JM Financial Limited (JMFINANCIL) Q4 FY23 Earnings Concall Transcript

JM Financial Limited (NSE:JMFINANCIL) Q4 FY23 Earnings Concall dated May. 10, 2023.

Corporate Participants:

Nishit Shah — Business Strategy & Investor Relations and Chief Financial Officer

Vishal Kampani — Non Executive Vice Chairman

Analysts:

Himanshu Upadhyay — Analyst

Dhruvesh S. — Prospero Tree — Analyst

Ravi Goenka — o3 Wealth & Asset Management — Analyst

Shripal Doshi — Equirus — Analyst

Kunal Shah — Citgroup — Analyst

Vivek Kumar — Westpel Research and Advisory — Analyst

Rishikesh Oza — RoboCapital — Analyst

Manoj Dua — Geometric Securities & Advisory Pvt Ltd — Analyst

Anand Jain — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the JM Financial Limited Conference Call to discuss the Company’s financial performance for the quarter and full year ended March 31st, 2023. [Operator Instructions]

Kindly note that any forward-looking statements made on this call are based on the management’s current expectations. However, the actual results may vary significantly and therefore the accuracy and completeness of this expectation cannot be guaranteed. [Operator Instructions]

I now hand the conference over to Mr. Vishal Kampani. Thank you and over to you sir.

Nishit Shah — Business Strategy & Investor Relations and Chief Financial Officer

Thank you. On behalf of JM Financial, we extend a very warm welcome to all of you, to the conference call of JM Financial Limited to discuss our financial results. Both for financial year ’23, as well as the quarter ended March ’23. We have uploaded our results update presentation, press release, and results on our website and stock exchanges, and I hope you guys have got a chance to go through the same.

I want to highlight three important things, which will allow a comparison of — complete comparison of our results for FY ’22 versus FY ’23. The first highlight is that in FY ’22, we had INR123 crores of net profit coming from IPO funding activities, the same number for FY ’23 is very negligible. The second point I want to highlight is the provision we have taken in our ARC. We have taken a provision of INR246 crores on certain corporate assets, mainly Bombay Rayon Fashions, Seven Hills, Unitech and Nitco. We have faced delay in some uncertainties in the outcome of valuations, as well as, pricing for some of the assets that we’re selling and those delays in the valuations have caused us to take this cautionary additional provision. This is largely resulting from delays from NCLT, and some other courts.

Third highlight is that we have invested over INR90 crores in our platform AWS business, building very strong digital capabilities, as well as boosting teams across our asset management businesses, our mutual fund business, our alternative credit business, as well as our PMS businesses. And we will continue to make these investments for the next two years, and we’re very hopeful that this will add significant scale and value to what we are building on a consolidated basis in platform AWS. These three were very important factors as when we adjust for these three elements, our business has actually performed extremely well in a difficult market environment for FY ’23 compared to FY ’22. And I think the management teams have put on a great show across all of our businesses. And we are hoping for a significant amount of growth from this base over the next three to four years.

With that, I will now pass the call on to Nishit Shah, Head of Strategy, to discuss our detailed numbers. Nishit, over to you. Thank you, Vishal. Our consolidated revenue for the full year ended FY ’23 stood at INR3,343 crore, a decline of 11% year-on-year. For the same period adjusted PAT stood at INR705 crores, a decline of 9% year-on-year. Our reported PAT stood at INR597 crores, which is a decrease of approximately 23% year-on-year, which represents an earnings per share of INR6.3 versus INR8.1 for last year. In Q4 FY ’23 our revenue stood at INR871 crores. The adjusted Q4 FY ’23, profit before tax is at INR300 crores, which is a decline of 6.6% year-on-year and reported Q4 FY ’23 PBT is at INR74 crore, which is a decrease of approximately 83% year-on-year. Adjusted Q4 FY ’23 PAT declined by 8% year-on-year from INR179 crore to INR165 crores. Reported Q4 FY 23 PAT decreased by 68% year-on-year from INR179 crore and INR57 crores. As on 31st March 2023, the net worth, excluding minority interest is at INR8,084 crores, which translates into a book value of INR84.7 per share. Our consolidated loan book stood at INR15,653 crores, up by 20.3% year-on-year. It may be noted that we are very close to reaching our peak loan book, which we had done in September 2018, we are happy to report that this time around the book is much more granular and more diversified across several products. The breakup of the loan book as on 31st March, 2023 is as follows. Wholesale lending business. Wholesale lending business is comprised of wholesale mortgage and bespoke finance business. Wholesale mortgage constitutes 54% of our loan book, which is approximately INR8,445 crores. Wholesale mortgage book registered a Y-o-Y increase of 34%, these financing loan books, which includes corporate and promoter financing book constitutes almost 17% of the total loan book and stood at INR2,636 crores, which is a decline of 39% year-on-year. The second category is direct lending to retail and high net worth individual. This constitutes the capital market’s loan book and the retail mortgages’ loan book. The capital market loan book constitutes 7% of total book, which stood at approximately INR1,062 crores and grew by 27% Y-o-Y. Retail mortgages loan book constitutes 12% of the loan book and stood at IINR1,918 crores, registering a growth of 64%. The third category is indirect retail, which largely constitutes the financial institutions’ loan book, under which we lend to NBFCs who in turn lend to retail customers. Through the financial institutions, financing loan book, we are taking indirect retail exposure. This vertical constitutes 10% of our loan book at approximately INR1,592 crores. On an overall basis, wholesale loan book stood at 71%, direct retail book stood at around 19% and indirect retail constitutes 10% of the total loan book. This loan book however, does not include the steady margin trade financing book, which is approximately INR640 crores, and it’s part of our platform AWS business. We are happy to report that we have piloted certain digital lending initiatives, primarily using partnerships, and we will be able to report that in detail once the businesses scale up. Coming to asset quality. The gross NPA ratio of the lending businesses stood at 3.4%, net NPA at 2.1% and SMA-2 at 0.1%. The loan book under resolution framework for COVID-19 as announced by RBI stood at 0.33% as of 31st March, ’23, compared to 0.35% as of December 31st, 2022. The DCCO book stood at INR1,300 crore as of March 31st, 2023. Leverage and liabilities. On a consolidated basis, our gross debt-to-equity stood at 1.45 times, and on a net basis it was 1.25 times. During the full-year ended FY ’23, we raised approximately INR5,400 crores in long term borrowing. Our liability profile is diversified to include insurance companies, pension funds, as well as provident funds. Our borrowing comprises 82% from long term sources and 18% from short term sources. Coming to our segment. The first segment is our Integrated Investment Bank segment. We would like to highlight that the investment bank does a lot more than pureplay investment banking. The Integrated Investment Bank focuses on all of our institutional corporate government and ultra high net worth clients. It includes our investment banking, institutional equities, fixed-income, private equity funds, balance sheet, as well as international operations. Within investment banking, it includes equity capital markets, private equity advisory, debt capital markets, as well as M&A businesses. For the full year ended March 2023, the segment had revenue of INR1,232 crores, profit before tax of approximately INR500 crores, and profit after tax of INR3,87 crores. That is an increase of approximately 10% on a year-on-year basis. Full year ROA and ROE from this segment stood at 5.6% and 15.2% respectively. As you are aware, we had filed a scheme of arrangement, and once that arrangement scheme goes through, PMS and private wealth management, which are currently a part of platform AWS business shall be reported as part of the Investment Bank segment. The second segment is Mortgage-Lending, which includes wholesale mortgages, as well as retail mortgages. Wholesale includes construction finance, project loans, loan against securities, as well as structured financing for real estate clients. Retail mortgages include affordable home loans, small-ticket loan against property, as well as education institution loans. For the full year ended March 31st, 2023, the Mortgage Lending segment reported net revenues of INR762 crores with a pre-provision profit of INR615 crores. Profit before tax for this type of segment stood at INR468 crores, with a pre-provision PAT before its non-controlling interest stood at INR161 crores. Full-year ROA and ROE for the business stood at 3.3% and 8.3% respectively. In Q4 FY ’23, our net revenue and pre-provision profits stood at INR214 crores, INR160 crores, respectively. The profit before-tax at INR150 crore, and profit after tax post non-controlling interest stood at rupees INR57 crores respectively. On the Retail Mortgage business, we have a very granular retail mortgage book of INR1,387 crores across approximately 12,000 customer with an average ticket size of INR12 lakhs carrying average yield of 13.1% and our loan-to-value of 57%. Our book is well spread across nine states and 93 branches. We are exploring strategic options, including a potential combination and listing of the retail mortgage portfolio of JM Financial Home Loans Limited, and the home finance business of IndoStar Home Finance Private Limited, including other mortgage-backed businesses of IndoStar. On the wholesale side, the loan book has increased from INR9,299 crores, as on December 31st, 2022 to INR9,500 crores as on March 2023. Our third segment is our combination of distressed credit and alternative credit business. As discussed earlier, we have taken additional provision on security receipts of INR246 crores on corporate assets, on account of expectation of outcomes or uncertainties at various resolution proceeding in NCLT and other courts having jurisdiction in India. On the distressed credit business, our AUM increased 24% year-on-year to INR13,558 crores. This AUM is well diversified across multiple sectors. For the full year ended March 2023, the segment had adjusted net revenue of INR137 crores, adjusted profit before tax of INR74 crores, and adjusted profit after tax, post non-controlling interest of INR34 crores. The reported net revenue, PBT and loss stood at INR110 crores, INR172 crore and INR73 crore respectively. Gross debt-to-equity stood at 1.9 times. In Q4, our adjusted net revenue stood at INR54 crores, adjusted PBT at INR27 crore, and adjusted PAT post non-controlling interest at INR16 crore. Similar on a reported basis, the numbers stood at INR220 crores and INR91 crore respectively. The fourth segment is platform AWS. The business is completely focused on providing an integrated [Technical Issues] platform for all individual clients of the company, it comprises of asset management, wealth management and security, which is what we call as platform AWS. This platform will be Internet enabled and digitally focused. And our endeavor will be to be one of the leading players in each of these sub segments over the next decade. We are in an investment phase for both asset management, as well as the digital businesses, and it is reflected in our financials. For the full year ended March 2023, the platform AWS business segments had revenues of INR628 crores with profit before tax of INR6 crores. Profit after tax and post non-controlling interest for this segment stood at INR9 crores. In Q4 FY ’23, our revenue was INR169 crores. The loss before tax was INR22 crore and after tax at INR15 crores. We operate through our own branches and franchisees, and we have grown our franchise network to 744, located across 206 cities. We are also building a fintech platform, which cuts across WealthTech, LendingTech, as well as InvestmentTech domains. On Wealth Management business, our Private Wealth segment caters to high net worth individuals with an AUM of INR56,500 crores, that is a decrease of 7.7% year-on-year. This AUM includes 65% equity assets. Our Elite Wealth business caters to affluent clients, and we have an AUM of INR1,228 crores, which is a 19% growth year-on-year and this business is likely to grow rapidly. Our Retail Wealth business, which predominantly deals with retail customers through a network of over 9,000 active independent financial distributors, recorded a steady growth of 18% in its AUM. The AUM stood at INR23,800 crores as on 31st March 2023. In our Asset Management business, our quarterly AUM of the mutual funds stood at approximately INR3,000 crores, comprising INR760 crores in equity and balance in debt. Over the last financial year, we have hired 58 people across several positions. We continue to invest in building teams, expanding reach, through our branch network, improving digital capability and increasing engagement with distributors. With this brief update, I would like to conclude and we are happy to take any questions. Over to the moderator.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] We’ll take our first question from the line of Himanshu Upadhyay from o3 PMS. Please go ahead.

Himanshu Upadhyay — Analyst

Hello. Am I audible?

Vishal Kampani — Non Executive Vice Chairman

Yeah, go ahead, yes, you are.

Himanshu Upadhyay — Analyst

Yes. Sir my first question is, with interest rates rising on last few quarters, are we seeing the improving JM Credit Solutions — JM Credit Solutions business and how different is the situation currently versus 2015 to 2018?

Vishal Kampani — Non Executive Vice Chairman

No, so, your question is on our spreads in our yields or the general uptick in business?

Himanshu Upadhyay — Analyst

No, my question is on the interest rates rising for last few quarters. My question on the yields improving in the JM Credit Solutions business, and how it is different from the yields which we’ve seen from 2015 to 2018?

Vishal Kampani — Non Executive Vice Chairman

Yeah, sure. So I think we’ve seen our cost of borrowing go up quite dramatically in the last 18 months, and not just our entire credit spread for the double A basket has gone up, as well as the rates have gone up. And — but we’ve been able to pass on almost 60%, 70% of that to our customers, because all our customers are linked to some form of MCLR either ours or key nationalized or private banks. So almost 60%, 70% of that is passed on. Around 30%, 35% are our fixed loans, so there we cannot pass on. But that’s fine. Most of our fixed-rate loans actually not that longer tenure, and they get refinanced. I mean they get repaid and when they get repaid, we’re able to lock in higher returns on the balanced portfolio.

So your question was on 2015 to ’18 interest rates or general demand in the — on the RE side?

Himanshu Upadhyay — Analyst

I just wanted to on the — how is the current situation different from versus 2015, 2018?

Vishal Kampani — Non Executive Vice Chairman

Overall, I think first thing is that from 2015 to ’18 the sales momentum was very slow. So a lot of the financing that was going on in those three years, was because the builders were not selling inventory at a pace that they should have, and they were choosing to refinance many of their projects. And theoretically the covers on many of those loans looked very good. But anybody who lent very aggressively in that period realized shortly after that because of the ILFS crisis in COVID, a lot of those covers disappeared, very quickly. Because the cost of interest and the cost of financing, basically hit into the returns of the developers.

This time around in the last year to 18 months, developers are a lot smarter. They’ve actually been selling very aggressively. They have not been hungry on price, you’ve barely seen any price appreciation in the last six months. We saw some appreciation last year and the year before that, to the tune of anywhere between 7% to 15% across geographies for the last six months has not seen so much of appreciation. But having said that, even though home loan rates have hardened, home sales have been very, very robust, and they’ve been very strong. So I think that is one key differentiator that the sales momentum continues to be strong. And that is a big positive.

So there is a complete change in scenario from ’15 to ’18 versus what we see from 2021 to almost 2024.

Himanshu Upadhyay — Analyst

Okay. And sir, my second question is, if you look at our home finance, credit solution yields are similar around 13.5%, and cost to income will be higher in home finance business. So can you [technical issues] home finance be as good as credit services? And what leverage will we like to have on the home finance books.

Nishit Shah — Business Strategy & Investor Relations and Chief Financial Officer

So any retail-oriented business will always have a higher cost to income compared to a wholesale-oriented business. At the same time, any retail-oriented business will always hold a higher leverage ratio compared to a wholesale business. So in JM Financial Credit Solutions which is our wholesale mortgage business, we kind of cap out at four times debt to equity. In fact we think about raising equity when we cross 3.5 times debt-to-equity, while in the retail business, we will go to 5 to 5.5 maybe even [Technical Issues] to equity so it’s a much more granular business.

And in home loans, particularly, they can easily hold leverage of six times. So I think the ROA in retail businesses will be lower, but the ROEs will be similar because NPA numbers in that stretch cycle will be lower for home loans, NPA numbers will be higher in wholesale businesses. So when you account for return on assets over a longer cycle, assuming asset quality for both those businesses, the wholesale business is not significantly higher compared to retail, but retail will have more sustainable sort of ROA and with higher leverage will deliver mid teens ROE. And the wholesale business will deliver a very similar mid-teens ROA, but with a slightly higher ROE.

Himanshu Upadhyay — Analyst

Okay. And sir, last one from my side. In home finance book, there is 25% of loans from new to credit, and we below 600 CIBIL score, is there a wide divergence between these two buckets.

Vishal Kampani — Non Executive Vice Chairman

Yeah, I’ll let Manish answer that question. So Manish [Speech Overlap]

Manish Sheth — JM Financial Limited

Yeah, this is Manish here.

Vishal Kampani — Non Executive Vice Chairman

Sorry, go ahead Manish, sorry.

Himanshu Upadhyay — Analyst

Secondly, why is the EMI bounce ratio is increasing continuously in home loan business, that’s it from my side.

Manish Sheth — JM Financial Limited

Correct. So both the questions, so we are in an affordable housing finance business. Okay. In affordable housing finance business we lend to people who are new to credit because they are in Tier 2, Tier 3 cities, and they are first time technically coming for a borrowing, so they don’t have a CIBIL record. So once they create CIBIL track record, two to three years’ time, they do a BT out if their track record is very, very good.

So you will always see 25% to 30% kind of a new origination will have a zero CIBIL, because they have never borrowed in life from a formal sector, first time they’re borrowings from a formal sector. So that is on the new to credit. Coming to the bounce, so this is the business where you land to people in Tier 2, Tier 3 cities, most of them will have a banking with a look local sahakari bank, okay. They are not in the mainstream banks, where your NACH mandate, the ECS mandate generally doesn’t get registered so fast, and that’s why you will always see a higher bounce rate. But at the end we end up collecting 99% of the EMI. Okay, sir. Thank you so much for the detailed answer. Thank you.

Operator

Thank you. [Operator Instructions] We’ll take the next question from the line of Dhruvesh from Prospero Tree. Please go ahead.

Dhruvesh S. — Prospero Tree — Analyst

Yeah, hi. My first question is related to the reclassing of the wealth and the asset management business, which now will be clubbed to IB. Will it also again change in terms of the classification of income groups that we are showing because previously it used to be IWS and now it is AWS.

And what is the need for this, if you can explain a little bit in detail?

Vishal Kampani — Non Executive Vice Chairman

Yeah, will do that. So our endeavor in the AWS business is to have retail customers, and to have customers between INR10 lakh to INR10 crore of AUM, and on the retail as well as the broking side. And on the H&I broking side and the Elite Wealth side, it does not cross more than INR30 crores of AUM. And we have a significant amount of customer base in the private wealth side, so if you look at our AUM of almost INR60,000 crores, our customer base, our active customer base is not more than 1,200 clients, in that INR60,000 crores. And if you look at INR30,000 crores in that, it will not be more than even 300 clients. So it is a very concentrated, very high net worth kind of business, and we are seeing a lot of cross-sell opportunities between this kind of a client base, and our investment bank, as well as our private equity funds and some of our PMS products.

So the idea is that, we want to give an integrated investment banking field, to cooperate India, to all the promoters who own corporate India to all the institutions, and bring it under one umbrella, and as a full integrated IB strategy, where we can cross-sell many of these products, that is the fundamental reason why we made this shift.

So in short, you can treat this more like a B2B business, even though they’re wealth clients, they’re sophisticated, their family offices, they are dealing with us in real estate, in credit, in equity, in general, advisory, they give mandates from their corporate entities to our investment bank, so it’s really a B2B business. While in platform AWS a real concentration is to become large at scale. We added almost as Nishit mentioned earlier, more than 750 franchisees now across 200 sort of centers. We have more than 70 branches. Our plan is to go to around 100 [Technical Issues] and of course the entire build in digital, the entire build in our retail portfolio management services, retail asset management services, both these organizations are being built very differently, and this platform AWS is really B2C, incrementally going forward from this year, for example, we are going to be splitting HR, we going to be splitting compliance, we’re going to be splitting a lot of our common operations also which used to be part of IWS between the integrated investment bank and AWS. So it’s really a B2B versus a B2C classification.

Dhruvesh S. — Prospero Tree — Analyst

No, so basically from next year we will see some part of AWS income moving to — in the reported terms moving to the IB or [Speech Overlap]

Vishal Kampani — Non Executive Vice Chairman

I’ll explain to you. We basically have three sort of — these — our customer segmentation is in three parts in wealth management, it’s Private Wealth management, Elite Wealth Management and Retail Wealth management. All the products that are around private wealth management and the revenue associated with private wealth management distribution revenues, all will now reside in the Investment Bank segment. Their entire client base of 1,200 people will move to the Investment Bank. All of the products and services and the distribution income which is there, as part of Elite Wealth Management as well as Retail Wealth Management, which includes the retail brokerage clients, which includes the mutual fund client, mutual fund distribution client, all of that will remain as part of platform AWS.

The reason we started building Elite Wealth Management. 2.5, 3 years ago, was to have a specific focus, using technology and digital, to go out to the customers, that customer segment of between INR1 crore to 30 crores. So that is the way the businesses will be split starting 1st April this year.

Dhruvesh S. — Prospero Tree — Analyst

Okay. Thank you. Thanks a lot. So, second is, now coming to — when I see from —

Vishal Kampani — Non Executive Vice Chairman

And these are 100% owned businesses. So from a consolidated perspective, nothing changes. It’s really the way management wants to run the business and how management views the integration of these businesses.

Dhruvesh S. — Prospero Tree — Analyst

Right. So, coming to — there is IB profit of INR472 crores I believe in FY ’23 or approximately INR500 crores, and we have to see the presentation again I’m sorry.

Vishal Kampani — Non Executive Vice Chairman

INR506 crores of PBT, what we have.

Dhruvesh S. — Prospero Tree — Analyst

Yes, so that INR500 crores, currently it is not counting the wealth, the private wealth management piece which is there. I’m looking at the standalone IB, and maybe if we add whatever the number is, can we see considering overall GDP growth and considering the overall macro environment for India being what it is today without any major change? Can we see that — okay, now we have stabilized and we can really see probably a doubler in a five year angle on this side of business?

Vishal Kampani — Non Executive Vice Chairman

Absolutely correct. In fact, on one of my calls in the last, I think two years I had mentioned that we see from a peak-to-peak bull market we see profit doubling in this business. So if you just go back to our results, if you look at the IWS profit and if I were to split the IWS profit between B2B and B2C, five years ago, the B2B number will not be more than INR250 crores. So it’s actually doubled.

And we expect that this number with all the efforts that we’re putting and the teams that we are building in the next five years will actually double. In fact, I’m hoping it will more than double.

Dhruvesh S. — Prospero Tree — Analyst

Sure, thank you. And one last piece around the same on the team aspect. So when we — if I’ve to check with set of employees or set of players in the ecosystem, which is hearing disturbances in terms of team moving out. How much should we read into this, and how much are we dependent on the top category of the people, and what is the churn rate in that area of the B2B segment of the business?

Vishal Kampani — Non Executive Vice Chairman

That is — that’s actually a great question. And let me tell you that, one of the pillars of why we won the Integrated Investment Bank is actually to build a bank that is reliant less on individual relationships, reliant more on what the firm as an integrated bank has delivered to that client. That actually is a great question, because that is one of the reasons why we thought about creating this structure, as IWS six years ago, seven years ago, when I became CEO and further refined it to break it up into IB versus AWS is actually to make sure that the client is being serviced not by just one group in the firm, the ownership of that client is not just by one relationship manager, but the ownership is from the firm across products and across relationship managers, and this is exactly what the Integrated investment Bank delivers to a client.

Dhruvesh S. — Prospero Tree — Analyst

Right. But so — at least in terms of the churn, we are like — large part is behind us then coming in the future, at least some comment on that. And —

Vishal Kampani — Non Executive Vice Chairman

[Speech Overlap] We see very bit of a churn, and the way we are going, the way we are building the business. First of all, let me give you an example, if you just take our M&A business or take our equity capital market business, right? And if you just go back 20 years in history, right? I think our top five clients, at any given point in time would have been close to 40% of revenue. Right?

If you just take, I can give names like Reliance or Tata or Birla, as we take some of our top five clients, L&T, ICICI Bank or HDFC. I mean, in any given year three, four of these top five or top six seven clients would be anywhere between 1/3 to sometimes even 40% 50% of our revenues. So that was a very concentrated advisory business. Today, the top five in any given year will not even account for more than 15% of revenue. Okay?

Dhruvesh S. — Prospero Tree — Analyst

Yeah.

Vishal Kampani — Non Executive Vice Chairman

This is a very important point. So even though when we say B2B, the expansion of our business has become so wide, right? I mean, there number of clients we’ve been able to add because of a very strong focus on mid-cap, because of cross-selling and adding products like debt capital markets, adding products of investment grade finance, adding products like bespoke finance, right? Adding products of block trading where we were not a strong player four, five years back.

So the point is the breadth of product, as well the breadth in terms of delivery capability in each of those products has completely widened our client base. So, we literally are six to seven times the client base in the Investment bank that we were a decade ago, and we are at least two to three times in terms of product capability and superior delivery than we were 10 years ago. And we are continuously expanding in the same way and therefore we are very confident that we will even gain more market share in the next five years. We have a very unique proposition. Our knowledge capability is extremely strong.

We are going to make further investments in research as well as knowledge capability. In this year, we’ve already identified a few partners, and we’re working on actually building a firm or taking a stake in a start-up firm which will add to the knowledge delivery process we have for the investment bank this year.

And I think if you look at us today, we are in a pole position, we’re the only one, only investment bank which is non-commercial bank-owned and having a pole position across all of these products. So we are very proud of what we’ve achieved. I think INR500 crore profitability is a big number. And we really want to get to that INR1,000 crore number in four to five years.

Dhruvesh S. — Prospero Tree — Analyst

Thank you. Second part is on mortgage lending. I think over the last one year across three platforms and including the concalls, you were quite upbeat about builder lending I mean the B2B lending side of the mortgage side. There I think you had — I’m not holding you, I’m just trying to understand the assumptions and what went wrong, if any. I think the assumption was that in 18 months we will probably see a double or in the loan book. Has something changed or prepayments are coming much faster than anticipated and what is the reason there?

Vishal Kampani — Non Executive Vice Chairman

I’ll tell you, the guidance we gave is that in three years we’ll take our book from INR6,000 crores to around INR12,000 crores. We’ve taken the book from INR6,000 crores to around INR8,500 crores, and we are facing two issues I highlighted a part of that in my September call. See, the sales cycle is very strong. See, what happened again to the earlier person’s questions question, what happened in 2015 to ’18 is the sales cycle was very weak, so builders who are either refinancing their loans or they were constructing using loans, and not constructing using sales proceeds because the last 18 months to two years sales cycle has been so strong, the drawdown in our construction finance facilities has been a lot lower.

Frankly, our sanction-to-disbursement ratio is a lot smaller today compared to us into disbursement ratio between 2015 to ’18. You understand, right? Because in residential finance, if your sales cycle is very strong, your inflows are very strong, and therefore, if I sanctioned a loan of INR100 crores on a project, if I expect to draw down of INR100 crores, actually the drawdown is only INR50 crore or INR60 because he is getting receivables and you’ve seen the growth in home loan books over the last three-four years, which also has been incredibly strong. So that is the reason why, even though our sanctioning has been to a satisfaction, the disbursement has been slow.

Second problem is that, in our mature loan portfolio right, and we’ve given some data on what our pre-COVID portfolio is our pre-COVID portfolio is down to IR1,600 crores now, out of INR8,400 crores, so almost INR7,000 crores is a new portfolio that we have built in the last three years. But the problem is that the pre-COVID portfolio, which was INR6,000 crores, INR7,000 crores then, INR5,000 crores, INR4,500 crores has actually run-down very quickly again because the sales cycle has been very strong.

So for a player like us, what happens is that, when a sales cycle is very weak, it is actually risky to lend. And then a sales cycle is very strong, you are lending, but you’re also getting prepaid faster and your construction finance is not getting drawn down at the same speed. So that is the hurdle which we are facing, while we are still attempting. Our pipeline is strong. My team of relationship managers and my head of operations at our JM Financial Credit Solutions, tell me that there is a hell of a lot of demand. We’re still trying to hit INR12,000 crore number by March ’24.

But I think you’re correct in your assessment, we may actually miss it because of the strong sales cycle, yeah. We did not anticipate 18 months ago that the sales cycle will continue. We knew interest rates are going to go up, we thought sales would slow down and interest rates would go up, but even that’s not happened.

If you look at our March number, they are very, very strong in terms of sales. So this is a practical issue in the business that we are dealing with. Right. Thanks, thanks [Technical Issues] connection.

Operator

I’m sorry to interrupt, Mr. Dhruvesh, please come back in the question queue.

Dhruvesh S. — Prospero Tree — Analyst

All right. Thank you.

Operator

Thank you. [Operator Instructions] We’ll take our next question from the line of Ravi from o3 three Securities. Please go ahead.

Ravi Goenka — o3 Wealth & Asset Management — Analyst

Hello. Can you hear me?

Vishal Kampani — Non Executive Vice Chairman

Yeah, go ahead, please, yes. Yes, go ahead.

Ravi Goenka — o3 Wealth & Asset Management — Analyst

So first my first question is, we started commodity trading in JMFPHL, and asset investment. In last few years, it has been growing based on the annual reports. Can you elaborate on the nature of business it does and risks involved in the business?

Vishal Kampani — Non Executive Vice Chairman

No there is probably some opportunistic commodity trade for our clients, nothing else.

Ravi Goenka — o3 Wealth & Asset Management — Analyst

Okay.

Vishal Kampani — Non Executive Vice Chairman

We don’t do any proprietary trading at all in any form or any sort of commodity. We only do proprietary trading for debt, in BCM and equity and IPO, that’s all. And that too it’s highly restricted and requires senior management approval to take any position. That number has never crossed more than 10% of our net worth at any point in time, and commodities there is a strict, no.

Ravi Goenka — o3 Wealth & Asset Management — Analyst

Okay. and my second question is, despite such a strong recovery in real estate and book also growing in JM Credit Solutions, the gross NPA and net NPA in absolute terms are growing.

Vishal Kampani — Non Executive Vice Chairman

Yes, that is impact of the DCCO portfolio, as well as the impact of some of the COVID residual portfolio that we have. But having said that, we are not worried about it. I mean the asset quality which we have underlying those portfolios is quite strong. Resolution efforts have taken longer. But this year, I expect, I think will be the last year of DCCO because all of our assets in DCCO come to maturity. And I think we will be done with more than 70%, 80% of DCCO portfolio repaying us in full this year.

So I think the worst was behind us a year ago, and I continue to maintain this way.

Ravi Goenka — o3 Wealth & Asset Management — Analyst

And my last question, sir. We hear that online business valuation are falling. What are the opportunities to acquiring the digital space and how does it compare to build on our own? That’s it from my side.

Vishal Kampani — Non Executive Vice Chairman

I think today, for example, building on our own is something we are focused on. Even though the valuations are falling, the quality franchisees in online will still maintain premium. There is still a lot of venture capital money, that means less private equity money but there is enough of venture capital money which is lacking successful stories and successful companies in this space.

But I think considering our brand, considering our knowledge of the underlying sectors and the businesses, I think in digital, we will still look to build. We’ve got a big team in place, and a lot of effort has already been made I think in the next 30 days or so we will bunch our broking product, and in say 60 to 90 days, we’ll be ready to launch our lending product. So I think we’re far ahead in the game now to be able to look at any acquisition. I think we’ll be building over the next 2 to 2.5 years.

You will see a lot of marketing and advertising that will happen on the same over the next 18 months to 24 months, and we’re very excited to basically have millennials and the Gen Z and Gen Y, and all of these customers being part of JM Financials. But having said that on the traditional broking side, we will be open to acquisitions. We feel that with the kind of capital requirements, the regulator is bringing to the business there is a big opportunity to be bigger on the traditional broking side. And we will be open to acquisitions on the traditional broking side.

We feel long term by 2030, the mix of the business will be almost 70% digital customers, and 30% sort of traditional physical customers, and our endeavor is to have high market share in both these categories. So — and having said that, there could be certain niche areas which add to a middleware, add to sort of how we can differentiate our delivery to a customer, and this could be pure tech platforms, if these are available and they makes sense, we could make investments in them. But I don’t think we will look to take control in any of these sort of companies. We’ll make investments to strengthen them, that strengthens our franchise and our sort of delivery capability to our clients.

Ravi Goenka — o3 Wealth & Asset Management — Analyst

Okay. Thank you, sir. That’s it.

Operator

Thank you. We’ll take our next question from the line of Shripal Doshi from Equirus. Please go ahead.

Shripal Doshi — Equirus — Analyst

Hi sir, good evening. My question was pertaining to ARC business. So the specific question is that can you give some details on the transaction on a new name basis what was the original loan menu that came into the ARC? And what was the purchase consideration? How much did we take on our book? When did we buy the asset and after the write-down is there any further loss expected and when did the asset get resolved finally?

So if you could explain this it’ll be very helpful.

Vishal Kampani — Non Executive Vice Chairman

Yeah, sure. So we have roughly our ARC book over INR11,000 crores of AUM. We added close to around INR3,500 crores, INR4,000 crores of AUM this year, so ignore the AUM that is added this year. In that INR11,000 crore AUM, we have corporate assets approximately of INR2,700 crore to INR2,800 crores worth of AUM on which we have taken roughly a 10% write down.

We feel we are good for the balance in terms of recovery over the next, at least foreseeable, eight quarters to 12 quarters we do not see any other significant impact. But after three years, there is going to be a eight year period which comes to an end of many of the other assets that we’ve acquired, there could be provisions that come up on those assets, but it is very difficult today to say with certainty if there will be provisions or not. I can only comment on that, maybe in two to three years from now.

But having said that, I’m happy to note that growth has picked up extremely well in the last year in the ARC business, and this year we are expecting over INR1,300 to INR1,300 crores of gross recovery, because many of the provisions that we’ve taken in the March quarter some of the assets are already in NCLT, and some of them are in advance resolution situations where we know that the outcome of the resolution is probably going to be 10% to 15% shorter of what we had originally estimated, and therefore we’ve decided to take the entire provision upfront in March 31st, 2023, rather than take it Q-on-Q every quarter, as soon as we realize all of this money over the next four to six quarters.

Shripal Doshi — Equirus — Analyst

Okay, got it sir. Thank you for the detail.

Vishal Kampani — Non Executive Vice Chairman

Yeah.

Operator

Thank you. We’ll take our next question from the line of Kunal Shah from Citigroup. Please go ahead yeah.

Kunal Shah — Citgroup — Analyst

Yeah, hi. So firstly in terms of what actually triggered this entire provisioning, ideally shouldn’t, it had been taken all through the fiscal, and rather than taking it in just one single quarter because I think those developments with respect to some of the news which you’ve highlighted, they — maybe all through the fiscal it suggested that there could be some kind of cut out there. And maybe similar kind of a trend when we look at it with respect to DCCO, maybe INR1,300 odd crore is still outstanding out there, maybe is there any risk of provisioning even on the DCCO portfolio, and that can also come at one point in time rather than maybe some kind of I would say this credit provisioning through the fiscal year.

Vishal Kampani — Non Executive Vice Chairman

Yeah, so good question, Kunal. And also the DCCO one immediately. I think DCCO you will not see any kind of one-time provisioning at all, in that INR1,300 crore DCCO portfolio, almost INR800 crore to INR900 crores is servicing interest and principle regularly, there is no issue at all. And it will get repaid or it get refinanced by March ’24, so that is taken care of.

On the remaining, we’re looking at resolution strategies, we could do an ARC sale or we could get some of those assets sold to strategic bidders. The good part is that for the remaining INR400 crores, INR500 crores odd I think we have a bidder for almost every asset under the DCCO. So I’m not concerned at all of any provisioning coming ad-hoc provisioning coming on the portfolio of DCCO.

On the asset construction side, construction — ARC side, I think we were very clear because we — so many of these assets — okay, let me give you an example of Seven Hills hospital, for example where we’ve taken a provision or Bombay Rayon, for example, where we’ve taken a provision, right? We could not even admit some of these assets into NCLT, right, because of COVID et cetera, et cetera. And we had made assumptions. We had taken one charge on these assets, on March 31st, 2020 itself, assuming that valuations will go down because of COVID.

But we never estimated that our recovery through the court process or the NCLT process will take very long. We thought okay, 18 months, two years recovery process will be over, and we will be able to recover our capital. So the point is, now we know that, for example, Seven Hills Hospital, we have 23 bidders. Now we have a fair idea of what the BMC wants, we finally have to close the loop with them and go ahead with the process. Bombay Rayon is an NCLT process in advanced stages.

We know exactly, we’ve got the initial bid, of course, I cannot share the bid with you. But we know where the figures are. So the point was, it becomes the ad-hoc provisioning that we have to keep doing every quarter. So the idea was let’s just clean it up when we don’t have to deal with this quarter-on-quarter, it gives the ARC management clarity, we are growing the book, we are growing profitability now over the next four to eight to 12 quarters. And therefore, we use this to clean it up in 31st of March 2023.

Nothing else, it was just a simple button to be pressed to make sure that the balance sheet is cleaned up because we are very clear that the realizations that we’re going to get from these assets are going to be lower because of time value of money and delay in NCLT resolution.

Kunal Shah — Citgroup — Analyst

Sure. And secondly in terms of this entire new assets acquired in the ARC of INR2,700 odd crores. So if you can just highlight how concentrated is this exposure? Any particular industry segment.

Vishal Kampani — Non Executive Vice Chairman

85% of these assets are retail assets. So we’ve not —

Kunal Shah — Citgroup — Analyst

85%?

Vishal Kampani — Non Executive Vice Chairman

Yes. They’re all retail assets they’re diversified across home loans, they’re diversified across personal loans, diversified across vehicle loans, it’s completely well-diversified. If you remember, two years back I had highlighted on a call and highlighted to you also in a meeting that we are focusing in our ARC to add more retail assets, we felt our corporate institutional mix was too large and actually the strategy we followed and over the last 12 months almost 85%, 90% of the addition has been retail assets.

And the balance addition of assets actually in aggregation of certain portfolios that we had where we just increased our share in the COC to be able to reach a faster resolution.

Kunal Shah — Citgroup — Analyst

Okay. And in terms of the structure, maybe so with respect to the impact on the revenues for this entire pool of asset, would it be very different compared to what we are running on say INR11,000 odd crores?

Vishal Kampani — Non Executive Vice Chairman

No, it will be very, very similar. I don’t think there is a revenue impact, that there is no impact at all. Because the revenues are quite similar in terms of all of our asset pools.

Kunal Shah — Citgroup — Analyst

Okay. So feed from this entire pool would also be almost similar, yes.

Vishal Kampani — Non Executive Vice Chairman

Yeah, so. I don’t think there is any fee impact now because I think fees are taken in priority. So we’ll see what happens let me think if I can explain this more granularly I think helps. What happens is when there is a delay, we make fees, we book the fees, right? So lot of the fees have been booked in the last four years. And wherever assets have been sold, we realize the fee. The problem is, because when there is a delay on the overall resolution, the fee is at top of the capital structure, it’s top of the waterfall, for example, right? So —

Kunal Shah — Citgroup — Analyst

Yeah.

Vishal Kampani — Non Executive Vice Chairman

We are getting the fees, but the value of the SR is going down, because there is only an x amount which is totally realizable from the asset. What happens is, it’s not that what we’re going to realize from the asset has dramatically fallen. What has happened is some part of it is booked in fees in advance and now when the realization also is 5%, 10% short, we have to take a provision on the SR. Now we can choose to take it over each quarter, we can choose to take it over the coming closer to the eight year.

But I don’t think at JM, at JM we want to have a true and fair representation of what our balance sheet stands for. And if I knew that the outcome is going to be that I have to take the hit on the SR at one point in time, why do I delay we’ve just taken the hit and moved on it.

Kunal Shah — Citgroup — Analyst

Yeah, okay. Okay. Got that. And lastly in terms of platform —

Vishal Kampani — Non Executive Vice Chairman

For example, Kunal, our IRRs, if you include the fee our IRRs on the asset have not been hit as hard. So if we have anticipated that in IRR on a certain asset is going to be 16%, 17%, 18%, the IRR maybe 8% or 9%, right? But the SR requires provisioning.

Kunal Shah — Citgroup — Analyst

Got that. And this markdown would be how much, so the overall pool which we’ve acquired?

Vishal Kampani — Non Executive Vice Chairman

The new pool that we acquired is almost INR3.5,000 crores.

Kunal Shah — Citgroup — Analyst

Okay, okay.

Vishal Kampani — Non Executive Vice Chairman

And the assets against that is I think more than INR10,000 crores.

Kunal Shah — Citgroup — Analyst

Sure, INR10,000 crores.

Vishal Kampani — Non Executive Vice Chairman

Yeah, so we acquired at roughly $0.35, $0.37 some at $0.42.

Kunal Shah — Citgroup — Analyst

Okay, good. Yeah, okay.

Vishal Kampani — Non Executive Vice Chairman

Which was the, large part is retail pool is home loans, so home loans don’t come at steep discounts, their inquiry is much stronger.

Kunal Shah — Citgroup — Analyst

Sure. And lastly and platform AWS, so this entire cost-to-income and if we look at the breakup in the expense then it’s more pertaining to the employee cost rather than the other expenditure for — particularly for this quarter. So then maybe — so is there one time maybe payments which would have been there or some provisioning out there. And then maybe next year onwards, this should normalize or how should we look at this?

Vishal Kampani — Non Executive Vice Chairman

So Kunal, there are few things, there are few things. Actually many of the capabilities that we’ve been investing in has actually reduced our cost of operations under the traditional brokerage side. So if I were to break up the opex, when in traditional brokerage versus digital the traditional side actually has become more efficient from an operations perspective.

So you have to look at opex from a split perspective. Second, the employee cost is actually — we’ve been — we’ve added lot of people in traditional also. For example, our franchisee cost count on up so people to service the franchisees has gone up. Our traditional branches have gone up in terms of number. Our retail wealth, number of IPs have gone up, servicing capabilities over there have required more people to be added. Elite Wealth has added people. So we’ve added people on the traditional, side as well as on the digital side. And most of the people that are getting added to the digital side are actually looking at employee stock options.

I mean, they don’t really care about what count they’re getting end of the year. It’s really going to be return on the stock eventually once the entire franchisee is built.

Kunal Shah — Citgroup — Analyst

Okay. This could be normalized.

Vishal Kampani — Non Executive Vice Chairman

The costs are not significantly high in terms of getting those people. I think we’ve got good quality people who are very committed, very, very intelligent and I’m pretty sure that they will build a great franchise over the next few years.

Kunal Shah — Citgroup — Analyst

Okay, okay thanks and all the best, yeah.

Vishal Kampani — Non Executive Vice Chairman

Thanks.

Operator

Thank you. We’ll take our next question from the line of Vivek Kumar [Phonetic] from Westpel Research and Advisory [Phonetic] Please go ahead.

Vivek Kumar — Westpel Research and Advisory — Analyst

Thank you. I wish can continue with the question that Dhruvesh asked.

Operator

I’m sorry to interrupt Mr. Kumar, please use the handset, we’re not able to hear you properly.

Vivek Kumar — Westpel Research and Advisory — Analyst

Hello?

Vishal Kampani — Non Executive Vice Chairman

Go ahead.

Vivek Kumar — Westpel Research and Advisory — Analyst

So Dhruvesh, in continuation with that question with the sales I think so strong, what should we expect, what should we the growth rate in mortgage loan book and also they have more competitive intensity now that sales cycle is so strong. Wonder what are you seeing with mortgage lending, like how will the [indecipherable] what kind of growth rate can we expect [Speech Overlap]

Vishal Kampani — Non Executive Vice Chairman

We are not seeing any incremental competitive intensity. Competitive intensity is only gone down because there are fewer and fewer players which are lending today in that space.

Secondly, lots of AIFs that have entered that space but AIF caters to a very different category. AIF largely caters to loans above 15%, we are largely in loans below 15% on the wholesale mortgage side. Frankly the sales cycle remains strong. It is very good generally for the business. We still be able to grow our book at 15% to 20%. So our endeavor this year is to grow it at anywhere between 25% to 30%. Having said that, when. I look at the current book on the construction and finance side as well as some of the other sort of loans that we’ve made, there is a high-level of pre payment that we expect in the next 10 months.

But having said that, our pipeline also is very, very strong. So hopefully, we should be able to deploy the prepayments that we get in the next 8 to 10 months as well as be able to grow the book. I don’t think we’ll be able to achieve the INR12,000 crore number. I don’t want to give a number right now on the call because I don’t want to be held on to some numbers for March ’24. But I think 15% to 20% growth from an INR8,500 crore number will be definitely a way — that definitely will be achievable, but I think INR12,000 crores would be difficult for March ’24, which we had guided 18 months ago.

Vivek Kumar — Westpel Research and Advisory — Analyst

Okay. On the ARC piece you hinted a year or so ago that you would want to go to the fund route, so maybe I’m — can you just throw more light on this with the ARC [indecipherable] you wind down.

Vishal Kampani — Non Executive Vice Chairman

We are already looking at partnerships with various funds. All of — many of the incremental assets that we’re adding are in partnerships with funds, and we’ve already raised fund one, sometime this year we’ll be raising our credit fund too so we’ll not only have our own fund we’ll also have third-party fund, which will participate with us because RBI has come up with a structure where all cash transactions we have to contribute only 2.5% and 97.5% can be contributed by partners. And this will allow boosting fee income in ARC in a very big way.

Vivek Kumar — Westpel Research and Advisory — Analyst

Okay. But just so you hinted that out of this HDFC merger you’re seeing a huge tailwind for mortgage, even so the sales cycle is so strong and you will not be able to grow 23%, right? Is my understanding right?

Vishal Kampani — Non Executive Vice Chairman

The HDFC merger has still not gone through. So we are waiting for it to complete.

Vivek Kumar — Westpel Research and Advisory — Analyst

Thanks, again. All the best sir.

Vishal Kampani — Non Executive Vice Chairman

Thank you.

Operator

Thank you. We’ll take the next question from the line of Rishikesh Oza from RoboCapital. Please go ahead.

Rishikesh Oza — RoboCapital — Analyst

Hi, sir, just one question from my side. Regarding the lending business, can you indicate what the credit cost for next year FY ’24?

Vishal Kampani — Non Executive Vice Chairman

Well, it should be very similar to the range we’re in right now. I don’t think we should be very, very different. So credit cost, in terms of cost should not be more than 1.3% to 1.4% of book.

Rishikesh Oza — RoboCapital — Analyst

Okay, okay. Thank you.

Operator

Thank you. We’ll take our next question from the line of Manoj from Geometric. Please go ahead.

Manoj Dua — Geometric Securities & Advisory Pvt Ltd — Analyst

So can you give me what is your learning in last three four year in the ARC business?

Vishal Kampani — Non Executive Vice Chairman

Yeah, the key learnings are that we need to have lesser corporate accounts and you should have a good mix between corporate and retail. I think we were almost 100% corporate pre-IFRS. I think we need to be close to 50% corporate and 50% retail accounts.

Second, we need to have more partnerships and less concentrated risk on our balance sheet. Third, we have to be very clear about what counterparty risk we’re essentially taking. It’s very important to have a private sector counterparty risk than any sort of public sector counterparty risk. Wherever the cash flows are expected from public sector or any kind of government or state government, those cash flows have been delayed. And any sort of litigation where any public body is involved those have got delayed.

So we are very, very clear that going forward if we see that kind of counter party risk, we will not engage in that sort of asset acquisition. So these I would think are the two biggest learnings that we have from the ARC business in the last five years.

Manoj Dua — Geometric Securities & Advisory Pvt Ltd — Analyst

Okay. As you have deployed money in raised from ARC this year, so what are the general expectations of IRR when we will build this [indecipherable]

Vishal Kampani — Non Executive Vice Chairman

Around 16% to 18%, retail assets you don’t get more than 16% to 18% IRR.

Manoj Dua — Geometric Securities & Advisory Pvt Ltd — Analyst

Okay. And my third question is, now our company is in a very interesting juncture. Can management take quarterly concalls for this as a company?

Vishal Kampani — Non Executive Vice Chairman

Yes, actually we don’t have too much to update every quarter. But your point is noted, we will discuss it internally and definitely come back.

Manoj Dua — Geometric Securities & Advisory Pvt Ltd — Analyst

Okay. And my final one more question is there. Sir, there are three, four business in the Company and most of the time some business is in investment phase, some is in long term real estate cycle, some whether it’s quarterly like investment is sometimes quarterly cyclical, and ARC is itself is very lumpy.

Has the Company thought about in creating a simpler structure for our Company?

Vishal Kampani — Non Executive Vice Chairman

Yeah, that’s a great. It was asked to me in my last call also. I think today we are in a big investment mode. So it’s important for us to keep the Company under one management under one roof. Use benefits of capital allocation. But yes, in the next two to three years, we will look to a demerger. I committed that in my last call also that we will completely evaluate a demerger of these businesses once we achieve certain scale.

Manoj Dua — Geometric Securities & Advisory Pvt Ltd — Analyst

Okay. One final question I’ll squeeze in because I’ve to wait for six months for the call. So as far as the KPR also exited this real-estate lending business. And when I see real estate cycle is normally like that, either it is bad or it is recovering very fast. Is real estate mortgage business has scaled there some business?

Vishal Kampani — Non Executive Vice Chairman

It’s a good question, but I’ll tell you, actually if you go back to 31st March, 2020 our restructured DCCO book was zero. So it depends on how you underwrite. I think this is a great business to grow at 15% to 20% over the long term. It’s a 5% ROE business. The reason our ROEs are lower is because we are suffering 1.3% to 1.4% credit cost every year, and a significant portion of the hit that we took as JM Financial in a real estate business was linked to COVID. We barely got crashed in ILFS.

Our book was completely pristine in the last quarter of 2020. So we attribute almost 90% of the hit that our real estate book has taken to COVID. So if COVID would not have happened we definitely would have been a INR12,000 crore to INR14,000 crores book today with a 5% ROA, and almost a 15% to 17% ROE with a very, very different valuation.

Manoj Dua — Geometric Securities & Advisory Pvt Ltd — Analyst

Okay. I think we will reach there again, because even if it is a good number of launches are also increasing and that’s perfect.

Vishal Kampani — Non Executive Vice Chairman

Thank you.

Operator

Thank you. We’ll take our next question from the line of Anand Jain, an Investor. Please go ahead.

Anand Jain — Individual Investor — Analyst

Yeah, my first question is that, except for the investment banking business, where we have around 15% of return on equity. Most of our businesses are under leveraged. A, under leveraged, and B, like the return ratios are way below what they should be at least mid-teens is what I would expect. When do you see different businesses reaching those levels? Though you’re keep seeing your investment phase, I just want to have a timeline for different businesses, like AWS or —

Vishal Kampani — Non Executive Vice Chairman

I’ll tell you, two things have happened. As I highlighted in the beginning part of my call, that we’ve made almost a INR90 crore investment in asset management and digital. We had a INR125 crores wipeout of profit because of regulatory changes in our IPO funding business, right? So that itself cumulatively is a hit of almost INR215 crores to INR220 crores of profit, which if you look is almost a significant almost 3% in terms of ROE to us.

And so my point is that, our leverage is low. I have no doubts. We have today operating at 1.5 times leverage. But the point is our capital structure is very strong, which is allowing us to get a very strong rating. We expect that we should use scaled to get to 3 to 3.5 times overall leverage in the next 2, 2.5 years and the credit cost will only go down. And therefore, many of our businesses, which are showing a reduced ROA because of credit costs will normalize, so 3, 3.5 ROA will normalize back to 4, 4.5.

And if you take debt-to-equity at even 2.5 to 3 times, I think in two to three years we will hit back at almost 15% to 16% ROE in our various lending businesses with the exception of our ARC, because in our ARC, we will lever only two times and that should be even in the best cycle maybe a 10% to 12% ROE business on pure lending business and therefore now we are building out a fee based business, so we can at least add 1% of ROA in terms of fees on that business, to be able to boost the ROE a bit.

So again answer your question, I think investment bank will remain in the mid-teens ROE at close to 2, 2.5 times leverage the mortgage-lending business will get to an overall leverage of four times with a ROA — combined ROA of both businesses of close to 3.5 to 4 and therefore that will hit a 16% to 18% ROE in two to three years. Platform AWS without much lending just on once we launch our digital and we reach already success, we will be able to tell you what sort of ROEs we can hit there, but we are targeting nothing less than between 20% and 25%. And on ARC we get to just below the teens around anywhere between 11% to 13%, but with very low debt equity levels.

Anand Jain — Individual Investor — Analyst

That’s good to hear. The second question I have is around the structure of our business and the structure of our subsidiary. It’s just like when I look at the subsidiaries, the names are absolutely so confusing that to come back to what the structure is in terms of ARC or lending or AWS it just doesn’t make sense. Is there a way that you can have a subsidiary structure and ways that reflect our business structure?

Vishal Kampani — Non Executive Vice Chairman

No, I think it’s quite simple. I can clarify to you right now, it’ll take two minutes. So if you open a corporate structure presentation which we have in our IR presentation so when we talk about AWS, we basically are referring to only two entities it’s JM Financial Services which is a business which does stock broking, it has a license for stockbroking and financial product distribution. The second is our mutual fund, which is our asset management business where our mutual funds sit. That’s all.

If you look at our mortgage lending business, again it is only two entities it’s JM Financial Credit Solutions, which does wholesale mortgages, and JM Financial Home Loans which does retail mortgages, right? ARC very straightforward, it’s our JM Financial ARC and we have Infinite India which does some amount of funds on the alternative distressed credit side again, just two entities.

So outside of investment bank, each of the other three segments only have two entities, which belong to those segments and rest of all of the companies belong to the investment bank, which is essentially our holding company, as well as our institutional equities business and some of the companies where we basically own our offices and overall assets. That’s it.

So actually, the structure is quite simple. But because of regulatory purposes, RBI want certain vehicles, RBI will not allow a merger of NBFC and ARC licenses, SEBI will not allow our merger of their licenses in our lending business. We have to have these number of subsidiaries.

Anand Jain — Individual Investor — Analyst

My final question is that, we have a book on lending to FIs have been increasing. I mean that business is kind of similar to what MAS does mass financial services does. I just want to understand as to how do we go about the understanding, the underwriting of these FI?

Vishal Kampani — Non Executive Vice Chairman

Yeah. I think in one of my last calls I gave a pretty detailed answer on the same. I will have my IR team send you the same notes, and I think you’ll get a detailed answer of how we go about evaluating risk, what is our strategy, we are only lending to retail NBFCs which have a deep reach and are very well diversified. I think all of that is mentioned on the call.

Anand Jain — Individual Investor — Analyst

Great. I’ll go through that if I’m preparing on accounts. Thank you. And that’s it from my side.

Vishal Kampani — Non Executive Vice Chairman

Thank you.

Operator

Thank you. Ladies and gentlemen, due to time constraint that was the last question. I’d now like to hand the conference over to Mr. Vishal Kampani for closing comments. Over to you, sir.

Vishal Kampani — Non Executive Vice Chairman

Yes, thank you very much for being on this call. I think we’ve had a very productive session. I’ve tried my best to explain what is going on in each of our businesses. We at JM Financial are extremely excited about our next three to five year journey across our businesses. And again, we’ll see you every six months and keep you all posted on all the major developments. Thank you very much.

Operator

[Operator Closing Remarks]