The stark deviation in IIFL Finance Ltd.'s standalone and consolidated net profit for the September quarter is due to lower income generated from sale of loan portfolio to banks, according to Chief Financial Officer Kapish Jain.
The company's standalone second-quarter profit fell 38% year-on-year to Rs 136.7 crore. However, its consolidated bottomline, after adjusting for non-controlling interest, grew 25% year-on-year to Rs 474.3 crore in the reporting quarter.
The rise in MCLR, the rate at which banks bought loan assets from IIFL Finance, rose faster than the rise in NBFC's portfolio yield, Jain told BQ Prime on Thursday. To put it in context, the RBI has raised interest rates by 250 basis points since May 2022, which has translated into a higher lending rate on a marginal cost basis by the banks.
Since the beginning of the last financial year, the median range of overnight MCLR rates by public sector, private and foreign banks has varied between 5.55% and 8.35%.
IIFL Finance's portfolio yield, a measure of income generated from a loan portfolio, as well as the average interest rate charged to borrowers, rose to 17% in the September quarter, compared with 15.3% a year ago. In the previous quarter, this number stood at 16.6%.
"A marginal increase in NPA in the gold loan business is resulting in some reversal of income. This is causing a marginal dip in overall income for standalone financials," Jain said.
Non-controlling interest, or minority interest, on account of buying a 20% stake by Abu Dhabi Investment Authority last year in IIFL Home Finance Ltd. led to carving out that much profit for ADIA. NCI represents a share of the net income of the subsidiary company attributable to the investors, who own less than 50% of the outstanding shares.
A rise in finance costs during the quarter and higher recognition of finance costs also weighed on the standalone net profit.
The finance cost rose 15% to Rs 407.5 crore in the second quarter due to the base effect, Jain said. Net loss on derecognition of financial instruments under amortised cost spiked to Rs 82.2 crore, as compared with Rs 58.2 crore a year ago.
The consolidated total income of the non-banking financial company stood at Rs 1,599.3 crore, 33% higher than the previous year's figures. Under this, income generated from co-lending products marked a growth of 350%, followed by other income that rose 149% during the quarter. Jain expects the trend to continue.
IIFL Finance's loan assets under management also saw a 32% on-year growth to Rs 73,066 crore as of Sept. 30, driven primarily by microfinance loans and digital loans.
The asset quality remained stable, with the gross non-performing ratio at 1.8% and the net non-performing ratio at 1.0% sequentially. With implementation of Expected Credit Loss framework, the NBFC's provision coverage ratio stood at 159%.
The capital adequacy ratio was at 20% as of Sept. 30. IIFL Finance's fundraise of up to Rs 3,000 crore, through equity and convertible instruments, is aimed at boosting growth, which would improve the standalone capital adequacy significantly, Jain said. The standalone CRAR is expected to rise to above 30% going ahead, he said.
Jain expects the total assets under management to grow 25% annually for next couple of years.
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