IIFLNSEQ3 FY2022February 04, 2022

IIFL Finance Limited

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13analyst exchanges

4executives

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Management on call

Nirmal Jain

CHAIRMAN – IIFL FINANCE

Rajesh Rajak

CHIEF FINANCIAL

Monu Ratra

CHIEF EXECUTIVE

Venkatesh N

CHIEF EXECUTIVE

Key numbers — 40 extracted

0.8%

st year because of the sudden COVID wave two and three the revenue expenditure was up by at least 0.8% of GDP as compared to the budget estimate and hopefully if the government does not have to spen

y need to get the economy momentum right. In terms of financial sector, I think that growth Y-o-Y 9% is healthy, which is moving up from what we used to see around 5% to 6%. The liquidity has eased

ctor, I think that growth Y-o-Y 9% is healthy, which is moving up from what we used to see around 5% to 6%. The liquidity has eased significantly and the demand for credit seems very optimistic an

think that growth Y-o-Y 9% is healthy, which is moving up from what we used to see around 5% to 6%. The liquidity has eased significantly and the demand for credit seems very optimistic and it loo

rs,

of collection efficiency and asset quality - we are seeing an improvement. In the last few quarters, every quarter there has been some surprise or another and obviously that impacted the reported res

Rs.9000 Crore

Liquidity in the system has improved significantly and if we see our own balance sheet there are Rs.9000 Crores of cash and cash equivalents and undrawn credit lines. This is all time high liquidity that we a

pared to the base interest rate in India which is already high. India was never at a zero or near 0% interest rate, but from these levels 25 basis points or 50 basis points can be taken in stride. A

25 basis point

which is already high. India was never at a zero or near 0% interest rate, but from these levels 25 basis points or 50 basis points can be taken in stride. As far as we are concerned, most of our assets are sh

50 basis point

igh. India was never at a zero or near 0% interest rate, but from these levels 25 basis points or 50 basis points can be taken in stride. As far as we are concerned, most of our assets are short tenure. We have

Rs.310 Crore

rough a brief commentary of our recent results. IIFL Finance profit after tax was highest ever at Rs.310 Crores in Q3 FY2022 up 15% year on year and 6% quarter on quarter driven by strong volume growth. The r

15%

r recent results. IIFL Finance profit after tax was highest ever at Rs.310 Crores in Q3 FY2022 up 15% year on year and 6% quarter on quarter driven by strong volume growth. The recorded pre provisi

Rs.650 Crore

quarter on quarter driven by strong volume growth. The recorded pre provision operating profit of Rs.650 Crores during the quarter, which was up 6% year on year and 12% quarter on quarter. Loan AUM grew by 11

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Guidance — 20 items

Nirmal Jain

opening

“All of us are well aware, in terms of surprise element, there is the third wave, very swift but less damaging and hopefully it is tapering off and will be behind us very soon.”

Nirmal Jain

opening

“We see that the government is spending a lot on health infrastructure as well and last year because of the sudden COVID wave two and three the revenue expenditure was up by at least 0.8% of GDP as compared to the budget estimate and hopefully if the government does not have to spend that money again this year then obviously there will be lot of leeway in the budget to spend more and make sure that the economic growth momentum continues.”

Nirmal Jain

opening

“Besides a lot of ground work has been done on disinvestment and may be LIC IPO will go through, but significant part of disinvestment target will not be achieved in this year, but there may be good news for next year because the government will have a lot more money in a year than they actually need to get the economy momentum right.”

Nirmal Jain

opening

“In India also most experts expect upwards basis for the interest rates.”

Nirmal Jain

opening

“Our belief is that even if there is a rate hike it will be marginal as compared to the base interest rate in India which is already high.”

Nirmal Jain

“It will be slightly higher at December end, but you can say that around Rs.”

Nirmal Jain

“8,000 Crores will be our reasonable number for this book size.”

Akshay Ashok

“Any particular reason and the second question will be this quarter ending if you could just elaborate on whether the disbursements have started with the banks that you have tied up with and what is the progress on that?”

Monu Ratra

“December numbers of disbursements were at an all- time high of last one and a half years so we expect that the Q4 should be a much significant number to look at, but yes because of the pent up thing which we had in Q1, which came into Q2, we did very well.”

Nirmal Jain

“If you see slide 32, we have given a very detailed explanation and what our strategy on gold, on the construction and real estate book is and how should you look at in terms of going forward so one is construction finance, first is that what we were doing earlier was through NBFC, which was against land and against SRA project, which is a higher risk.”

Risks & concerns — 12 flagged

But for the time being that has impacted our GNPA as well and besides microfinance, we have faced difficult times with continued impact of COVID wave three, hopefully even those things will get better.

— Nirmal Jain

This includes an impact of RBI notification dated November 12, 2021.

— Rajesh Rajak

If you could just tell us what exactly has been the impact of the RBI circular on overall NPA and if you have taken any additional provisions against the same, and also secondly I just wanted to understand what the restructured outstanding is as of December?

— Sushant Parikh

If you see slide 32, we have given a very detailed explanation and what our strategy on gold, on the construction and real estate book is and how should you look at in terms of going forward so one is construction finance, first is that what we were doing earlier was through NBFC, which was against land and against SRA project, which is a higher risk.

— Nirmal Jain

Now that is where your yield will be lower because the collateral is much superior and the risk is lower because you start construction after you receive all the approvals, but historically many NBFCs supposing Rs.100 Crores land is there, so people would lend Rs.50 Crores against the land.

— Nirmal Jain

Secondly in terms of GNPA growth, almost about 1% is impact of RBIs circular and other than that the restructured book has also come down by 20% to 25% so some part of the loan has come out of that also.

— Nirmal Jain

The current problem is that with this sudden RBI circular, where even if there is a one day’s delay then it has to be recognized in NPA, but this kind of a scenario does not actually increase the risk of the asset, but the reporting is a little different from the reality so what happens in Indian conditions is that the payments get delayed by a few days and obviously you are forced to report NPA but it should not impact the recovery or the quality of asset.

— Nirmal Jain

So average interest rate is slightly downward but the tenure has not changed and if you look at our portfolio yield, it has come down from 18% from March end to around 17.4% now, so there was 60 basis points decline on the overall portfolio.

— Nirmal Jain

Sometimes we have to be pricing the risk properly but at least in the market there is competitor pressure on the yields and we have seen these kind of competitive pressures earlier also, so that happen sometimes.

— Nirmal Jain

That is the key strength of our balance sheet and the financials because there is a flow of income where we are not taking any risk or we do not have any capital block and it will be a sustainable income till the assets fully mature.

— Nirmal Jain

You only have to keep 20% on the book, which you can easily do through your retained earnings and you do not have to worry about liquidity and you do not have to worry about risk.

— Nirmal Jain

And obviously the challenge is that that every transaction gets appraised by both institutions, bank as well as NBFC, so the processes, your work flow everything has to be very smooth and resources are required from both side, but longer term co-lending is a good model because the risk assessment is happening at origination and both the partners know that this is how liquidity and asset flow will happen, so banks also know that okay we can expect so much assets from this co-lending partner.

— Nirmal Jain

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Q&A — 13 exchanges

Thanks for taking my questions. I just had couple of questions on the NPA part? If you could just tell us what exactly has been the impact of the RBI circular on overall NPA and if you have taken any additional provisions against the same, and also secondly I just wanted to understand what the restructured outstanding is as of December?

Nirmal Jain

The impact on GNPA is around 30 basis points of the RBI circular. The restructured book movement we have given in the slide number 18, which is now Rs.937 Crores as of December end against Rs. 1,027 Crores last quarter. The DCCO amount has fallen significantly from Rs. 1,800 Crores to Rs.600 Crores as most of the projects have come out of DCCO. Got it. Thanks for this. Just one more question? Are there any plans on normalizing the liquidity buffer eventually or do we have any pass towards that? Normally we want to have liquidity for a year in terms for all the contractual liabilities so the cu

Congratulations on a good set of numbers. Sir I have three questions? First why is the disbursement in home loans this time did not see a pickup on a Q-o-Q basis. Any particular reason and the second question will be this quarter ending if you could just elaborate on whether the disbursements have started with the banks that you have tied up with and what is the progress on that? First if you could just answer these two questions?

Monu Ratra

Good afternoon everyone so if you look at the disbursement in home loans, they look flattish because there was a bit of a pent up in Q2 which we had from Q1 but otherwise we ended December pretty aggressively. December numbers of disbursements were at an all- time high of last one and a half years so we expect that the Q4 should be a much significant number to look at, but yes because of the pent up thing which we had in Q1, which came into Q2, we did very well. So then as far as December itself is concerned, as I told you we did an all-time high numbers in home loans for the last one and a ha

Congratulations for a good set of numbers. My first question is actually pertaining to the micro finance segment? We have clearly seen a lot of growth here from quarter on quarter perspective or even from a Y-o-Y perspective compared to the total AUM? Correspondingly we have also seen sort of like a big jump in GNPAs that we have not seen even in first wave or towards the end of last year as well? It is primarily just increase due to the RBI new norm or is there any other factor here and what is the company’s overall strategy here in microfinance? Are we like sort of focused on growing the boo

Nirmal Jain

So most of the microfinance companies have not yet reported numbers, but I think that the growth has been there for most of the microfinance companies in the last quarter. Secondly in terms of GNPA growth, almost about 1% is impact of RBIs circular and other than that the restructured book has also come down by 20% to 25% so some part of the loan has come out of that also. Then coming to the next part of your question, Microfinance industry has been impacted for last few years several times, but if you look at the business and the customers, they basically borrow loan for income generating act

Thank you for taking my question and very similar to the previous one, I was just going to ask on your dollar bond outstanding so do you plan to retire that bond or will you decide at the time in about a year’s time whether you will refinance it in the dollar market and what the conditions are like at that time? Thank you.

Nirmal Jain

Our dollar bond was $400 million at the time of issuance. We have bought back whatever is allowed as per RBI guidelines. In fact, we were allowed to buy back more and reduced our cost of funding on an aggregate basis, may be Rs.350 Crores of thing would be outstanding and we got more than $1 billion or $1.2 billion of liquidity on our books, so today I think probably we will repay the bonds on maturity and under these conditions we are unlikely to refinance them but if the interest rates improve for rating or for some other reason then we will look at it, but we have more than adequate liquidi

Thank you very much Sir for the opportunity. Sir I just have one query. In terms of your credit cost so how many quarters away we are from a normalized credit cost of 1% that we have been talking earlier?

Nirmal Jain

Actually it is becoming little bit difficult to answer this question because something or other has been happening in every quarter, like RBI circular or these kind of microfinance situation which we did not expect earlier so hopefully it should happen very soon, but I will keep fingers cross and let us see every quarter how do we get there because every time we say something but something completely unexpected happens so let us keep our fingers crossed and hopefully in this year it should happen. This year means FY? CY2022. And RBI report impact, like provision taken this quarter, so is highe

Sir, I am just looking at the real estate part? You mentioned that around Rs.600 Crores is left in DCCO quarter on quarter? We also see the NPAs in that segment rising, so do we assume that despite DCCO some of these projects could not complete in time?

Nirmal Jain

No. I will not agree with that. The current problem is that with this sudden RBI circular, where even if there is a one day’s delay then it has to be recognized in NPA, but this kind of a scenario does not actually increase the risk of the asset, but the reporting is a little different from the reality so what happens in Indian conditions is that the payments get delayed by a few days and obviously you are forced to report NPA but it should not impact the recovery or the quality of asset. What I was trying to understand is specific to real estate. If we look at the performance of the projects,

Thank you for the opportunity. Sir continuing on the gold loans so where do you look at these rates stabilizing? Do you see it already bottomed up or where do you expect these to stabilize?

Nirmal Jain

I think some of the players who have offered these low rate schemes and some of them have already withdrawn or they understood that there is no merit in this and may be this quarter or next quarter over a period of time they may stabilize at a little lower level. There will be a down of 50 to 60 basis points but this will stabilize in this and next quarter. Do you expect the banks withdrawing, the banks only being temporarily aggressive here? No, the banks are not temporary, but the problem is that the competition from NBFCs is more. Wherever banks can reach out or customers can afford the pro

Thank you for the opportunity. I have a couple of questions on the assignment assets and the income? Firstly, if I heard it correctly you did about Rs. 3,600 Crores of assignment in nine month FY2022 is that right?

Nirmal Jain

In one quarter I think we do these kinds of numbers. That will be in the last part. What will be the number for nine months Sir? I will give you the numbers. Rs. 6,400 Crores actually in nine months. If you say Rs. 3,600 Crores last quarter and then about Rs. 3,000 Crores in the previous two quarters right. Yes? Q1 was not much. Q1 is typically COVID affected quarter. Fine. Sir in that case can you please provide a breakup of the assignment book like the kind of Rs. 13,000 Crores assignment assets what is the breakup of those assets’ segmental breakup? Assignment book segment breakup you are s

I very much think what you have said is bang on. The MSME segment we have seen a very strong recovery with the economy recovery and the asset quality from here should improve significantly and what you are saying is absolutely right that the traction in the last quarter has been very positive and hopefully the numbers will be reflected in the next few quarters in this particular segment of business. Also our DIY model is getting very established in terms of quality of credit, delinquency and growth. Overall, business loans should do well going forward.

Vivek Ramakrishnan

Excellent and Sir the AUM I noticed was Rs. 7,000 Crores and the loan book was about Rs.5857 Crores so the balance would be ones that have been assigned? That is right. Absolutely right. Vivek Ramakrishnan: As a performance difference between the two significant, in the sense that would the numbers be even better than that going forward? The numbers will be better and I think we will be able to even assign more. What happens in assignment is that you have a first of all three months or six months and after that only we can assign and if there is a slight delinquency then obviously no bank will

Thank you Mr. Jain for giving me the opportunity and thanks for providing the update. I missed the early part of the call so maybe I am not sure if this question has been answered? Actually I have two questions? One is I wanted to understand if there any challenges you are facing given the recent Omicron wave in the current quarter? The second question is I wanted to understand a little more on the co-lending side? Obviously there is some announcement which has come in terms of partnership but what sort of disbursements are you seeing under this model? What is your target in the next year or s

Nirmal Jain

As for Omicron, in the December and beginning of January we were very worried, but thankfully it has not impacted much. I think the business momentum continues and more or less people are reconciled to the fact that this is spreading rapidly, but it is not fatal and not something very serious so Omicron is not a big threat, at least in my understanding and more or less it is behind. From here on, I think things should get better. That has not impacted much. Secondly about co-lending in assignment, that is a good question and so I will tell you the difference. In case of assignment, it is trans

My question again was from the co-lending model? I believe you mentioned that you did about over Rs.500 odd Crores of disbursement in the home loan segment through co- lending so when you say Rs.500 Crores, out of that only 20% will be on your balance sheet right? Is that the way to understand this number?

Monu Ratra

Yes. So when you are mentioning in your presentation that you have done Rs. 1,600 Crores of disbursement that also includes Rs.500 Crores? That includes Rs.500 Crores. Out of that Rs.500 Crores 80% go onto banks so basically only 20% in your book. Right and the other thing is that so this disbursement which you have done that will show up in the assigned portion or like when you are saying on balance sheet of balance sheet mix which you have given in the presentation the remaining? It will be part of assigned asset. It will be part of loan AUM, but it will not be in our books. 80% will be part

I have two of house keeping questions. One is that actually just because we are starting to cover IIFL can I just have quick one as to who the IR is, his or her name?

Nirmal Jain

Anup Varghese is our IR and mail ID is ir@iifl.com. Thank you. My second question is on whether this meeting will be recorded for later on if I would like to replay? Yes, transcript will there on the website. It will be put up on the website in a couple of days. Good thank you so much. That is all I have. You can send the Q&A on the website and we will send you a link also. Awesome. Thank you so much.

Thank you everybody for being on the call. If you have any more queries or clarifications or questions, please get in touch with our investor relations. Thank you so much.

Management

Speaking time

Nirmal Jain

Moderator

Aswin Kumar B

Bhuvnesh Garg

Akshay Ashok

Monu Ratra

Prashanth Sridhar

Sharadh Singh

Abhiram Iyer

Deepak Poddar

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Opening remarks

Vidhi Shah

Thank you Chris. Good evening everyone. We have with us the management team of IIFL Finance represented by Mr. Nirmal Jain who is the Chairman, Mr. Rajesh Rajak, who is the CFO, Mr. Monu Ratra who is the CEO of IIFL at Home Finance, and Mr. Venkatesh N, who is the CEO of IIFL Samasta Microfinance. With this, now I shall hand over to Mr. Nirmal Jain for opening remarks. Over to you Sir!

Nirmal Jain

Thank you and welcome everybody in our earnings call. I will just start with the micro environment, as we see how we have been progressing in our strategy and then I will hand it over to our CFO, Rajesh for more detailed commentary on the results and then we can have Q&A. All of us are well aware, in terms of surprise element, there is the third wave, very swift but less damaging and hopefully it is tapering off and will be behind us very soon. Without commenting on stock market, as they can juggle in their own manner, the macro environment is looking much better as we are seeing that earnings of the most of the companies have shown significant improvement. The government spending has gone up and in the budget also people are expecting the momentum to continue. We see that the government is spending a lot on health infrastructure as well and last year because of the sudden COVID wave two and three the revenue expenditure was up by at least 0.8% of GDP as compared to the budget estimate

Rajesh Rajak

Thank you Mr. Jain. Let me take you all through a brief commentary of our recent results. IIFL Finance profit after tax was highest ever at Rs.310 Crores in Q3 FY2022 up 15% year on year and 6% quarter on quarter driven by strong volume growth. The recorded pre provision operating profit of Rs.650 Crores during the quarter, which was up 6% year on year and 12% quarter on quarter. Loan AUM grew by 11% year on year and 6% on quarter on quarter to quarter Rs. 46,780 Crores. Loan AUM for core products in facts grew faster year on year at 16% year on year and 6% quarter on quarter to Rs. 43,293 Crores driven mainly by small ticket, home loan, gold loan and microfinance loans. 94% of our loans are retail in nature and 67% of our retail loans are PSL compliant excluding gold loans, which are not classified as PSL loans. The largest share of retail and PSL compliant loans are of significant value in the current environment where we can sell down these loans to raise long term resources. In lin

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