IIFL Finance: A Golden Rebound and Strategic Reorientation in Q2 FY26

IIFL Finance Limited has reported a robust performance for the second quarter of fiscal year 2026, signaling a strong rebound and strategic reorientation. The company's consolidated profit after tax (pre-non-controlling interest) surged by an impressive 52% quarter-on-quarter, reaching 418 crore rupees. This significant growth was primarily propelled by the stellar performance of its gold loan business, which achieved a record AUM. The overall consolidated AUM expanded by 7% quarter-on-quarter to 90,122 crore rupees, reflecting a disciplined focus on collateral-backed retail lending and proactive risk management.

The quarter's results highlight IIFL Finance's resilience and strategic agility in navigating a dynamic economic landscape. The management's emphasis on fortifying governance, compliance, and customer trust appears to be yielding positive outcomes, positioning the company for a new growth cycle. The core businesses, including home, gold, MSME, and microfinance, collectively grew by 37% year-on-year, now constituting 98% of the total AUM, underscoring a retail-focused approach.

Segmental Performance and Asset Quality Trends

The gold loan segment emerged as the standout performer, with its AUM reaching an all-time high of 34,577 crore rupees, marking an exceptional 220% year-on-year growth and 27% quarter-on-quarter increase. This segment also boasts rising yields and a high customer retention rate of over 98%. The home loan portfolio demonstrated steady growth, increasing 10% year-on-year to 32,034 crore rupees, despite a flat quarter-on-quarter performance attributed to leadership changes and a sharper focus on collections.

Conversely, the MSME loans remained stable year-on-year at 13,474 crore rupees but saw a 3% quarter-on-quarter decline, reflecting a strategic recalibration towards lower-risk secured lending and a pullback from unsecured segments. Microfinance AUM decreased by 26% year-on-year and 6% quarter-on-quarter to 8,362 crore rupees, impacted by broader macroeconomic pressures in unsecured lending. The company's 'portfolio re-set' involved exiting unsecured MSME, micro-LAP, and high-risk MFI geographies, which, while representing a small portion of the portfolio, had been skewing loan loss provisions.

Asset quality showed marginal improvement, with consolidated Gross NPA at 2.1% (down 21 basis points quarter-on-quarter) and Net NPA at 1.0% (down 11 basis points quarter-on-quarter). The Provision Coverage Ratio (PCR) stood strong at 93%. Management anticipates lower loan losses in the second half, projecting full-year loan loss provisions between 2.8% and 3%. The assigned loan book, a result of healthy traction with banks, now comprises approximately 34% of the overall AUM, standing at 18,607 crore rupees, growing 33% year-on-year and 24% quarter-on-quarter.

Strategic Initiatives and Future Outlook

IIFL Finance's strategic focus remains on collateral-backed retail lending, leveraging its extensive branch network and AI-led risk and governance systems. The company is actively tapping into the vast unmet credit demand in the MSME sector, positioning it as a new growth engine. This involves scalable digital lending, strong bank partnerships, and utilizing its 4,780-branch network for deep market penetration. The loans in this segment also qualify for PSL, further enhancing partnership opportunities.

In a significant leadership development, Mr. Girish Kousgi has joined IIFL Home Finance as MD & CEO. His extensive experience is expected to bring renewed energy and strategic direction, with a guidance of 15%-18% loan AUM growth for the home loan portfolio in the second half of the fiscal year. The company also received a positive rating outlook revision from Fitch Ratings, affirming its 'B+' rating and revising the outlook from Stable to Positive, reflecting an improved credit profile.

The company's balance sheet remains robust, with a computed consolidated capital adequacy of 28.2% and liquidity exceeding 8,000 crore rupees. The net gearing stands at 3.6x, and the provision coverage ratio is 90%. IIFL Finance is also committed to environmental, social, and governance (ESG) initiatives, including pioneering green building concepts and securing a US$ 68 million loan from ADB for affordable green housing, with a significant portion earmarked for women borrowers.

Concluding Thoughts

IIFL Finance's Q2 FY26 results underscore a period of strategic clarity and disciplined execution. The strong performance in gold loans, coupled with a focused portfolio re-set and robust financial health, positions the company for sustained growth. The management's proactive approach to asset quality, leadership strengthening, and commitment to ESG principles reinforces investor confidence in its long-term value creation potential.