IIFL Finance Limited 'CRISIL AA/Stable' assigned to Non Convertible Debentures
Rating Action
&Interchangeable between secured and subordinated debt ^For retail bond issuance Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to Rs 1500 crore non-convertible debentures (NCDs) of IIFL Finance Ltd (IIFL Finance) and reaffirmed its ‘CRISIL AA/CRISIL AA-/CRISIL PPMLD AA/Stable/CRISIL A1+’ ratings on the bank facilities and existing debt facilities of the company.
CRISIL Ratings has also withdrawn its rating on Rs.151.39 crore of NCDs of the company (See ‘Annexure 'Details of Rating Withdrawn' for details) in line with its withdrawal policy. CRISIL Ratings has received independent confirmation that this instrument has been fully redeemed.
The ratings continue to be supported by the group’s comfortable capitalisation, its established track record of operations in home loans and microfinance segments, and sustained profitability metrics, supported by stable asset quality. These strengths are partly offset by limited diversity in the resource profile, with moderately higher cost of funds vis-à-vis some of the peers.
Earlier, vide announcement dated September 19, 2024, the company informed about upliftment of the regulatory embargo on its gold loan business, thereby allowing the group to resume sanctions and disbursements in this segment as in the normal course of business, as well securitization/assignment/sale of loans. The embargo was imposed by RBI on March 04, 2024. The company has demonstrated track record of profitably scaling its gold loan business – which remains one of its core segments. With the regulatory restriction being removed, and the company having taken requisite corrective measures following the action by the Reserve Bank of India (RBI), the group is expected to focus on regaining its market share in the gold loan business which should support restoration of its market position and profitability, which had moderated during the embargo. The time taken to attain its pre-embargo level of growth and profitability, while ensuring full adherence to compliances and regulations, remains monitorable.
During the restriction period, gold loan portfolio reduced to around Rs 10,797 crore as of September 30, 2024 (from Rs 23,354 crore on March 31, 2024) due to organic run down. Other key businesses of the group viz, home loans, microfinance, loan against property and others, were not directly impacted by this RBI directive. All the corrective measures on operational processes and compliances, highlighted by RBI have been implemented and the company’s ability to revive the momentum of growth in the gold loan business, will continue to be monitored.
Consolidated AUM stood at Rs 66,964 crore as on September 30, 2024, with gold loans accounting for 16%. Housing finance and microfinance, which form 43% and 17%, respectively, are carried out via subsidiaries, IIFL Home Finance Ltd (IIFL Home) and IIFL Samasta Finance Ltd (IIFL Samasta). In terms of the earnings profile, the group reported return on assets (RoA) and managed assets (RoMA) of 3.4% and 2.3%, respectively, for fiscal 2024, vis-à-vis 3.3% and 2.3%, respectively, in fiscal 2023. This was underpinned by controlled credit cost and upfront income from direct assignment (DA) transactions, and its sustenance considering any potential changes in the business model following the restrictions. RoA and RoMA, on an annualized basis, compressed to 0.8% and 0.6%, respectively, for first half of fiscal 2025 on account of 100% provision of an AIF investments - an exceptional loss (Rs 587 crore), lower net interest margins (NIMs) and increase in credit during the period. NIMs (Total net interest income/average managed assets) and credit cost (provisions and write-offs/average managed assets), on an annualized basis were 6.6% and 1.6% in H1FY25 vis-à-vis 7.1% and 1.1% during fiscal 2024.
The group has demonstrated ability to raise capital from long-term marquee investors, such as Fairfax, the CDC group and Abu Dhabi Investment Authority (ADIA). However, the resource profile is marked by limited diversity and higher cost of borrowings, compared with peers. |
Analytical Approach CRISIL Ratings has consolidated the business and financial risk profiles of IIFL Finance and its subsidiaries, including IIFL Home and IIFL Samasta. This is because all the companies, collectively referred to as the IIFL Finance group, have significant operational, financial and managerial integration, and operate under a common brand.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Comfortable capitalisation, supported by demonstrated ability to raise capital and an asset-light business model The group has demonstrated its ability to raise capital from long-term marquee investors, such as Fairfax and the CDC group in the past. IIFL Finance raised Rs 1,272 crore via rights issue in May 2024 and consolidated networth stood at Rs 13,638 crore with adjusted gearing stood at 2.9 times as on September 30, 2024. Networth coverage for net non-performing assets (NPAs) was comfortable at 29 times as on September 30. Given the capital infusion and the asset-light business model, capitalisation should remain comfortable for the projected scale of operations over the medium term.
IIFL Finance reported a standalone networth and gearing of Rs. 6428 crore and 2.4 times, respectively as on September 30, 2024, Tier I capital adequacy ratio (CAR) and overall CAR stood at 20.1% and 26.3%, respectively, as on the same date. Networth coverage for net NPAs was around 36 times.
Further, IIFL Home has also raised Rs 2,200 crore as primary equity from ADIA in the second quarter of fiscal 2023. Consequently, consolidated networth improved to Rs 12,056 crore and adjusted gearing to 3.9 times as on March 31, 2024. On September 30, 2024, IIFL Home had networth and gearing of, and Tier I and overall CAR of 44.4% and 49.1%, respectively, and networth coverage for net NPAs of around 28 times. On the same date, IIFL Samasta reported networth and gearing of Rs 2,165 crore and 3.5 times, respectively. Tier I and overall CAR on the same date were 23.9% and 30.5%, respectively.
Established track record of operations and extensive branch network; ability to revive market share in the gold loan business will remain a monitorable Consolidated AUM witnessed a de-growth of 15% over the first half of fiscal 2025 and stood at Rs 66,964 crore as compared to Rs 78,960 crore on March 31, 2024. The decline was driven by the rundown in gold loan portfolio along with momentary slowdown in microfinance portfolio.
Majority of the book has been deployed in retail asset classes. Two lending subsidiaries, IIFL Home and IIFL Samasta, are engaged in mortgage finance and microfinance, respectively. In the affordable housing space, the group extends loans of average ticket size of Rs 20 lakhs and within this sub-segment, it is a prominent player. Retail loans (ticket size less than Rs 1 crore) accounted for 97% of the consolidated AUM as on September 30, 2024, making the portfolio highly granular. Also, 69% of the portfolio, excluding gold loans, qualified under priority sector lending. As on September 30, 2024, the group was present across five key segments: home loans (43% of the AUM), gold loans (16%), LAP (13%), digital loans (8%) and microfinance (17%), which together accounted for 97% of the AUM, up from 67% as on March 31, 2017.
With the embargo being lifted, the organic run down of the gold loan business has been arrested and disbursements have started to pick up. Though the ability of the company to restore the run rate to pre-embargo levels, remains a monitorable. Apart from these, there are two non-core, but synergistic segments: construction and real estate (CRE) funding and capital market lending. The group has been consciously scaling down its book under these segments, which together formed only 2% of the AUM. Under CRE, the group finances completion of projects already funded by it and is also looking at providing smaller ticket construction finance through IIFL Home, as it will be synergistic to its core business. In the capital market segment, the group finances retail clients of IIFL Securities Ltd. Market position benefits from a wide network of 4,810 branches as on September 30, 2024, which allows the group to cross-sell financial products of other IIFL entities.
On a standalone level, IIFL Finance had an AUM of Rs 17,382 crore as on September 30, 2024 (Rs 29,250 crore as on March 31, 2024 and Rs 25,573 crore as on March 31, 2023) primarily comprising gold loans (62%), digital loans (31%), developer and construction finance (4%), loan against property (1%) and capital markets (2%). IIFL Home had an AUM of Rs 37,098 crore on the same date (Rs 35,499 crore as on March 31, 2024 and Rs 28,512 crore as on March 31, 2023), comprising home loans (79%), followed by LAP (19%) and construction finance (2%). IIFL Samasta had an AUM of Rs 12,483 crore as on September 30 2024 (Rs 14,211 crore as on March 31, 2024 and Rs 10,552 crore as on March 31, 2023).
Sustained profitability metrics supported by controlled asset quality Consolidated RoA and RoMA were 3.4% and 2.3%, respectively, in fiscal 2024 and 3.3% and 2.3%, respectively, for fiscal 2023. On an absolute basis, consolidated net profit was Rs 1,974 crore in the fiscal 2024 and Rs 1,608 crore in fiscal 2023. Earnings were supported by lower credit cost (provisions and write-offs/average managed assets) of 1.1% during fiscal 2024 vis-à-vis 1.2% in fiscal 2023 (1.7% in fiscal 2022). However, in H1 2025, consolidated RoA and RoMA reduced to 0.8% and 0.6%, respectively, due to 100% provision made for an AIF investment - an exceptional loss (Rs 587 crore), lower net interest margins (NIMs) and increase in credit in the quarter. NIMs (Total net interest income/average managed assets) and credit cost (provisions and write-offs/average managed assets), on an annualized basis stood at 6.6% and 1.6% in H1FY25 vis-à-vis 7.1% and 1.1% during fiscal 2024.
On consolidated and standalone basis, gross NPAs (GNPAs) of IIFL Finance stood at 2.3% and 3.7%, respectively, as on March 31, 2024 (1.8% and 1.3%, respectively, as on March 31, 2023, and 3.2% and 2.9%, respectively, as on March 31, 2022). GNPAs spiked during March 2024 due to slippages in gold portfolio. GNPA stood at 2.4% and 2.9%, respectively on consolidated and standalone basis, as on September 30, 2024. Provision coverage ratio as on September 30, 2024, stood at 56%.
On a standalone basis, IIFL Home and IIFL Samasta reported GNPAs of 1.5% and 1.9%, respectively, as on March 31, 2024 (2.2% and 2.1%, respectively, on March 31, 2023, and 3.1% and 3.1%, respectively, on March 31, 2022). Of these, while the GNPA of IIFL Home has remained almost flat at 1.6% over the first half of fiscal 2025, GNPA for IIFL Samasta inched up to 3.4% as of September 30, 2024, owing to issues like overleveraging and attrition that are plaguing the microfinance segment. On this date, GNPA for the gold loan portfolio was at 2.4%, LAP at 3.5%, and digital loans at 3.3%.
Ability to keep delinquencies under check and manage credit cost will remain critical for sustaining healthy profitability.
Weakness: Limited diversity in resource profile with comparatively higher cost of funds; ability to restore the volume and quality of funding to pre-embargo levels, is a key rating sensitivity factor As on September 30, 2024, banks and financial institutions (FIs) constituted 73% of the on-book borrowings of the group-these were primarily in the form of term loans (44%), refinance (16%), short-term borrowings (4%), external commercial borrowings (8%) and others (1%). The remaining 27% of borrowings were in the form of non-convertible debentures (24%), external commercial borrowings from DFIs (1%) and commercial paper (2%). Of this, capital market lenders (such as mutual funds, pension funds, trusts) had limited share. IIFL Finance group has been able to tap the public NCDs route, but the cost of funds remains higher than some of the comparable peers. Nonetheless, the company has a comfortable liquidity profile with no negative cumulative mismatches across time buckets as per the asset liability maturity (ALM) statement dated September 30, 2024.
Over the medium to long term, ability to diversify the resource base at an optimal cost will be a monitorable, given the relatively higher reliance on banks and FIs. |
Liquidity Strong As on September 30, 2024, the IIFL Finance group had liquidity of Rs 3882 crore (Rs 3433 crore of cash and equivalents, Rs 77 crore of unutilised cash credit limit and Rs 372 crore of undrawn sanctioned bank limits [including securitisation/DA limit]). Against this, total debt obligation was Rs 2,777 crore over the three months through December 2024.
On a standalone basis, IIFL Finance had surplus cash of Rs 854 crore as on September 30, 2024. This, including sensitized collections scheduled over the following three months, is sufficient to meet debt obligation of Rs 867 crore till December 2024.
Environment, social and governance (ESG) profile CRISIL Ratings believes that the ESG profile of the IIFL Finance group supports its credit risk profile.
The ESG profile of financial institutions typically factors in governance as a key differentiator. The sector has reasonable social impact because of its substantial employee and customer base, and its role in promoting financial inclusion. While there is no direct adverse impact on the environment, lending decisions could have a bearing on environmental and other sustainability related factors.
The IIFL Finance group has demonstrated an ongoing focus on strengthening various aspects of its ESG profile.
Key ESG highlights of the IIFL Finance group IIFL Finance has replaced incandescent lights with light-emitting diode panels across branches. Rainwater harvesting systems have been installed and wastewater is treated and re-used for domestic purposes.
Of the total workforce at IIFL Finance, gender diversity stands at 26%, as on March 31, 2023. One of the nine board members is a woman.
Of the board members, 63% are independent directors and there is a split between positions of the chairman and CEO. Extensive investor grievance redressal disclosures and mechanism are in place.
There is growing importance of ESG among investors and lenders. The group’s commitment to ESG will play a key role in enhancing stakeholder confidence, given the substantial share of foreign investors as well as access to domestic capital market. |
Outlook: Stable IIFL Finance group is likely to maintain adequate capitalisation while restoring its growth momentum in the gold loan as well as overall portfolio, which is expected to aid overall profitability. |
Rating Sensitivity Factors Upward factors: * Sustained improvement in profitability, with RoMA reaching 2.8-3.0% on a steady state basis * Diversification of resource profile at optimal cost of funding * Significant improvement in market position, along with sound asset quality
Downward factors: * Inability to regain significant market share in the gold loan segment * Any further regulatory developments resulting in sustained weakening of the business profile * Restricted ability to raise resources at competitive rates * Weakening of asset quality, leading to decline in profitability, with consolidated RoMA remaining below 2%. |
About the Company IIFL Finance is the listed holding company of the IIFL Finance group and is registered as a systemically important non-deposit-taking, non-banking financial company. The group offers various retail lending products, including gold loans, home loans, LAP, digital loans and microfinance loans, which are the core segments and form 98% of the AUM. Capital market-based lending (margin funding and loans against shares) and construction and developer finance form the balance of the AUM. |
Key Financial Indicators : IIFL Finance (consolidated; CRISIL Ratings-adjusted numbers)
Key financial indicators: IIFL Finance (standalone; CRISIL Ratings-adjusted numbers)
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#Interchangeable between secured and subordinated debt
#Interchangeable between secured and subordinated debt |
Annexure – List of entities consolidated
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Criteria Details
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