IndoStar Capital Finance Ltd (NSE:INDOSTAR) Q4 FY21 earnings concall dated Jun. 18, 2021
Corporate Participants:
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Deep Jaggi — Chief Business Officer
Jaya Janardanan — Chief Operating Officer
Amol Joshi — Chief Financial Officer
Analysts:
Alpesh Mehta — Deputy Head of Research — Analyst
Harsh Patel — Alpha Alternatives — Analyst
Jainis Chheda — Dimensional Securities — Analyst
Kunal Khudania — Mirae Asset — Analyst
Deepak Poddar — Sapphire Capital — Analyst
Abhijeet Kejriwal — Motilal Oswal — Analyst
Amol Patil — IDFC FIRST Bank — Analyst
Deepanjan Ghosh — Kotak Securities — Analyst
Rikesh Parikh — Barclays — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Q4 FY ’21 Earnings Conference Call of IndoStar Capital Finance Ltd. Hosted by Motilal Oswal Financial Services Ltd. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Alpesh Mehta from Motilal Oswal Financial Services. Thank you, and over to you, sir.
Alpesh Mehta — Deputy Head of Research — Analyst
Thank you, Margaret. Good morning everyone and welcome to the 4Q FY ’21 performance conference call of IndoStar Capital Finance Limited. Today, we have with us Mr. R. Sridhar Executive Vice Chairman and CEO; Mr. Amol Joshi, CFO; Mr. Deep Jaggi, Chief Business Officer; Ms. Jaya Janardan, Chief Operating Officer; and Mr. Salil Bawa, Head, Investor Relationship.
And now without much ado, I hand it over to Mr. Sridhar for his opening comments and post which we will have a Q&A. Thanks, and over to you, sir.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Thanks Alpesh. Good morning to everyone. Before I proceed on with my preliminary comments, I would like to thank all of you for joining our Q4 FY21 Earnings Call. Also, I would like to wish all of you health, and I am confident that all of you are staying safe.
I would like to start from the FY ’21, which had been the most challenging year for the sector. So as far as IndoStar is concerned, we have done few landmark decisions during this year. The first one is, we brought in a global bulge bracket investor, Brookfield as a the investor in May 2020 during the pandemic. So Brookfield came in with INR1,225 crore of primary capital and did open offer, ended up with around 56% of equity of the company. So this has strengthened the capital adequacy of the company to keep — to about 35%, helped us in shoring our liquidity, strong ALM. So Brookfield’s partnership has strengthened this company and with the arrival of Brookfield, we have also that few decisions, very important decisions. The first one is, we prepared a five year aspirational business plan, commencing from FY ’22 to FY ’26 which we have already started implementing. So in this five year aspirational plan, we have articulated our aspiration to build the retail business of CV, SME, as well as affordable home finance.
While we have an aspiration to build a large retail business, we have also taken a bold decision to wind down gradually, the corporate lending business. All of you are aware, that IndoStar started off with corporate lending business, which has real estate and non-real estate. We had about INR4,500 crore of book, which was making INR400 crores of profit before tax. But after IL&FS fiasco, the corporates faced a lot of problem and the real estate industry became sluggish. So we took a decision to gradually wind down and INR4,500 crores has now become INR1,900 crores, and while we are growing the retail book, we are slowly winding down this and we are confident, that at present as we are at 22% corporate and 78% retail, by March ’22 we are hoping that the corporate book component in the overall AUM will come down below 10%. So this is another decision, which we have taken.
The third important decision we have taken, looking into the affordable home finance business, which had been a 100% subsidiary of the company, we have generated about INR1,000 crores of AUM in this business, with good profitability and exceptional asset quality. The management team has [Indecipherable] out this business very well and now we have come to a situation where we felt, that we should capitalize this subsidiary and then grow this business fast. So we are making this affordable housing finance independent, and the business led by Shreejit Menon, who did an exceptional work, has been recently made Deputy CEO, and he will spearhead this operation in the next few years and take this company large.
And the fourth major decision we have taken is, we have strengthened the CV financing team and we have brought in Ravi Kumar, Business Head from Chola, who had put in about 20 years in the company. He has recently joined in April, as Business Head. We have also brought in another person from Chola and Aditya Birla, is Arvind Uppal, who has just joined few days back as our National Collection Head. And all of you are aware, we have made this announcement in the earlier call also, we have also brought in Deep Jaggi as our Chief Business Officer from HDB. So all these people have fairly long experience of more than two decades in very reputed companies, which had large exposure in the CV financing business.
So in the CV financing business in our retail, we have a very big aspiration to build [Indecipherable] financing business, which has excellent potential and good profitability. So we have strengthened this peak.
And the fifth one which we have done is, that in the lockdown and work-from-home scenario, everyone has invested lot of time and energy in the digitization initiatives. So going forward digitization will become a very, very critical factor in growth of retail business, and we have brought in KPMG as our partner to help us in this and we are nearing completion, and yesterday in our Board meeting, our Chief Operating Officer has made a presentation comparing our digitization initiative with other peers, and we are satisfied that it would be one of the best in the NBFC industry.
So these initiatives have helped the company strengthen capital, and also put us in a well prepared mode to take advantage of the potential in the retail business, to make this company create lot of value to all the stakeholders. Having said that, we have also taken a setback of the COVID two wave. The COVID one which started in March 2020, with a moratorium of six months. So from in this financial year, FY ’21, beginning in April, in the last 15 months, about seven months have been under lockdown, at least 50% and balance 50% will — partially we have been going to office and coming down, but there were constraints in meeting customers and all that.
So we actually focused on collection and asset quality. In the first seven months we have gradually improved our collections, in October 2020, we reached 100% and after that in November, we started disbursements, and in the five months between November and March, we actually lent about INR1,000 crores and within Q4, we have done more than INR800 crores, pre-COVID levels. So we reached it. But unfortunately in April, we faced with the COVID 2, so disbursements have come down. But still I feel that we should do around INR500 crores of disbursements in this quarter. Naturally, the moratorium subsequently restructuring and then the second COVID wave have had an impact on the collection performance of the company. Our customers, who have always been on the earn and pay mode, we have been catering to mostly middle and lower segments of customers, in both the CV as well as in the affordable housing finance. Particularly in the CV, which is cyclical, it has had a big impact. As a company, which had acquired a portfolio from another NBFC, which had a large component of heavy commercial vehicles, passenger commercial vehicles, catering to the fleet owner segment, our asset quality, also had an impact. But the Board, as well as the shareholders and management adopted a very, very conservative approach in taking aggressive COVID provisions in both the years in March ’20 as well as in in March ’21 and also we have taken in both the years, accelerated technical write-off.
So today, we have ringfenced our balance sheet and with the INR400 crores of management overlay. So it has been a very conservative approach. If there is not third wave, I feel that we have adequate provisions to protect the balance sheet, and I am also confident that there will be no more write-offs or credit costs, which may be required. So we have reported from April 2020 to May ’21, the collection performance. Even though the collection performance has been steadily going up and in many months we have achieved more than 100%. But these are all total collections. So when it comes to billing to billing, there have been movements of buckets that has been flow forward. So temporarily, the 90 plus — the stage 3 assets and stage 2 assets have gone up. And in April and in May also, our collection performance have been more than 90%, but still there could be some movements. So we are addressing all these and as a strategy, we are building a separate collection, vertical, we have brought in collection head and separate collection vertical, and in the CV business, there are companies, which have a practice of asking the sourcing team to collect, and there are companies which have been successful, in creating a separate collection vertical.
So as a person who had worked in this industry for more than three decades, I also feel that it is necessary to build a separate collection vertical, in order to ensure very good asset quality on a very sustained basis, as we have a very aspirational business plan for the next five years, we felt as a strategy to build a separate collection vertical. So with this separate collection vertical, we are confident that we will be able to enhance our asset quality, once the pandemic subsides.
And in Q2 from July, we will be able to start our normal business, as we are hoping that the impact of the COVID 2 is slowly coming down, and things are opening up, except few states and few cities. So we are hoping that post Q1, which will also be very-very difficult and challenging quarter. But from Q2, we will be increasing our disbursements, and we have a huge aspiration, and you are aware about the potential in the used vehicle financing and profitability. So if we have three good quarters and if our total assets go up, it would be fantastic for the company to report good numbers. And the experience of the company from November to May, whatever disbursements we have done, which I said earlier, that more than INR1,000 crores. The quality of that book is fantastic. We have 94% of our — this book is in the current bucket, even during the COVID 2 pandemic.
So we are, we are very, very confident with the capital and the strategic initiatives which we have done, of rolling down our corporate business growing, retail business, making the affordable housing independent, digitization, spot branches and conservative provisioning and write-off policy, strengthening the balance sheet. IndoStar is in a very, very strong position, as of now to take advantage of the potential, which will be unfolding once the COVID impact, COVID 2 impact subsides. So as I had qualified earlier, if there is no COVID 3 wave threat, we should be on our way to build very good profitable and high quality NBFC in the country.
The business of SME as well as the new vehicle, as we have articulated earlier, as a strategy, we will be putting this in the off-balance sheet, to make more profit. In this regard, we have earlier had partnership with ICICI Bank for CV business. We have renewed this partnership with very-very attractive commercials, and even the new vehicle and SME business which is lower yielding compared to used vehicles, will also become profitable.
So with these preliminary comments. I would like to leave the forum for your questions and answers and we, the total management team is available on the call, and we would be happy to answer your specific questions. Thank you very much.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Harsh Patel from Alpha Alternatives. Please go ahead.
Harsh Patel — Alpha Alternatives — Analyst
Hi, good morning, sir. Thank you for the opportunity. My question is related to the housing finance business — the affordable housing finance business. Sir, as every top — the top three players are focusing on the retail book. Sir, I wanted to know your thoughts on the competition, what area are you targeting? As in an outskirts, what states are you targeting, the yields on the affordable housing loans and the return on equity on [Indecipherable]?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Yeah. See, we have built a INR1,000 crore book in the last 2.5, three years, which as I said is of good profit and very good quality. So encouraged by the kind of performance which had been done by our team. So now, the Board is thinking of making it independent, capitalized and grow fast, because of the opportunity. So you know that the government has made it very clear, that they want housing for all. So the tier 3, tier 4, tier 5 small cities, small towns, there is lot of opportunity for self-construction houses. So we are focusing on not more than INR10 lakh ticket size, okay, mostly self-construction, where our team feels that extraordinary potential is there with the low competition. So with the kind of expansion, which the CV business is going to make, even though we will be making a separate infrastructure, branch infrastructure for affordable housing, because they are independent companies. But to start with, it will exploit the presence of the CV, and then move to its own independent. So this is where we are going to focus there. Profitability will also be high. There is huge potential also for growth.
Harsh Patel — Alpha Alternatives — Analyst
Okay. What are the yields on these loans, if you can…?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See today, we are getting a blended yield of around 14%.
Harsh Patel — Alpha Alternatives — Analyst
Okay.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
So yield is a component of supply and demand, as well as competition. So our team is slightly quality oriented. So I think we should be at 14%, and with a lower interest rate scenario, we should have a comfortable net interest margin in this business.
Harsh Patel — Alpha Alternatives — Analyst
But sir, do you see any competition from the top three players?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See, competition will be there in every business, but potential is very high. For example, if you take the CV, there is Sundaram Finance, there is Chola and Sriram Transport. But still we are coming in, we will also make a market, and then we will take market share. The sector is growing, the segment is potential. So there is always space for newcomers. So even in the affordable housing finance, we will gain market share from existing players, as well as in the potential which is unfolding in this space.
Harsh Patel — Alpha Alternatives — Analyst
So can you share your thoughts on growth, as you are talking about the growth is there — so kind of…
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See, base is there is lower today. So our growth percentage would be very high.
Harsh Patel — Alpha Alternatives — Analyst
For FY ’22?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Yeah. So, but — you know this business is very granular, it’s less than INR10 lakhs. It’s not like your normal home loan business, which is even in Bombay city, a house can be INR40 crores, INR50 crores, you know, but we are catering to — so there will be large number of loans. But the assets under management, even the biggest the company in the country has got about INR10,000 crores something. So that is the way, but it’s a new business, so it will take some more time for people to have bigger AUMs. So we are INR1,000 crores, so if we go to more than INR5,000 crores in the next three, four years, it will be fantastic.
Harsh Patel — Alpha Alternatives — Analyst
And my second question is, you’re talking about expanding the CV business — you were just talking, and some of the people who have joined, have joined from great companies in this space. What makes them join your company? See everyone is looking for an aspirational growth in their career. It’s not that the company they have worked with, is not good. Everyone — I mean, everyone. everyone is looking for an opportunity to grow in their career. So they all have come to create some value. Like Deep has been a fantastic leader, and and there are many people who have followed him from that company and joined us. So he has created fantastic regional business heads in North and East region. So has been a leader and he is going to create fantastic value in this. Similarly, we have a very, very good, very fantastic resource, Ravi Kumar, who has worked 20 years in Chola, in used vehicle financing business. He has joined us, because Ravi Kumar wants to be a CEO of an NBFC in the next 10 years. So that is what drives. It’s not for money. There was always an aspiration. Aspirational career growth people have come. So they all feel that this is a institutionally-owned and professionally managed company. And I am looked at as a promoter of this company by the new executives who are joining. So they are all comfortable to come and work in this kind of institution. So we are all going to — as a management team supported by the sponsors, we are going to create a very good NBFC, with high growth and high profit and high quality, which will create huge value for the stakeholders. Got it sir. That’s it from my side. Thank you very much.
Operator
Thank you. [Operator Instructions] The next question is from the line of Jainis Chheda from Dimensional Securities. Please go ahead.
Jainis Chheda — Dimensional Securities — Analyst
Good morning, sir. I had a question regarding your yield — the spread that you are making, because in your presentation on the corporate — on the slide — consolidated profit and loss statement, the spread mentioned is 0.8%. So I just wanted a clarity on the spread that the company’s earning?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
No, that will be some accounting — see what I’m saying is, used CVs are 17% to 18%. So with a 35% you know Capital, we should be a large NIM business debt, and then new vehicles will be lower, SMEs will be lower, but these are all off last balance sheet. So our NIMs are going to be very high in the beginning, and as and when the capital gets consumed, it will come down. So we are confident with the very benign interest regime, and gaps in funding in the used vehicles segment. We should be comfortably at 8% net interest margin in this business.
Jainis Chheda — Dimensional Securities — Analyst
8% on a steady state basis, right?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
That is what I believe. Yeah.
Jainis Chheda — Dimensional Securities — Analyst
Okay. And what will be your cost of opex to AUM on a steady state basis?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See, operating expenses today is very high, because AUM is a problem for us. In the last three years, one year we have been hit by liquidity, because of the IL&FS after that, one year we have been hit by the pandemic. So even though we had capital, we had everything we couldn’t grow, and we have also been reducing our corporate book gradually.
So if you look at in the last two years, our assets under management has come down by more than INR3,000 crores. So that is why our ratios are looking little bit skewed. But if you look at our March ’22, where we are confident of adding another INR3,000 crores, INR4,000 crores of book, ratios will look fantastic.
Jainis Chheda — Dimensional Securities — Analyst
So steady state versus what is the opex AUM that you are factoring in, on an — basis?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
No see, in the retail business, the best company there at 25% and some companies will be — so we should be slowly bringing it down in the next three to five years below 30%.
Jainis Chheda — Dimensional Securities — Analyst
Okay. And with regards to AUM growth, what is your ambition to reach like, say by 2025?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See, there is the question I have addressed in Shriram Transport also. When people are asking me, when we were INR5,000 crore, I was hesitant to tell a big number. So I said that we will grow two times, four times, 15, 20. But I ended up at INR50,000 crores. I’m talking about in the earlier company. So today, I’m not putting any number, but the potential is so large in both the business. So we should be growing very fast and all our problems are behind us. We should be aiming for a large growth of at least seven to eight times in the next five years from the current base.
Jainis Chheda — Dimensional Securities — Analyst
Okay. And one last question on the shareholding front, any plans to bring down the promoter holding to below 75?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
That is a regulatory requirement which the shareholders are working, and they have to do something. That will happen. But what is going to — what they’re going to do, which we are not aware of.
Jainis Chheda — Dimensional Securities — Analyst
Okay. Thank you so much.
Operator
Thank you. The next question is from the line of Kunal Khudania from Mirae Asset. Please go ahead.
Kunal Khudania — Mirae Asset — Analyst
Yeah, good morning, sir.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Good morning.
Kunal Khudania — Mirae Asset — Analyst
So my question is specifically on the CV book, like the credit costs have been pretty much high. So is most of the pain coming in from the book which you have acquired, or how that book specifically is behaving as such?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
You are right. CV had multiple challenges. One is, it’s an asset which is cyclical, and also, directly linked to the economy. So we had a very sluggish GDP growth. We had a very sluggish industrial production. And on top of it, cycle up CV, sluggish new vehicle sales, sentiment down, fuel prices are up, you can put any number of challenges, which the industry has faced, apart from the pandemic. So the acquired book had fleet owners, buses and heavy commercial vehicles, higher component. So these are all some of the assets, including the tippers, which are infra-related, mining related, have been facing the brunt. So that is where our challenge is. And we are addressing it. So today there is moratorium, restructuring and we have — we can do multiple things. But we have kept it under control. Our collection performance have been fantastic.
As I had earlier said, roll forwards will be there, and there is pressure on the NPL and we have been able to keep it under control. And I am confident after Q1, when the Q2 — things subside, we should be able to bring back many things and roll backwards, stage 3 to stage 2 stage 2 to stage 1, it’s all planning. That is why we are strengthening the collection vertical.
And the other one is, the new book, which we are adding, is of exceptional quality. So when the denominator goes up by another INR3,000 crores, INR4,000 crores in the next three quarters, with the exceptional quality, the whole number will look different.
Kunal Khudania — Mirae Asset — Analyst
So sir, out of this INR297 crores odd, how much will be the write-off amount and how much will be the provision?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Amol, can you take this question?
Amol Joshi — Chief Financial Officer
Sure. So of the INR290 crores that you see, in the — can you hear me?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Yeah.
Amol Joshi — Chief Financial Officer
Okay. So we are carrying a provision of INR168 crores, against the INR290 crores of stage 3 assets that we have.
Kunal Khudania — Mirae Asset — Analyst
Okay.
Amol Joshi — Chief Financial Officer
I think we have, we have increased the provision cover across all our assets, considering the people that — who had taken moratorium earlier, plus this second wave hitting us. So I think from a provision coverage ratio, we are comfortably placed against the stage 3 cover that we are carrying.
Kunal Khudania — Mirae Asset — Analyst
Okay. And if I could just ask the last question, if you could comment on this stage 2 numbers across the segments?
Amol Joshi — Chief Financial Officer
So stage 2, nothing much has changed between December and March. We are around 24%, 24.5% of stage 2, versus the overall book. This clearly includes the restructured part of our portfolio, which by default, we have been conservative in terms of provisioning, and also classifying any restructuring at stage 2. So hence that increased number is visible.
Kunal Khudania — Mirae Asset — Analyst
Okay. Okay. So if I heard right, in case, we don’t have any third wave of COVID, there won’t be any requirement of — any further sharp increase in the provision or the credit costs, as such, right.
Amol Joshi — Chief Financial Officer
You’re right.
Kunal Khudania — Mirae Asset — Analyst
Okay. Okay, great. Thank you.
Amol Joshi — Chief Financial Officer
Thank you.
Operator
[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.
Deepak Poddar — Sapphire Capital — Analyst
Hi, thank you very much for the opportunity.
Operator
Sorry to interrupt you Mr. Poddar, your audio is very low. May I request you to speak a bit louder or increase the volume on your phone?
Deepak Poddar — Sapphire Capital — Analyst
Now, is it better?
Operator
Slightly better. Thank you.
Deepak Poddar — Sapphire Capital — Analyst
Okay. Sir, just wanted to understand on the credit costs, now you mentioned that if there is no third or no sharp increase in the provision requirement. So do we expect that this year. Our credit costs should normalize, what we have been doing maybe pre-COVID levels?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See, as we have told you, that we have been conservative in making some technical write off, as well as in provisioning. So we are carrying the extra management overlay, considering the environment. So if after Q1 — Q1 is a challenging period. After Q1, if the situation normalizes things become normal, and there is no COVID third wave, which again becomes a lockdown scenario. I think the provision coverage is enough for us. There will be no new provision required, except to the extent that the new book created — again you will have to make some provision. Beyond that, I don’t think there will be any fresh credit cost requirement of the existing portfolio.
Deepak Poddar — Sapphire Capital — Analyst
Okay. Yeah, understood. Okay, thank you.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Hello?
Deepak Poddar — Sapphire Capital — Analyst
Yeah, I’m done. Yeah. Thank you.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Okay. Hello? Alpesh, do you want to check, if there are any further questions?
Operator
Yes sir. We will move to the next question. The next question is from the line of Abhijeet Kejriwal [Phonetic] with from Motilal Oswal. Please go ahead.
Abhijeet Kejriwal — Motilal Oswal — Analyst
Yes, sir. Thank you for taking my question. So I mean, at least my view is that, unless there is a sharp deterioration in the COVID situation of the country, I mean, we should see a strong rebound in the economy in the remaining nine months of the current fiscal year and the next fiscal year as well. I think which is why, I feel that my question is more strategic and slightly longer term in nature. I mean these COVID related disruptions aside, I mean, where do you aspirationally see IndoStar over a, let’s say a three to five year horizon? I understand, that you didn’t want to kind of put out a guidance on where would we be on the AUM side? But I mean other than these three retail product segments, do you plan to enter any new product segment? What is the steady state NIMs or credit costs that we aspire for? And what kind of steady state return ratios, like ROA or ROE could this translate into?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See, we have articulated our aspiration to be in the CV financing business in the parent company, so, which we are going to grow big. So we are also expanding geography, products definitely in that business. So apart from our focus on used CVS, the new CVs we will be doing it in partnership with ICICI Bank. We are also bringing in passenger commercial vehicles, plus construction equipments. Then we are going to look at farm equipments like tractors. So we are adding three more products to this, plus there could be many more, which will be commercially used assets, which we will bring it. And in this, the potential is so large. You have NBFCs which are largest in the country in this space.
So with the scrappage policy coming in, but for the pandemic, it would have already been implemented. But I am confident that once the pandemic subsides, this will be implemented by the government. So there is going to be a huge the replacement demand, which is going to come. So there is a big opportunity for growing this used vehicle financing business, where there are very few players. So the interest rates are quite attractive. So that is where our aspiration is there. And I cannot put any number to where we would go from here, because the potential is INR100,000 crores to INR125,000 crores, only because of the replacement demand, arising out of scrappage policy. Plus the normal demand of application change, ownership change which has been — which have been happening on a day-to-day basis. So the potential is in lakhs of crores. So even if we take 20%, 30% of this lower mix to five years. This enormous opportunity we have in this business to grow.
Apart from that agriculture, your infrastructure, where construction equipment and movement of people, where buses or other commercial vehicles passenger is there. So that is one area we are going to do. Independent company, affordable housing will grow that book similarly, but that won’t be as big as the commercial vehicle, and the SME as well as the new vehicles we will do off balance sheet.
So in terms of return ratios, we would like to be north of 3% and we would like to leverage around 5 times, which is 20% to capital adequacy and with the off-balance sheet strategy, we can do another onetime, 1.5 times leverage. So if we can achieve 3% ROE over a period of time, we can be in the band of 15% to 20% in terms of return on equity. That’s our aspiration.
Abhijeet Kejriwal — Motilal Oswal — Analyst
Sure sir. That is very helpful. And sir, now that we have navigated the IL&FS crisis and the economic or the CV down cycle that we saw just prior to COVID. And even in the current COVID mayhem, I mean I’m sure that there has — [Indecipherable] some learnings for all of us. I mean, how do you plan to further improve your collections framework — in which of your — I mean the three retail product segments, do you feel there is a need to tighten the underwriting and what plans are there to do that?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Yeah, yeah, I would request my colleague Deep Jaggi to take this question.
Deep Jaggi — Chief Business Officer
Good morning. So there is going to be a two way approach, what we have done is, we have changed our product mix totally [Phonetic]. Generally, with the down cycle what happens is, there is major impact which comes on the heavy commercial mill [Phonetic]. So we have cut down our exposure in the heavy commercial mill. As mentioned by Mr. Sridhar, we will be expanding our product basket. We will be going towards the high-yield products, which are you know used cars, which are tractors, used tractors, the light commercial vehicles along with the used heavy commercial vehicle. So there has to be a strategic shift, which have we have planned, and accordingly, we have made changes in our credit underwriting policies, which is in line to increase our focus into these particular segments. That’s our approach. I hope I’m able to answer your question.
Abhijeet Kejriwal — Motilal Oswal — Analyst
Yes, sir. And the last question that I had was — I mean you talked about some of the digital initiatives that you are taking and you are also working with KPMG there. What are — I mean, if you would kind of want to — if you can elaborate some of these digital initiatives that you are taking, to further strengthen your collections infrastructure?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Yeah, my colleague Jaya, I request her to briefly answer your question.
Jaya Janardanan — Chief Operating Officer
Thank you. So when we speak about the KPMG partnership, they are actually helping us to digitize the inter-origination fees from the customer to the disbursement. So the entire piece then flows from a manual process to a digital flow, and this is being done both for the affordable housing, as well as for the CV business. So the project is underway, and we go live on the housing piece within the month of August, and we go live on the CV business in the month of November. So that made our — the turnaround time reduce drastically within — from the current state to maybe within two days is what we are looking at and process the SPS and that overall will help us to enable the increase in the numbers that we are looking at. Thank you. I hope that clears the question?
Abhijeet Kejriwal — Motilal Oswal — Analyst
Yeah. Thank you very much and wish you the very best for the coming fiscal year.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Thank you.
Operator
Thank you. The next question is from the line of Amol Patil from IDFC FIRST Bank. Please go ahead.
Amol Patil — IDFC FIRST Bank — Analyst
Good morning, everybody. My first question is April and May collection efficiency is quite high. I can see it at 140%, 120% in spite of second round of lockdowns. So I would like to know, how this is achieved? I mean, what was the strategy, which was adopted by the company?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See, when the going gets tough, the tough gets going, Amol. So we have learned from — COVID-1 is different from COVID-2. So this is not a billing to billing collection, this is billing to total collection. So this…
Amol Patil — IDFC FIRST Bank — Analyst
Yeah, I understand.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
So this consists of even overdues and all that, which have been connected. That is why it is showing more than 100%.
Amol Patil — IDFC FIRST Bank — Analyst
Yeah. But industry standard is below 100%, that is the reason I asked this question.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
No, no. Some people would — see, ours is also below 100%, if you look at billing to billing. It will be 80%, 85%.
Amol Patil — IDFC FIRST Bank — Analyst
Okay.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
So how they reported, what they reported, I don’t know. But this is total collection. Billing to billing will be definitely below 90%.
Amol Patil — IDFC FIRST Bank — Analyst
Okay. And I see a high cash and cash equivalents maintained by the company. So what is the optimum size that you are looking forward for FY ’22 on cash and cash equivalent side?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Amol, would you like to take it?
Amol Joshi — Chief Financial Officer
Sure. Hi Amol. Thank you for the question. We internally clearly have a benchmark, which we maintain, that 15% of net worth will always be carried in cash and highly liquid instrument. For this particular purpose, considering we are a AA minus entity, we are always in touch with our credit rating agencies and get inputs from as to what makes them comfortable, and we are all aware that we are very aspirational for our growth, and we want to eventually look at a credit rating upgrade.
So with that background, we work with them very closely to ensure that we have adequate liquidity at all points of time. So eventually, this will settle in, in a range of around INR1,100 crores to INR1,200 crores, in that range over a period of time.
Amol Patil — IDFC FIRST Bank — Analyst
Okay. One more question, CV business is still not breakeven. So what is the AUM size, if other things being equal, we can say that CV business will breakeven?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See the breakeven, today what you see is because of the credit cost. Normally you see the breakeven, in the earlier scenario where we had, branch cost was higher, so it took about 18 months for us to breakeven a branch, a new branch. But now after Deep Jaggi has come, he has brought in a concept of — new concept of smart branches, and along with the digitization initiative, we are going to bring small size, very low cost branches. With digitization, it is possible, and we will bring down the breakeven from 18 months to eight to nine months. So that helps us in increasing the penetration and building the branch infrastructure quickly. So today, our business shows a loss, because of the provisions which we have taken.
Amol Patil — IDFC FIRST Bank — Analyst
Okay. And there is some disbursement in Q3 FY ’21 for corporate loans. Can you give some explanation on this?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Amol?
Amol Joshi — Chief Financial Officer
Yeah. So Amol, as you are aware that, while we are winding down the book, there are certain sanction limits, but still undisbursed, and we want to support our customers, because we stand by the great decisions we have taken earlier. So of it — will be only those trickle down effect, where we are disbursing only towards committed line.
Amol Patil — IDFC FIRST Bank — Analyst
Okay. Okay. And NIMs are falling. I mean Q4 NIMs have come down. Although, I see that the — for companies like IndoStar, the borrowing rates have gone down substantially. So any explanation or around that?
Amol Joshi — Chief Financial Officer
So typically Q4, which is where the full year audit takes place, also lead to certain adjustments, and some of the interest reversals which were taken, are in Q4. So you will find that overall yields on loans itself versus Q3, you will find out. But that’s more of an accounting. All the new book that we are building, are according to the uses as per the products, which are not compromised at all.
Amol Patil — IDFC FIRST Bank — Analyst
Any reductions on the yield, on the interest rates on product side? Overall?
Amol Joshi — Chief Financial Officer
No. And Sridhar will elaborate, the new book that we’re building, there is a specific yield target as well, because it’s going to be highly focused, used CV book that we are building, which has far higher yields than the other pieces of CV business,
Amol Patil — IDFC FIRST Bank — Analyst
Okay. Okay. One more question. Last question, asset quality had improved in Q3 — Q2, Q3 last year and then we had another round of lockdown. So do we expect similar kind of bounce back in the next two quarters coming?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Definitely. Q1 is a challenge, but we would like to like to maintain — we are putting, lot of effort to maintain at March level, and then in in Q2 and Q3 and Q4, we will make lot of effort, if the environment is conducive we should be rolling backwards from stage 3 to stage 2, stage 2 to stage 1, a significant portion of our portfolio.
Amol Patil — IDFC FIRST Bank — Analyst
Okay. Okay. Okay. Thanks a lot, gentlemen. That’s what my questions were.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Yeah, thank you.
Operator
Thank you. The next question is from the line of Deepanjan Ghosh from Kotak Securities. Please go ahead.
Deepanjan Ghosh — Kotak Securities — Analyst
Hi, good morning sir. Am I audible?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Yeah, yeah. Please go ahead.
Deepanjan Ghosh — Kotak Securities — Analyst
Sure. So three questions from my side. One is, could you provide the number for write-offs during the quarter and annual? The second will be, what is the type of overall ECL provisions that you are holding on the book, including stage 1, stage 2, stage 3? And the third is, if you can shed some color on the type of accounts or products, are these structured in the vehicle and the SME piece?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Yeah. Amol?
Amol Joshi — Chief Financial Officer
Sure. Hi Dipanjan. Thank you for those questions. So in terms of write-offs that you see, one is clearly you are aware that, we are working with actively to ensure that the caustic book [Phonetic] sell down and exit happens peacefully. In that respect, we had done a particular deal where we have marked down one asset to buy INR58 crores, which is what you see in Q4. Plus we had done certain technical write offs in the retail book as well, predominantly CV, and that’s the reason. So the INR76 crores that you see, is the CV write-off plus around INR62 crores in the corporate book, of which a part is towards that NPA that we had resolved in Q4. You will find that our — there is zero NPA in the corporate book going forward. So those are the write-offs we have done.
To answer your question on provisions that we hold, we have ensured that we have a buffer built for any other eventualities, especially the COVID phase 2, and that’s what Sridhar alluded to, that Q1 is still a challenge and any upcoming COVID 3 wave, if it comes at all. So overall provision we carry is INR800 crore against a book of INR8,000 crores, so that’s a very healthy 10% percentage that we are carrying. We are carrying INR186 crores against the stage 3 NPA, that’s a PCR of 54% only. So the balance provision that you see, is against the stage 1, stage 2 book.
Deepanjan Ghosh — Kotak Securities — Analyst
Sure. And the last question on the type of accounts or products that you have restructured in the vehicle finance on the SME book?
Amol Joshi — Chief Financial Officer
Yeah. So you will see that [Indecipherable] the restructuring in the CV and SME and a very negligible person in the affordable home finances. So between CV and SME restructuring, one is, the RBI guidelines are very clear as to what kind of customers qualify. They have to be standard at a certain date, and then only we can pick them up for restructuring. So we have worked closely with our customers and we give them various options, which suit that particular customer. Those options for restructuring ensure that there is no sacrifice that we have to do in terms of the IRR that we eventually get from the customer. We might give them a holiday for a certain period of time, to ensure that the business bounces back. We can give them a stepped up EMI, saying that after eight months it will go back to normal. Or we’ll even look at interest rate reduction for a short period of time, and then a transfer. So we ensure that, the idea of restructuring is to allow the customer to bounce back and also we will want to grow, as his business grows with it. So that is the kind of restructuring that we undertake.
Deepanjan Ghosh — Kotak Securities — Analyst
Okay, sir. I was more — thanks for the explanation. I mean, I was more asking from the point of view of, any other type of let’s say within the vehicle finance, will it be more in the — listed hospitality sector or the CVs or maybe the — some other cars, some other vehicle class. So more from the asset growth, I was asking if that was…
Amol Joshi — Chief Financial Officer
Yeah, sorry. Dipanjan, so I will give you more in a different way. So you’re right. So in within the CV business, most affected has been customers who have been part of the tourism industry, or having, heavy commercial vehicles, who run on longer sort of routes across India. So those two have been — clearly been impacted. So we have supported him. We have certain segments which are passenger cars or school buses, a small portion. But that too — that will need some support.
Deepanjan Ghosh — Kotak Securities — Analyst
Sure. Thank you. Thanks a lot for the answer.
Amol Joshi — Chief Financial Officer
Thank you so much Dipanjan.
Operator
Thank you. The next question is from the line of Jainis Chheda from Dimensional Securities. Please go ahead.
Jainis Chheda — Dimensional Securities — Analyst
Yeah, just one question, what is the PAR 30-60-90 book on a segmental basis and on the overall book basis?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Amol?
Amol Joshi — Chief Financial Officer
Jainis — yeah Sridhar. We have around stage 2 of around 25%. Our GNPA, as you have seen is only 4.4$. So the balance is the stage 1 book. Within that, EV is a bit higher of around 32% of stage 2. And then stage 3 is around 8%, as we have given in the investor deck as well. The balance is stage 1. SME, we don’t see major concern in terms of the staging. Just to highlight again, stage 2 includes any restructured book that we do, because even if we restructure a stage 1 asset, just to ensure that the customer’s requirements are met, we by default carry a higher provision and move that asset to stage 2, for better monitoring.
Jainis Chheda — Dimensional Securities — Analyst
On the overall book basis, what will be the breakup? Like 32% is CV stage 2, right?
Amol Joshi — Chief Financial Officer
Yeah. So on an overall portfolio that we carry, 24.5% is stage 2. 4.4% is stage 1.
Jainis Chheda — Dimensional Securities — Analyst
Okay, thank you so much.
Amol Joshi — Chief Financial Officer
Yeah. Thank you.
Operator
Thank you. The next question is from the line of Rikesh Parekh from Barclays. Please go ahead.
Rikesh Parikh — Barclays — Analyst
Yeah, thanks for the opportunity. Sir, can you throw some light on the — means, the kind of credit cost we have taken in the CV finance business? Where exactly — means, whether it was from our acquired book or if we have taken a major overall of the book and taken a provision?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
So see this is — credit cost is coming from both the books. But it’s still slightly higher in acquired book, because of the composition of the customer and composition of the vehicles, so which is going through a stress in this environment. So there is a provision in our organic book also. So it’s a combination of both.
Rikesh Parikh — Barclays — Analyst
Okay. Second question is, sir going forward, how we should be looking at this, assuming that Q1 will be — will be challenging as such, we understand. But in terms of credit costs, where we should be doing or we can be guiding as such going forward as such, in overall book and CV impact specific?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See if you look at our asset growth, as I mentioned, if there is no COVID-3 and COVID-2 subsides, things become normal. So, in the three quarters, if we can put together INR3,000 crore of AUM without any further credit cost, then we should be doing very well in this year, because the ratios will look different. There is no extra cost. We should be making profit. So every number, including your ROA, ROE, your cost to income, GNPL, everything will look good.
Rikesh Parikh — Barclays — Analyst
Yeah, I mean just I mean broadly, can you tell us what could be the cost we can look at as such, on a normal scenario basis?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
See, we are today, as Amol said to 4.5%. That will come down if we increase the denominator. Even percentage, it will come down. But as an — I do have provision in P&L for a new incremental book which I’m building, I have to definitely make provision. It will also be in stage 1 and 2. So that I have to make. Apart from that, if there is no stage 3 in the new book, overall stage 3 book, GNPA optically, will come down, because the denominator is going up. And because the new assets have been put, cost to income will come down. Profitability will go up, because I’m adding income, I’m adding assets. Without any further cost, with the digitization and smart branches costs coming down, our unit economics should look very good.
Rikesh Parikh — Barclays — Analyst
Sure. And sir, just last one question, if I can squeeze in, sir with — we understand, we are having a now renewed focus with housing finance. So going forward, how do we see the book shaping up in terms of CV SME and housing finance?
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Yeah. Housing finance is an independent company, don’t mix it with IndoStar Capital. Now IndoStar Home Finance is a separate company. So we will capitalize it. We have put a CEO. We will grow that business. It is 100% held by IndoStar, but still accounting-wise, we will be consolidating, but operationally it will be independent. So like your AADHAR and AWAAS, we will grow this business. That is one. In the parent company, we have articulated, that it will be a used CV business, used tractors, used passenger commercial vehicle construction equipment. New CVs will be off balance sheet. SME will be mostly off balance sheet. That’s the model we will build. So we are hoping for a 8% to minimum NIM, a 3% ROA and eventually, if we leverage and use the capital and grow, we should be in the bracket of 15% to 20%. That’s our aspiration.
Rikesh Parikh — Barclays — Analyst
Thanks, that’s it from my side.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Yeah.
Operator
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. R. Sridhar, for closing comments.
R. Sridhar — Executive Vice-Chairman and Chief Executive Officer
Thank you to all the participants. Your enthusiastic participation and active interaction with us, we are thankful you. As I had mentioned, that we have done the right things at the right time, even in the most challenging period of COVID-1 and COVID-2. As I had articulated, IndoStar is now well positioned with capital, with the liquidity, with the strong ALM, products and the team, to create one of the best NBFCs in the country, to create lot of value to stakeholders. All our problems and challenges I hope are behind. So we are going to march towards the next five years of aspiration plan, with a lot of confidence.
So I along with my colleagues thank you for your active participation and wish you all a very healthy, safe, COVID free situation for you and your family. Thank you very much.
Operator
[Operator Closing Remarks].