Detailed Narrative
Strong Q3 FY26 Performance Driven by Gold Loans
IIFL Finance reported a robust Q3 FY26, with consolidated AUM growing 9.1% QoQ and 38% YoY to INR 98,336 crores, nearing the INR 100,000 crore mark. This growth was primarily fueled by gold loans, which saw a 26% QoQ and 189% YoY increase in AUM to INR 43,432 crores, surpassing pre-embargo levels. The company's consolidated PAT before non-controlling interest rose 20% QoQ to INR 501 crore, while pre-provision operating profit surged 101% YoY to INR 1,075 crores.
Significant Improvement in Asset Quality
The company demonstrated a material improvement in asset quality, with consolidated Gross NPA reducing from 2.14% to 1.6% QoQ and Net NPA falling below 1%. This improvement was attributed to a strategic portfolio reset, including the exit from higher-risk segments like digital unsecured MSME loans and Micro LAP under HFC, and the sale of INR 875 crore of non-strategic assets to an Asset Reconstruction Company (ARC). The provision coverage ratio stands strong at 92% following ECL implementation.
Income Tax Special Audit Clarified
Management proactively addressed market concerns regarding a special audit under Section 142(2A) of the Income-tax Act. Nirmal Jain clarified that this is a procedural step following a search, covering six assessment years, and is not a finding, allegation, or adjudication. The audit, expected to conclude within 60 days, has no ascertained financial impact and does not affect the company's operations, capital position, or growth plans. A clarificatory note will also be filed with exchanges.
Refined Housing Finance Strategy and Cleanup
The housing finance business underwent a portfolio cleanup, with INR 875 crore of non-strategic assets (BLC, Micro LAP) sold to an ARC, leading to a reduction in Home Finance GNPA from 2.2% to 0.9%. Going forward⏳, the strategy will focus on 'emerging' and 'affordable' segments in Tier 2, 3, and 4 cities, targeting higher incremental yields of 11.5-13%. The company expects housing book growth of 15-16% and disbursement growth of 24-25% from next quarter, with the new strategy taking 2-3 quarters to reflect in overall portfolio yields.
Optimistic Outlook on Credit Costs and Overall Growth
IIFL Finance guided for a full-year FY26 credit cost of 2.8-3%, with a target to bring it below 2% for FY27, representing a 50-60 basis points decline from the current quarter's annualized 2.5%. Management anticipates overall AUM growth of 20-25% for the next year and aims to achieve an ROE of 18-20% in the next 2-3 years, reflecting confidence in its refined business model and improving macroeconomic conditions.
Microfinance Portfolio Resurgence
The microfinance segment, IIFL Samasta, showed strong recovery, particularly in Karnataka and Tamil Nadu, with collection efficiencies exceeding 99.5% in November and December, a trend continuing into January. Management noted significant improvements in asset quality, credit culture, and reduced customer leverage, with the primary zero bucket collection efficiency at an all-time peak of 99.56%. The cost of fund for microfinance also saw a 10 bps decline.
Capital Adequacy and Funding Strategy
The company maintains a comfortable consolidated capital adequacy ratio of 27.7% and net gearing of 3.6x, with liquidity standing at over INR 9,400 crores. While no immediate capital issuance plans were announced, management indicated a target leverage of 4-4.5x and capital adequacy closer to 20%. Growth will be supported by bank partnerships, including co-lending and direct assignments, with integration for new RBI CLM 1 guidelines underway, which is crucial for capital-efficient growth.