IIFL Finance : Earning Call Transcript July 28, 2022

IIFL Finance Limited

July 28, 2022

Moderator:

Ladies and gentlemen, good day and welcome to the IIFL Finance Limited Q1 FY23 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 the conference call, please signal an operator by pressing "*" then "0" on your

touchtone phone. Please note that this conference is being recorded. I now hand the conference

over to the management. Thank you and over to you sir.

Rajesh Rajak:

Good afternoon everyone. On behalf of team IIFL Finance, I thank all of you for joining us on

this call. I am Rajesh Rajak - Chief Financial Officer. I am accompanied by Mr. Nirmal Jain -

our Managing Director, Mr. Monu Ratra - CEO - IIFL - Home Finance, and Mr. N Venkatesh -

CEO - IIFL - Samasta Finance. I will now hand over to our Managing Director Mr. Nirmal Jain

to comment on the economy and the group's overall strategy and plan. Over to you sir.

Nirmal Jain:

Thank you Rajesh. Good afternoon and welcome to the analyst call. So, macro environment as

we all know, the global environment is turbulent, yesterday FED hiked the rate by 75 basis point

which was a little aggressive, but maybe most people say this was much required or called for.

Market rallied maybe for a variety of reasons. But the fact which very few people doubt is, that

there is an imminent slowdown or recession in the developed world and particularly USA and

Europe. So, the global backdrop is worrisome. But in that backdrop, if you see India then the

underlying momentum in the economy is very strong. So, if you look at all the headline numbers

of GST collections, the consumption demand or auto sector, at the same time, there are recovery

signs in the rural economy as well. And also this is corroborated by earnings particularly of

banking and financial sector, IT sector as well as capital goods. So, India seems to be a sweet

spot in this global economy.

And coming to NBFC sector and our company, NBFC sector also has come out of a long crisis,

which began with the IL&FS first and then a few more other corporate defaults, and then COVID

crisis broke out, and the sector seems to have consolidated. Now the liquidity as well as credit

demand is improving, the environment is becoming a lot more positive. Coming to us, we had a

good quarter. So, now I would like to emphasize more on our Core Products because these are

the products where we are focusing for growth and now they account for almost 95% of our

portfolio. Growth was 26% in terms of core loan AUM, and the pre provision operating profit

was up 32%. We had high provision this time again, and the post provision profit before tax and

profit after tax were up by about 24%. So, the provision requirement was higher as we have

restructured microfinance pool and in fact close to Rs.375 crores which was restructured earlier,

came out of restructuring in last quarter, the payment would have become due last quarter maybe

some in this quarter. And there we are seeing some stress and we have been conservative, we

provided for it aggressively. We have taken about Rs.100 crore additional provision in

microfinance. But what is noteworthy this quarter is that NPA has started falling and the GNPA

number which was 3.2% at March end, even after following RBI stricter norms, which RBI has

given some discretion till September 2022, but we continue to follow the norms that will come

in force by September 2022. And with that our GNPA number was 2.6% for the entire book,

NNPA or the net non-performing assets after provision for stage three was 1.5%, down from

1.8%, and the provision coverage ratio has improved and is now 137% as against 123% in the

Limited.

A brief update on digital properties that we have. We largely do DIY loan sales through

WhatsApp and MyMoney app. More than 45,000 customers have been on boarded till date under

the above initiatives and the DIY disbursement in the quarter one was at Rs.260 crores. We also

have another initiative of gold loan at home which continues to see significant traction and it has

increased fourfold to Rs. 206 crores during the quarter. Also, in terms of servicing transactions

for customers, they can do it through IIFL loans app and my money app. We had about 3,50,000

active users during the quarter, which is in line with the overall digitization strategy of the

company. So, these are the brief updates. We can now open the floor for further questions. Thank

you.

Moderator:

Thank you. We will now begin the question-and-answer session. The first question is from the

line of Sukriti Jiwarajka from Laburnum Capital. Please go ahead.

Sukriti Jiwarajka:

Just on the first point you mentioned the stress that you're seeing in the restructured book is only

the MFI restructured loans or the overall Rs. 400 crores restructure that you reported last quarter?

Nirmal Jain:

MFI was a large part of it and the other restructured book actually came out was relatively lesser.

So, the stress that we are seeing is predominantly in MFI.

Sukriti Jiwarajka:

Okay. No, because last quarter as of 31st March, the MFI restructured book was zero.

Nirmal Jain:

So, suppose restructuring is over as on 31st March, then your payment will become due

sometime in the next quarter. And once you have defaulted for 90 days, then only it becomes

GNPA or a stress asset.

Sukriti Jiwarajka:

So, all this will slip into NPA right?

Nirmal Jain:

Not necessarily, because as they come out of restructuring some customers do pay, and some of

them don't pay or some of them are not able to pay the full amount that is required as per RBIs

new policy, then they get into NPA. But there is a recovery process, and there's a collection. So,

it's not that, if somebody has not paid for one or two installments, it will definitely go into a

loss. So, with some of that recovered, and some of them come after a lag, so there's a recovery

from pool that is identified as NPA also.

Sukriti Jiwarajka:

Sir, can we quantify about Rs.375 crores of restructured MFI loan, maybe on a quarter-to-quarter

back, how much has slipped, how much is in stage two. Because what I'm seeing is also right

IIFL Finance Limited

July 28, 2022

now stage three provisions for MFI it's still at 67%. And MFI customers don't usually come

back. So, I am just trying to understand what has gone where?

Nirmal Jain:

So, these are COVID related restructuring, because many of these customers had their income

and livelihood suspended for some time. So, out of Rs.375 crore, we should be able to recover

at least half of it. And the process is there, so recovery is happening and it is not zero. See, what

happens is the customer under normal circumstances not paying for say 90 or 180 days then you

are right, that will become very difficult to collect. But when you give a holiday for a time period,

and then you come back and it takes some time then it's a different situation. So, now that entire

thing has come out of restructuring, so last quarter and this quarter we'll know exactly how much

the total stressful assets are.

Sukriti Jiwarajka:

Sure. No, just for the half that we don't expect to come back, are we 100% provided there?

Nirmal Jain:

Rs.271 crore is the provision in total for MFI, and so maybe.

Sukriti Jiwarajka:

Rs.271 crore including Rs.100 crore this quarter?

Nirmal Jain:

Yes. We may need some more in the next quarter, I guess.

Sukriti Jiwarajka:

Yes, got it Rs.275 crores you said right, total provision in MFI?

Nirmal Jain:

Rs.271 crores, but that includes for all assets, not only stressful asset but even the normal book.

So, on the stressed assets we have provided about 66%, two third of it.

Sukriti Jiwarajka:

Got it. My next question is your yields have increased and given the product segment, it does

look like your customer is being able to absorb the higher rates. And like you said, you probably

have a better ability to pass it on. But I just want to get a sense of the competitive landscape in

the sense that is competition being rational? and have everyone raised rates in the core products

in home and gold in business loans also?

Nirmal Jain:

No, you are saying competitive pressures on the yield, on the interest rate?

Sukriti Jiwarajka:

Has everyone been rational enough to raise rates to the same extent?

Nirmal Jain:

Good question. In gold loan, in the last financial year, almost from September to March, people

were actually quite irrational in terms of the interest rates that they were quoting, like 49 basis

points per month and many of these players have cost of funds more than that, and they thought

that they will get the customer and they will be able to raise the price when they default or

whatever. So, I think the industry and the cutthroat competition in gold loan, is easing now,

because most of the players are now raising money and becoming rational. So, one is that

rationally increasing the price say 90 basis point- bank rate has gone up, the interest cost might

have gone up by certain basis point that is one part of it. The second one is that teaser rate which

was like spoiling the market, that tendency has reduced significantly. See 50, 100 basis points

price pass on in this industry is never difficult. But what was challenge in the last one year was,

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