IIFL Finance: Riding the Gold Wave and Re-setting for Sustainable Growth

IIFL Finance Limited, a prominent retail-focused NBFC in India, has delivered a robust performance in the third quarter of Fiscal Year 2026 (Q3 FY26), signaling a strong rebound and a clear shift towards sustainable operating momentum. The company reported a consolidated profit after tax (pre non-controlling interest) of ₹501 crore, marking a significant 20% increase quarter-on-quarter (QoQ) and an impressive 514% surge year-on-year (YoY). This strong financial showing was underpinned by a healthy 9% QoQ growth in consolidated Assets Under Management (AUM), which reached ₹98,336 crore, driven primarily by the stellar performance of its gold loan business.

The quarter's results reflect the benefits of a disciplined portfolio re-setting strategy, which involved exiting high-risk segments to focus on more secure, collateral-backed lending. This strategic pivot has led to a material improvement in asset quality, with Gross Non-Performing Assets (GNPA) falling from 2.14% to 1.60% and Net Non-Performing Assets (NNPA) declining from 1.0% to 0.8%. The provision coverage ratio stands strong at 92%, well above regulatory requirements, providing a solid buffer against potential credit losses. The company's financial strength is further highlighted by a Return on Assets (ROA) of 2.1% and a Return on Equity (ROE) of 11.3% for the nine-month period, with a consolidated Capital to Risk-weighted Assets Ratio (CRAR) of 27.7%.

Segmental Performance and Strategic Focus

The gold loan segment emerged as a star performer, with AUM surging 189% YoY and 26% QoQ to ₹43,432 crore. This growth demonstrates strong market momentum and healthy tonnage growth, supported by stable asset quality. The management noted that while gold loan tonnage is still slightly below its pre-embargo peak, the segment is poised for continued strong growth if gold prices remain stable or consolidate. The company's extensive network of nearly 3,000 branches dedicated to gold loans positions it well to capitalize on the increasing awareness and demand in this segment.

Home Loans, a core business, saw its AUM grow 5% YoY to ₹31,893 crore, though it experienced a slight QoQ de-growth of 0.4%. The management indicated that the cleanup in the housing business is complete, and they anticipate acceleration in growth from the next quarter, with a clear strategy to focus on specific segments. MSME Loans grew 17% YoY and 4% QoQ to ₹10,081 crore, reflecting a strategic re-calibration towards low-risk secured lending and a pullback from unsecured segments. Microfinance AUM stood at ₹8,360 crore, remaining flat QoQ but down 19% YoY, impacted by macroeconomic pressures in unsecured lending, though collection efficiencies are improving and outperforming the industry.

Operational Excellence and Future Outlook

IIFL Finance continues to strengthen its operational model through AI-led risk and governance systems and an extensive 'phygital' distribution network, comprising approximately 4,800 branches serving 4.6 million customers. This blend of physical presence and digital innovation enhances cost efficiency, customer engagement, and credit underwriting capabilities. The company's funding profile is also diversifying, with the cost of borrowings trending down QoQ, and its Asset Liability Management (ALM) position remains comfortable with a surplus across all buckets.

Management provided optimistic guidance for the future, targeting an overall AUM growth of 20-25% next year. Specifically, the housing business book is projected to grow by 15-16%, with disbursements increasing by 24-25%. The gold loan portfolio is expected to maintain a comfortable QoQ growth of 25-26%. Furthermore, the company aims to reduce credit costs to less than 2% on a steady-state basis for the next year and achieve a Return on Equity (ROE) of 18-20% within the next two to three years. These targets underscore the management's confidence in the company's strategic direction and operational capabilities.

Governance and Social Responsibility

IIFL Finance maintains a robust compliance, risk, and governance framework, ensuring adherence to RBI Scale-Based Regulations (SBR) and other regulatory requirements. The company's commitment to strong governance is evidenced by dedicated compliance officers, independent board committees, quarterly stress-testing, and monthly monitoring of early warning signals. Furthermore, IIFL Finance is actively involved in social and environmental initiatives, such as pioneering the Green Building concept through its 'Kutumb' platform and securing a US$ 68 million loan from the Asian Development Bank (ADB) to fund affordable green housing, with a significant portion earmarked for women borrowers. These efforts highlight the company's dedication to inclusive growth and sustainable development.

In conclusion, IIFL Finance's Q3 FY26 results demonstrate a successful transformation, marked by strong financial performance, improved asset quality, and strategic clarity. The company's focus on collateral-backed retail lending, operational efficiency through its phygital model, and commitment to robust governance positions it for sustained, high-quality growth and long-term value creation for its stakeholders.