‘See a prolonged period of steady costs, net interest margins’

L&T Finance Holdings will likely see a prolonged period of steady net interest margins (NIMs) and interest cost even as the former may fall by 15-20 basis points from current levels, says managing director and chief executive officer Dinanath Dubhashi. He tells Ajay Ramanathan the company is pursuing an asset-by-asset sell down of the wholesale loan book.

How do you assess the June quarter results?

We had four targets. One was retailisation and the target was 80% by FY26. We have already crossed 80% and are at 82% now. The second target was growth, which is 25% CAGR. Last year, we showed 35% and we have followed it up with 34%. Third target was gross stage-3 ratio of 3% and net stage-3 ratio of 1%. Gross stage-3 ratio has reached 3.2%, so we are getting closer to that. Net stage-3 ratio is already at 0.7%. More importantly, the return on assets is at 3.08%. This has all translated into a doubling of profit to `531 crore. One big number that I see is a tremendous reduction in credit costs. That is a trend that will help us show excellent profit growth in FY24.

Recent media reports indicate that you are looking to sell the wholesale portfolio to various banks and non-bank lenders. What timeline are you looking at for the sale and at what value?

Around eight months back, we declared that we going for an accelerated reduction of the wholesale book. We also wrote down the wholesale book by around Rs 2,700 crore and created a buffer to match any expectations of the market in terms of discounts. I am glad to report that it has gone phenomenally well after that. In September, the book was at around Rs 36,000 crore. By the end of March, that book was reduced to `19,800 crore and it is already at Rs 14,200 crore as we talk now. If you have an image in your mind that we are running a process where a white knight will give us a price and purchase the entire wholesale book, then no it is not that. That process was being run a couple of years back. We also went to press and said that process has not worked at all. We are looking at asset by asset sell down and that is going extremely well, as numbers are showing.

What are your focus areas as far as the retail segment is concerned. Are you looking at any new products?

We are a very customer focussed company and we have four customer lines. Firstly, we have two customer lines on rural and two customer lines on urban. These are rural individuals and rural businesses. At the same time, it is urban individuals and urban businesses. There are hook products that we have on each of them. The hook product on rural businesses is the rural group loans that we have. The hook products on rural individuals is tractor loans. The hook product on urban individuals is home loans and two-wheeler loans. The hook product on small and medium-sized enterprises is unsecured business loans. With the 21 million customer franchise that we have and the analytics that we have, we will keep selling more and launching more products. So more products will be launched for existing customers if we see a need and demand from them.

The new products do not feature as a part of Lakshya 2026. We are capable of achieving Lakshya goals with our existing products. These products will bring further growth if we see a customer need coming.

When are we likely to see these product launches?

New products are always in the pipeline. We do need assessment, we do research, we do prototype, we do pilot, and only then do we make an announcement. Any product that we have not yet launched is not at a stage where we can make an announcement because many products will fall off at various stages. We like to make success of every product that we launch.

How do you see net interest margin (NIM) shaping up in FY24?

Retail NIM plus fees were 11.7% in April-June. I always guide that we try to maintain between 11.2-11.3%. We have consistently been above that. I believe that the NIMs are being stabilised now. There may be a fall of 15-20 basis points from these levels. Interest cost is now at 7.77%. We believe that both these numbers are close to stabilisation. We are now looking at a good prolonged period of steady costs and NIMs.