L&T Finance Holdings Slashes Wholesale Finance Book by 66%, Declines from Rs 59,072 Cr to Rs 19,840 crores in FY23. Q4FY23 Saw a Reduction of Rs 11,586 crores.
L&T Finance’s Transition to Retail Finance
L&T Finance Holdings, a prominent financial institution, is strategically shifting its focus from wholesale finance to retail finance. Intending to become a 100 per cent retail finance company, the company aims to streamline its operations and enhance its customer-centric approach.
Raju Dodti, the Chief Executive of Wholesale & SME Finance at L&T Finance, exclusively shared with Moneycontrol on June 26 that the company has significantly reduced its wholesale exposure and is actively exploring opportunities to sell its wholesale loan book.
Dodti refrains from disclosing the names of the entities showing interest in purchasing their wholesale book, as the discussions are still in the early stages. This move indicates L&T Finance‘s determination to transform its business model and align it with the changing dynamics of the financial industry.
Wholesale Loan Book Reduction and Retail Loan Book Growth
To achieve its objective of becoming an over 80 per cent retail finance firm, L&T Finance Holdings has undertaken substantial measures to reduce its wholesale finance book. From Rs 59,072 crore in FY20, the company has successfully decreased its wholesale exposure to Rs 19,840 crore in FY23. This reduction amounted to a staggering Rs 11,586 crore in the final quarter of FY23.
Simultaneously, L&T Finance has witnessed robust growth in its retail loan book. The retail lending business has expanded significantly, with the retail loan book reaching Rs 61,053 crore in FY23. This represents an impressive 35 per cent year-on-year growth compared to the previous financial year.
Within the retail lending business, rural group and microfinance loans, along with farm equipment loans, have gained substantial traction and constitute a higher share of the total loan book.
‘Lakshya 2026’ Strategy and Accelerated Sell-down
In April 2022, L&T Finance Holdings introduced its visionary plan, ‘Lakshya 2026.’ This strategy is designed to drive retaliation and shift the company’s approach from product-centric to customer-centric, propelling business growth and improving return ratios.
As of March 31, 2024, L&T Finance has already achieved 75 per cent repayment of its loan book, a remarkable feat. The company is confident that it will surpass its target of retailing over 80 per cent of the loan book by the financial year 2025-26, well ahead of schedule.
L&T Finance is actively engaged in executing its accelerated sell-down plan for the wholesale loan book. By divesting the wholesale assets to interested parties, including banks, NBFCs, and funds, the company aims to optimise its portfolio and align it with the evolving market dynamics. This strategic move will facilitate the company’s transformation into a predominant retail finance firm.
Financial Performance and Competitive Landscape
L&T Finance’s relentless efforts towards realisation and portfolio optimization have yielded positive financial results. The company reported a consolidated net income of Rs 501 crore for the March 2024 quarter, reflecting a substantial 46 per cent year-on-year increase. This impressive growth can be attributed to the expansion of the high-yielding retail book, which has contributed to improved margins and profitability.
Within the competitive landscape, other financial institutions such as Mahindra Finance, Shriram City Union Finance, and Cholamandalam Investment & Finance have also focused on different sectors within the lending industry.Â
Mahindra Finance has allocated 9 per cent of its total loan book towards small and medium enterprises, while Shriram City Union Finance has directed around 27 per cent of its total disbursement to MSMEs. Cholamandalam Investment & Finance has prioritized the vehicle finance business, which constitutes approximately 60 per cent of its overall loan book.
In conclusion, L&T Finance Holdings’ strategic shift towards retail finance, along with its plans to sell the wholesale loan book, demonstrates the company’s commitment to evolving with the changing market dynamics.
The reduction in the wholesale loan book, coupled with the robust growth of the retail loan book, highlights the progress made towards the goal of becoming a 100 per cent retail finance company. With its ‘Lakshya 2026’ strategy, L&T Finance is on track to achieve its objectives and deliver sustainable growth in the future.
