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Mumbai: IIFL Finance Ltd will be conservative in expanding its gold loan book in the next financial year starting 1 April, as founder Nirmal Jain flagged risks to its largest growth driver from evolving regulations after a sharp surge in the prices of the precious metal.

“...this risk is real and gold prices can be volatile. Although fundamental and structural changes now indicate that the gold prices may remain firm, we cannot take the risk," Jain, also the promoter of the firm, said in an interview at the launch of a public bond issue. “While the requirement for credit is there, we are trying to be conservative based on the risk environment that we are in."

Gold loans form the largest share of IIFL Finance’s standalone loan book, which has helped the non-bank lender expand its book sharply from about ₹27,508 crore at the end of FY25 to over ₹49,000 crore as of December.

Net quarterly growth has averaged ₹5,000-6,000 crore in the recent quarters, aided by strong demand. Its gold loan book grew two-fold on-year to ₹43,432 crore.

While the recent growth rate was an aberration due to the sharp rise in gold prices, the company’s long-term growth target remains 20-25% annually.

The calibrated approach followed the Reserve Bank of India's restrictions on the company’s gold loan business for six months in 2024 over serious operational lapses. The curbs had led to a sharp fall in gold loan advances at IIFL Finance and its stock price.

However, Jain said the company is now “out of the woods" on sentiment, but remains mindful of risks. He also said the banking regulator’s approval to open an additional 500 branches to deepen its reach is a testament to the company’s recovery.

IIFL Finance is also preparing for new gold loan regulations effective 1 April, investing in technology, artificial intelligence-led monitoring, and digital cash-flow assessment tools to manage compliance costs and risk.

To fund growth, IIFL Finance will open a public issue of secured non-convertible debentures (NCDs) to raise up to ₹2,000 crore starting on Tuesday. The proceeds will be used for 75% repayment of existing borrowings, and 25% for onward lending and general corporate purposes.

Jain said that overall public issue of bonds accounts for about 5% of the company’s total borrowings.

Beyond the public issue, the company expects a net borrowing requirement of ₹9,000-10,000 crore in FY27, assuming 20-25% loan growth.

It also plans to increase the share of external commercial borrowings (ECBs) and foreign currency debt to 20% of its total borrowings in FY27, up from 12-13% currently.

On margins, Jain said the transmission of policy rate cuts has been limited, but the company has been able to protect net interest margins (NIMs) through scale efficiencies as the gold book expanded. NIMs are expected to be in the range of 6.5-7% in FY27, he said.

The non-bank lender remains cautious on microfinance. “...but the industry is recovering very well. We have to grow our book but we will be slow and calibrated," Jain said.

Jain expects strong deal flow next year in structured credit and private credit as banks turn conservative, creating opportunities for non-bank lenders to fund specialized or risk-capital requirements.

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