Ladies and gentlemen, good day and welcome to the IIFL Finance Q2 FY 2027 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference call over to Mr. Vikas Jain, CFO of IIFL Finance Limited. Thank you and over to you, sir.
Yeah. My name is Vikas Jain, CFO of IIFL Finance. Thank you very much and a warm welcome to all the ladies and gentlemen who have joined us today for IIFL Finance Q2 FY 2027. Joining us on today's call are Mr. Nirmal Jain, our Founder and Managing Director; Mr. R. Venkataraman, our Co-Founder and Non-Executive Director; Mr. Girish Kousgi, CEO of IIFL Home Finance; and Mr. Venkatesh N. CEO of IIFL Samasta Finance.
During this call, we will take you through the company's performance for the second quarter and half year ended September 30th, 2026. Before we discuss the detailed financial and operational performance, I would like to hand over the call to Mr. Nirmal Jain, who will share his perspective on the macroeconomic environment, key industry developments, and the company's strategy and outlook.
Thank you, Vikas. Good evening, everyone, and thank you for joining us. Let's start with the macro environment. Macro backdrop remains very supportive of retail credit in India, but it is not without uncertainty. While domestic demand is steady, formal credit penetration in small towns and areas where we operate in is still very low. At the same time, global uncertainty, volatile oil prices or commodity prices and tight funding conditions mean that balance sheet strength, asset quality, diversified funding and liquidity matter more than ever before. In this environment, we have chosen to grow with discipline, keeping adequate liquidity and strict control on asset quality.
Now to the quarter. Our AUM crossed INR 1.24 lakh crore, which is a growth of 38% YoY and 8% sequentially QoQ. Profit after tax on a consolidated basis was INR 805 crore, first time crossing the milestone of INR 800 crore, up 13% quarter-on-quarter and 92% year-over-year. What is important is our gross NPAs have improved and they remain at around 1.5%. Our return on equity now on a consolidated basis is above 20%, what has been our target. The book is about 90% secured now, and our liquidity is significantly higher than what normally we keep given the global environment and uncertainty, as well as liquidity tightening expected in local market at INR 13,805 crore on a group basis.
Our capital adequacy on a computed basis is 23.5%, but we can discuss individual companies separately. Our strategy remains resilient capital efficient growth and that is based on six pillars. One, secured lending as we have pivoted to secured lending and that is already now 90% of our total loan book and we will endeavor to maintain it at these levels. Second is capitalized growth. Our off-book AUM is 34% of our total loan assets. There are 18 banks that are active co-lending partners now. Many of these relationships have started recently and will scale up.
We have originated in last 10 years over INR 1.7 lakh crore loans which are assigned to banks for co-lending. Third is our funding and liquidity. Fitch upgraded our rating to BB- . We raised $300 million social bond. We also did a small issue for the first time of the tokenized bonds. More importantly, liquidity I already talked about, that we have over INR 13,000 crore, which is all-time high. In the previous quarter, we have taken an enabling resolution from our shareholders to raise equity, which will further strengthen our balance sheet as we go along.
Fourth, AI is part of how we operate and I think many of projects have moved ahead of pilot and they have been deployed with reasonable success. Fifth is branch-led distribution. Our strategy remains physical because our gold that customer pledges with us has to be physically stored. In aggregate, including gold loan microfinance, we have more than 5,000 branches now and primarily serving underserved customers across the country.
Sixth is our credit and cost discipline. As you have seen our numbers that we are trying to make sure that our credit cost and the operating cost moves outward in relation to our loan assets, and which will help us strengthen our balance sheet further. Looking ahead, we are confident that this momentum will continue through FY 2027 and will remain disciplined on asset quality and capital. Thank you. With this, I hand it back to Vikas to take you through the financial details.
Thank you, Nirmal. Now I will take you through the detailed financial and operational performance for the quarter. Overall, quarter two financial year 2027 reflects the strong business momentum, improved profitability, continued progress towards our building a secure and capital efficient portfolio. We remain conscious on the significant portion of recent growth as comes from the gold loan. Capital adequacy, liquidity, portfolio concentration and risk control therefore remains an important area of focus. Coming to the consolidated financial performance. At a consolidated level, our loan AUM increased to INR 124,268 crore, representing the growth 8% quarter-on-quarter and 38% year-on-year basis.
Our core businesses, gold loan, home loan, MSME loan and micro finance now accounts for around 97% of the overall portfolio and grew 43% on a year-on-year basis. Our portfolio remains predominantly secured, with secured loan accounting for approximately 90% of our AUM. Gold loans represent around 53% of our portfolio while home loan accounts for approximately 27%. Consolidated net interest income increased 13% quarter-on-quarter to INR 1,480 crore, while total income grew by 6% to INR 2,340 crore and pre provision operating profit increased 8% to INR 1,355 crore.
The loan loss provision has declined by 5% sequentially to INR 281 crore. Consequently, the profit after tax non-controlling interest has increased 13%, a very healthy quarter-on-quarter to INR 805 crore. Nirmal just mentioned this is the first time we have crossed on a quarterly basis our INR 800 crore milestone, and on a half yearly basis it stood at around INR 1,518 crore. Again, if we see on the operating efficiency, we continue to improve with operating expense to average AUM has now declined to 3.3%.
What is heartening to note is that this is compared to the peak level of 4%. The annualized return on asset for H1 stood at 3.1%, while annualized return on equity is 20.1%, which is upward of our 20% target levels. The consolidated portfolio yield has declined by 3 basis point on a quarter-on-quarter to 16.5%, so largely remains stable. The cost of borrowing has increased by 3 basis point to 9.08%, again, largely remains stable, resulting to 6 basis point narrowing in our interest spread to 7.42%. Asset quality remains broadly stable.
Consolidated gross NPA declined by 7 basis point on a quarter-on-quarter to 1.48%, and net NPA stood at 0.87%. Overall, the overall provision coverage ratio again remains very, very strong upwards of 90%, currently at 91%. The combined 90 DPD portfolio stood at 9%, while the 90+ DPD portfolio remains contained at 1.5%. Nirmal just mentioned around the key strategic theme. Our liquidity position now has strengthened significantly during the quarter. We had approximately around INR 13,805 crore of our cash and undrawn credit lines, providing adequate coverage for our near term liability and supporting our future growth.
We continue to remain cumulative ALM surplus across all our maturity buckets. Our funding profile remains diversified, stable across all term loan debentures, refinancing, ECB, Securitization and other source, under different maturities. This indicates our efficiency to raise further funds across all the maturities. Consolidated capital adequacy stood at 23.5%. Net gearing is broadly stable at 4.1% compared to four times in the previous quarter. Shareholders' equity has now crossed an increase to INR 15,432 crore, supported by profitability record during the first half.
Now we will look at the IIFL Finance standalone financial performance. Coming specifically to IIFL Finance standalone, loan AUM has increased by 11% on a quarter-on-quarter basis, crossing first time INR 70,383 crore, which is 96% secured. Net interest income increased 21% sequentially. Very, very healthy growth. Total income grew by 8% and PPOP has increased by 10% to INR 893 crore. With loan loss provision declining by 11%, the profit after tax has increased by 17% quarter-on-quarter basis to INR 548.5 crore. The standalone yield has increased by 12 basis points to 18.6%, while the spread increased by 11 basis points to 9.2%.
Operating expense to average AUM has moderated further to 3.1%. Standalone gross NPA stood at 1.3%, representing a modest increase by 3 basis point. Capital adequacy ratio stood at 17.03%, while net gearing increased to 4.7%. Gold loan now account for almost around 93% of our standalone AUM. On IIFL Home Finance performance, the AUM increased by 4% sequentially, crossing INR 43,070 crore while disbursement has grew by 10% on a quarter-on-quarter basis to INR 3,498 crore. PPOP has increased 6% sequentially to INR 330 crore. PAT has broadly stable at INR 188.7 crore. Gross NPA has improved by 8 basis points to 1.38%.
At Samasta Finance, AUM has remained stable at INR 10,816 crore and business maintained a calibrated approach to growth. Gross NPA has improved by 46 basis points to 2.82%. Net NPA has improved by 14 basis points to 0.866%. PAT has increased 13% sequentially to INR 69 crore, supported by lower credit cost. Our strategic funding highlights Nirmal mentioned capital efficient distribution and continued model to scale of this AUM comprising of assignment and co-lending INR 42,796 crore, around 34% of our consolidated AUM.
We are now 18 banking partners across all IIFL Finance, Home Finance and Samasta Finance. During the first half actual FY 2027, we have raised aggregate $800 million through international bond issuances. This also includes $300 million social bond pair issued during the second quarter, which was approximately 2.3x subscribed, which reflects strong investor confidence and our diversified access to the global fund. In my closing remarks, in summary, quarter two financial year 2027 was a stronger quarter in terms of AUM growth, operating profits, profitability. The quarter also demonstrated continued progress in our operating efficiency, asset quality, liquidity and funding diversification. With that, now I will now invite for Q&A session for everyone. Thank you.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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.
Please start your question for them.
The first question is from the line of Gaurav Khandelwal from JP Morgan. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. I have got a couple of questions. The first one is on gold NPAs. Why have the gold NPAs increased by almost 30 basis points quarter-on-quarter? Any color there, please?
Towards the end of quarter, gold prices were lower as compared to the beginning of the quarter, previous quarter. It was a very small increase. These are actually small customers, and some of them are not able to pay in time. Historically, we have seen that these kind of variations happen. The losses will be minimal because we have the collateral. Some of the customers were not able to pay on time, and they get delayed by 90 days, so they get classified. I do not think there is any worry in terms of See, these had gone up to, say, 5%, 10%, then it is a different matter. 60 basis points- 90 basis point is a variation which we are very happy to live with.
Got it. When I am looking at the data, sir, even the 1- 30 DPD bucket for gold loans has increased quite a bit quarter-on-quarter. Almost 7% of the book is at 1- 30 DPD. Let us say if gold prices were to correct hypothetically 10% or from current levels, what would that then mean in terms of both the NPAs as well as LGDs?
If there's sudden correction of, I mean, 10% correction that happened in the early part of the year. NPAs may vary. They may go up to 1%, 2%, 3% also in such scenario. But ultimate loss will be minimal because most of the times what happens the customers also know that the gold and the jewelry that they pledge, the value is significantly higher.
But they may take some time to get money, and many a times, these customers have relationship with us for a long time, so they also know that a few days here and there, we are just not going to be harsh on them in terms of auctioning the gold. So the NPAs can spike if there's a sudden fall in gold prices. But the ultimate losses will be still negligible. That's how this industry is.
Got it. And sir, only for this 90 DPD plus cohort, can you tell us how much is the LTV for their loans?
It will be close to around 85% range.
85%. Okay, got it.
80%, 85%, yeah.
Okay, thanks. My other question is on the capital raise at the standalone. Where are we in the process? What are we finalizing in terms of QIP or a strategic shareholder? Any color there? What is the size of quantum of money that we are looking forward to raise?
We got our Board and shareholders approval last quarter. Now obviously the result announcement is a time period which is quite clear. Now we are talking to various investors from time to time. Today, I do not have an answer whether it is going to be private equity or a QIP. But one thing is there, that we are committed to raise equity capital at the earliest opportunity. Hopefully, this quarter we should be able to close something.
And sir, okay, this quarter. Maybe in terms of size, any indication?
Size. You know our market cap. Dilution will be anywhere from 10%- 20%.
Got it. Okay. If I can ask one more question. The off-book AUM is up quarter-on-quarter, but the off-book income is actually down quarter-on-quarter. What explains that?
This is good question actually. Co-lending is increasing, and in co-lending we don't have any up-fronted income. The way the DA assignment as the DA book runs off, that income also gets amortized over a period of time. I think off-book income will continue as we move more and more towards co-lending. Off-book income will continue to decline or will not grow at the same pace. But you need to see the net interest income because in a co-lending, it's just like loans are on your book because your interest keeps accruing quarter- after- quarter.
For a long time, many analysts had concern that there's up-fronted component in our profit. But in a way, up-fronted component is only on the flow. On the stock, you don't get anything. And it harmonizes over a period of time. But I think as we go along, the co-lending will keep increasing and you'll see that the upfronted income reduces, but the interest income maintains. Net interest income.
Got it. Just the final question, sorry.
Yeah.
This entire draft by IRDAI on the insurance commissions, right? If I look at the FY 2026 insurance commission that we want at a group level, which is closer to INR 240 crore, and almost 10% of the PBT, if let's say this were to come in the current form, how much of this gets impacted? How are you and the management and the Board thinking about the impact of this? How will we make up if this gets lost?
A significant part of it is part of home finance, and then with Samasta. IIFL standalone has hardly any life insurance commission, is just about INR 3 crore in IIFL, that holding company or IIFL Finance with NBFC. Samasta has about INR 78.5 crore and HFC is about INR 160 crore. HFC will have an impact. Maybe Girish you want to talk about it?
Yeah. I think we've been very closely watching, interacting with all the insurance partners. As of now, insurance income, cross-sell income to total revenue is about 4.5%-5%. We are just figuring out how to cover that up. We are constantly in touch with all the insurance partners as to how do we change the strategy to ensure that the impact is minimum. This will be, I think as per the initial consultation paper, this was to be effective from April 1st. Maybe it might be slightly deferred. This will be in the coming financial year. We are very closely working on the plan as to how to try and bridge this gap.
Thank you. So impact on life insurance?
Yeah, we will definitely have slight impact in the thing because we do the credit shield aspect of it for the customer.
What is the commission decline on that?
We have closer on the 14%.
What will it be on the new revenue?
It will be closer on 2.5%- 5%.
Okay. At a PBT level, it will be around 5% or so, not 10% for us. Maybe a little less than that. Some part of it, we have to figure out, and of course, the industry will have to be working on other cross-sell products, and we have to watch how it is. There is an impact.
Got it. Those were all my questions. Thank you very much.
Thank you.
Sorry, just going back to the insurance. Significant part of our profit was standalone where there is no impact or negligible impact. So for a concern basis, the impact for us is significantly lower. Yeah.
Thank you, sir. Next question is from the line of Pavan from Edelweiss. Please go ahead.
Hi, sir. Thank you for the opportunity, and congrats on the good set of numbers. I have two questions. One on gold loans. How much of the gold lending is through income-generating loan options? What are the pre and post-disbursal documentation or the processes that we are doing to illustrate that these are income generating in nature? I mean, to meet the RBI requirements whenever that happens. Just part of it is, on the auctions, right, you have always maintained that you would rather not auction the gold, but maintain the customer trust.
But when I look at yesterday's Business Standard, there is a whole host of auctioning by you. What is driving this? Is it to maintain the CRAR at the standalone entity, or is it more like customer delinquencies are increasing? That is first question. Second question, part of the gold again. The tonnage improvement has been quite strong, like from 64 tons- 69 tons, whereas all the others-
Sorry?
The gold tonnage—
Yeah.
—improvement. It has been quite strong this quarter, right? Generally, going into the festive quarter, the assumption is that while the merchants want to increase the stock in the store and then pledge more gold, the families would want to have the gold at home. So how are you managing to balance these factors but increase the gold tonnage? Those are my two questions.
Yeah, thanks, Pavan. So first question is about the auctions. You know that in retail we have millions of customers. So even if 1% goes for auction, it will be like tens of thousands. So, the newspaper ad, you will see every central dealer is listed out. But when we say that our auctions are minimal, but they are not zero. As I said that the number of transactions that we do in a year is about almost 40 lakh, 50 lakh or maybe more. Therefore, maybe around, say, give and take 1% goes for auction, there will still be significant number in terms of count.
We try to minimize auction, but you cannot avoid them 100%. So there will still be some customers who may not be traceable, some customers who just do not want to pay. Every year-after-year for last 20 years, our auctions have never been very significant, but of course, they are in the range of 1%-2% or depending on the year, it can be a little more or a little less. Secondly, tonnage growth is the important part of us as we have been recouping our market share, one. We also set up new branches in last two quarters.
Right.
Two years ago when we resumed our business after embargo, the market share gain that we do and many customers that come back, it really takes a long time. Also, the market is expanding, so I think our tonnage growth is there, which shows that we are getting new customers as well as our new branches are becoming productive.
Thank you. Just a follow-up on this. Are you seeing any increase in the intensity of auctions this year, considering the gold prices have come off vis-a-vis earlier years? Also on the first question I was asking—
Yeah. In last two, three quarters, we almost had negligible gold auction, almost zero kind of a thing. So there is a slight increase, but just like NPA 60 basis points- 90 basis point or this. They are very insignificant for a business like this where the loan ticket size is small. So there is increase, but the percentage increase or the basis point increase is very insignificant.
Got it. Just one part of the first question on the income-generating loans, how much of the loans are—
Yeah. Income-generating loans, we started late. We just started last quarter. I do not have precise number, but I think about 20%-25% will be income-generating loans as of now. This might go up little bit as we go along.
Got it, sir. Thank you so much. I will come back in the queue.
When I say income-generating loan, I mean the process on that basis. Otherwise, 70%-80% of our customers will be MSME customers, and they all qualify for income generating. But the income-generating process, which allows you to go up to 85%, even up to 90%, although we do not go that high in terms of LTV. That process we started last quarter. What we do is we take the CIBIL data, we also take the bank and the GST data wherever available, and we triangulate that data to forecast income, and also of course, our branch people talk to the customer.
As you know, we have a very strong co-lending relationship with banks, and banks have even tighter process. So when we do co-lending, we have to comply with the requirement to the satisfaction of bank. We believe that, relative to peers, we will have much stronger system for document collection and monitoring the income-generating loans.
Got it, sir. Thank you so much for this. I will come back.
Thank you. Next question is from the line of Kush Chaurasia from Ujjivan Small Finance Bank. Please go ahead.
Hi, sir. And congratulations for the all-time high profit numbers. My question is related to the AI strategy, which slide shows that there is a 30% productivity increase. The question was with respect to—
Sorry. AI strategy. Okay, yeah. Go ahead.
Yeah. Can you hear me, sir?
Yeah, I can hear you.
Sir, I was looking on the AI strategy slide of products. There it was mentioned around 30% of productivity increase. I am sure this is very new tool which everybody is using in the industry. Sir, can you just highlight what kind of productivity increase do you see? Also in micro finance, these numbers are helping us in terms of collections, or is it only for customer acquisition aspect only?
These numbers are for the processes which has code, where we started, like audit or collection. Wherever we are able to implement this, then we can have a chatbot, we can have automated WhatsApp journeys as well. There are quite a few tools that are being used. The processes where we have applied this, we are seeing about 30% improvement in the productivity. Supposing what 100 people could do, our 30 people can do. This number will further improve in terms of productivity or the cost and these numbers will go down as we become mature in applying the AI technology.
Understood, sir. In micro finance related aspect, are we getting some kind of collection benefit by doing AI call? How this strategy is working, this tool is working in terms of collection, improving our collection buckets?
Micro finance, I think it is—
Yes.
Yeah. For us, it's especially helping us in the one through 90 bucket and 90+ bucket, where it's feeding our field officers in terms of giving them the P2Ps and things. So it is definitely helping our field officers especially on collections. Also we look at lead generation for our existing customer base. If any of our existing customer base is interested in renewal loans or add-on loans, so we are able to work on that.
Got it, sir. Thank you so much for this.
Thank you. Next question is from the line of Yash Dantewadia from Dante Equity. Please go ahead.
Yeah. Hi. Congratulations on a great set of numbers. First question is regarding the fundraise. There are three verticals that we obviously have. One is Home Finance, Samasta, and the standalone business that is majorly gold. I just want to understand if we are looking to— Because I think Samasta and Home Finance is majorly not growing at the rate at which your standalone business is growing. So just wanted to understand in terms of fundraise, are we looking at the standalone entities, any of these three, or we are looking at the consolidated entity?
Fundraise as a subsidiary company, we don't need because we have adequate capital adequacy. Fundraise is required only in the listed holding company, which is—
But you are looking at selling Samasta, right? I mean, that would—
Yes, you are right. The issue that we need to resolve is that there is a faster growth in the standalone entity, which is in gold loan and the LAP business primarily, and we need to provide some more capital there. Capital can be provided even if we are able to sell the subsidiary company, because then they get the capital, the listed company or the parent company gets the capital. Or we can do a primary raise also. The question is the timing is of importance. It looks like maybe it appears at this stage is that divestment of part or full of subsidiary company will take time. In the meanwhile, we need to make sure that we do the equity raise so that the growth is not affected.
Understood. I think that is a great answer. My second question is regarding your guidance because I feel like home loans, I think, are not growing that well in general. Initially, we had guided for, I think, 18%-ish growth in your Home Finance business, but that is not growing. Obviously, H2 should be stronger. So what is the overall AUM guidance? Gold finance will majorly depend on gold prices, so I understand, but what are we looking at in terms of ROE guidance and AUM growth guidance from here onwards?
In Home Finance, disbursements have grown and the AUM is growing on the whole around 4%, 5% per quarter. So when you say 18% guidance, the loan assets will grow at that pace. The core home loan has grown by 2% quarter- on- quarter, but LAP has grown faster. In terms of structurally, if our target is that we should have about 20%- 25% LAP, then LAP is what we are catching up. In Home Finance, we have completely reoriented our strategy towards affordable home as compared to earlier when we were struggling across all segments.
For that, we have set up the branches, people, the infrastructure. A lot of work has already been done. So I think as you are right, the second half we should see accelerated growth in the core home loan segment as well. But I think on the year basis, we should be able to meet our guidance. ROE is 16%-18% for Home Finance target for next year, but it will be a continuous improvement quarter- after- quarter. There is an operating leverage that works here also. As the volume growth accelerates, we see more than proportionate growth in the bottom line.
Right. But the ROE guidance for the consolidated entity?
Yes.
I would like to add, I think if you look at the disbursement, which is based on clearance. If I compare with last year, the growth is 64% on disbursement and on AUM, the growth is 8%. We have just caught up on the growth in last few quarters. If you look at last couple of years, it was certainly flat. Now we are back. This is on the numbers, what we report, which is based on clearance.
But if you look at the booking, which means what we actually disbursed, even sequentially if you look at disbursement, it has grown by 41% quarter- on- quarter. I think there is a clear growth on disbursement. It will catch up with the growth in AUM. We had guided the growth of 18%-20% on AUM. We will be there within that because we are already at 8% after two quarters.
Right. The ROE for the consolidated entity?
ROE for consolidated entity will be above 20%. What will happen is, if you do equity raise, it can be a bit dampener temporarily for the finance of the NBFC , the parent company. But as the profitability catch up, in a quarter or two, we should be able to catch up. So in the medium to long term, we got to keep it above 20%. That is what our target is.
Right. I just hope with the way the business is going, we do not dilute at a very disappointing valuation. Of course, those numbers are going to be confidential and based on demand and supply in general. But all I am trying to tell as a shareholder is that I really hope you guys are able to at least maintain based on your current ROE and ROA. You guys are able to maintain a Lakshman Rekha in terms of raising at a particular or above a particular price to book.
I really hope that investor and stakeholder interests are maintained in that sort of a direction and we do not raise at a suboptimal valuation in terms of price to book, especially when we are throwing the kind of numbers that we are throwing. You guys are working extremely hard to get these numbers out there. I really hope the dilution is not something that dampens the stock price from here onwards.
See, there is always a trade-off. The market price is market price. There is the truth. We cannot really fight with it, we understand the point. But there is a trade-off that you have to maintain your growth. There is some time you can wait and have this thing. But I think longer term, all shareholders should have good return and create good value. That is what our endeavor will be. But in a finance or a lending institution, it is important to maintain margin of safety and equity because that will also help us in upgrade of our credit rating and bringing the cost of funds down, which can further accelerate the profit growth and the ROE. I know we have to keep all the dimensions in mind. Yes.
No, I completely understand and agree, but I just hope a particular price to book ratio is maintained in terms of raising. Because, currently, we are at all-time high profits in terms of annual quarter. Our ROE, everything is extremely healthy. So obviously when you look at it as a shareholder, you expect a certain price to book equity fundraise. But looking at the current price action, the general assumption is that
No, I appreciate your honesty. When we raise equity, it is also important the quality of investors that we bring in, because that also helps in re-rating and perception change. But, sir, I—
Just keep all those things in mind.
Yeah.
Thank you so much for your time. Really appreciate it.
Thank you. Next question is from the line of Vansh Solanki from RSPN Ventures. Please go ahead.
Hello. Good evening, management. My question is on GNPA and NNPA. At a console level, if I see the GNPA is declined, but the NNPA is slightly increased on quarter-on-quarter basis. Why this so happened?
GNPA declined, but within the GNPA, gold loan GNPA has gone up where actually, as I said, the loss given default is much lower. That is why you see that the provision has not gone up at the same pace. It is slightly lagging the GNPA. That is why you see that the GNPA has marginally come down and NNPA is marginally gone up. But even the lower GNPA would have been much lower, but for gold loan, which is slightly up.
Okay. Second question is on our IIFL Home Finance. For Home Finance and for Samasta, we were talking about shareholder value creation. Is there any plan of the divestment of any of the company as of now, maybe Q-sell or IPO or any something like that, of any company, whether Home Finance or Samasta?
No, I don't think there's any such plan at this point in time. Whatever we have said earlier, if there are possibilities, we look at raising of, boosting the capital of parent company by either of these ways.
Okay. If we are raising the equity for a standalone, can't we sell some portion of equity within our subsidiaries and raise funds from there?
Yeah. No, but subsidiaries we can raise equity, but we can't put money into parent because dividend is taxable. If we can sell part of the subsidiary, then we get capital. But we are looking at all the options, all possible options.
Okay. The last question is on the, can you just reconfirm FY 2027 guidance or all the guidance you have given?
There is no change in guidance as such. I think, hopefully, we are on track and we can exceed the guidance. The guidance there is [INR 546 crore] 25% AUM growth and similar profit growth and ROE of around the upper end of the guidance in ROE is 20%. I think we are there.
Okay. Will it be possible for us, maybe you have done enough elsewhere as well. Will it be possible for us to close FY 2027 with a 20% ROE? Because maybe there will be a dilution of our loan equity will be more in a standalone. So—
It is possible.
It's possible. Okay. That's from my end, and best of luck.
Thank you. Next question is from the line of Deep Vakil from Bandhan AMC. Please go ahead.
Thank you, sir, for the opportunity. Congratulations on the good side. Sir, one question on the industry. I think you already highlighted the draft consultation paper that has come on the insurance norms. Earlier also there was a draft consultation on the broking entities with respect to MTF and STT and all that. But the final guidelines were lot more, not harsh as the initial draft. What do you expect? Do you expect such something on those lines also in the current consultation paper that it will be more easy out and not harsh like it is proposed in the draft? What do you sense on market or what's your overall idea on this?
It is very difficult. I'm not an expert on this, but it's possible that it might be diluted a little bit. But some changes will happen, and the industry will have to learn to adapt, become cost efficient and do more on different processing. But yeah, it's quite possible that such steep— So what happens that, the 100, they say 10, they might settle at 50, we don't know. In my personal view, which is maybe completely different or may not be true, but I think, yeah, some middle path can make up.
Because there's a lot of resistance and a lot of worry about the job losses also. See, insurance is a great product and it can be great price, but then who will sell it? The problem is that selling is a very huge effort and takes time, and there's only certain productivity that people can achieve. Therefore, when you balance, there may be some middle path. That's my personal belief, but I'm not sure.
Sir, just thank you. Sir, generally in home loans in our subsidiary. Can you just guide, usually we have a condition attached to the loan that you'll get the loan only if you take insurance or we try to cross-sell it?
No.
Generally—
No, it can never be. It's not done like that.
Okay.
But you know what happen? I sell you a bundle insurance, then something happens to the breadwinner of the family, then the family does not have to pay any more installments when they get the house in order to stay forever. So in a way, that works very well for a nominal premium, is fully protected. But it is never forced, it's never conditional, not in [inaudible]
Okay, sir. Thank you. All the best for the future quarter.
Thank you. Next question is from the line of Pavan from Edelweiss. Please go ahead.
Sir, once again, thanks for the opportunity. On the MSME, the MSME yields have come down 0.98% quarter-on-quarter, right? Again, the home loan yields have also come down 11 basis points quarter-on-quarter. What is driving this? At the same time, we are seeing GNPA also come down significantly. Can you give some comment on the on-the-ground situation and your internal approval rates? Are you seeing increase in the approval rates in the MSME loan?
Pavan, they are linked. As we move towards superior quality of borrowers, you get lower yield and the quality of asset improves. This trend will continue because in LAP now, lower unit property, there was a time when we had a micro LAP with 24% yield or 18%-24% and had massive losses. The new business that we are doing is maybe around 12.5%-13.5%, but then quality is very superior and the losses are minimal. Such strategic decision that we took, and we have to sacrifice on yield little bit and over a period of time gradually, but it will improve the quality of assets significantly.
Sir, just a follow-up to that. We are giving up yields of almost 1%, right? But the credit cost won't go down by similar number. So what will be the overall impact
No, it's a good question. Yeah, it's a very good question. We have debated a lot on this over last three years. The problem is in the cycles. So right now, we are in a fairly good cycle of credit turn collection. But when the cycle goes bad, these things really go much worse. That's one. And two, is too much of volatility in the asset quality and the reported numbers.
So on balance, over a period of time, also they have a higher collection cost, which will appear somewhere in the operating cost. When we have a small ticket and a high-yielding asset. So, from a longer-term point of view, strategically, I think, this helps to have a lower yield and lower credit cost, lower collection cost and stable or a lower band of the NPA wavering. Yeah.
Got it, sir. The overall impact on the ROA would be at, I mean, at the segment level. Any comment on that?
Unbillable accounts—
Hello?
Yes, go ahead.
No, just on at the segment level of the MSME, what would be the kind of overall ROA impact that we can expect because of these going higher up in the curve in terms of quality?
Yes. I think ROA this year will be not much, maybe breakeven or little bit of this thing. Housing finance and NBFC, they operate differently. A lot of costs are common, which also depend on how we allocate. But next year we will be back. We will be around 3%, 2.5%- 3% ROA, what our target is for all of the businesses.
Got it, sir. Last question from my end. Can you give any kind of status update on the tax-related aspects, both at the parent level and the subsidiary level?
There is no further update because there was assessment order, there was a tax demand. We got to stay on that, and we are litigating, and we are presenting our case. No updates, since whatever we have updated last.
Thank you, sir. No other questions.
But I guess under control. Yeah.
Yes. Thank you so much.
Thank you. Next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi, good evening. Congratulations on strong numbers. My first question is—
Hi—
on the gold loans business. I think on the gold loans business, you've performed very well. You've had a good tonnage growth, good overall portfolio growth, and even the yields have improved. If you can just comment on the competition landscape, because Q2 was supposed to have a more intense competitive landscape after the regulations changed from Q1.
I mean, Q1, the industry adopted with the new products, and then Q2, I think, as far as we know, on the ground that, the competition have kind of intensified. But even amidst this environment, we've been able to grow in volume terms and even improve our yields. So how have you done it? Secondly, can you just comment on the competitive intensity, even amongst the NBFCs vintage layer? Yeah.
So one, market is expanding and two, competition is also increasing. But in competition, there's a lot more noise rather than the real, because competition will take time to set up branches, hire people, train them, and the customer acquisition in a retail walking or a retail shop kind of a business needs a period of time. But having said that, yes, competitive intensity is increasing. But fortunately, at this point in time, we are marketing expanding very well. Market is expanding for two reasons.
One is the gold prices have increased the borrowing capacity of the households or the small businesses that have the collateral. And two, unsecured lending and microfinance has been tightened across the industry, and many of those customers are now moving towards gold loan also. And also third thing I would add is, the economy has been doing pretty well despite whatever we hear in news about geopolitical everything, but the economy in the market. There is a demand for credit, and small businesses are picking up.
And if I were to break your growth, say, on a month-wise basis, even in maybe September month, when I believe that some of your larger competition was running some over eight schemes. Even in that month, we were able to hold our yields and we were able to hold our growth.
So we are focusing on customers and not competition as such. We want to make sure the customer experience is good, our policies are transparent. It is not that we attract customer at 10%, 12%, and within one month we charge 16%, 18%. So also our people are trained and motivated, and they are doing a fairly good job, I guess. So we are getting some part of our market share and working towards it.
So broadly, do we remain mostly assured about maintaining yields and the growth momentum in the second half then?
Yeah, I think market is very large one. We have set up new branches that will also gain market share. I personally think that if the gold prices remains stable, I am not saying that they will go up even if it remains ± 10%, and environment of the economy remains what it is, then we should be able to maintain our growth momentum. We are seeing continued growth momentum, let me put it this way. I think at least second half will improve.
Okay. Just lastly on housing business, when I look at the core housing portfolio within the IIFL Home Finance book. The growth is low. Even the yields are kind of coming down. When I look at the segment that we are trying to signal or indicate in the presentation, the average ticket size seems to be INR 17 lakh. I am just trying to understand what is happening in that portfolio. When does it turn around in terms of growth? When do we see yields or disbursement yields start to improve there?
Yeah. If you look at probably yield a year back, this is the incremental yield. That is yield on disbursement, it was about 10.69%. In April, we took it up to 11%. If you see for quarter two, the yield has gone up to 11.81%, which is much above the portfolio yield. With every passing quarter, this will pull up the yield. In terms of margin, in terms of yield, it has gone in last one year, the lift is about 110 basis points, 115 basis points. Even compared to last quarter, it is about 30 basis points higher on the onboarding, which is the new disbursements.
Sorry to interject, but I think the yield that you are talking is about the blended yield which is including MSME secured loan. Because I am just looking at the home loan yield at the portfolio level that has come down on Q-on-Q basis, which also means that the incremental yield is not improving there.
If you look at the AUM, so we had a pool of assets within home, which is running off. But if you look at the same HL, in last one year, the yield was about 9.3%, 9.4%. Today, the same HL yield is coming at 9.6%, 9.65%. So within HL, the yield is going up, but if you look at the overall yield, there is a drop.
See, earlier we had a high-yielding portfolio of micro loan and also the BHP of those loans. So there was a small segment of the portfolio of high yield, but that had higher losses. So that is what is impacting the weighted average yield. But on a quarter-on-quarter basis, you are right. Home loan portfolio yield has come down by 10 basis points. But it is a mixed thing. As Girish said that the boarding yield continues to be healthy, so it takes two, three quarters to pick up. But there are yields to improve.
Mm-hmm. And just last clarity—
Earlier we had certain high yield mix which is going away. I think now it should pick up.
What is that mix still left in the book? That high yielding portfolio which you are running down or which you are not doing incrementally. How much is it left?
Will not be much now, but how much is that?
INR 250 crore. It is coming down.
In the home loan is about INR 250 crore of BLP, and in LAP it will be about INR 1,500 crore- INR 1,000 crore.
INR 390 crore Shakti and BLP is about INR 200 crore.
CL is about INR 600 crore in total, INR 250 crore in home loan, around INR 400 crore in LAP.
Got it. Thank you so much, and best regards.
Thank you. Next question is from the line of Yash Dantewadia from Dante Equity. Please go ahead.
Yeah, hi. So you said the overall equity dilution is anywhere between 10%-20%, right? That you're looking at.
No, I'm saying it can be up to that, but that depends on the investor, so it's very difficult to See, till now, as soon as something happens, we'll obviously report to all the investors in SEBI, but it will be in that range. That's what I'm saying.
Let's say at the current growth rates. I was just trying to understand that, hence the question.
Yeah. Tell me. Hello?
Yeah. Did you get the question?
No, I haven't got the question. You said the current growth rate, I'll discuss after that.
Yeah. Oh, sorry. I said at the current growth rate, even if we dilute, let's say 15%, how long is it going to sustain for us? Because obviously if the dilution is not sizable, then I don't think it's going to sustain us for more than six, seven quarters, right?
No, I think it is a good point, but two things. One, our profits will get added to the net worth, and we expect strong profit growth. Two, in six, seven quarters, we will have an opportunity to either demerge or divest or unlock the capital locked in the subsidiary company.
Right. As far as Samasta Finance is concerned, we are clearly not growing that business and we are not focusing on that business. Is it safe to say that within a year or two we are going to be out of the microfinance business?
No, I do not think so. I think the growth will now pick up a little bit. It may not be as strong as it used to be two years ago, but the growth will pick up once. Venkatesh, if you want to say something about it.
Yeah.
We are cautious, but it will become positive now going forward.
See, we were looking at various situations across. We were taking a cautious thing in terms of the growth. We see we have muted certain geographies in terms of where we see some drought conditions and so on. We have muted growth in those pockets and now, I think in the second half of the year, you can see a little more momentum building up. Normally during the festival season and thereon, we can see the momentum building up.
The only shocking part for me is that we have not capitalized much on the motor finance. Looking at the current auto sales, I am sure all of you have looked at the numbers, right? Looking at the current auto sales, do you think this is a missed opportunity that we have not been able to capitalize on, or is it deliberate in nature?
To capitalize upon this requires a whole infrastructure of understanding the credit for auto and also connecting with dealers or even secondhand. When you set up a new product line, it is a long effort because you set up all kinds of things, from credit underwriting, operations, sales, risk management, getting the customers, marketing. It is a long-term call that one has to take. Seasonally, there may be spike, but it is not possible to capitalize upon seasonal spike. We have to take a strategic call if we want to get into this business, then we set up that team.
Right.
Yeah.
No, that is all.
All over for sales.
Honestly, only one single segment is currently driving our growth. Currently, LAP and Home Finance in general, because of the real estate cycle, is I think 15%-20% in general for all companies in that segment. Again, microfinance, we've not traditionally, historically done very well in microfinance. The question that I raised regarding motor finance was, obviously there's a lot of work in general in that industry for people to get into. The sales numbers are also picking up very drastically. I think we should actually consider getting into this sort of a segment also. I think that's just a suggestion from our end, but then it's obviously up to you and your long-term planning in general.
No, thanks. We have definitely judged it. Seriously.
Thank you so much. Thank you, sir.
Yeah. Thank you.
Thank you. Next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Yeah, hi, good evening, Nirmal and team, and congratulations for the quarter. The first question is on housing. This disbursement of INR 2,000 crore that you have reported this quarter, last quarter as well, can you give a split between how much is in affordable, how much is in emerging? Just to get a sense of where we are headed in terms of the mix.
Sure. Broadly, Girish can give you.
If you look at quarter one, we disbursed INR 3,175 crore. This is based on the check clearance received.
Your intrinsic anatomy?
It is two legs. Is it affordable home loan?
Yeah. Affordable home loan deals.
Yeah. In Q2, we disbursed affordable almost about INR 790 crore. In quarter one it was about INR 400 crore. There is a significant growth in the affordable business what we are doing because
In emerging?
Out of total, only about INR 100 odd crore is CA, rest all is retail. So within retail, the affordable is about INR 400 in quarter one and the rest is emerging. And in quarter two, INR 790 crore is affordable and the rest is emerging.
It was INR 400, close to INR 800 in quarter two.
Yeah, almost double. Okay. That would mean that your emerging numbers have fallen to INR 1,600 crore, come down to INR 1,300 crore or so. Right?
Yeah. As we move to affordable.
On branches, we have added 38 new branches. We were at about 312, now we are 350. All the branches are in affordable. The idea is to try and focus the affordable business because we will get a higher yield, and that is the plan.
Right. Currently, what is the yield for affordable versus emerging disbursement yield?
For affordable, the yield will be about 12.5%, 12.6%. This is blended. Emerging will come at about less than 0.5%.
Okay, got it. This kind of run rate should actually accelerate now, right? Like your quarterly disbursement run rate.
Yes, definitely yes. It will accelerate. If you look at H1- H1 comparison, we have grown the disbursement by 64%. This is based on check clearance because whole of last year was based on booking, whereas this year it is based on check clearance. Even if you look at disbursement, which is not the clearance of quarter two, that is a good about INR 2,000+ crore, which is again 41% compared to quarter one. Differential growth of 41%. There is a good growth on disbursement, which is why we are also seeing growth of 8% on AUM.
Right. I was just trying to figure this whole yield compression that you are currently seeing in your portfolio yield for home loans. When do we see that sort of stabilizing and moving back up? Because incrementally you are disbursing almost more and more percentage in affordable. So when do we see the yield benefits coming in?
Sure.
The other question is, see between affordable and emerging, both your yields are much higher than the 10.4% that you have reported as your portfolio yield. So what part of the portfolio is dragging down the yield? You said it is just INR 250 crore or something in home loan, but that is a very small number. So it is not reconciling. That is what I am trying to figure out.
Yeah. So on the AUM, the pools which are at a higher yield, that runoff, that is pulling down the portfolio yield. However, as I mentioned to you, the boarding yield has now gone up to 11%.
The question is that there is only INR 250 crore can pull it down so much.
Yeah.
Tushar, you want to explain? The home loan component is a certain, the home loan is asking, what lag.
Yeah. In INR 34,000 crore home loan, INR 250 crore is a very small number, and the yield differential between disbursement and portfolio is more than 100 basis points. Why is that differential I mean, there must be some part of the home loan with really low yielding. Which is not INR 250 crore, which is a much bigger number. Is that the case? I am just trying to figure out when the yield compression will plateau out and go up.
What we will do, maybe we can share the breakup but the incremental HL which is coming now is at a higher yield for a simple reason. We have stopped doing prime business, which was earlier some-
No. What he is not explaining here—
Understood.
When you have such a large portfolio, why the weighted average is lower.
It will be— Just one second. Take it offline or some explanation now.
There could be some interest reversal or something, but we need to check the same thing.
Sure.
Hello.
No problem. The second question is on MFI. I know that disbursements will pick up next half. Can you give a sense of what is, say, the monthly run rate for September or something, just September or maybe so far in October, targeted in October? Just to get a sense of how much that pickup could be.
September we did around close to around INR 550. We are looking at close to INR 800 in October.
Okay. Second half it should obviously improve, right? Because generally Q3, Q4 are much busier than—
Yeah.
—the first half.
That's right.
What is the exit you are targeting? Let's say February, March, what should be the run rate by then?
We should be looking at around INR 1,000.
Got it.
A month.
Got it. INR 1,000 a month. Yeah. Got it. Finally, just a clarification. So in the beginning of the call, you gave the insurance revenue numbers. That was as a percentage of overall revenue or percentage of PBT? Just didn't catch that properly. So you said 4.5%-
No.
— revenue.
It's cross-sell. So it's about INR 250 crore, INR 260 crore what we have. Roughly that goes straight into PBT actually, more or less.
Okay, INR 250 crore. Okay. Is there a breakup—
Yeah.
—between HFC, Samasta, and
INR 150 or so is HFC and around INR 75, INR 80 Samasta.
Okay. Got it. Thank you, Nirmal. Thank you, everyone. All the best.
Thank you.
Thank you. Next question is from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Hi, Nirmal. Thanks for the opportunity. I am just focusing on this slide which talks about co-lending and assignment. Almost 40% of the gold loans are either assigned or we are doing a co-lending, versus we having close to 2,500 branches pan India. I am just curious as to about the co-lending part of it. Assignment I do understand. But again, in terms of assignment, I think there are certain regulations of RBI which prohibit NBFCs from doing assignment, because these are bullet loans and not monthly repayment loans. How do we understand the true nature of these assignments in terms of unit economics or the commercial transactions which are being enacted? Thanks.
There is no ban on the assignment. Only thing is that RBI regulations, if you assign, banks don't get the priority sector credit for that. Even if those loans are to smaller priority sector customers, when you do assignment, it is not considered as a PSL. In co-lending, it works simultaneously. When we disperse the loan, money comes to syndicate through the escrow account, and the co-lending happens on the same day.
That process has integrated and started. If you really look at it in gold loan in particular, then almost about 40% of our portfolio is co-lending. Out of the total output portfolio. We don't do much of bullet loans. I am sorry about your questions about bullet loans. Our portfolio does not have much of bullet loans, and not in the co-lending or assignment. Some parts we might keep in our books.
Essentially what we are saying is that 40% of our assignment and co-lending book for gold loans is basically a monthly repayment—
Could be monthly, but not bullet.
Understood. Which means that it could be far more yield dilutive versus the rest of the portfolio. So 60% of the portfolio would have upwards of 20% kind of yield versus the 40% of the portfolio. Is that a fair understanding?
I mean, broadly, yes, but not exactly.
Where am I lacking the understanding in that case? Because if we make it monthly, then it is yield dilutive.
It's not entirely that way, but what you're saying is right in terms of the broader trend or indication, but it's not precise that every loan that goes is higher yield than every or every loan that we retain is higher yield. Most part of it what you're saying is right.
Right. The only question I think which remains unanswered is that why we are doing co-lending at all in gold loans because we've got enough distribution, we've got enough experience in gold loans. We've been doing it for quite some time. What is it that we are drawing out of the co-lending apart from I understand the economics of it. I'm just trying to understand from our own distribution perspective that we have a large enough distribution across various pin codes and—
To tell you candidly, we don't have enough capital, and our capital efficiency is not adequate to keep everything on the books. We have to do co-lending.
Right. Understand. I'll possibly take this offline. Thank you so much.
Thanks.
Thank you. Ladies and gentlemen, anyone who wishes to ask a question, may press star and one.
Okay.
A reminder to all the participants. If you wish to ask a question, you may press star and one.
Yeah, I think there is none. So we can wind up. Thanks.
Yeah. We do not have any further questions. Over to the management for closing comments.
Yeah. Thank you so much for joining today's conversation in the financial performance and the Q&A session, and we look forward for the quarter three. Thank you so much.
If you have any more questions, you can always reach out to us. Thank you so much.
Thank you. On behalf of IIFL Finance Limited, that concludes this conference call. Thank you all for joining us today and you may now disconnect your lines.