Earnings call transcript: IIFL Finance sees steady growth in Q1 2025

IIFL Finance reported its first-quarter earnings for 2025, showcasing a mixed performance with significant growth in certain areas despite challenges in others. The company’s consolidated profit after tax reached INR 274 crore, marking a 9% increase from the previous quarter but a 19% decline year-over-year. Trading at a P/E ratio of 65.5x, InvestingPro analysis suggests the stock is currently overvalued relative to its Fair Value. The stock price saw a slight dip of 1.22% following the announcement, closing at INR 485.25, though it has demonstrated strong momentum with a 46% gain over the past six months. The company’s future outlook remains optimistic, with targets set for asset growth and improved asset quality.

Key Takeaways

• Consolidated profit after tax increased by 9% quarter-over-quarter.
• Loan assets under management (AUM) grew by 21% year-over-year.
• The company is exiting high-risk segments such as MSME and microfinance.
• Gold loans experienced a 30% increase quarter-over-quarter.
• Stock price decreased by 1.22% following the earnings release.

Company Performance

IIFL Finance demonstrated resilience in Q1 2025, achieving strong growth in its loan AUM, which rose by 21% year-over-year to INR 83,889 crore. The company continues to focus on its retail segment, which comprises 98% of its total AUM. Despite challenges in the MSME and microfinance sectors, IIFL Finance’s strategic shift towards safer, more profitable segments like gold loans has paid off, with a 30% quarter-over-quarter increase in this area.

Financial Highlights

• Consolidated Profit After Tax: INR 274 crore, up 9% QoQ, down 19% YoY
• Pre-provision Operating Profit: INR 836 crore, up 28% QoQ, down 31% YoY
• Gross NPA: 2.3%
• Net NPA: 1.1%
• Return on Equity (ROE): 7.6%
• Capital Adequacy: 28.4% (consolidated)

Outlook & Guidance

IIFL Finance has set ambitious targets for the upcoming periods, aiming for AUM growth between 15% and 18%, with the potential to reach 20% to 25%. InvestingPro data shows revenue is expected to grow by 22% in FY2026, supporting these targets despite current cash flow challenges. The company expects continued growth in its gold loan segment and plans to maintain a credit cost around 3.5% for FY26. Additionally, IIFL is targeting a reduction in gross NPA to below 2% by year-end, expecting overall improvements in the second half of the fiscal year. Analyst consensus remains strongly bullish, with price targets suggesting potential upside.

Discover comprehensive valuation analysis and growth projections with InvestingPro’s detailed research reports, available for over 1,400 stocks including IIFL Finance.

Executive Commentary

Nirmal Jain, Founder and Managing Director, emphasized the company’s focus on building a high-quality retail loan franchise and noted the constructive macroeconomic backdrop. He stated, "We remain focused on building a high quality compliant retail loan franchise," highlighting the company’s strategic direction. Management also expressed optimism about future performance, stating, "We should see things better from here," particularly concerning the Andhra Pradesh project exposure.

Risks and Challenges

• Challenges in the MSME and microfinance segments could impact growth.
• Global trade tensions and potential oil price fluctuations pose macroeconomic risks.
• The company’s cautious approach to unsecured lending may limit growth opportunities.
• Regulatory changes could affect operational dynamics.

Q&A

During the earnings call, analysts inquired about the challenges in the microfinance and MSME segments, seeking clarity on asset quality concerns and potential insurance scheme recoveries. The management explained the factors driving gold loan growth and reiterated their commitment to maintaining asset quality.

Full transcript - IIFL Finance Ltd (IIFL) Q1 2026:

Speaker 2: Ladies and gentlemen, good day and welcome to IIFL Finance Q1 FY26 earnings conference call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing Star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to the management. Thank you. Over to you.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Thank you very much. I welcome everybody on the first quarter results earnings call for fiscal 2026. On this call I’m joined by Mr. Nirmal Jain, our Founder and Managing Director, along with Mr. R. Venkataraman, the Joint Managing Director of the company. We also have the CEOs of two of our subsidiary companies, Mr. Monu Ratra, CEO of IIFL Home Finance, and Mr. Venkatesh N, who is the CEO for IIFL Samasta Finance. My name is Kapish Jain. I am the CFO and as we take it forward I would like to now request Nirmal to just take over and give an update on the broader macroeconomic situation, industry update, and company strategy for this quarter and going forward. Thank you. Kapish: Good afternoon everyone and thank you for joining us. The macroeconomic backdrop remains broadly constructive.

India continues to demonstrate strong growth fundamentals with stable inflation, improving rural sentiment, increasing digitization and formalization of credit, and for NBFC sector the growth MPA remains wide, supported by rising retail credit demand, digital inclusion, financial inclusion, and the robust regulatory framework. However, the operating environment is not without its challenges. Asset quality in MSME lending has come under pressure across the industry, especially in the unsecured and microfinance segment, reflecting regional volatility as well. Even in our portfolios, NPAs have edged up sequentially but we have acted swiftly by curbing exposure to high-risk segments, recalibrating our policies, deploying dedicated collection teams, and embedding AI-led early warning systems. On the global front, rising trade friction, especially the return of crude oil from the U.S., is something we are watching.

While near-term impact on our customer segment is likely limited, we remain vigilant given the second order effect on inflation, currency, and export-linked MSME. Yet on the whole, Q1 FY26 has been a quarter of revival and reassurance. Our gold loan business has fully bounced back from last year’s embargo, reaching an all-time high in the year. MSME secured lending continues to be one of our core growth engines and we are exiting the riskier segment. We also strengthened our governance and risk architecture. We have bolstered our leadership team and doubled down on stack-led execution and innovation. We remain focused on building a high quality compliant retail loan franchise, generating targeted return on equity and fulfilling the mission of financial inclusion. With this, now I hand it over to our Chief of Katrina to walk you through the detailed financials.

Yes, thank you very much Binwal, to take this forward and give you a more detailed update on the quarterly numbers for the quarter. At a consolidated level, IIFL Finance reported profit after tax before controlling interest of INR 274 crore. This is running in a 9% up quarter on quarter and 19% down on a YoY basis. We recorded a pre-provision operating profit of INR 836 crore. It’s again up 28% quarter on quarter and 31% is down to YoY. As you all are aware, last year we also were hit by the gold embargo which is causing this negative shift. However, the momentum is on the upward side when you compare things on a quarterly basis. For the quarter, the consolidated loan AUM grew by 21% and was up 7% quarter on quarter to around INR 83,889 crore.

As Nirmal mentioned, this is led by gold, which has already surpassed the past embargo limit and we were up around 30% quarter on quarter in the gold AUM and on a YoY to INR 27,274 crore. If I further dissect the AUM, the retail segment comprises 98% of the overall AUM, which is like home loans, gold, MSME, and microfinance. They all aggregate an upward movement of 27% YoY and 7% quarter on quarter. Our gross NPA is in line with our guidance and stands at around 2.3%. In a large balance sheet, there could be margin shift a few basis points, but it’s in line with our guidance of 2.3% and our net NPA stands at around 1.1% and when compared to same time last year it’s the marginal of around 10 basis points.

The company maintains a very cautious stance on the MSME and microfinance segment and we’ll continue to keep our focus on the recovery collection and as things get better we’d like to see how we can further build up the portfolio. We have been implementing and we build our credit on the ECL model and under the provision. The coverage on this overall portfolio stands at around 91%. The assigned loan book currently stands at around INR 15,061 crore. This is up 3% YoY and more importantly up 18% quarter on quarter. Besides this, the co-lending book assets also moved up to INR 11,565 crore, up 21% YoY and 9% quarter on quarter. Our quarterly average cost of borrowing increased by 34 basis points on a YoY basis and that reminds me of around 4 basis points to 9.45% on a quarter on quarter basis.

We’ve been maintaining good and healthy liquidity. If I give you an update, during the quarter we raised around INR 14,008 crore of borrowing through term loans, bonds, and commercial papers, and with the gradually seasoning of the portfolio we could also enhance our direct assignment transactions like we have done historically across banks and including the gold loan portfolio to around INR 4,489 crore this particular quarter compared to INR 2,400 crore last quarter. Our cash and cash equivalent stands at around INR 7,367 crore, adequate to not just meet our short-term liabilities but also support our growth momentum. As we ended sizes for these particular asset classes, we are positive of our AUM are across buckets and the net giving trend at around 3.4x on an annualized basis. The ROE stands at around 7.6 with ROE from one point.

Our basic earning posture for the quarter spends around 5.5. We are adequately capitalized with the consolidated capital adequacy spending around 28.4%, much higher than the minimum threshold of 15%, and individual companies’ capital adequacy spent around 18.3 for the NBSE, 47.4 for HSE, and 28.4. Most of microfinance in line with our endeavor to enhance our standing on the board both from a governance and supervision perspective. We are pleased to have Mr. B.P. Kanungo as one of our board members in the act of finance. As you would all know, he was a former RBI Deputy Governor. We also have Mrs. M.V. Bhanumathy, who was the former income tax commissioner on the board of housing finance company Apple Housing. There had also been meaningful changes on the management side to kickstart some of the critical initiatives like AI innovation.

With this, I come to the end of the entire presentation and open the floor for Q and A. Over to you.

Speaker 2: Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press Star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press Star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Chetan Gindolia from Mahindra Manulife Mutual Funds. Please go ahead.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Yeah, hi sir.

Just wanted to understand the changes that have happened on the asset quality side in this quarter. We’ve seen that across all segments other than gold and capital markets, most of the segments, both stage one, stage two, stage three, they have all seen the deviation. Can you explain, segment by segment, what are the key figures that have happened on asset quality and commensurately what has been the impact for credit cost in this quarter, and how do you see the credit cost going up ahead?

Asset quality has improved. I don’t think there’s any stress in the. The core home loan also is a marginal difference. The primary problem is microfinance and then MSME. They’re also unsecured in the micro LAP, the small ticket LAP. These are the issues that we have and in home we had exposure to the Andhra Pradesh state government scheme where the project is halted, which are small exposure, but other than that it’s not okay. If you really look at gold loans, which is like almost one third of our business and will go even faster, and then the home loan, the core home loan product comes to more or less. I mean it’s not. It’s a very small marginal business but not much. It’s 1.1%, 1.31% now and what we are seeing now is that even other segments, particularly MSME and microfinance, also things are.

I mean the industry wide trend, but they’re getting better.

Hello. Even the secured MSME is a substantial portion of the book. Over here, how do we see the banks going ahead? What sort of provisioning can come from this segment?

If you look at the overall portfolio, let me give you the brief. Just look at the product parameter flow segment by segment.

Speaker 2: The management line is not clear.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Hello, can you hear me?

Speaker 2: Yes, better now.

Yeah.

Nirmal Jain, Founder and Managing Director, IIFL Finance: 38% is home loans where, I mean, there’s a small INR 500 crore portfolio out of which 65% is pain, but that’s where there’s a stress. Other than that, that 13% is not a problem. MSME secured, what we are seeing has come down because that micro LAP, which is, you know, the micro canoff consumers, is a cluster or a very small segment of customers that we are discussing. The new businesses are not taking place. The rest of the portfolio is okay, and microfinance, which is about 10, 11% now, I mean, that’s also stabilizing across industry. I think going forward, this part, we had a total loan loss provisions of over five years close on a consolidated basis, which is a little higher than what our guidance and expectations were last quarter.

We were talking about the guidance, I think 2.5 to 2.7%, but we might end up, if you see the first quarter trend, hopefully even if it be a conservative, be around 3.5%.

Thank you.

Speaker 2: Thank you. The next question is from the line of Shubranshu Mishra from Philip Capital. Please go ahead.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Hi.

Three questions.

The first one is gold loans.

What is the onboarding LTV that we have on the gold loan right now?

Second is in terms of housing finance, is the CLSS too acting as a demand driver, or is it too tedious.

In terms of operational challenges.

Third is around a securitization in IIFL Samasta. It’s been coming off. Are we facing issues in securitization or people asking for more?

Cash collaterals, any changes in covenants especially IIFL Samasta Finance from our raw material providers.

Thanks.

The LTV in gold loans is very supportive products. We incentivize our customers to take a lower LTV and get benefit of lower rate of interest. Also, the yield has slightly improved in this quarter. If you see the first slide, which is slide, I think, two, the yield which was 17.6 when we restarted was 17.8 and is now 18.2. Our LTV on a portfolio level is 66%, but at the time of giving loan is around 70-75%. There are customers who can come and revise or can do the top-up loans if they want to. Based on the portfolio level, we are around 66% right now. Secondary homes start because the disruptions are slow. The new loans are also the processes that building up at this pace.

In Q1, we did a direct assignment of INR 700 crore and, sorry, INR 1,100 crore in total of a DA and a referral. Actually clocking. For Samasta, we did a fairly good amount of sell down of pool assets by way of direct assignment.

Right.

Any cash collaterals being asked? No, in the DA there’s no cash collateral. DA happens without cash collateral. Etc happen with cash collateral. VA is not doing that now. Maybe the Venkatesh N probably can address the CLSS2 issues as far as TLSS2 is concerned. You’re absolutely right. It’s operationally cumbersome. As last time also, we did pretty well on that. We’ve already given subsidy to 1,600 people.

Which we have done.

I think we got the hang of it. It took us a while, but we’re pretty confident that this will act as a very good demand engine for us going forward. We’ve understood the nuances of it, and we’ve already got subsidy for 1,600 people. This time the government is pretty strict. Once you upload everything, the subsidy is coming pretty promptly. Right.

The salaried formula that we do in home loans, these are from CAT.

A companies, Cat B companies, Cat C companies. What kind of salary levels, income levels.

Are we speaking about?

Yeah, yeah. Typically, this former salary for home loans is typically in very decent companies as a market super cat company. B or C companies where people are in the down the order in the hierarchy of the occupation they are in. These are absolutely in B or C category employees, companies, average incomes of those customers. Now, if you talk about the metros and other places, the average household income will be upwards of INR 50,000, about INR 600,000 per annum in the range of constriction.

Understood.

At the point of origination, the DVR at the point of origination is below 50%.

Right. Right.

I’ll come back in with you.

Thank you so much.

Speaker 2: Thank you. The next question is from the line of Anusha Raheja from Lalan Roha. Please go ahead.

Thanks for taking my session. You said that for the full.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Fiscal, you anticipating selling cost of 3.5%. Do we anticipate that going ahead for?

The next two quarters, the asset quality.

The MPS will continue to be.

Speaker 2: On a higher side.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Your worry was not completely there. We had 3.5 is something that you mentioned. Can you repeat your question?

Think that we are anticipating credit cost of closer to 3.5% for the current fiscal. How do we anticipate for the next two quarters? MSME and on the microfinance the NPAs will remain and the slippage will remain on a higher side.

I’m saying that if you look at the first quarter trend, which to our mind is a highly elevated cost, then let it go to 3.5%. We believe that things will get better, much better in the second quarter, most of the second half of the year, and we should be able to end the year at a low or not 3.5%. Sorry, I just want to correct it. I’m saying going by first quarter trend if you just work out those numbers, then it goes up there. Hopefully things will not be at it throughout the year. In the first quarter, because there was a sudden unexpected hit of the microfinance also and MSME because the trend suddenly in Karnataka and some of the states has worsened.

If you really look at it, in the last few weeks RBI has got more a stand liquidity and ease, and there’s an impetus for growth, and this impact will come, will be felt by the industry and MSME maybe a little bit after a lag. I believe that things will get much better from here in the second half. As things stand, probably the first quarter has been a little much worse than what we expected in terms of credit cost and primarily for MSME microfinance.

Okay. Sir, on the AUM growth side, if you can just give some color on the gold loans, we are seeing a strong growth coming in there. On the home loans, I think the growth is slightly, you know, slightly tangled. On each of the segments, if you can just give some color, how do we anticipate AUM growth for the full year and some color on each of the segments as well.

You’re right. Gold loan growth has been much stronger, so there is at least one positive news in that sector, or that segment has been better than probably what we would have anticipated or guided home. First quarter was flat, and first quarter is very traditionally, historically flat. We were also recalibrating our underlying policies, exiting and consolidating some of the segments of businesses. It’s grown only by 1%, but on an annualized basis, we can see the big theme is what we should see at the end. Yes, otherwise I think maybe 15% to 18% growth is what should be very doable.

Lastly, I think on a QoQ basis we have been seeing a dip on the margins on the spread side. Was it purely because of the fact that there could have been interest rate reversals on the NPA accounts, or was it something additional related to margin price?

Does anybody see the higher elevated NPAs?

Any.

What is the broader call that we expect, you know, margins for the full year? How do you anticipate that number moving?

MSME loans and microfinance. I think that all these sectors, all these segments of the business are getting better and interest reversals will also reduce. The second half will be much better, and things will start getting better from now.

Okay, thank you sir.

Speaker 2: Thank you. The next question is from the line of Deepak Podar from Sapphire Capital. Please go ahead. Mr. Deepak, are you there?

Hello?

Nirmal Jain, Founder and Managing Director, IIFL Finance: Am I audible? Yes, yes.

Okay. Okay.

Thank you very much for the opportunity. First of all, just wanted to understand now, given your credit cost outlook is now 3.5%. What sort of ROA are we looking at for this year? I think we were targeting closer to.

3% as per our previous call.

Now, given higher credit cost, what sort of revised outcome should we look at? We were looking at, I think, 3.5%, 3%, close to 3% ROA.

That’s what we mentioned in the last call.

The credit cost might submit from 2.9, 2.7 level. If it goes up to 3% partly we should be able to meet. Now interest rates from this quarter probably will see a reduction in the borrowing cost and maybe more so in the second half as a lot more loans come for a given rate and as the volumes grow. For example, in gold loan business we also see some benefit in cost to income ratio also. At this point in time it’s too early to change the guidance or expectation on ROA that we have. We’ll watch how things progress from here. We still maintain 3% kind of ROA. I mean you want to maintain that? Yeah, we should maintain that. Okay.

Okay.

In terms of overall growth, I think you mentioned 15 to 18% on the AUM growth we are looking at.

On a console level, right?

Yes, 15 to 18% level should be higher, maybe 20%. Between 20 to 25%, around 30%. Actually, the microfinance is slower, but around 20% is 10 bars. We expect gold momentum to continue. On a confirmed level, 20% would be a good estimate.

15% to 18% was for home loans.

Yeah. The three problem areas that you mentioned about microfinance, MSME, and small ticket LAPs, what percentage of our book currently forms? If you look at the businesses that we have, actually on slide 5 it is given. MSME that we discontinued, this unsecured business is 2.4%, and the last is 3.1% of trading book. Rather, they are about 5%. Microfinance is 10-11%. Microfinance, I think, because with the policy support, RBI support, credit guarantee or whatever, the growth, we are not discouraging that business. The business degrew in the first quarter, but I think in the next three quarters we will have some growth areas, which is around 10% or so for the full year. Okay, I got it. Now that RBI has allowed us to open new branches, any branch expansion plan we have laid out for us?

As of now, the existing branches still are below their full capacity. First, we want to focus on the existing branches in this quarter. Once we see that they are stable and in terms of the profitability, they get back to the level we expect them to be. At that time, we can take up next time. Sure. Just one last final thing. Now that, I mean, this quarter we had some impact of guardrail also.

That was got that.

It got implemented from April. Now, on an absolute basis, one should look at quarter-on-quarter provisioning declining.

Is that a trend that one should?

Look at going forward? Yes, actually there are some unexpected things that keep happening, but what we have seen is the ups and downs. Now that things are getting stabilized in microfinance, which is one big problem in India and also in MSME, I think the quarter, I expect second half is much better because signally that’s where the credit takes off. The interest rate trend seems to be down. The benefit will come after some time, maybe after a few months. Hopefully, second half will be much better. Yes, partner, we should see declining trend.

Fair enough.

That gives a good sense. That’s it.

From my side, all the investors, thank you so much. Thank you.

Speaker 2: Thank you. The next question is from the line of C.L. Z Key from Nikko Asset Management. Please go ahead.

I have questions on your asset quality. For your exposure to the beneficiary, hold on, what do you call it, the Andhra Pradesh block. In terms of the NPA, how will you guys manage it? Will you guys get any kind of resolution with, say, the government?

Nirmal Jain, Founder and Managing Director, IIFL Finance: Yeah. Hi Pierre. I’ll just beneficially let construction. First of all, just to give you a perspective, the total AUM is about INR 500 crore.

At the loan book level, it’s about INR 200 crore, INR 400 crore.

It’s a very small amount in terms of the total AUM.

At HFC level also or at the.

Level of the group as well.

It is a very mild exposure.

We are only, if you will see, we have already been able to, about 20% of our customers prepaid the loan already, whatever hit we had to take. 65% of the customers are below 30 GPD, so they are anyways paying, and 19% have already gone to be NPA. We already taken the majority of the hit we had to. The rest of the people are paying. This was a seven-year product. Over two years have already gone by. I don’t see any major impact of this. On the ground also, we see things getting back on track in terms.

Of the overall development of these projects.

We should see things better from here.

Okay, there are two segments that you guys discontinue, right? There’s no discussion for this quarter. In terms of the exposure that’s existing, do we expect to see exposure eventually becoming NPA?

No connection. You know, infrastructure and apparatus is limited. I don’t think that just because we are discontinued there’ll be more NPA than this. These are the, okay, I’ll tell you what is done because we did a lot of analysis of this. On the face of it, they have a higher yield which should take care of the risk, but they also have higher operating costs. They basically are hugely, and they are very volatile because these are the bottom of the pyramid where they are vulnerable and not resilient. The total portfolio of our owner’s water loan portfolio is about 5% of the deal. What we have done is that actually we have increased our force for collection business. We have our care improvement team which is focused on collection of these discontinued businesses. The real trend will not change because of discontinuity.

Already we have a stress that we deal with and we will recover the exit that we can.

Okay, one more question on my end.

If you don’t mind.

In terms of the NPL currently at 2.3%, what are we expecting for the next two to three quarters?

You know, we want to keep gross NPA at less than 2% on the whole. Our target will be to get there. In the last two, three quarters we’ve been out of that, but otherwise you have to get back to, you know, the FY2023 level. There have been different regions from like gold loans last year. Our target is for maybe 2% by the end of the year.

Thank you. Okay, thank you.

Thank you.

Speaker 2: Thank you. The next question is from the line of Suraj Das from Sundaram Mutual Fund. Please go ahead.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Yes.

Yeah, I think most of the questions have been answered. Just one question in terms of this short term lab. I mean the micro ticket lab is the problem. Any geography specific or you are seeing this pain across the states, I mean irrespective to the geography. That’s just one question from my.

Yeah. Typically we’ve seen more stress in Andhra Pradesh as one bigger piece which we saw. The second was the upcountry Maharashtra. We had larger exposure in Andhra Pradesh. AP has been a bit stressful. I would say top two states would be Andhra Pradesh and then Maharashtra, smaller cities of Maharashtra.

Okay, sure.

Thanks.

Speaker 2: Thank you. The next question is from the line of Navneet, who is an individual investor. Please go ahead.

Hi sir, my question is, sir, I believe you’ve surpassed your AUM which was there prior to the RBI embargo. December 24th is the reference. December 23rd the reference point I’m taking. However, your pre-provision operating profit is much lower. I believe your other income, you know, before the embargo used to be in the range of INR 50 crore per quarter, which is now in single digit crores. Your operating expenses have also gone up a bit. If you can just talk us through this.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Yeah, you’re right. There are two, three regions from this and the portfolio in the initial first two quarters we built at a slightly lower rate of interest. Last year also we gave increments as normal to the existing people. Not only did we retain all the people, we also gave them normal salary increment as our existing increases in all the cost every year. Every year for similar kind of property we have at least 10% higher volumes. In the self-loan business, the significantly higher loan losses and closures are coming from the MSME segment of the business, which during the gold loan embargo period, we have grown at a fairly good pace and that has come under stress across the industry. That has contributed significantly to lower profit. Sir, if you can talk a.

Little bit about your other income, it’s in single digit crores per quarter right now, and it was averaging about INR 50-67 crore.

The other income is INR 37 million above that.

Referring to your earning, the consolidated. You’ve reported INR 6.5 crores of other income in this quarter. It’s been ranging in this, you know, the line below total revenue from operations, INR 6.5 crores in this quarter, INR 3.1 crores in the March quarter, INR 12 crores in the June quarter last year. This number used to be in the INR 50, 60, and maybe even 90 crores range prior to the embargo. I was wondering, since you’ve already surpassed the AUM, what is the difference?

No, one is that the insurance companies basically cross-sell, used to give us marketing. Just give me a minute. Yes, hello. Yeah, hello, can you hear me?

Speaker 2: Yes, sir, we can hear you.

Nirmal Jain, Founder and Managing Director, IIFL Finance: I think the fee structure from the insurance company has been negotiated separately. There are certain features which they used to support by way of marketing support, your lever income itself.

Okay. Going forward this will be the new normal. We’ll earn lesser other income on it.

Own low sometimes when there are certain capital gains or certain IPOs in that count by then falling. What you’re saying is right, that.

Understood.

What will happen is that the fee and the commission income, what you see above, will grow faster because you know that is 12.6 even in a flat quarter of Q1. A part of income will get reflected there. You see the lines above, a three-year commission income from office, other commission, other 94.9.

That’s right.

You know the some part of this income will get reflected there.

Understood. Okay. That’s all I want to understand.

There is gone off significant, I mean there is gone off in the Q1 or Q4 also.

Understood, right. Thank you so much, sir.

Speaker 2: Thank you. The next question is from the line of Abhishek from HSBC. Please go ahead.

Hi, can you hear me?

Nirmal Jain, Founder and Managing Director, IIFL Finance: Yes.

Yeah, hi. My first question is gold loans. Now we’ve surpassed the levels we were at when the ban came into effect. From here, would the growth normalize or would you still continue to see this kind of QoQ growth? How are you thinking about the business now and when does it normalize? If not this quarter, maybe next quarter or by year end.

I think growth should continue and actually catching up. If you look at our disbursements per month, they are not specific in the house. I think at least the next 2, 3/4 we should see the growth continuing.

Okay. I think this kind of growth, so disbursement requirement in gold will be much higher than the net book growth, which means that you’re borrowing more and it’s also pressurizing your cost of funds. Is it, I mean, why continue to grow so far? Because see.

Okay, I’ll just little of correction. First of all I will be able to do co-lending and direct assignment at a faster pace. Therefore, I don’t see that the cost of funds will start easing now. Hopefully, because if beneficiaries can handle these volumes and we should be now the industry wide. If you see there has been a growth in their business, stronger growth in bank last year and MBSCS also. We are just trying to catch up at least partially if we grow it faster as we maintain the growth momentum because in the market even if there’s a slightly higher interest cost as we have seen last quarter, I’ll come back to the reality a bit, but that is more than made up by operating cost leverage advantage that you get together will not go up in the same proportion.

Plus the yield here is 18% which is a fairly good yield to take care of today. Coming back to cost of fund, last year we were, I mean last quarter we have to pay slightly higher cost of fund because the beginning of the quarter liquidity was size. It’s only towards the end of the quarter that we saw the new volatility policy, Reserve Bank of India stepping in to ease ambiguity, bringing down interest rate and CRR, and that in fact we are seeing in this quarter when we are negotiating with banks. On the cost of fund, probably you see still after a lag of a quarter, but I think liquidity has eased and we don’t see any big difficulty measuring the pace of growth by borrowing or more than borrowing by DA in school.

Okay. The second question is actually to Venkatesh on MFI. Can you give some sense on how much was the disbursement in 1Q and where do you see disbursements next quarter, quarter after, and similarly in terms of credit cost is there any write back or utilization of some contingency buffer or anything, or is this like a clean credit cost, and how do you see that for the next two three quarters? When do we start seeing a sharper improvement in that number?

Our disbursement in the first quarter would be around INR 1,300 crores, and our provisioning remains the same. It continues to be the same from.

What we were provisioning around in the quarter four. Going forward, how do you see disbursements from this quarter onwards? Yes.

I mean if you look at most of the collection, things are almost settling down barring, I mean, again, if it’s been raining in some pockets, so slight discrepancies are there, but we hopefully that dispersals will pick up post this settlement. Normally, towards this festival season, we have the biggest dump, and predominantly, if you look at microfinance, it’s always been the second half of the year game.

Actually, most of the disbursals happen now. Okay.

Next month, yeah, we are looking, we did around INR 1,300 crore in the first quarter. It should hover around INR 1,800 to 2,000 crore in the second quarter, and it should.

Pick up from there onwards. Okay, great. What about credit cost? How do you see that in 2Q and then 3Q? What kind of improvement do you also, when do you expect it to normalize?

See, I mean we have always given that post Covid credit cost has slightly moved up. For the credit cost for a full year, it will be at around 6% to 7% kind of a thing.

Okay, for the full year, yeah. I think this quarter you’re at 8% annualized. It should normalize pretty quickly from here.

Yeah. Okay, third question is actually.

Yeah, yeah, no thanks. That’s clear. The third question is from your slide 20. I think what you have given is the MSME secured loan breakup. If I look at Microlab in Home Finance and I look at the part in Samasta, both of them have very similar average ticket size and almost similar yields. If you see the NPA they are far apart, in some of the 3.5% in Microlab Home Finance is 15%. Is there any fundamental difference in those two portfolios or customer profile difference or what makes the asset quality experience so different? The book size is also similar, right? Roughly 20% each. Yeah, that’s the question I think Abhishek.

Customers and the Micro Lab is cross sell. The Micro Lab has been approaching new customers or the customers who have track record in the microfinance business. Yes, the Micro Lab is, I mean IIFL Samasta Finance is a cross sell customer. The customer already has a portfolio and they get a different loan. When we look at Micro Lab, these are new customers. These are basically customers who, based on their track record, based on their pre-underwriting, we’ve been traffic. What has happened is that where a customer already has a microfinance loan and a good track record and our connection people, our salesforce are already in touch with them, it’s a smaller portfolio. That’s where we have done better.

Okay, both are secured, right? Both are secured. Okay.

Yeah, these are secured, but you know these are small value properties. Repurchasing them, selling them is a deadline that can happen, and ultimately you can reduce the losses. If they’re impacted by the cash flows, then obviously it’s recognizing as NPA. They’re all secured by residential or commercial property.

Got it. Okay. Okay, thank you. Thank you. Those are my questions and all the best.

Speaker 2: Thank you. The next question is from the line of C.L. Viki from Nikko Asset Management. Please go ahead.

Can I clarify on credit cards? I can’t hear clearly. What is the expectation for full year?

Nirmal Jain, Founder and Managing Director, IIFL Finance: I think we’ve been discussing that the credit cost will moderate from the first quarter level. I think the full year where you are expecting 2.5%, 2.7% but might end up at around 3% at this point. That’s probably the best estimate at this point in time.

Thank you.

Speaker 2: Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Yeah, good afternoon, sir.

Thank you for taking the question. Just two questions. I don’t know if they have been covered earlier, joined a little late. First thing is this microfinance portfolio that we have in our housing finance subsidiary.

We should be able to leverage Sarkisy, right?

For this microfinance portfolio. I understand. Maybe.

Yes, very much. Yeah. I was trying to understand.

Is if you can leverage SARFAESI for this micro loan portfolio and also, I mean, is the quality of collateral, the size of the loan good enough to really leverage SARFAESI and try for recoveries? That was my first question.

The second question is to just.

Trying to understand what happened in gold loans in this quarter. Very, very strong growth. Compliments to you for that.

What I’m trying to understand is.

Usually the gold loan growth that one usually targets in a year has come in the first quarter itself. We are seeing very, very strong growth in gold loans in this quarter across the industry.

In your view, what really happened?

In this quarter, which to such a high supporting gold loans.

If you notice, the microfinance loan portfolio has gone down from something like INR 430,000 crore to INR 350,000 crore. There are several portfolios. Many of these customers, MSME Enterprises earlier would have taken, now that they have no source of funding, so they might be taking gold loans. That is one. Two, gold prices have been firm. Basically, the loanable value also has gone up against the gold. That is the second reason that I believe. Thirdly, even the economic momentum has been improving, the growth momentum in the macroeconomic environment, the human demands. There are slight improvements. Actually, we are seeing good traction. I think these are the reasons for the gold loan growth to be strong across the industry. Abhijit, answering you the question of the collateral and the suffering fee execution, these are collaterals very much executable and which we have started doing expeditiously now.

In that way, they are pretty secure and we have given it against the residential houses only. Because of the business which we have discontinued, the EMI is also dropping quarter on quarter. We should be able to handle this in the subsequent quarter. Thank you.

That’s also from my side, and I wish.

Thank you.

Speaker 2: Thank you. As there are no further questions from the participants to the management.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Hello.

Speaker 2: Yes, I saw.

Okay.

Okay. The next question is from the line of Sudharshan from Prosperity Wealth Management. Please go ahead.

Thank you for taking the question. My question is on the unsecured MSME part. In the TV call you mentioned those come under insurance scheme. Is there any possibility of reversal in coming quarters?

Nirmal Jain, Founder and Managing Director, IIFL Finance: Yeah. In the insurance scheme of October 1st, it has started getting covered. This could be the prior move. It can become that one, two. Yes, there’s a recovery possible and some recovery happen. You know the way the scheme works on main interest, you don’t get the first 3% of loss and you get 75%. Basically, you get 75% minus 3% of the overall portfolio, so you get only part reimbursement. Yes, for the loans that are covered, that will happen. As I said, I think our police started getting covered once about 69 days ago, so they may not be under cover.

Okay, understood. On your gold portfolio, you mentioned your Q1 growth momentum will continue for upcoming quarters. How long is this going to continue? Like, you have reached, I think, 47%. Is it going to continue till your peak 60% or is it like.

As of now it looks good to continue. I mean as I said there are several factors looking for it. Maybe next 1 or 2/4, 3/4, 2/4 we see movement activity, and it’s very difficult to forecast beyond that.

Okay, thank you.

Speaker 2: Thank you. As there are no further questions from the participants, I now hand the conference over to management for the closing comments.

Nirmal Jain, Founder and Managing Director, IIFL Finance: Thank you very much, ladies and gentlemen, for your time on the call today. With this, we come to the end of our quarter one earnings call. However, for any further question, you can always reach out to our Investor Relations team and we’ll be happy to assist.

can provide you any further clarification on ID numbers.

Thank you very much.

Speaker 2: Thank you for joining us. You may now disconnect your line.

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