Jan 30, 2013, 05.16 PM | Source: CNBC-TV18

Looking at multi-product lending approach: IIFL

In an interview to CNBC-TV18, Nirmal Jain, chairman, India Infoline said overall the growth has been healthy across all segments. Year-on-year basis net profit had doubled and income too was up.

Our strategy is to have multi-product lending approach. Over next two to three years each product will account for say 20-25 percent of our overall portfolio.

Nirmal Jain



India Infoline 's (IIFL) consolidated net profit rose by 11 percent year-on-year to Rs 73.2 crore in the third quarter of financial year 2012-13. Total income grew by 6.6 percent to Rs 694 crore from Rs 651 crore during the same period.

In an interview to CNBC-TV18, Nirmal Jain, chairman, India Infoline said overall the growth has been healthy across all segments. Year-on-year basis net profit had doubled and income on YOY basis also was up.

This is the sixth consistent quarter of growth primarily driven by our Non-banking finance companies (NBFC) business and financial product distribution and wealth management, he asserted.

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Since the gold loan portfolio was slower than the remaining portfolios, the average yield came down on NBFC business, but still the loan book has grown about 10 percent, he explained.

He further added our strategy is to have a mix of products, so we want to have multi-product lending approach.

Below is the edited transcript of his interview on CNBC-TV18

Q: Can you take us through what you have done by way of revenues and profit?

A: Profit after tax is Rs 75 crore in this quarter which is about 12 percent more than the previous quarter and more than double of the previous year same quarter. So, on a year-on-year basis our net profit has more than doubled. Our income on a year-on-year basis is up 45 percent. This strong performance has been continuing and this is the sixth consistent quarter of our growth primarily driven by our Non-banking financial companies (NBFC) business and also our financial product distribution and wealth management.

In terms of businesses, equity brokerage remains lackluster because equity market volumes and particularly retail investors participation still has not come to the market. Commodity and currency volumes were also down, but we had couple of investment banking transactions in last quarter. So, the larger growth in terms of income is in marketing and distribution side which comprises distribution of life insurance product, mutual fund product as well as our wealth management services and NBFC also has reported strong numbers.

Q: What has been the earnings breakup? Last quarter you delivered about Rs 82 crore on the NBFC and about Rs 23 crore on the equity side, what has been the performance this time on EBIT earnings?

A: In this quarter we have about Rs 28 crore from broking and related income, which also includes investment banking. We have Rs 71-72 crore from financing and investment, and about Rs 19 crore from distribution and marketing.

Q: On the NBFC side the earnings has actually gone down from about Rs 82 crore, I heard you say Rs 70 crore plus. Quarter on quarter a bit of deterioration, what is the outlook?

A: Segmental result of financing and investing comprises of financing and investing activity including proprietary investment or fixed deposit, banks, everything, out entire group. However, NBFC results are not part of segmental analysis. On NBFC, our net profit is marginally gone up. In last quarter if you see our interest income on gold loan was down, so, our yield was down. Our gold loan portfolio has not gone up significantly or is relatively slower than the remaining portfolios. So, the average yield has come down on NBFC business but loan book has grown by about 10 percent plus.

Q: How would you see that business in terms of size, how does it compare with the non-NBFC business?

A: NBFC business is growing steadily, in fact the relative risk of the market volatility and cyclical trend is much lesser in NBFCs. We have a vast branch network; we have almost 2000 branches all over the country.

Our NBFC business is focused more on retail, so 91 percent of our book is retail lending. NBFC business has characteristic of steady growth whereas broking business or capital market related activities they have deep cycle. They can have very good quarter or a very good time phase which is followed by a bit of bearish phase or down market.

In terms of our overall profitability, NBFC accounts for almost 70 percent. So, the earnings that way have become relatively more stable as compared to say three years ago when we were largely dependant on capital markets.

Q: Given that we are at the turn of a cycle where interest rates are on a downward trend, how do you see spreads on the NBFC side? Do you see them improving or don’t expect a significant down tick in the kind of yields that you give to your customers?

A: In the last quarter our spreads have tapered off little bit and NIM also have come down by 50-60 bps, but that is primarily because the relative share of gold is coming down post tightening of norms by RBI. They might taper off little bit more but they have stabilised at these levels.

Our strategy is to have a mix of products so we want to have multi-product lending approach. So, we have mortages, we have loan against shares, capital market funding. We also do medical equipment and funding of doctors and medical centers and also gold jewelry loan. Going forward we may add one or two more products. So, over next two to three years each product will account for say 20-25 percent of our overall portfolio.

As the book grows there can be some slight downward pressure on net interest margin (NIM) but on overall profitability, we think that NBFC has potential to grow substantially. On one hand there might be slight downward pressure on NIM as I said but cost-to- income ratio will come down further. In fact in the last quarter it came down from about 32 percent to 28 percent because we are not expanding our branch network for the time being. If we grow as such based on the same infrastructure then we will be able to spread our costs thinner, so that will maintain overall margins.

Q: What is the broking to NBFC ratio, I am only asking because there is a lot of talk that the Reserve Bank of India (RBI) would concentrate on those who are NBFCs rather than those who have broking activities when they give a licence. So, would you qualify? What is the NBFC size vis-à-vis the broking size?

A: Our broking income is about 21 percent of our overall income and NBFC would be around 60-65 percent or so.

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