we continue to speak with other strategic investors. So if there has to be any sort of a change of control or anything, we should come back for requisite approvals of that by the end of the year.

Nilang Mehta — HSBC — Analyst

Okay. Thank you so much.

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

We’ll take one last question, please.

Operator

Thank you. The next question is from the line of Ruhi Pabari from Reliance Nippon Life Insurance. Please go ahead.

Ruhi Pabari — Reliance Nippon Life Insurance — Analyst

Hello. Yeah. Thank you for taking my question and congratulations on good set of numbers. I have a couple of questions. Firstly, with respect to the Board of — I appreciate that the Board is now independent and professionally managed. Mr. Mundra has been also appointed as a Chairman of the Board of BSE and he is also the Non-Executive Director and the Chairman on the Indiabulls Board as well. So is there any — what I intend to understand here is the continuity of Mr. Mundra on the Board of the company or anything has been guided as such on those lines or anything?

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

So Mr. Mundra has been associated with Indiabulls Housing first in the capacity of an Independent Director, and subsequently, in the capacity of the Non-Executive Chairman. He has been the Non-Executive Chairman of the company for almost two years now after the reappointment where he has, I believe, now a further term of around two, two and a half years left with the company, as has been approved by the shareholders. As per the listing guidelines and/or the Companies Act, I do not recall which one, directors, independent directors can’t have more than two terms. So his term, when it ends in two, two and a half years, it will have to end. Till that time, to the best of my knowledge, I see no issue.

Mr. Mundra also serves on several other boards of financial institutions, of rating agencies, of mutual funds etc. And he is, I believe, the Non-Executive Chairman of a couple of other companies as well. So that in no way comes in the way of his operating as the Non-Executive Chairman of the company. I would rather further say that ever since Sameer has stepped down and Mr. Mundra is the most senior Independent Director on the Board, his participation has actually gone up many-fold. He is a great sounding board for me personally. And I hope that over the next two, two and a half years, under his watch, we are able to seamlessly migrate to a Board, which is even more independent, has greater institutional stakeholder presence. And whatever has to happen in terms of the shareholding pattern of the company is also concluded under his watch. His are the best hands for this transformation to be guided by.

Ruhi Pabari — Reliance Nippon Life Insurance — Analyst

Thank you so much. Understood. Another question I had is with respect to the liquidity. So the liquidity basically which has been — I mean, you’ve been maintaining liquidity as a percentage of AUM roughly in the range of 15% to 20% in the last couple of quarters. For this quarter, if I understand correctly, it has been reduced to roughly about 11% of the total AUM — sorry, of the on-balance sheet loan portfolio. So is this going to be as such in terms of the maintaining of the liquidity of what is the internal comfort level that we would be maintaining?

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

You will appreciate that the balance sheet has significantly shrunk and the company has not done any chunky issuance of any bond for the last almost three years now. Thus the ALM has no chunkiness and basis the requirements of cash over the next six to 12 months, we decide on the quantum of liquidity that we have to maintain. So that’s the principle that we will continue to maintain of cash coverage for the next six to 12 months of repayments. As the chunkiness of the ALM reduces, the cash requirements also reduce, and you shall be — you will be mindful of the fact that there is still even though interest rates have inched up and FD rates and overnight rates have inched up, there’s still a massive negative carry on the cash that we carry. So we have to remain mindful. And at some level, we have to also benefit from the fact that the balance sheet has significantly shrunk and therefore the capital contribution, which is shareholders’ fund contribution to the overall balance sheet has significantly reduced, which is permanent capital. So in light of that, we will continue to adjust the liquidity requirement.

Ruhi Pabari — Reliance Nippon Life Insurance — Analyst

Understood. Thank you so much. And if I could just squeeze in one last question. Overall, the loan book mix from the previous quarter till this quarter has slightly changed with commercial real estate going up from 26% of the loan book to 29% and the retail market coming down from 59% to 57%. So how do we — because there has been a retail disbursement, which had a run rate of roughly about INR900 crores per month since five, six months now. And I understand that a lot of — I mean, there is a — it has been on the co-lending platform. So how do we see the loan book mix going ahead?

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

It should stay broadly in this range of 26% to 30% or 25% to 30% of commercial real estate. We will continue to, as I’ve been saying in the call, one of the highest areas of priority for the company is to ensure that the underlying projects, which are financed by us, they continue to receive regular disbursals such that construction can continue and we benefit from the real estate rebound, which one is witnessing. But that is restricted to apartments which are completed. So we have to take all of our projects to a stage of completion. To that extent, there would be a range, there would be also some reduction on some of the assets that will pay back and we expect the range to continue on percentage basis between 25% to 30%. So this is par for the course and as per our stated strategy.

Ruhi Pabari — Reliance Nippon Life Insurance — Analyst

Understood. Thank you so much for answering my questions. Very helpful.

Gagan Banga — Vice Chairman, Managing Director and Chief Executive Officer

So I would just like to highlight before we end that this call was done pre-market in order to ensure some communication and Q&A with investors. That said, I also do appreciate that for several geographies, this time of 8:30 AM India is very, very inconvenient. Thus, we have also set up another call tomorrow, the details of which have already been shared with all stakeholders. So while this pre-market call was a necessity, we just thought that we will do another call with proper Q&A rather than just a playback so that global investors get an opportunity, irrespective of the geography that they are in. So we will be speaking to investors tomorrow as well. Thank you so much and have a good day.

Operator

[Operator Closing Remarks]