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Informist, Tuesday, Jan. 21, 2025

--L&T Finance: Challenges seen for farm, two-wheeler business for a few qtrs 

--CONTEXT: Comments by L&T Finance's mgmt in post-earnings analyst call

By Vaishali Tyagi and Sourabh Kumar

MUMBAI – L&T Finance has admitted its farm and two-wheeler segments will face challenges in the coming quarters due to the strengthening of its documentation and credit guardrails to get higher-quality customers. This shift in focus to a prime customer base will make growth in disbursements in these sectors difficult, the company's management said in a post-earnings analyst call on Tuesday.

"For a couple of quarters, farm and two-wheeler will see some challenges," Sudipta Roy, managing director and chief executive officer of L&T Finance, said. "...so like we called out in the last quarter, it will be two to three quarters of pain. And it is not just one particular business that is going through a major turmoil or anything, it is just that certain key activities like farm and two-wheelers are the reason for a slightly higher credit cost (for such portfolio)."

The financier reported its quarterly earnings on Monday, posting a 2% year-on-year decline in its Oct-Dec net profit at INR 6.26 billion after retail disbursements rose just 5% on year in the reporting quarter. Within overall disbursals, two-wheeler loans were down 5% on year at INR 24.14 billion, while disbursement for farm equipment finance was up 23% at INR 24.95 billion. Total disbursements rose just 2% in Oct-Dec, taking the total loan book to INR 951.20 billion as on Dec. 31, up 16% on year.

As part of its '5 Pillar strategy', L&T Finance is sharpening its credit underwriting standards and building a "self-learning credit engine" based on bureau, account aggregator, and alternate data signals to make underwriting more robust. This 'Project Cyclops' has been operationalised for the two-wheeler and farm equipment finance segments. The prime share in disbursements in two-wheeler finance rose from 44-46% in Oct-Dec 2023 to 63-69% in the last quarter of 2024, leading to the share of prime customers in the book rising to 49% in December from 35% a year ago.

On personal loans, L&T Finance remains optimistic, with Oct-Dec disbursals at INR 16.42 billion, up 94% year-on-year on the back of fintech partnerships and expansion of physical distribution through the direct selling agent channel focusing on salaried prime customers.

The company's management also said the Microfinance Institutions Network's new norms may also have an impact on disbursements. "From Apr. 1, MFIN's (Microfinance Institutions Network) guidelines come into play, which has more of an impact on disbursement actually rather than an immediate follow-through impact on the repayment capability of the customer," Roy said. In Oct-Dec, L&T Finance's disbursements under the rural business finance vertical--which comprises microfinance and rural group loans--were down 16% on year at INR 45.99 billion.

In November, the microfinance sector self-regulatory organisation told its members to follow stricter lending principles in an effort to address the sector's asset quality stress. As part of the new rules, no borrower should have loans from more than three lenders. Shares of L&T Finance ended 1.1% higher at INR 146.07 on the National Stock Exchange on Tuesday.  End

Edited by Avishek Dutta

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