IIFL Finance Q4 Results: Profit Falls, AUM Rises Amid Regulatory Challenges
The company's assets under management, or AUM, rose 2% quarter-on-quarter in the quarter ended March 2024. Total AUM rose 22% on year to Rs 78,960 crore.
IIFL Finance Ltd.'s fourth-quarter profit fell, even as assets under management and and net interest income grew.
The company's assets under management, or AUM, rose 2% quarter-on-quarter in the quarter ended March 2024. Total AUM rose 22% on year to Rs 78,960 crore.
The subdued growth could be attributed to the Reserve Bank of India's bar on the company's gold loan disbursements, which has impacted the company's portfolio and overall performance.
The fourth quarter results were delayed as the company was resolving issues related to the RBI's embargo, which included addressing lapses in regulatory compliance and a special audit commissioned by central bank, said Chief Financial Officer Kapish Jain.
IIFL Finance Q4 Results: Key Highlights
NII rose 29% to Rs 1,122 crore (year-on-year).
Profit after tax fell 10% to Rs 373 crore (year-on-year).
GNPA at 2.3% versus 1.7% (quarter-on-quarter).
NNPA at 1.2% versus 0.9% (quarter-on-quarter).
IIFL Finance's interest income rose 27% year-on-year to Rs 2,196 crore, while interest expenses increased by 25% on-year to Rs 1,074 crore, resulting in a net interest income growth by 29% annually to Rs 1,122 crore.
Non-interest income also grew by 27% YoY to Rs 638 crore. However, operating expenses climbed by 25% YoY to Rs 769 crore, and provisions increased by 13% YoY to Rs 236 crore.
The company's PAT primarily fell due to a net loss on fair value changes amounting to Rs 200 crore. The operating profit stood at Rs 990 crore, up 30% on annual basis.
RBI Embargo On Gold Loans
On March 4, the RBI directed IIFL Finance to cease and desist from disbursing gold loans, citing lapses in statutory cash disbursement limits, gold purity certificate issuance, loan-to-value parity for auction cases, and lack of transparency in customer charges.
This embargo halted new gold loan sanctions and disbursements and affected the assignment and selling of existing loans. The company has since resolved these issues, and auditors appointed by the RBI have concluded their special audit and submitted their report to the RBI, Jain said.
The gold loan portfolio, which constitutes 30% of the total loan mix, saw an increase in NPA ratios due to the pause on roll-overs. This led to a rise in the gross NPA ratio to 2.3% from 1.7% sequentially, while the net NPA ratio also increased to 1.2% from 0.9% quarter-on-quarter, Jain said.
Despite the increase in NPAs, Jain assured that the rise in gold prices mitigates the risk, and there are no significant concerns about asset quality outside of this limited temporary setback. The company is actively hand-holding customers who wish to roll over their gold loans, he said.
The RBI's bar on gold loans directly impacted growth in the segment, leading to lower-than-expected growth. March is typically a strong month for loan growth, and the embargo hindered this momentum, according to Jain.
The pause on gold loan roll-overs has increased NPAs in this segment. However, Jain stressed that this is not a cause for significant concern due to the rising gold prices and the company's proactive customer engagement.
The company is managing the embargo's impact, raising over Rs 1,200 crore of equity and expanding its branch network, Jain said. “The focus remains on controlled growth, with an aim to return to a 25% CAGR once the regulatory issues are resolved," he said.
Jain is optimistic that the RBI embargo will be lifted soon, allowing the company to resume its growth trajectory. He expects the long-term return-on-assets to stabilise around the historical 3.5% mark once the business normalises. “Projecting loan growth till the embargo is not lifted is a challenge since the large gold loan portfolio is witnessing degrowth," he said.
