L&T Finance Holdings (LTFH), a leading, well-diversified Non-Banking Financial Company (NBFC)announced the financial results for the quarter ended June 30, 2020. It is amongst the leading financiers across its focused businesses today and continues to leverage its strengths, built over the years, for building a stable and sustainable organization.
The company remained resilient in Q1FY21, enduring the challenges posed by COVID-19, by maintaining enhanced levels of liquidity, a higher focus on restoring collection rhythm including digital modes of collection, and re-initiating disbursements with tightened credit norms. The company also prudently increased provisions to safeguard the balance sheet against uncertainties of the external environment. With the rollout of moratorium 2.0, customer communication and engagement remained the key priority.
Commenting on the financial results Mr Dinanath Dubhashi, Managing Director & CEO, LTFH, said, “The results of this quarter should be seen less as a quarterly result and more from the viewpoint of fortifying the company from any challenges arising in the post-COVID scenario. Also, the various parameters should not be viewed on absolute levels but on the basis of progressive development from April to June as the company took advantage of gradual unlocking of markets.
As the world embraces the ‘new normal’ by adapting to the radical changes brought about by the pandemic, LTFH with its prudent business initiatives& proactive response mechanism, aided by the definite green shoots in the rural economy, is well poised to take it in its stride. This quarter, we focused on restoring the collection rhythm and maintaining the asset quality, especially through on-field customer outreach in non-containment zones. Our investments in digitalization and data-analytics capabilities over the past few years helped us switch gears seamlessly and enabled all our stakeholders to engage electronically. Enhanced provisioning, stronger risk controls, ample liquidity, along with a resilient business model and the revival seen in the rural economy from June onwards, give us the confidence that we will bounce back faster to the pre-COVID levels than anticipated.”
LTFH saw a significant pick-up in collections and disbursements in June, thus highlighting the business robustness across the lending platforms. Businesses started returning to normalcy in the third month of the quarter and the company placed incremental focus on preserving asset quality, strengthening the balance sheet and further building on the business strengths.
- Moratorium: LTFH followed the RBI’s circulars of granting moratorium to customers and offered the option to all its customers. With the opening up and resumption of on-field collection, the team worked with customers to educate the benefits of timely payments. Consequently, the percentage of borrowers opting for moratorium drastically came down in Q1FY21 as against Q4FY20.
- Considerable reduction in the portfolio under a moratorium for retail products from 79%in March-20 to 44% in June -20
- The overall moratorium for Infrastructure finance, IDFand Real Estate borrowers remained close to 40%, as majority of the Infrastructure portfolio is operational and has a ‘must run’ status.In addition, for projects under a moratorium, the company has ensured that adequate liquidly is maintained in borrower’s DSRA / TRA accounts.
- Collections:LTFH placed higher focus on collection while educating the customers about the impact of the moratorium.It’s inherent strengths in data analytics were utilized to model propensity to pay and aid field collection efforts. On-ground collections started in all field locations except containment zones, with simultaneous push on digital collections and strengthening of collection infrastructure.
- Reduction in debtors by Rs.1,306 Cr and GS3 by Rs. 98 Cr on the back of improved ‘on due date’ collections primarily led by farm portfolio
- Consistent month on month increase in collection volumes, with retail collections till 14th July about 15%higher than similar period in June’20.
- Month on month increase in collections from the wholesale portfolio, with toll collections in June reaching 80% and escrow collections in Real estate reaching 33% of pre-COVID levels.
- The increased push towards collections from digital modes including payment wallets. First-time digital collections for our Microloans portfolio
- Disbursements: The Company focused on increasing reach and gradual ramping up of business:
- Retail businesses have seen an improved momentum on a month on month basis
- In wholesale, disbursements have been limited to tranches with a focus towards completing existing projects
- Positive sentiments in rural India with timely onset of monsoon and above normal reservoir storage
- Financed over 10,000 Farm Equipment in June (19% YoY increase)
- Retail disbursements expected to accelerate in Q2F20, Infrastructure and Real estate disbursements will depend upon the growth in the sector
- Liquidity:LTFH is comfortably placed with adequate liquidity even after factoring the effect of moratorium and difficult conditions in the debt market. It’s prudent ALM framework and well-diversified liability mix helped it navigate the market situation:
- Maintained positive liquidity gaps in all buckets up to 1 year, enabling us to tide over liquidity challenges
- Enhanced liquidity of Rs. 16,669 Crincludingliquid assets of Rs. 9,082Cr, undrawn bank lines of Rs. 5,587 Cr and back up line of Rs. 2,000 Cr from L&T Ltd.
- Received the first tranche of $ 50 million of the total $ 100 million ECB loan from Asian Infrastructure Investment Bank (AIIB). This development marks AIIB’s first loan to a non-banking financial company (NBFC) in India
- Strong Balance Sheet: The Gross Stage 3 assets of the company stood at 5.24% of its book, showing a reduction of 48 bps on YoY basis. The company also strengthened the PCR on stage 3 assets from 59% in Q4FY20 to 69% in Q1FY21.
|Gross Stage 3||5,460||5,037||4,939|
|Net Stage 3||2,287||2,078||1,553|
|Gross Stage 3 %||5.72||5.36||5.24|
|Net Stage 3 %||2.48||2.28||1.71|
|Provision Coverage %||58||59||69|
The company, in addition to above, prudently created an incremental provision of Rs. 577 Crs against its standard assets book in this quarter. It, resultantly, carries Rs. 1,244 Cr of provisions on account of macro-prudential provisions, COVID-19 and accelerated ECL provisions on stage1&2 assets, which are over and above the expected credit losses on GS3 and Stage 1&2 assets. The additional provisions translate to 1.39% of the standard book.
With this, the company firmly remains well prepared to deal with external uncertainties on account of COVID -19 and other macro-economic concerns.
LTFH continues to maintain strong capital adequacy of 21.18%
- Focused Lending Book: The lending book of the focused businesses has remained flat, mainly to the extent of reduction in disbursements and moratorium on collections across businesses.
|(Rs. Cr)||Q1FY20||Q1FY21||Book Growth (%)|
|Focused Lending Businesses|
|Total Focused Book||90,500||93,706||4|
|Total Lending Book||99,904||98,879||-1|
The Average Assets under Management (AAUM) of the Investment Management business stood at Rs.58,362 Cr in Q1FY21.The AUM for Equity and High-Quality Fixed income asset classes as on 30th June 2020 stood at Rs. 33,295 Cr and Rs. 12,442 Cr, with a growth of 19% and 14% respectively on QoQ basis
Profitability for the quarter was largely impacted due to interest cost on enhanced liquidity, lower fee income and most importantly, incremental provisions taken to strengthen the balance sheet against the aftereffect of the pandemic
The consolidated PAT is Rs. 148 Cr for Q1FY21 from Rs. 549 Cr in Q1FY20 on account of:
- Lower NIMs+Fees at 5.78% (Q1FY21) vs 6.76% (Q1FY20)
o Negative carry on account of maintaining higher liquidity buffer of Rs 6,600 Cr carried as a prudent measure – Rs.84 Cr
o Lower fee income because of lower disbursals across businesses
- Incremental provisions of Rs. 577 Crs in Q1FY21 to strengthen the balance sheet. Credit Cost in Q1FY21 is shown at Rs. 896Cr Vs Rs. 595 Cr in Q1FY20
o COVID-19 provision of Rs. 277 Cr. in Q1FY21 (5% of 1-90 DPD book with the moratorium, along with Rs 209 Cr in Q4FY20)
o Macro-prudential provisions of Rs. 300 Cr
Adjusted for the above incremental provisions, the PAT for Q1FY21 stood at Rs. 580 Cr.