IIFL Finance Q3FY25 results: Profit plummets 85% amid rising credit costs and loan portfolio shifts

IIFL Finance Limited has reported an 85% year-on-year decline in profit after tax (PAT) for the third quarter of the 2024-25 financial year, as rising borrowing costs and asset quality deterioration weighed on earnings. The profit after tax stood at ₹82 crore, significantly lower than ₹545.2 crore recorded in Q3FY24.

The financial performance was impacted by weakness in microfinance, gold loans, and small-ticket unsecured lending, which saw a sharp decline in portfolio growth. Gold loans shrank by 39%, while microfinance loans dropped 14% year-on-year. Despite this, the company’s home loan assets under management (AUM) increased by 19%, and MSME loans grew 31%, reflecting demand in select segments.

How Did IIFL Finance’s Loan Portfolio Perform in Q3FY25?

The company’s total loan AUM declined 8% year-on-year to ₹71,410 crore, largely due to pressure in gold loans and microfinance lending. However, on-book assets grew 5% to ₹49,702 crore, demonstrating a strategic shift towards keeping more assets on its balance sheet. Off-book assets declined 28% to ₹21,708 crore, indicating a reduction in loan securitization and co-lending arrangements.

The home loan segment remained a bright spot, with AUM rising to ₹30,318 crore, a 19% year-on-year increase. IIFL Finance continues to focus on affordable housing loans, particularly in non-metro areas, through its 384 dedicated branches across India.

The gold loan segment witnessed a substantial decline, falling to ₹15,044 crore, marking a 39% drop compared to the previous year. Microfinance loans also declined by 14% to ₹10,339 crore, reflecting stress in rural and semi-urban lending markets. Meanwhile, MSME loan AUM surged 31% to ₹13,903 crore, suggesting continued demand for small business financing despite broader economic uncertainties.

What Are the Key Financial Indicators for IIFL Finance in Q3FY25?

IIFL Finance reported a 24% year-on-year drop in total income to ₹1,282 crore, indicating pressure on net interest margins and loan book contraction. Pre-provision operating profit (PPOP) declined 45% to ₹534.3 crore, while profit before tax (PBT) tumbled 86% to ₹101 crore, highlighting the impact of elevated credit costs and lower fee-based income.

The company’s return on assets (ROA) fell to 0.6%, down from 3.8% in Q3FY24, while return on equity (ROE) collapsed to 1.4% from 19.7% a year ago. The sharp decline in profitability underscores increased provisioning for loan losses and reduced lending spreads.

How Has Asset Quality Impacted IIFL Finance’s Financial Performance?

Asset quality deterioration was a significant factor in IIFL Finance Q3FY25 results, with gross non-performing assets (GNPA) rising to 2.4%, up by 70 basis points year-on-year. Net NPA increased to 1.0%, reflecting higher delinquencies in unsecured lending and microfinance segments.

The company implemented higher provisioning in response to asset quality stress, with the provision coverage ratio reaching 114% under the expected credit loss (ECL) model. This move aims to cushion against potential defaults amid macroeconomic uncertainties.

What Are IIFL Finance’s Liquidity and Capital Position?

IIFL Finance maintained a capital adequacy ratio (CRAR) of 22%, comfortably above the regulatory requirement of 15%, ensuring a strong capital buffer despite earnings pressure. The company had ₹5,656 crore in cash and committed credit lines as of December 31, 2024, ensuring sufficient liquidity to meet debt obligations and operational expenses.

To strengthen its funding base, IIFL Finance successfully raised $325 million in January 2025 through the issuance of 8.75% Senior Secured Fixed Rate Notes due 2028. The issuance was conducted under the company’s $1 billion Global Medium-Term Note Programme, filed with India International Exchange (IFSC) Limited.

What Is the Management’s Outlook for IIFL Finance in 2025?

Managing Director Nirmal Jain acknowledged that Q3FY25 was a challenging quarter, with rising credit costs, pressure on lending margins, and slowing disbursements impacting the company’s performance. He noted that stress in microfinance, unsecured loans, and small-ticket loans against property (LAP) reflected broader economic trends.

However, Jain highlighted the recent 25-basis-point rate cut by the Reserve Bank of India (RBI)—the first in five years—as a positive policy move that could support loan demand and economic recovery. He expressed confidence that performance would improve in the coming quarters as monetary easing and fiscal support stabilize credit markets.

What Is the Growth Strategy for IIFL Finance Going Forward?

Looking ahead, IIFL Finance is likely to focus on consolidating its loan portfolio while prioritizing asset quality improvement. The company is expected to emphasize growth in secured lending segments such as home loans and MSME financing, given their lower risk profile compared to microfinance and unsecured credit.

While the gold loan segment remains under pressure, IIFL Finance may restructure its pricing strategy to regain market share. The microfinance division is likely to see conservative expansion, with a focus on improving collection efficiency and loan recoveries.

The firm’s co-lending partnerships and digital lending initiatives are expected to play a key role in its medium-term strategy, ensuring a diversified funding base and risk-sharing mechanisms with partner financial institutions.

Can IIFL Finance Rebound After a Weak Q3FY25?

The IIFL Finance Q3FY25 results underscore significant profitability challenges, driven by loan portfolio shifts, asset quality stress, and rising credit costs. Despite the financial performance decline, select lending segments like home loans and MSME finance continue to show promise.

With adequate capital buffers, strong liquidity, and a retail-focused lending model, IIFL Finance is well-positioned to navigate economic headwinds. However, a cautious approach toward unsecured lending and a focus on risk mitigation will be crucial for sustaining long-term growth in 2025.