Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- IIFL Finance Ltd (BOM:532636, Financial) has taken full compliance measures in response to the RBI order, ensuring adherence to all directives and guidelines.
- The company has strengthened its management team by hiring new CXO-level executives and enhancing resources at various levels.
- Despite significant challenges, IIFL Finance Ltd (BOM:532636) has maintained robust asset quality, as evidenced by the smooth liquidation of over half of its gold loan assets.
- The company has diversified its focus towards MSME business loans and digital finance, which have shown steady growth.
- IIFL Finance Ltd (BOM:532636) has maintained a positive ALM, with inflows exceeding outflows across all buckets, and has raised significant funds to support growth in other businesses.
Negative Points
- The RBI embargo on gold loans has significantly impacted the company's financial performance, with gold loan AUM falling by more than half.
- Profit after tax before non-controlling interest decreased by 28% YoY and 21% QoQ, reflecting the adverse effects of the RBI order.
- The company's microfinance business has faced elevated provisions and losses due to credit line squeezes and election-related asset quality issues.
- Home loan business experienced a slack quarter, with slower growth rates compared to previous periods.
- The company's overall AUM degrew by around 12% QoQ, indicating challenges in maintaining growth across its core products.
Q & A Highlights
Q: Nirmal sir, you had shared in the last quarter's earnings call that in case we do not get RBI's approval, or the ban is not lifted, then maybe we will look at sourcing loans for other banks acting as BCs. So, just wanted to check, I mean, while you have already said in your opening remarks that we are very confident that this ban should be revoked sometime soon, are there other proposals also which have been evaluated?
A: Thanks, Abhijit. So, gold loan, basic proposal evaluated, but then we discovered that banks have a little longer process to appoint BC which starts with RFP and then you submit a proposal and then there's evaluation. So, we have started participating, I mean, we will participate in it. But we have all along been engaging with RBI and we believe that if in a short term we are going to restart our lending and co-lending, then it may be like unwarranted distraction to the resources as well as process. Because once you start a BC, then obviously banks will expect certain commitment in the volume. And from a commercial point of view, that may not be as viable for our cost structure as the other proposals are, because of the BC structure you get a fee, and banks probably typically will keep the entire interest income and the margins.
Q: Just one question, and I would appreciate comments from the management on this. A few years back you sold your vehicle financing business to one of the other NBFCs. That business had significant issues, subsequent to the other NBFC taking it over. You have now had a situation wherein the gold finance business has seen an embargo imposed by RBI. So, what are the learnings that the management has drawn from these episodes? And can you afford any similar accidents in any other business lines? Thank you.
A: Thank you, Rajagopal. So, first of all, the commercial vehicle business that we sold, and that was sold in the beginning of I think 2019 sometime. And the diligence and the payment terms are also over a period of more than a year that obviously showed that we had full confidence in the asset quality that we demonstrated to the buyer. Unfortunately, the COVID happened after that and that is when the asset quality would have deteriorated for the buyer. But that should not have any relationship whatsoever to the kind of business that we did, and the asset quality of the business when we sold it. So, just first a clarification for the commercial vehicle business that we sold, because we were very transparent, we were very upfront on what the quality of asset is. And obviously, there was no deviations from what we represented. But with the unfortunate circumstances of COVID happening a few months later, that is something which is not in either our control or the buyer's control. Secondly, coming to gold loan business. So, if you see the asset quality, as I said in my opening remarks, that is like maybe unprecedented in the history of financial world that a million customers have taken their collateral back and the money has been paid back without any single issue. That also -- because if there's asset quality issue then obviously more than a million are redeeming their loans then that will throw up, I mean, that will come up and obviously you cannot hide it beyond a point. So, that again is testimony to the fact that our asset quality, our credit underwriting, and our collection processes are absolutely robust. Now the learning from this is that of course you have a diversified book, and the compliance has become a much more significant issue now or much more significant aspect to take care of. But I would like to say that whatever we are doing in terms of the violations that have been identified by RBI were industry practices, they were done by other gold loan companies as well. Now I know in terms of extent or in terms of what are the reasons for we being the company to be penalized for this, I do not have answer to this. But at the same time, I understand, I agree, and I with all humility I accept that there's no excuse for any compliance violation. There were deviations, and we are committed to make sure that we rectify them, and we also make sure that they do not recur.
Q: I just had one question. I was going through the numbers shared by you. While we understand that gold loan book is under embargo, however, the loan AUM growth in home finance book and the MFI book is not that great either. So, any reasons for stagnation in the AUM in both these books?
A: No. So, as I said that the first quarter is seasonally slack, and also due to election there are many days are lost and the activity also comes to a bit of a slowdown. I really have not compared with the peers in both these sectors. But I would suspect that a similar trend will be there more or less. We have been little bit impacted also by the reluctance in the bank basically sort of holding back on the credit for other businesses as well. But that thing is also evolving and changing, so slowly we are seeing that the resources are becoming available, our co-lending and DA in other businesses also are continuing.
Q: Sir first on gold loan, what is the count of employees that we have and versus what it was prior to the RBI embargo? I want to understand, let's say if the embargo is lifted in a quick span of time, how quickly we can come back to the previous disbursement run rate that we were doing?
A: So, we have not retrenched or sacked anybody. So, what is the natural attrition is there. And when the embargo is lifted then we can come back very quickly. That is what we have prepared for.
Q: Can you share what is the proportion of your borrowers who have more than four lenders?
A: Yeah. I mean, if you look at it, we have less than 15% of our customers with more than four lenders.
Q: Can you share what was the slippage for the quarter in the microfinance business?
A: Slippage for the quarter in the micro finance business -- Yeah, INR110 crores provision in this quarter. You are asking about the NPA, no? See, in microfinance 2.32% actually.
Q: I wanted the slippage number if you have it.
A: We did close to INR100 core write-off on -- I think he wants to know the zero DPD or 1 to 30 DPD increase this quarter versus previous quarter. I think we do not have the data. We just -- we have to get back.
Q: In the recent few quarters, three, four quarters, have you seen an increase in cases of employee frauds or borrower frauds in the microfinance business
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
