L&T Finance Group CFO sets sights on 90% retailisation, eyes rapid growth with Rs 1 lakh crore retail book

L&T Finance(LTF) Group CFO Sachinn R Joshi is optimistic about his company posting a reasonably high growth in the range of 25 per cent to 30 per cent as it focuses on retailisation of the business. The company is planning to rapidly increase the retail book from Rs 60,000 crore to Rs 1 lakh crore by FY26, thereby targeting to reduce the wholesale book to Rs 10,000 crore by March 2024, Joshi said.

“This would enable LTF in creating shareholder value by achieving targeted ROA of over three per cent as well as maintaining good asset quality with Net Stage 3 (NS3) being targeted at less than 1 per cent,” he said on asking why retailisation of books.

Joshi explained that as part of its initial five-year strategy from FY2017 to FY2021, LTF embarked upon increasing its retail portfolio from 25 per cent to 50 per cent. Consequent to achieving the same by the end of FY22, LTF has launched its Lakshya 26 strategy for achieving retailisation of over 80 per cent by the end of FY26.

The retail book stood at 75 per cent by the end of FY23. The CFO said he is quite confident to achieve over 80 per cent retailisation target before the end of March 2024.

“By the end of FY26, we may be able to achieve over 90 per cent retailisation,” Joshi said sharing the outlook given significant progress in a year’s time.

The Lakshya 26 strategy worked so well for LTF that the company was able to reduce the wholesale finance book to less than Rs 20,000 crore. The company has decided to sell wholesale finance book, both infrastructure finance as well as real estate finance.

LTF is an NBFC into financing housing, two-wheeler, farm equipment, rural group loans/micro finance and SME.

CFO & The Change Management

Joshi, who has been with the organization for eight years, spoke about the Lakshya 26 strategy which was launched in April 2022 with a goal of increasing the retail mix to over 80 per cent. At that point of time (in 2016), L&T Finance book stook at around had 75 per cent wholesale and 25 per cent retail business.

“At that point, people would have not taken our retailisation plan seriously,” recollected Joshi.

However, the company steadily gained market share on the retail side and raised retail share in the loan book from 25 per cent to 75 per cent. Correspondingly, the actual focus was not on running down the wholesale business but in percentage terms focus was on giving growth capital to retail, which brought down the wholesale business.

“On our retailisation journey data analytics played a significant role. And we started investing heavily in IT and digital. Today, our tractor business has a market share close to 15 per cent to 16 per cent. Two wheelers we have a market share of about 11 per cent to 12 per cent. Rural Business, the micro loan book is now almost Rs 18,000 crore. It started there and gave us the confidence to focus on services to customers to capture this market share and maintain it,” he elaborated.

The thinking behind the Lakshya strategy is to leverage a few growth factors keeping in mind that the company is moving from product-focus to customer-focus and product excellence in rural geographies.

"Number two, the geographical expansion in rural and urban areas is replicating the learnings of success of one area in another. Third, is the focus on cross-selling and up-selling – till last year the focus used to be on cross-selling only non-lending products (like insurance), now it's going to be lending products which will be offered. Finally, digital-based channel expansion would be one of the growth factors. So this is an approach for growing businesses, he said.

Strengthening provision coverage

It is not just about profitability, ROA, ROE, but it is about how we are running those businesses, and how strong you are. The strength is in terms of provision coverages. The retail provision coverage ratio (PCR) used to be in the range of 20 per cent to 25 per cent in FY15-16, now we're almost in the range of 70 per cent to 80 per cent.Sachinn R Joshi, Group CFO of L&T Finance

The retail macro-prudential provisions in addition to these high levels of PCR are at about Rs 1,200 crore, he said.

The focus is not just on aggressive growth, but to ensure that the balance sheet is strengthened to absorb any external event-related shocks. This has been achieved through a high level of capital adequacy of about 25 per cent, and a net worth of Rs 21,500 crore. "Our debt-equity has also been lower in the range of 3.5 to 4 as we have been able to release capital through the sale of wealth management as well as mutual fund businesses," he shared.

L&T Finance sell down strategy to reduce Wholesale Book

While Joshi said that financial institutions, public sector banks and private sector banks are interested in buying, the sell down has been happening for almost seven to eight years as part of their strategy.

The only difference, as per Joshi is that now it's done in an accelerated manner.

“It would not have been possible had I not been good at doing this sell down. The track record itself shows that we have been very confidently doing this sell down without having any significant impact coming on the P&L,” he said.

Now every quarter unfolding is actually LTF exiting the wholesale portfolio.

We will bring down the overall exposures and whatever capital we free up, starts getting utilised for building retail finance book and that is the only focus that we are working on.Sachinn R Joshi, Group CFO of L&T Finance

“In line with the strategy, the wholesale book has run down (sell down) from Rs 43,257 crore in Q4FY22 to Rs 19,840 crore in Q4FY23,” the CFO said.

The target for ROA was decided in the range of 2.8 per cent to 3.2 per cent by FY26. As the company has achieved 2.46 per cent, the CFO feels that they have shown “steadfast growth” and believes that FY24 will be no different in terms of growth.