IIFL Finance Limited, a major player in India’s non-banking financial services sector, reported a consolidated net loss of Rs. 93 crores for Q2FY25. This significant loss comes against the backdrop of a regulatory embargo imposed by the Reserve Bank of India (RBI) on its gold loan business earlier this year. The company’s standalone net loss stood at Rs. 441 crores. The embargo, which lasted from March until September 2024, severely impacted IIFL’s gold loan segment, dragging down overall performance.

The company revealed that the total assets under management (AUM) declined by 8% year-on-year, landing at Rs. 66,964 crores as of September 30, 2024. This was primarily due to a sharp decline in the gold loan portfolio, which plummeted by 54% compared to the same period last year. Despite this setback, IIFL Finance reported growth in other areas; home loans saw a 21% increase, and digital loans surged by 53%.

Financial Performance: A Closer Look

The total income for the quarter was Rs. 1,464.6 crores, representing an 8% decline year-on-year. The pre-provision operating profit fell 21% to Rs. 731.6 crores, while profit before tax (PBT) before exceptional items stood at Rs. 446.8 crores—a 35% decrease compared to Q2FY24. The company’s return on assets (ROA) and return on equity (ROE) also witnessed declines, with the ROA at -0.7% and the ROE at -5.2%.

One of the most impactful factors on the financial results was the RBI circular from December 2023, which required a 100% provision for Alternative Investment Funds (AIF) if not liquidated within 30 days. In compliance, IIFL Finance booked an exceptional loss of Rs. 586.5 crores for Q2FY25.

Expert Opinion: “Regulatory Challenges, But Recovery Ahead”

Mr. Nirmal Jain, Managing Director of IIFL Finance, stated that the gold loan segment had been the most affected due to regulatory restrictions. He indicated that while the quarter’s performance was below expectations, the company has taken corrective actions, satisfying regulatory authorities and leading to the lifting of the embargo in September. Jain expressed optimism, saying that with compliance measures now fortified, IIFL Finance is well-positioned for recovery and growth in the coming quarters.

Mr. Kapish Jain, President and Group CFO, echoed this sentiment. He noted that the company’s diversified portfolio and strong stakeholder support, including guidance from the RBI, played a crucial role in stabilizing the business. He affirmed that IIFL Finance is now focused on regaining market share in its gold loan segment, leveraging its extensive network of 2,745 branches.

Asset Quality and Liquidity

The gross non-performing assets (GNPA) ratio rose to 2.4% from 1.8% year-on-year, while the net NPA stood at 1.1%. The company maintained a capital adequacy ratio (CRAR) of 26.3%, significantly above the regulatory minimum of 15%. Liquidity remains robust, with Rs. 3,882 crores in cash and committed credit lines available as of the quarter’s end. The company raised Rs. 3,216 crores during the quarter through term loans, bonds, and commercial paper, bolstering its liquidity position.

Growth Segments: Home and Digital Loans Lead Recovery

Despite the gold loan setback, IIFL Finance reported growth in its other segments. The home loan portfolio grew by 21%, with the focus remaining on affordable and non-metro housing. Digital loans recorded the highest growth, expanding by 53% year-on-year, indicating a shift towards more technology-driven, low-touch lending models.

Future Outlook: Strategic Shift and Expansion Plans

With the RBI embargo lifted, IIFL Finance is optimistic about its ability to recover and grow its gold loan business. The company is also expanding its digital and home loan offerings to capture emerging opportunities in affordable housing and technology-driven lending. The management highlighted that its advanced technology platforms and extensive distribution network are key assets in its strategy to regain momentum and enhance profitability.

  IIFL Finance, Kapish Jain, Mumbai, Nirmal Jain, RBI, Reserve Bank of India