Sudipta Roy, MD & CEO, L&T Finance Holdings, says “currently, we are at about 2.53% consolidated ROA and ROA improvement trajectory will continue. We expect that around exit FY26, we should be somewhere near the 3% ROA levels and that is what we would guide. On the ROE side, obviously, as an organisation we move towards the 15% ROE. So, we are hoping that during that around FY26 when we hit the 3% ROA level, we will be more or less near that number as well.”

Your retail growth for the quarter came in higher than the target that you had set out, that is your Lakshya 2026 target for the third consecutive quarter. Which segments are particularly contributing and is this sustainable going ahead?
Sudipta Roy: All of the segments are growing satisfactorily. It is not that one single segment is outgrowing any other segment. And if you would know that our main lines of business are the rural business finance vertical, our urban finance vertical as well as our farmer finance vertical. So, each of these verticals have been growing satisfactorily over the past couple of quarters.

As you know, in this particular quarter, there is the added benefit of having a festive period wherein certain urban products like two-wheelers or tractors have a natural tendency for customer purchase. So, on the basis that all our businesses have done reasonably satisfactorily growth and we are sort of hopeful of continuing this great growth trajectory going forward.

But going into Q4, which is generally a strong quarter for lenders, do you expect to sustain this kind of momentum and is it fair to assume that you will end the year with a retail growth of over 30% at least?
Sudipta Roy: Yes, as far as our Lakshya target guidelines are concerned, we have guided that we will grow at around 25%, so we remain committed to that particular guidance that we have given in our Lakshya targets. As of now, I would not like to give a sort of any specific number guidance for Q4, but we expect that we will continue on our trajectory that we have guided in our Lakshya targets of 25% odd.

Could you provide any timeline in terms of the rundown of the wholesale book? When can the overall loan book start posting strong growth?
Sudipta Roy: We have been sort of running down our wholesale book and bearing down our wholesale book and currently our wholesale book stands at about Rs 7,000 crore which is a degrowth of about Rs 1,300 crore from what was there in Q2 FY24 and so we remain sort of committed on reducing our wholesale book but obviously maybe the speed at which the degrowth has happened over the last couple of quarters, there might be some tempering in that because currently most of the assets that we have in our parent wholesale book are scattered assets and on the other side we are also working on increasing our retail disbursements as well as our retail book.

You would have noticed from the overall numbers that our retail book has added in terms of book size this quarter compared to the previous quarter and that growth, as we keep on sharpening our retail disbursement engine and our execution engines, that growth will keep on sharpening. You will see the book growing reasonably strongly hereafter and we are committed on paring down our wholesale book and transforming to a largely retail financial services company and that sort of transition will take the next couple of quarters to complete.

Your NII is higher than what the Street was anticipating. Help us understand what has played out here, whether there was any repricing of yields and how have you managed your cost of borrowings?
Sudipta Roy: The composition of our products, if you see overall in the previous quarters we have been degrowing our wholesale book and we have been moving more and more retail. Right now if you see as far as we have given our guidance almost 91% retail book size now. So, obviously, wholesale has lower yields and retail obviously has much higher yields and if you look at the composition of the portfolio, the rural business finance portfolio normally is a high yield business. The two-wheeler business is also normally a high yield business. Given the composition of the rural products which are naturally in high yield, we have been able to maintain our NIMs and we expect that we should be able or able to… and if you look at our cost of funds and which we have given in our analyst presentation also, our cost of funds has remained relatively stable, has moved by only two basis points compared to last quarter, so that is how we have been able to maintain more or less steady statements.

But given the fact that banks are rationing credit a bit, any specific impact you foresee on the cost of borrowing for yourself in the near term and going ahead beyond, let us say two-three quarters when the rate cycle does turn, how is the cost of fund trajectory expected to move for you?
Sudipta Roy: RBI has been nudging the entire retail financial industry to be cautious on the consumer credit side and obviously has increased the RWAs on part of the unsecured credit, so we have sort of calculated what might be the impact on our cost of borrowing going forward and our guidance is that we will probably see probably a 10 to 12 basis point increase in our cost of borrowing, other things remaining constant over the next one year period.

In terms of the impact, yes, there is some impact, but I do not consider a 10-12 basis point impact very significant and as and when the rate cycle sort of starts adjusting again, maybe that might give us some breathing space in the entire cost of borrowing space. Going forward, we expect that at least for the next two to three quarters, maybe the cost of borrowing remains within… from our current go up max about 10 to 12 basis points from what our current cost of borrowings are. Depending upon whenever RBI’s rate cycle starts happening, that is a discussion at that particular point in time.

You have also taken over from the reins of Mr Dubhashi. What are some of the targets that you have set for yourself or how would the company evolve under your leadership?
Sudipta Roy: We are transitioning to a retail finance company and what we call fintech at scale and NBFC which sort of underpinning that we define as fintech at scale. As part of that and we have set ourselves an ambitious goal of transformation while following the Lakshya goals on what we call five pillars of execution.

Firstly, obviously, increase the customer acquisition velocity that we have. So, one, quarter-on-quarter we will try to put more new customers into the fold. The second thing that we will try to do is improve our credit metrics or improve our credit quality or quality of credit delivery is what we will try to do and for that we are building a new advanced credit engine that not only ingests the bureau data, but also looks at quant aggregate data and what we call orthogonal signals or lifestyle or credit signals available in the market.

So, we are also working on building a futuristic digital architecture. We are working on improving the customer journeys, especially on all our digital platforms and making sure that the underlying technology is far more improved to take in the increased flow of customer acquisition.

On the fourth pillar is what we are looking at increasing our brand visibility. We have hired a new chief marketing officer and you will be seeing us present in the market in terms of brand visibility over the next couple of quarters in a significant way. And last but not the least, we are investing in our capability building in the technology area, in credit and risk area, as well as in the data analytics.

So, given the completion of the merger with subsidiaries and your move towards realisation of your Lakshya 2026 targets, how differently would your ROA and ROE look for the couple of years down the line?
Sudipta Roy: We have guided on ROAs. Our guidance on ROAs as per our Lakshya strategy is 2.8% to 3%. And now post our merger wherein we have merged L&T Finance and L&T ICL, L&T Infrastructure Credit Limited with LTFH and now it is one single entity, our guidance has been that we will move into a 2.8% to 3% ROA trajectory.

We expect that we will continue on the trajectory. Currently, we are at about 2.53% consolidated ROA and ROA improvement trajectory will continue. So, we expect that around exit FY26, we should be somewhere near the 3% ROA levels and that is what we would guide. On the ROE side, obviously, as an organisation we move towards the 15% ROE. So, we are hoping that during that around FY26 when we hit the 3% ROA level, we will be more or less near that number as well.


Source link