L&T Finance Ltd — Q3 FY26 earnings call

So, FY27 Q4, we believe will be a much better revisit. We are, in fact, waiting for that day and that quarter because by then, most of our book would have been seasoned through the using the Cyclops underwriting tool, which would mean that directionally, the overall models would start taking into account the benefit flowing through slowing down of slippages, which are quite evident.

Analyst sought clarity on the long-term credit cost trajectory, especially given the annual ECL model reset, and management provided confidence in future improvements driven by seasoned Cyclops-underwritten portfolios.

Asked by Mahrukh Adajania

So, Kunal, the co-borrower piece, at industry level, there were different ways of either taking it into account or not. The example I can give you is that if there is a husband and wife who have taken exposure in one particular business, the wife has taken exposure to another business loan completely different. And that loan was standard. We did not consider that because that was a co-borrower taking a fresh loan. Those loans were because they were standard, were continued to be shown as standard and hence, the provisioning was as per the normal Stage 1 provision. And this quarter, post our RBI interaction at the time of inspection, we were advised that we should take into account all such accounts as well.

Analyst questioned the one-time nature of the ₹23 Cr co-borrower provision, and management clarified it was a specific adjustment following an RBI interaction, not a recurring event.

Asked by Kunal Shah

Having said that, we are also very, very cognizant of the fact that we need to balance our NIMs and Fees and give a predictability to our NIMs and Fees trajectory. And that is why our continuous guidance has been that we will put the NIMs and Fees we will try to deliver the NIMs and Fees in the corridor of 10% to 10.5%.

Analyst probed if strong NIMs+Fees delivery implies a trade-off with credit cost, and management reaffirmed its commitment to maintaining NIMs+Fees within the 10-10.5% corridor while improving credit quality.

Asked by Praful Kumar

So, the only thing is that credit cost, if your expectation is that the credit cost will actually move in a metronomic regularity in a straight-line fashion, that, sometimes in real life does not happen, right. So -- but what we are very, very confident is that 2% to 2.2%, reaching that 2% to 2.2% guided trajectory by Q4FY27, right. If the tailwinds are with us, we might reach it before even before Q4FY27 also, right.

Analyst sought clarity on the financial impact of Security Receipts resolution and the long-term credit cost outlook, with management providing a timeline for SR resolution and confidence in achieving credit cost targets.

Asked by Avinash Singh

So, you can see that the quality of the portfolio continues to improve with every passing month. And we are extremely confident of the quality of the book that we're building because contrary to maybe many other players, we do not play in the BNPL space or the near prime or the subprime space.

Analyst questioned the asset quality of digital Personal Loans, given industry concerns, and management highlighted improving metrics and a focus on prime segments, differentiating their strategy.

Asked by Abhishek Murarka

Yes, Abhishek, on the write-offs, I think, I'm happy to state that you have gone wrong on your assumption. The slippages, as I mentioned earlier, the slippages have been much lower, and the write-off book accordingly is also much lower than what you have mentioned. It's about ₹470-odd Cr.

Analyst inquired about the magnitude and nature of write-offs, particularly from the MFI legacy book, and management provided a specific figure and confirmed MFI as the bulk, indicating past stress resolution.

Asked by Abhishek Murarka

Yes. So, on the operating expenses, earlier also, we have guided that looking at quarterly numbers, all ups and downs that are there, should not really -- you should not get too much meaning out of it. Very clearly, we are in investment mode. We are investing in technology. We are investing in setting up new branches. Gold Loan, we are setting up 1 branch a day.

Analyst questioned the trend of operating expenses and cost-to-income ratio, and management explained it's an investment phase for technology and branch expansion, with a medium-term target below 40%.

Asked by Bhavik Dave

Our stated objective is to have the secured, unsecured ratio at 60:40. So that is our stated objective. So obviously, if you see some of our business lines, like the Microfinance business, the Personal Loans business, the unsecured Business Loans originations, they are of the unsecured nature. But we are trying to balance it by secured Gold Loans, right.

Analyst inquired about the future mix of unsecured loans and the drivers of Personal Loan growth, prompting management to outline their strategy for balancing the portfolio with secured assets like Gold Loans.

Asked by Nidhesh Jain