Will Diversify & Focus On MSME Seg To Avoid Over-Reliance On Gold Loans In The Medium Term: IIFL

Summary

In this interview, IFL Finance's founder and chairman discusses the impact of the Reserve Bank of India lifting restrictions on their gold loan business. He explains the company's cautious approach to resuming operations, focusing on compliance and risk management. The chairman also addresses market share loss and strategies for recovery, emphasizing customer trust and service. Despite the uncertainty of timelines, he projects a 6-12 month recovery period for the gold loan portfolio and highlights diversification into business loans as a long-term strategy.

Takeaways

• 📉 The Reserve Bank of India lifted restrictions on IFL's gold loan business that were imposed in early March.
• 🏢 IFL Finance has started dispersing gold loans again after the lifting of the ban, with operations resuming just a couple of days prior to the interview.
• 📈 The company is not rushing to scale up operations but is focusing on steady, orderly growth with compliance and risk controls in place.
• 💼 Nal Jan, founder and chairman of IFL group, mentioned that despite the disruption, there were no salary cuts or job responsibility changes, maintaining trust with customers and employees.
• 📊 IFL's gold loan portfolio saw a significant drop due to the ban, but the company is confident in its ability to rebuild it quickly due to the nature of short-term products.
• 📉 The company lost market share during the ban, but with customers returning and queues forming at branches, there is optimism for recovery.
• 🌐 The gold loan business is not the sole focus; IFL Finance is also looking to diversify into other segments like business loans and housing finance.
• 💰 Higher gold prices could act as a tailwind for the business, but there are concerns about potential corrections and the impact on loan assets.
• 🏦 Co-lending remains a key strategy for IFL Finance, helping to preserve capital and reduce risk on the balance sheet.
• 🔢 The company has returned a significant amount of bank money from co-lending during the ban, demonstrating financial strength and asset quality.
• 📊 The exact timeline for returning to pre-ban levels in gold loan business is uncertain, but the company expects it to take between 6 to 12 months based on current feedback.

Q & A

What was the main news development discussed in the transcript?

The main news development discussed was the lifting of restrictions by the Reserve Bank of India on IFL's gold loan business.

When were the restrictions imposed on IFL's gold loan business?

The restrictions were imposed by the Reserve Bank of India in early March.

What was the impact of the restrictions on IFL's operations?

The restrictions prevented IFL from sanctioning and dispersing gold loans.

How long has IFL been operating again after the lifting of the ban?

IFL has been operating again for about two to three days, with the interview taking place the day after they restarted their business.

What is the approach IFL is taking to ramp up their operations post-ban?

IFL is taking a steady and orderly approach to ramp up operations, ensuring compliance and risk controls are in place without rushing.

What was the initial response from customers after IFL resumed gold loan services?

The initial response has been very good, with customers coming back and some branches even having queues.

How does the founder view the trust between IFL and its customers?

The founder believes that customer trust is paramount and that customers will shift their business back to IFL at the earliest opportunity.

What is the estimated time for IFL's gold loan portfolio to return to pre-ban levels?

The founder estimates it could take between 6 to 12 months for the gold loan portfolio to return to pre-ban levels.

How does the current high price of gold affect IFL's business?

High gold prices can act as a tailwind, but the founder also expresses caution due to the volatility of commodity prices and the potential for a correction.

What is IFL's strategy for diversification beyond gold loans?

IFL has separate entities for Housing Finance and Micro Finance, and the listed entity also focuses on business loans, particularly for MSMEs, to diversify and build a larger and more sustainable market segment.

What was the role of co-lending in IFL's profitability before the ban?

Co-lending was a significant driver of profitability, offering spreads of 800 to 900 basis points and serving as a strategy to preserve capital and reduce risk on the balance sheet.

How does the founder view the future of IFL's growth and margins?

The founder expects to return to historical growth rates of 20 to 25% and maintain margins in the long term, despite short-term impacts on margins due to the pause in gold loan operations.