IIFL Finance sells distressed commercial real estate loans to ARC in Q1FY25 | Company News

IIFL Finance Managing Director Nirmal Jain said in the analyst call after the results were announced that the company has transferred some of the CRE cases to ARCs. The experience from a long-term perspective shows that this may be a better way to manage these risks, especially because the 90-day income recognition rule makes it difficult to further finance the real estate project.

Even if the payment is delayed by one day (more than 90 days), the project is classified as non-performing. It is then very difficult to provide additional credit and keep the projects going. “Unlike banks, we cannot use the Debt Service Reserve Account (DSRA) and therefore these risks are better managed through the ARC structure,” he said.

According to an analyst presentation, IIFL Finance's commercial real estate portfolio declined from Rs 1,933 crore in June 2023 to Rs 1,047 crore in March 2024 and further to Rs 649 crore in June 2024.

Referring to its gold loan business, Jain said the company has explored the offer to source loans for other lenders as a Business Correspondent (BC). However, it was found that appointing BCs with banks is a longer process that starts with a request for proposal (RFP) and submission of a bid, followed by evaluation.

“We have been in dialogue with the Reserve Bank of India for a long time and we believe that in the short term we will start lending and co-lending (gold loans) again. Then the BC role might be an unwarranted diversion of resources and processes. Once you start BC activity, banks expect a certain volume. From a commercial perspective, that might not be so sustainable for our cost structure. In the BC structure, you get a fee and the banks are likely to keep all the interest income and margins,” he added.

On March 4, 2024, the RBI directed the financial company to stop approving or disbursing new gold loans and assignment, securitization or sale of existing gold loans. This was done due to regulatory concerns regarding disbursement and collection of loan amounts in cash in excess of statutory limits and non-compliance with standard auction process. The gold loan book declined 33 percent year-on-year to stand at Rs 14,727 crore as on June 30, 2024.

First published: August 11, 2024 | 6:37 p.m. IS