L&T Finance banks on AI, gold loans for 20-25% growth, 3% ROA target by FY27, says CEO Sudipta Roy

L&T Finance is aggressively leveraging artificial intelligence to slash credit costs, rapidly expanding its gold loan business, and is confident about the recovery in the microfinance sector, according to Managing Director and Chief Executive Officer Sudipta Roy. Speaking in an interview on CNBC TV18, Roy outlined the firm's multi-pronged strategy aimed at achieving sustainable growth and improving profitability, with a core focus on being a "risk first, tech first" financial player.

Saving credit costs, administrative costs with AI

A significant part of this strategy hinges on the large-scale adoption of AI across onboarding, underwriting, servicing, and collections. Roy highlighted the success of 'Cyclops', a deep learning-based underwriting engine, which has yielded remarkable results in the two-wheeler loan segment. "In exactly 20 months of running… our portfolio bounce is down to about below 15%," Roy stated, a sharp drop from the industry average of 23-24%.

He added that this has shaved off approximately 150 basis points from portfolio risk. While the company invested ₹80 crore to build the tool, the long-term benefits are substantial, potentially saving 200 basis points by reducing both credit costs and credit administration expenses. AI is also being deployed in collections, where an automated call costs ₹38 compared to a human call cost of ₹600-₹900.

Addressing the microfinance (MFI) segment, which constitutes about 26% of the loan book, Roy expressed confidence in its recovery. He noted that L&T Finance's disbursements have been steady above ₹2,000 crore for several months and collection efficiency is improving secularly, standing at 99.57% in the previous month. Even Karnataka, a state that was sluggish, has seen collection efficiency improve to 99.4%. Roy believes the industry is "out of the woods" and expects the second half of the fiscal year to be significantly better, with a return to normalcy in Q4, contingent on improved liquidity in the sector.

Target 3% return on assets, lower credit costs

The company is also making a major push into the gold loan market. From a current book size of ₹1,500 crore, the firm plans an aggressive expansion. "We are adding 200 branches this year, we'll add 300 to 350 branches next year… we'll be opening one gold loan branch every day," Roy said. The target is to grow the gold loan book to between ₹4,500 crore and ₹5,000 crore by the end of fiscal year 2027.

These strategic initiatives are designed to help the company achieve its 'Lakshya 2026' targets. Roy reiterated the guidance for a return on assets (ROA) in the range of 2.8% to 3% by March 2027, up from the current 2.41%. A key driver for this will be the reduction of credit cost, which is expected to move towards 2%. He also confirmed the company is on track for an asset under management (AUM) growth of 20-25% this year, a rate he termed a "safe speed" for a retail lending business.

On the question of capital, Roy stated that L&T Finance is well-capitalized and is not currently looking for fresh equity partners, citing the strong backing of its parent company. "Our focus is on execution, execution and execution," he concluded.