We are on a journey of planned transformation in which we are adopting a retailisationstrategy to become a well-balanced and diversified lending institution.
I am pleased to present to you our first Annual Report as a publicly listed entityafter your companys successful listing on 21st May 2018. In summary our IPO wasfor a total of ` 18.44 billion including a fresh Issue ` 7 billion and an OFS for ` 11.44billion was subscribed 6.8 times. We welcome you all to our family of shareowners withhumility and a deep sense of responsibility. This also marks a significant milestone forIndoStars community of customers and partners who have shared this journey with usand contributed to our success. Similarly my IndoStar colleagues and the entire workforcehave brought tremendous passion and conviction to bring us to this inflection point. Thishas undeniably been a collective effort and our successful listing really belongs to allof us.
This milestone of listing of our equity shares gives us more energy and resources todouble down on what got us here in the first place and to move forward on atransformative journey of becoming a diversified and respected lending institution. Wewill always be committed to our customers success focusing on superior resultswithout compromising on asset quality and always striving for excellence. These corevalues are our foundation and continue to remain the mainstay of who we are as a company.What changes is that now IndoStar is a public company and everyone can participate in ourvision.
At IndoStar we are on a journey of planned transformation in which we are adopting aretailisation strategy to become a robust and diversified lending institution. Goingforward significant portion of our portfolio would be loans for commercial vehiclehousing and SME business. We are driving the growth of our retail business by focusing onsecured lending to the fast-growing middle-India segment. Our objective is to lend forincome generation of the borrower and take them one level up in the economic cycle. Wealso aim to fulfill the dream of every Indian to own a house through our Home Financebusiness which will be a life time savings for them. We are using our vehicle financingbusiness to spear-head our growth in retail finance and are initially concentrating in 15key states to lend to small and medium sized fleet operators primarily financing used CVsof 5-12 years old. We aim to use this same branch infrastructure to expand our otherportfolios ensuring low fixed and operating costs.
FY2018 UNDER REVIEW
It is my privilege to share with you that IndoStars total AUM for FY2018 crossed` 62000 million with 74% in our Corporate business and 26% in our Retail business thebulk of which came from our SME business for now. Our overall disbursements for the yeargrew 10% year-on-year to ` 53884 million ending the year with 19% growth in our totalAUM. On the advances side IndoStar reorganised its business segments and now operatesfour business verticals: Corporate Lending which started in FY2011; SME Finance whichstarted in FY2015; Home Finance which started in September 2017 and Vehicle Finance whichstarted in November 2017. Much of the growth in advances came from our Retail segmentsincluding home loans and vehicle loans. Overall our Retail loans grew by 152% in FY2018which is in line with IndoStars strategy of growing more aggressively in thissegment. Within Retail home loans constitute ` 512 million in FY2018. Our home loanportfolio constitutes more than 3% of our Retail loans. Vehicle loans is a strategicpriority for the company. Vehicle loans stand at ` 1307 million in FY2018. Our Vehicleloan portfolio constitutes more than 8% of our Retail loans. On the SME front our loansin this business segment grew by 124% to ` 14532 million in FY2018 from ` 6501 millionin FY2017. Finally our Corporate loans remained flat in FY2018 standing at ` 45721million comprising almost 74% of our total business.
During the year in review we produced a consolidated profit after tax of ` 2244million up 6% versus over what we achieved in the previous year. Our profits would havebeen much better but for the significant investments we made during the year for buildingup our retail business. We invested almost ` 800 million in operating costs for the buildout of our retail franchise as well as a further ` 630 million approximately spent incapital expenditure for setting up our branches an operations centre and our VehicleFinance business headquarters in Chennai.
Our ROA for the year was 3.5% and the ROE was 11.1%. Looking forward our ROE shouldimprove steadily over the next 2-3 years as our operating and financial leverage set infor our retail lending business. Once our leverage is optimised we should be in aposition to deliver a sustainable ROE in the high teens over the longer term. In the nearterm given our upfront costs and excess capital post IPO in May 2018 our ROE is expectedto still be in the 10-11% range for the next couple of years.
Our Non Performing Loans (NPL) currently stands at 1.3% by FY2018. Most of these NPAsprimarily sit within our SME business where we enjoy good quality collaterals in the formof self-occupied residential properties. Though time consuming we are confident to bringthis well under control in the future. In the corporate lending business we have only oneNPL account as of now which also has a high probability of resolving without any loss.
IndoStar enjoys strong credit ratings and its funding costs have improved steadily byaround 310bps in the past 3 years thanks to the diversification of the Companysfunding profile and excellent ALM management. Over the past 3 years IndoStar hasdiversified its borrowing profile by shifting away from bank funding to NCDs andcommercial paper. In FY2018 alone the Companys average cost of borrowing declinedto 8.8%. from 10.3% in FY2017. This is comparable to our peers and keeps us competitivein the marketplace.
We currently have a very comfortable capital adequacy and leverage allowing ussubstantial headroom for the growth that we are targeting and for which much of our newinfrastructure and investments are already in place. For the past 4 years our CAR hasconsistently remained above 25%. After our IPO the Companys CAR has improved to32.0% as of June 30 2018.
Post demonetisation there have been a series of reductions in interest rates. As wealigned to the prevailing market forces and reduced our lending rates our margins werenaturally impacted placing our NIMs under pressure despite better growth in high yieldingloans and lower costs. In the period FY2018 the company recorded a 50bps contraction inits NIM to 6.3% despite better growth in relatively high-yielding loans and a 150bpsfall in calculated cost of funds. In response to this we have taken steps to contain andreverse the pressure on our NIM which can recover much better in an increasing interestrate scenario by aligning our liabilities more dynamically. We are doing this byintroducing short and long-term borrowings in judicious proportions which is conducivefor margin expansion.
As any prudent lender we seek to protect our lending margins. Lending to our clientsin the SME Housing Finance and to the bulk of our clients in Corporate Lending isalready at floating rates. Going forward to the extent possible we plan to contract newlending on a floating rate basis. Lending at floating rates will minimize risk to ourmargins as we will be able to pass through any increase in our borrowing costs. Goingforward we expect NIMs to remain stable.
We are also maneuvering our rates to gradually expand our overall fee income and itsshare of our total income. To insulate us further from pressures of fluctuating ratesIndoStar currently has a healthy fee income trend in corporate lending posting a 35% CAGRover FY2014-2018. I expect our fee income to continue growing in the upper quartile rangeled by the diversification of fees sources into retail segments such as vehicle andhousing finance.
The outlook for your Company is positive and strong as we are well prepared for thefuture. I expect to see a radical transformation in our business profile in FY2019 andbeyond with faster growth in our Vehicle Finance and Home Loan businesses. We haveexpanded our branch presence and our employee base to allow us to deliver on the retailgrowth that we have targeted to achieve. Today we are at 100 plus branches and 1400plus employees in terms of our outreach to retail customers. At both ends of theorganisation structure we have ensured that we are staffed with highly experiencedindividuals who have many years of domain expertise and experience in relevant markets.
The vehicle finance business is already operating out of 100 plus locations in 15states and monthly disbursement run rate today is around ` 1000 million. For our HomeLoans business we are hitting another ` 500 million per month on an average. Finally forour SME business we are attaining around ` 1250 to ` 1500 million per month on anaverage. On an aggregate basis our retail business will be driving our growth goingforward by booking business around ` 3000 million per month.
Going forward we are well capitalised for growth. After our recent IPO capitalraising the Companys CAR has improved to 32% as on 30th June 2018 (vs. 28.3% inFY2018). With our rapid expansion into retail we believe that your Company is well-placedto grow at a better than industry pace over the next couple of years without requiring toraise any further capital.
I thank all our shareholders for their continued faith in our strength andcapabilities our customers for their valuable support and trust lenders and our banksfor their support and our employees for their tireless efforts towards achieving ourgoals. We are on an exciting journey towards becoming a diversified lending powerhouse. Iwelcome you all to be part of this voyage of responsible growth and value creation.
Executive Vice-Chairman & CEO