L&T Finance Holdings is looking to sell its wholesale loan book to interested banks, non-banking finance companies (NBFC) and funds as it aims to become a 100 percent retail finance company, Raju Dodti, Chief Executive, Wholesale & SME Finance, told Moneycontrol exclusively on June 26.

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Dodti refused to name the entities which have shown interest in buying its wholesale book as the discussions are in the early stages.

“L&T Finance is on its way to becoming a 100 percent retail finance company and has considerably reduced its wholesale exposure. Towards this objective the organisation is working towards selling down its wholesale book in an accelerated manner to various interested parties including banks, NBFCs and funds,” Dodti told Moneycontrol.

The company is also planning to repay or refinance its existing wholesale loan book, he said.

The sale of the wholesale loan book is expected to help the company achieve its target of becoming an over 80 percent retail finance firm.

The wholesale book of the company was 25 percent of the total loan book as on March 31, 2023, or Rs 19,840 crore in absolute terms, according to an investor presentation by the company.

The company reduced its wholesale finance book sharply from Rs 59,072 crore in FY20 to Rs 19,840 crore in FY23. In Q4FY23 itself, the company reduced its wholesale book by Rs 11,586 crore.

On the other hand, the retail loan book of the company increased to Rs 61,053 crore in FY23, registering a 35 percent on-year growth over Rs 45,084 crore in the previous financial year.

In the retail lending business, rural group & micro finance loans and farm equipment loans have a higher share of the total book.

Why retailisation?

L&T Finance Holdings announced ‘Lakshya 2026’ in April 2022, which was targeted towards retailisation and a shift from a product-based approach to a customer-focused approach to pedal business growth as well as improve return ratios.

The company aims at retailisation of over 80 percent of the loan book by financial year 2025-26 and has achieved 75 percent as on March 31, 2023.

“We believe that the exit from the wholesale book will be achieved way ahead of the Lakshya target of FY26,” Dodti said.

Earlier this year, rating agency India Ratings & Research in its rating report said L&T Finance’s real estate portfolio would take relatively more effort to sell down.

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They added that the company has created provisions of about Rs 2,700 crore in Q3FY23 for change in its wholesale business model (the company was earlier exploring opportunities to divest wholesale as a running business but subsequently the plan changed to accelerated sell down).

As of FY23 end, the real estate finance of the company stood at Rs 5,779 crore, nearly 48 percent down from the year-ago period.

Similarly, the company reduced its infrastructure finance by 55 percent on-year to Rs 13,733 crore.

The financials

As per the investor presentation, rural group loans & micro finance loans grew 41 percent on-year in the fourth quarter of FY23 whereas farm equipment loans surged 13 percent on-year.

L&T Finance reported a 46 percent on-year rise in its consolidated net income of Rs 501 crore for the March 2023 quarter, boosted by better margins as its high-yielding retail book grew at a faster rate.

In April, the company said for the full fiscal 2023, the consolidated net income rose 52 percent to Rs 1,623 crore, as its retail portfolio jumped to 75 percent of the total loan book, up from 51 percent a year ago, giving it better margins.

The competition

Mahindra Finance disbursed 9 percent of its total loan book towards small and medium enterprises and others as of Q3FY23.

Similarly, at Shriram City Union Finance, about 27 percent of the total disbursement was to MSME. In absolute terms, it was Rs 2,129 crore as on September 30, 2022.

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For Cholamandalam Investment & Finance, the main focus remained on the vehicle finance business, which constituted around 60 percent of its overall loan book.

The total vehicle finance disbursement of Cholamandalam stood at Rs 39,699 crore at the end of FY23.

(Edited by : Keshav Singh Chundawat)