Financial services NBFC L&T Finance is confident of disbursements picking up after the GST cuts and the monsoon, driving loan growth for the full year. Speaking exclusively to Moneycontrol, Sudipta Roy, the MD & CEO of L&T Finance said the lender is moving to a 'bank-like' structure with retail heads managing full P&Ls, and has the 'right mix' of urban and rural focus. Roy added that the DNA of the company has been recast to be execution-focused and tech-powered, with faster delivery cycles.
He strongly believes that the future winners in BFSI will be those businesses led by 'techno-managers', integrating technology into core operations.
Here’s the excerpt, lightly edited for clarity:
How are you seeing the festive season pan out?
Monsoon has been very good. With the GST cuts notified before the festive season, we are looking at a very good festive season.
Can it significantly alter growth projections?
I am very optimistic of a good festive season. However, growth projections have been lowered not because of the fundamental macroeconomic parameters, but because people have been having problems with credit quality. In the last two - three months, we have seen reasonable uptick in microfinance disbursements. We have had a very good tractor disbursement. Personal loans is picking up and mortgage book is steady. The new launches when it starts coming towards the festive season, we expect the new loan demand to take off for mortgages. We have an overall AUM growth guidance of 20-21%. Growth will be better in second half of FY26, primarily because we expect our microfinance business to get back on steam.
You cater to almost every product segment right now, making you a generalist lender. However, specialist lenders get better valuations from a stock market perspective. What are your thoughts on this?
Most lenders are overwhelmingly urban-focussed, while we are the only player of size which equally straddles between urban and rural. There are very few NBFCs which understand rural like do. We are in the middle of our next five years plan. If you look at the growth rates projected between rural and urban, there is an order of magnitude difference, where rural is expected to grow as twice the speed of urban (loans). If we are able to manage the risk, which we are able to do now and we have proven in the microfinance space that we are an outlier in managing rural risk that will significantly add to our strength and profitability. There are two things we have to deliver: ROA and growth. We want to be a risk first, tech first, diversified retail finance company. It has a bit of history, and we are changing that.
How have you progressed on making this change?
About 80-85% progress. Legacy assets which are remaining will go away in the 1-2 years. We have made a very hard turn in the company in terms of culture and speed of execution. Lot of our risks first (approach) is powered by technology. There are obviously our existing leaders who came from the previous era, but we have also a lot of new leaders within the organization and we're a healthy mix of old and new. We have moved the organization from silo structure to a matrix structure. We have four retail business heads and they look at the product functions and the overall P&L - it is almost a bank-like structure. We are moving relatively fast in our transformation journey, and our DNA has changed to a large extent.
What’s the DNA of L&T Finance now?
It is more of an execution-focused company, and delivery is very timebound. Delivery on projects is happening before schedule. We said Nostradamus will be live by the end of Q2FY26, and it is already live.
What are the white spaces that you have identified in terms of products?
We are evaluating the payments business because it can add a lot of non-capital consumptive fee revenue. As we are getting on the Lakshya 2031 plan, we are also evaluating some products such as affordable housing which sits very well within the target RoA profile we do want to do. Consumption finance is also something that we are evaluating; something like checkout finance. We are very confident with the capability of ‘Project Cyclops’, and to deliver very fast we have the sophisticated underwriting in the checkout finance segment. We are the sole personal (loan) provider on Amazon Pay. We have a tie-up with CRED, PhonePe and our collaboration with Google Pay is live. You will see us add some more partners. Our risk-first philosophy will not allow us to dilute our customer choice.
What would be your guidance in yield?
Our philosophy is that of a risk-adjusted yield. Hypothetically, let us take a 7.5% cost of funds and 12.5% yield, with a risk cost for the cohort at 4%. The net risk adjusted yield is about 8.5%. For another customer with a better risk profile, even if the yield is lower by 80 bps and the customer is at 2% risk cost, the net yield is still better. The fact is that if I go ‘prime’, there will be a certain amount of dilution in the headline NIM (net interest margin), because better customers will only sign up at a lower interest rate.
How much of NIM dilution is within your comfort zone?
We have guided for a 10-10.5% NIM, plus fees. Finally, it is about delivering the requisite RoAs and RoEs. An aggressive credit book requires a huge amount of cost for collections, whereas a 2% credit cost portfolio frees up a lot of hidden costs. We are seeing our average cost of collection going down, because the headline bounce is going down. Just to give an example - on Independence Day, we had AI bots calling customers when our call centres were on chutti (leave). It was a middle of the cycle (business month) and we did not want to lose the momentum. On a test basis, we let only bots do the calling. We had a 27% payment success rate on the Independence Day.
What is the kind of composition you would want to have between secured and unsecured products?
We are the country's third-largest microfinance lender and our credit performance has been very standout. Against the average industry risk cost in microfinance of 8-10%, we are about 3-4%. We would like to grow this business. Over the last 18 months, we brought down our headline interest for MFI loans to 16% from 23%. In tractors (financing) we are among the top two lenders, it is one of our oldest products and we have a lot of experience in it. We launched micro loan against property (micro LAP), and got into gold loans business where we acquired Paul Merchants on a slump sale basis, and it is scaling up very well. In the urban areas, we have two-wheelers, personal loans, mortgage and SME financing. Our focus is that, apart from mortgage which is a low RoA secured product, is to build resilience in high RoA secured products such as gold loans, micro LAP. We will taking credit guarantee covers for some portion of our business. For instance, we have re-entered Assam for MFI business and we will be doing it through the CGFMU guarantee.
Some of the tech initiatives you have undertaken have happened faster than expected. Does being a NBFC leaves you with better freedom in operations?In the next 10 years, financial services managers will have to morph to become techno managers. Previously, you could be in a bank or NBFC and only understand products, finances, distribution, etc, and build a reasonable career out of it, but that boat has sailed. Technology component of financial services professionals will be almost 30-40% in the coming years. Managers in financial services who do not understand technology will have very tough times ahead. In the next 10-15 years, some of the poster children of yesteryears will fall behind and you will see some new winners emerge. The organizations that make this transition of having techno managers run financial services will be the winners of tomorrow. Therefore, it’s not that banks cannot do it; they need to have the mindset. I can say with authority that the space of applicative AI in BFSI belongs to us.
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