Managing Director and CEO Sudipta Roy is confident that improving credit quality, new digital alliances, and aggressive branch expansion in gold loans will help maintain the growth trajectory, while steady improvements in net interest margins (NIMs) and return on assets (ROA) point to stronger profitability metrics by the end of quarter four.
In April-June quarter 2025 (Q1FY26), L&T Finance reported a net interest income of ₹2,054 crore and profit after tax of ₹701 crore. Net interest margin plus fees stood at 10.22%.
These are edited excerpts of the interview.
Q: You were aiming for around 20% growth. Do you stick to that and which segments will drive this growth? In rural, you were guiding for 10 to 15% growth.
A: I stick to that growth numbers. Disbursements have grown strongly by about 10% on a quarter-on-quarter basis. In fact, the rural business vertical, which is our microfinance vertical delivered a quarter-on-quarter growth. Average, last quarter, we were dispersing anywhere between ₹1,600 to ₹1,650 crore a month.
In this quarter, we have inched that up to about ₹1,800 crore a month. And I believe that on the back of improving credit quality situations in the microfinance industry, we will be probably touching anywhere between ₹1,900 to 2,000 crore of fresh disbursements every month.
Our two-wheeler credit quality is also improving sharply. This quarter, our two-wheeler disbursements have gone up, and I believe that two-wheeler disbursement will continue to grow strongly.
Personal Loans disbursement on a year-on-year basis has grown at a very strong pace of almost 60% plus. Our partnerships with CRED, PhonePe and Amazon Pay are scaling very well. We will be adding a couple of new large, big tech partnerships over the next couple of quarters, which will add volumes to that.
Our home loans business is also growing strong. And the gold loans business that we acquired from Paul Merchants Finance (PMFL) will be setting up about 150 to 175 new branches in the remaining part of the year. Our gold loans business also will grow strongly. So overall, yes, we continue to guide towards that 20 to 25% AUM growth for the rest of the year.
Q: Net interest margins (NIM) plus fee will be in that targeted 10% to around 10.50% and ROA moves to around 2.8 to 3%?
A: The NIMs and fees should be within the guided range of 10 to 10.50%. We have seen a weighted average cost of borrowing reduced by about 17 basis points on a quarter-on-quarter basis. I do believe that over the rest of the year, we will see rate efficiencies almost close to 25 basis points.
We are also pushing, taking our yields up in every line of business. So yes, we will try to sort of get on instant fees in the corridor of 10 to 10.50%.
In terms of ROAs, probably by quarter four, we should test near 2.8% however, that remains also to see how the credit quality pans out, which we are very hopeful right now, that we should be near to 2.8% at the end of quarter four.
Q: What’s happening with provisions in asset quality. You have utilised ₹300 crores of prudential provisions, and so far out of your entire provision buffer base, ₹700 crores have been utilised. This is why your credit cost has also come down sequentially, and year-on-year, your credit cost is down. Just help us understand what is happening with the asset quality. Will you be rebuilding these provisions? Is there any stress? What can you guide for asset quality this year?
A: As you are aware, that we are one of the largest microfinance players in the country, specifically, the third largest, and obviously, last year, the entire microfinance industry went through an asset quality cycle. Given this product, where is like, almost 90-95% loss given default, any customer who misses his payments tends to flow forward. We sort of had a reasonably sort of tight control on credit costs. We are the lowest in industry against an average sort of industry loss rates of 10% plus last year, we ended last year with about 4% loss rates. So in a way, we are probably an outperformer in terms of credit costs in this segment in the industry.
However, a couple of sort of incidents happened, which obviously we couldn’t predict. The Karnataka ordinance happened in February of this year and in a short period of two to three weeks, we saw collection efficiencies in Karnataka come down by almost close to 300 basis points. Now that is something that you cannot plan for. The fact is that the climb up on collection efficiency, when such an event happens, is a slow and gradual progress.
We have been climbing up in collection efficiency in Karnataka by about 30-40 basis points with every passing month. But that sort of gave a little bit of flows, which we had sort of originally not planned for. However, in the rest part of the country, the collection efficiencies have been inching upwards quite well. We ended the overall collection efficiency in quarter one FY26 in the microfinance business at about 99.34% and we expect that this gradual restoration to what we call normalised collection efficiency of 99.6 to 99.7% will happen over the next three to four months.
Q: Has all of that Karnataka impact this MFI ordinance has that played out? Could there be further stress? Are you thinking of building up your provision buffers as well? Because you have just about less than ₹300 crores left now. What’s the plan and will your credit cost guidance, the guidance you have given so far is 2.3 to 2.5% are you confident that that will hold?
A: The total amount of micro potential provisions left is about ₹275 crores. Coming to you Karnataka question, Karnataka the collection efficiencies have gone up from the dip that we saw in February, but it’s nowhere near normal, of 99.5 to 99.6% what we expect. I think we will take till about end of September, maybe early October, to reach those numbers in Karnataka.
As regards to the sort of the usage of micro potential provisions, you said that we have ₹275, crores left, the objective of the management to be as prudent as possible and to use as little of that as possible. I do believe that the guidance on the credit cost that we have given, I do believe that we will be able to test those marks without sort of support on any micro prudential provisions in quarter four of this year, because by the time I expect sort of the asset quality headwinds which had appeared in the microfinance segment and to a certain extent in the two-wheeler and the unsecured asset segments to completely dissipate by then.
Q: The MFI business asset quality issues will bottom out by which quarter?
A: I do believe that it will bottom out by quarter three, our original estimate was quarter two but the fact is that the Karnataka ordinance actually slowed down the recovery process. But I completely believe that on the back of a very good monsoon and improving rural liquidity, it will bottom out by quarter three.
L&T Finance’s current market capitalisation is ₹51,952 crore. The stock is currently trading at ₹208.15 as of 11:05 am on the NSE and has gained 19% over the last year.
