IIFL Finance Ltd Management Discussions.


Global economic growth moderated during the year as both, developed and emerging market economies, underperformed as compared to the last year. Trade and manufacturing activities slowed down in the latter half of 2018. Trade tensions among major economies are high in spite of the ongoing negotiations. (World Bank). A long-running US-China trade war, liquidity tightening in US, rising crude oil prices, political issues in Euro zone and Brexit uncertainty led to deterioration of global trade. Factory activity in US and Europe contracted in the last quarter of 2018 while industrial output growth fell to 17-year low in China. According to World Bank, global growth (Real GDP growth) for 2018 is at 3.0%. The IMF downgraded world GDP growth at 2.6% in 2019 and 2.7% in 2020, below January 2019s projections of 2.9% and 2.8% respectively.


India has emerged as the fastest growing major economy in the world, mainly due to improvement in the performance of agriculture and manufacturing sectors. The Indian economy grew at 7.1% in FY19, with a marginal reduction as compared to previous fiscal (Source: World Bank). Though government consumption had reduced, it was offset by more investments due to public infrastructure spending. Indias urban consumption was supported by a pickup of credit growth, whereas rural consumption was hindered by soft agricultural prices.

India has retained its position as the third largest start-up base in the world with over 4,750 technology start-ups. Introduction of GST and demonetisation has encouraged a shift from the informal to formal sector.

According to World Bank, Indias GDP is expected to grow at 7.5% in FY20. This is a result of lower inflation and increased consumption and investment. Also, the economy is regaining after a temporary slowdown due to demonetisation and the implementation of GST.


The financial services sector in India is a diversified sector consisting of commercial banks, insurance companies, non-banking financial companies, housing finance companies, co-operatives, pension funds, mutual funds and other smaller financial entities. Financial inclusion drive by RBI has expanded the target market to semiurban and rural areas. NBFCs especially those catering to the urban and rural poor namely NBFC-MFIs and Asset Finance Companies have a complimentary role in the financial inclusion agenda of the country. Financial services sector is poised to grow on the back of rising incomes, significant government attention and the increasing pace of digital adoption.

The Government has undertaken various initiatives to promote growth and ease of operations in the financial sector. In December 2018, Securities and Exchange Board of India (SEBI) proposed direct overseas listing of Indian companies and other regulatory changes. SEBI has also allowed exchanges in India to operate in equity and commodity segments simultaneously, starting from October 2018. In November 2018, Bombay Stock Exchange (BSE) has enabled

offering live status of applications filed by listed companies on its online portal and also introduced weekly futures and options contracts on Sensex 50 index. The Government of India is planning to launch a global exchange traded fund (ETF) in FY20 to raise long term investments from overseas pension funds.

The Mutual Fund industry in India had seen rapid growth in total Assets Under Management (AUM) for two years from FY16 to FY18.

However, in FY19, the total AUM of the industry increased marginally by only 11% y-o-y to clock Rs 23,796 billion. From an equity inflow perspective though, FY19 was the fifth successive year of net equity inflows. According to AMFI, investments in equity-oriented mutual fund schemes in FY19 were at Rs 1.11 trillion, a decline of 35% compared to Rs 1.71 trillion inflows in FY18.

There were substantial corrections in the small and mid cap stocks category as a result of which markets were volatile in FY19. The net inflows were at Rs 1,558 billlion in FY19 (including balanced fund category)

Capital markets consisting of both primary and secondary markets have seen moderate growth in activities over the last one year. FY18 saw a record Rs 2 trillion capital raising through primary markets. But only Rs 670 trillion of capital was raised FY19. Funds raised via IPO fell drastically by 82% YoY in FY19. Foreign funds became net sellers of Rs 445 billion in FY19 as against net buyer of over Rs 1.4 trillion in FY18. Improved global liquidity and ease of trade tensions between US and China were major reasons for the capital flight. Investment in mutual funds also plunged in FY19. However, stock markets delivered more returns compared to the last fiscal year. Even as mutual funds asset base continues to swell in India on the back of robust inflows, experts point out that the total AUM is still very low at about 11% of the countrys GDP, India lags behind most major nations of the world in terms of AUM of mutual funds as a percentage of GDP at just 11% versus the world average of about 62%. MF AUM as a % of GDP for USA is at 101%, France at 76%, Canada at 65%, Brazil at about 59% and UK at 57%.

Average daily cash trading volumes went up ~4% YoY to Rs 351 billion/day in FY19 from Rs 338 billion/day in FY18. Also, the share of institutions (FII + DII) edged up to 33.2% in FY19 from 31.9% in the previous year. Bond markets saw a volatile year due to multiple factors. Some of them are i) potential fiscal slippage due to revenue shortfall, ii) risks from rising crude oil prices can increase import bill, iii) a declining currency and iv) liquidity crunch.

The brokerage industry has posted a moderate a growth of 5-10% in FY19. Last year, industry turnover was at Rs 180-190 billion and year-on-year (Y-o-Y) growth of over 30%. While, the volatility in the markets is expected to encourage trading turnover, the recent corrections in valuations, coupled with the cautious investor stance, would have a bearing on industry revenues in the current fiscal.

On the Insurance side, which is a major component of the Indian financial service sector, growth in FY19 of first-year premium of life insurers was driven by a 39% increase in group non-single premium. The first-year premium of life insurers increased by 10.7% to Rs 2,150 billion in FY19 from Rs 1,940 billion in FY18. There was traction in first year premium in retail and individual policies.

The amount of loans advanced by NBFCs rose to Rs 19,842 billion in September-18, growing at a robust 12.5%, from Rs 17,643 billion in FY18 (RBI Report). In the previous year, the NBFC sector has witnessed a significant credit growth of 19.6% in FY18 over a growth of 10.5% in FY17 (CARE). This growth in FY18 has been significantly higher than the bank credit growth of 10% in FY18.

The NBFC credit growth at double the rate than the bank credit growth is attributed to the banking system witnessing challenges such as adherence to capital adequacy norms, stress in asset quality, banks under the prompt correction action (PCA) and lower credit demand from manufacturing in particular.

Government initiatives

The Government of India has introduced several reforms to regulate and enhance the financial service industry. RBI has Launched Credit Guarantee Fund Scheme for Micro and Small Enterprises, issuing guideline to banks regarding collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA), to facilitate easy access to finance for Micro, Small and Medium Enterprises (MSMEs). Other Government initiatives include:

In December, 2018, Securities and Exchange Board of India (SEBI) proposed direct overseas listing of Indian companies and other regulatory changes. It has provided companies with a broader investor base, better valuation, increased awareness, analyst coverage and visibility.

Bombay Stock Exchange (BSE) introduced weekly futures and options contracts on Sensex 50 index from October 26, 2018.

In September 2018, SEBI asked for recommendations to strengthen rules which will enhance the overall governance standards for issuers, intermediaries or infrastructure providers in the financial market.

The Government of India launched India Post Payments Bank (IPPB), to provide every district with one branch which will help increase rural penetration


Shift of savings to financial instruments

The shift to financial instruments from physical assets and bank deposits has been largely on account of high inflation and high interest rate scenario over the period. Tax policy has been used to provide incentives and promote savings in financial assets and encouraging long-term saving. Recently, both gold and real estate have been losing attractiveness. The government efforts to increase banking penetration through its Jan Dhan Yojna and the integration of PAN and Aadhar are expected to further increase the share of savings in financial assets. The number of digital transactions in India has already increased manifold over the past two years and the access to investments via digital channels is expected to increase. The strong flows into equity markets, mutual funds and insurance are expected to continue in the long run. Due to positive regulatory work, massive investor outreach to educate about mutual funds and the hard work of financial advisers (IFAs) over the years led to the systematic investment plan (SIP) book touching an all time high of Rs 80.9 billion in the month of February 2019 and then closing at the year at Rs 80.5 billion in March 2019. This shows that there is a gradual shift in the mindset of people towards savings in the country, inclining more towards financial savings in the years ahead.

Co-orignation of loans

A significant development in the current moment has been the revival of the co-origination model for retail asset classes. The application of the co-origination model under the new RBI guidelines is going to be a game changer for NBFCs, given the risk sharing with banks and the vast business opportunity presented by the informal segment. The doorstep servicing model of NBFCs, strengthening balance sheets of banks and cheaper funds have the potential to greatly enhance the distribution outreach and effective penetration of NBFCs in the retail segment and MSME sector in India providing further lending opportunities. This is expected to create considerable synergies between banks and NBFCs.

Growth of Digital Financial Services

The financial services industry is no exception to growing digitisation. It is embracing digitization and exploring how it can increase internal efficiencies, provide value-added customer service, minimize risk and become the engine for growth. According to a study by Deloitte, digitally invested AUM are likely to grow by nearly 80% from Rs 250 billion in 2018 to Rs 450 billion in 2019. At the same time, overall retail AUM is expected to grow by 37%. If the projected growth for 2019 continues beyond as well, the AUM for individual investments in mutual funds invested digitally will cross Rs 1 trillion by 2021; FDs booked through digital channels will exceed 50% of all FDs booked by 2022; and 1 in every 2 retail investors will use a digital platform to buy or sell equities by 2025

Aritificial Intelligence

Financial institutions are looking at aritificial intelligence (AI) solutions to deliver superior customer experiences, reduce costs and unlock new revenue streams. As per a NASSCOM-CMR survey (Artificial Intelligence for Banking, Financial Services and Insurance Sector, 2018) on adoption of AI in financial services sector in India, it will help financial institutions to offer enhanced customer experience, followed by automation of back-end business processes, and effective compliance and risk management


Payments, clearing and settlement, trade finance, and identity management are key services currently being explored for the application of blockchain to resolve inherent system complexities and reduce fraud risks in the financial service sector worldwide. The Institute for Development and Research in Banking Technology (IDRBT), RBIs technology research arm has developed a proof-of-concept on blockchains applicability in trade finance along with prominent government bodies, leading private and public sector banks and an emerging fintech firm. The proof-of- concept enables automation of Letter of Credit (LC). It has real-

time automated tools for AML, and other customs and payments activities. The RBI has also formed an inter-departmental group to study and provide guidance on feasibility to introduce fiat digital currency, backed by blockchain.

Data analytics, Blockchain, and Artificial Intelligence are going to give institutions like NBFCs a great leverage over the traditional banking systems and drive maximum growth possible. It has to become that the success of an NBFC or a FinTech company is largely dependent on its ability to make the best use of data. What NBFCs have is the large base of customers and what FinTech companies have is the right technological support to amplify the processes. The right collaboration between NBFCs and FinTech companies will only yield positive results for both the parties and also the borrowers.

Credit gaps in India- Tech enabled lending

More than half of Indias population finds difficulty in accessing finance easily. In the past, a significant part of this access to finance gap was on account of reluctance of customers to transact digitally and inadequate infrastructure. However, currently the gap largely remains on the part of incumbent banks who have demonstrated slower than required pace of investment and commitment to adopt digital processes and systems. NBFCs in partnership with fintechs, with features such as quick and digitally driven processes, unique credit appraisal approaches and flexible product structure to suit the income earning and repayment capacity of the borrowers, can fill up this credit gap successfully. With innovative credit assessment models, they can access alternate data like social media records of the borrower, building detailed demographic profiles, reading SMS data and using advanced algorithms to filter out the right set of customers.

Rising incomes are expected to enhance the need for credit in rural areas & therefore drive growth of the sector. Programmes like MNREGA have helped in increasing rural income, which was further aided by the recent Jan Dhan Yojana.

Low banking credit penetration points towards a large area without access to banking services, often dependent on informal sources of credit. Government initiatives for financial inclusion and the steady rise of digitisation are expected to create analytics, operational and business synergies for NBFCs and MFIs that can then capture these markets through operationally efficient and cost-effective models.

MSME credit

Micro, small and medium enterprises (MSMEs) still find access to formal credit a challenge with nearly 40% of lending happening through informal sources, according to a report by the Omidyar Network and BCG. The challenges faced by MSMEs in access to formal credit included long processing times, lack of transparency in timelines and insufficient loan sizes. According to an ICRA report, the amount of credit provided to the MSME sector was Rs 16 trillion for FY17, when the actual unmet demand for credit from the sector was Rs 25 trillion. Being Indias second-largest sector in terms of the number of people employed (80 million), MSMEs ability to grow is seriously hindered due to the lack of funds to grow and scale. But, with growing formalisation of the sector due to demonetisation and the introduction of the Goods and Services Tax and growing API-based data availability there is great potential for digital lending to MSMEs for NBFCs.

Gold Demand

After two consecutive quarters of year-on-year decline, Indian jewellery demand had grown 10% from 134.8 tonnes in Q3 FY18 to 148.8 tonnes in Q3FY19, according to data from the World Gold Council. Growth in demand for gold in India and China outweighed weakness in the Middle East. The annual demand for gold in India has increased by 304% from 165 tonnes in 1987 to 666 tonnes in 2016.

The demand for gold loan increased in H1 FY19 then moderated from Q3FY19 onwards as a result of liquidity constraints. NBFC credit to the gold loan segment stood at about Rs 655 billion as on December 31,2018, up 11% YoY. As per ICRA estimates, gold loan growth will be about 8-10% in FY19 and at 10-12% in FY20, lower than the Retail-NBFC credit expansion.


Sudden regulatory changes or increase in regulatory scrutiny/restrictions may affect the manner in which the current products or services are produced or delivered

With rapid changes in technology and innovations, companies need to increase its attention towards innovation objectives alongside business growth objectives. With increasing performance expectations related to quality, timings and cost, technological upkeep is very important to keep in line with competitors, especially new competitors that are "born digital" and with a low-cost base for their operations. The risk of disruptive innovations enabled by new and emerging technologies is always present.

Uncertainty in the global markets, owing to slow growth in the advanced economies and increased strain in certain emerging economies can result in volatile capital inflows and currency fluctuations. Increased restrictions on migration and global trade could hurt productivity and incomes and take an immediate toll on market sentiment. In Indian context, slow implementation of regulatory reforms and lack of consensus on important legislations can further delay growth.

Notable risks to global economy include a possible shift towards inward-looking policies and protectionism, a sharper than expected tightening in global financial conditions that could interact with balance sheet weaknesses in parts of the euro area and in some emerging market economies, increased geopolitical tensions, and more trade tensions in the global market


Over the past few years, non-banking finance companies (NBFCs) have undergone a significant transformation and today they form an important component of Indias financial system. Playing a critical role in the development of infrastructure, transport and employment generation, NBFCs are changing the business loan landscape in the country.

Most NBFCs, whether online or offline, leverage alternative and tech-driven credit appraisal methodologies to gauge the credit worthiness of prospective borrowers.

This differentiated and unique approach allows them to meet loan requirements of dividuals and businesses left traditionally underserved by banks. With the introduction of e-KYC and digital loan agreements making borrowing an instant and hassle- free experience, NBFC lenders are already offering the right financial products to consumers and small businesses in a closely customised manner. The use of technology to optimise business processes also keeps cost overheads to a minimum, enabling credit to be availed at highly competitive interest rates.

Moreover, NBFCs often have deep regional reach, which they leverage to build robust relationships with their target customer bases. Many new-age NBFCs have started investing in analytics and AI capabilities to connect to their customers in a hyper- personalised manner to serve their credit needs better.

Fintech and P2P lending

P2P lending enables low cost measures in delivering financial services to the masses. It eliminates paper work, saves lead time and cost to financial institutions. It also improves accessibility to customers in the remote areas. FinTech revolution has to also become a financial inclusion revolution, hence government push in the segment is very evident. FinTech startups are also better suited to cater to more than 60 million SMEs in this country. They offer solutions that are efficient and effective at a lower scale, that benefit SMEs by providing them with increased access to more diverse funding options. Banks primarily only rely on high credit worthy customers since they lack credit history. In consumer credit, the urban population is likely to leverage FinTech lending services to avoid heavy documentation, and the rural population (which is new to credit) can benefit from alternative credit scoring mechanisms.

Co-origination of loans

Co-origination of loans is a great avenue of funding for NBFCs as well as helping banks to meet their priority sector lending requirements. NBFCs focused on micro finance and MSME lending have strong business growth potential over the medium to long term and hence require continued funding support. The arrangement entails joint contribution of credit at the facility level by both lenders. It also involves sharing of risks and rewards between the bank and the NBFC for ensuring appropriate alignment of respective business objectives, as per the mutually decided agreement between the bank and the NBFC. Significant scale-up is possible of the co-origination model over the next two years.

Going Forward

NBFCs, including Housing Finance Companies (HFCs), have been steadily increasing their share in the total credit market. As per an analysis done by IIFL Research, the share of NBFCs in total system credit increased from 9% in FY14 to 15% in FY19. During this period, the share of private banks increased from 21% to 31% and that of public sector banks (PSBs) reduced from 70% to 54%. With liquidity conditions expected to improve in the long run, NBFCs are poised to grow further at a faster pace and cater to the financial needs of the country.

However, with the expected quantum of growth in the future, NBFCs need to have stricter underwriting practices and closely monitor client repayment. The most significant driver of growth will be the ability to create innovative products, delivered efficiently through the use of technology.

Home Finance - the catalyst for growth

Indias housing finance sector has remained relatively underpenetrated compared to its peers as evident by the low mortgage-to-GDP ratio of less than 15% in end FY18.

Housing finance is the second-largest portfolio after infrastructure for non-banking financial companies (NBFC). Several NBFCs shifted focus to secured lending post global slowdown in 200809, when delinquencies on unsecured loans soared. The shift in focus can be gauged from the fact that a large number of players started full-fledged housing finance divisions as a result of which loan outstanding by HFCs accelerated. The change in focus to secured assets helped de-risk the loan books of NBFCs and HFCs and resulted in continuous improvement in asset quality.

Since the Pradhan Mantri Awas Yojana provides home buyers with a Credit Linked Subsidy Scheme, the effective rate of interest payment falls below rental yields. This improves the conditions for buying affordable housing property, enabling HFCs to begin investing more in this segment. With regulations and government policy pushing developers to focus on the affordable housing market, there is potential for growth by investing in and financing these properties for HFCs.

Micro Finance

Micro Finance is very significant to the process of attaining financial inclusion in India. There is a huge gap in demand and supply in micro credit in India and that a large part of gap is serviced by informal sources including money lenders. This represents an attractive business opportunity for MFIs in India. The RBI has undertaken various initiatives to promote financial inclusion such as the no frills accounts (2005) and the business correspondent model (2010). Under-penetration of banking facilities in India, especially in the Eastern region, has pushed the customers to avail options that are of higher risk such as chit funds, which has led to several scams that has duped retail investors. Thus MFIs may encash on this opportunity to provide small scale loans and financial services to individuals primarily in rural and semi-urban areas that have been traditionally excluded from the formal financial system due to multiple constraints including geographical presence, unavailability of financial history etc. Microfinance industry posted 38 % growth in 2019 as compared to the year-ago period, with a total loan portfolio of Rs 1,873.86 billion (Source: MFIN report)


IIFL Finance Limited (formerly IIFL Holdings Limited) is a leading player in the Indian financial services space. IIFL offers Gold loans, Business loans, home loans and microfinance loans through its wide network of branches.

Promoted by first generation entrepreneurs, Mr. Nirmal Jain and Mr. R. Venkataraman, IIFL is backed by number of marquee institutional investors including Fairfax Group and CDC Group Plc. The company is led by highly qualified and experienced management team who promote a culture of growth, entrepreneurship and innovation among the huge talent pool of more than 16,000 people. IIFL Group has a strong geographic footprint in India with more than 1,950 business locations.

The Board of Directors of the Company at its meeting held on January 31,2018, had approved the reorganization of IIFL Group, which will result in three listed entities - IIFL Finance, IIFL Wealth and IIFL Securities and the same has become effective from May 13, 2019.

IIFL Wealth and IIFL Securities have been demerged. IIFL Holdings has been now renamed as IIFL Finance.

Founded in 1995 as a research firm, IIFL has consistently innovated, reinvented and adapted itself to the dynamic business environment without losing focus on its domain of financial services. Today, IIFL has diversified into a full range of financial services, serving over 4 million customers across various business segments. IIFLs strong presence across various customer segments (retail and corporate) and wide network encompassing branches, online and mobile platforms help in catering to the financial credit needs of aspiring and growing India.

Financial Performance and Operations Review

The Company has continued to diversify its portfolio with a range of products comprising of home loan, loan against property, gold loan, SME loan, micro finance, real estate finance and capital market

finance. During the year, AUM has grown by 29% Y-o-Y to Rs 349.0 billion. The profit after tax of our material subsidiary has grown 55% Y-o-Y to Rs 7.2 billion (post non-controlling interest).

The primary drivers of our AUM growth are small ticket home loans, which grew by 42% YoY, Gold loans, which grew by 53% YoY, small ticket MSME loans, which grew by 18% YoY and Microfinance loans, which grew by 172% YoY, coming off a small base.

On the other hand, construction & real-estate finance, LAP and Capital Market loans have a declining share in our portfolio.

Loans to raise long-term resources. The share of loans sold down was 21% of total AUM as on 31st March, 2019.

Our Net Interest Margin was at 7.2%, with an expansion of 90bps YoY mainly due to increase in share of high yielding assets such as Gold, SME and MFI.

In home loans, our focus continues to remain primarily on Swaraj loans which are small-ticket loans in affordable home segment to both salaried and self-employed sections with average ticket size of Rs 1.3 million Swaraj loans accounted for 33% of our home loan disbursements in Q4FY19. Our Swaraj product is especially designed to support the informal income segment in fulfilling their dream of owning a house.

As on 31st March 2019, we had over 9,000 approved housing projects, up nearly 1.5x from 6,200 approved projects a year ago. 57% of home loans were made through these approved projects. We expect that this approach will reduce our operating and credit costs going forward.

IIFL Home Finance has been a significant player in PMAY-CLSS. Till date it has benefited over 29,800 customers and disbursed subsidies of more than Rs 6,900 million.

In the near term, we plan strategic deeper penetration in certain geographies and further innovations in our digital processes to grow a granular book and ensure healthy portfolio quality. Retail loans, including consumer loans and small business finance constitute about 85% of our loan book.

Another strong characteristic of our loan book is the large proportion of loans that are compliant with RBIs priority sector lending norms. About 57% of our HL, 54% of LAP, 44% of SME and nearly all of our MFI loans are PSL compliant. In aggregate, nearly 41% of our loans are PSL compliant.

The large share of retail and PSL compliant loans are of significant value in the current environment where we can sell-down these

Medium and high yielding assets currently constitute 47% of our AUM. These include Micro-finance loans, MSME loans, Gold, and construction finance. The other half of AUM consists of relatively low yielding assets including home loans, LAP and capital market loans.

85% of our AUM comprises loans that are secured and about 15% of loans are unsecured. We believe our AUM mix is well balanced,

We currently have 1,947 branches, primarily for our HFC, Gold and Micro-finance businesses.

Consolidated GNPAs and NNPAs, recognized as per RBIs prudential norms (considered as accounts with days past due greater than 90 days) and provisioned per Expected Credit Loss (ECL) method prescribed in IndAS, stood at 1.96% and 0.63% of loans respectively.

Under Expected Credit Loss provisioning under IndAS, provisioning coverage on NPAs stood at 139%, including standard asset coverage.

Return on assets for FY19 was at 2.2% and return on equity at 18.3%.

Return on equity for FY18 was at 13.3%. It has majorly increased in FY19 due to exceptional item of profit on divestment of commercial vehicle (CV) business of Rs 1,153.3 million (Pre-tax).

We have continued our focus on digitization encompassing every aspect of customer loan journey. We have focused on backend process digitization through multiple innovations as well as partnerships, helping us achieve process efficiencies. IIFL Loans app had 6,20,000 downloads as at March 2019, with 110K active users at any point of time. We have integrated new CRM with IIFL

Loans app, which helps us in providing better services to our customers.

In analytics, we continue to drive the use of credit scores and automated decisioning across products, and strengthened our risk mitigation processes by developing and deploying behavioural, collection and fraud score-cards. There is continued focus on cross-sell and win-back, with our analytically driven Gold -Loan win-back generating strong volumes for both Gold business as well as group-wide products.

Divestment of Commercial Vehicle Business

As at March 31, 2019, commercial vehicle business was divested as a going concern, on a slump sale basis with the rationale of scaling up other existing business segments namely affordable home homes, gold loans, small business loans and micro finance.

Segment-wise Performance

Gold Loan

The organised gold loan market in India is expected to grow to over Rs 3 trillion by 2020 at a three-year Compound Annual Growth Rate (CAGR) of 13.7%, according to KPMG based on an industry survey. Two-thirds of Indias gold demand comes from villages, where jewellery is traditionally used for investment. India, along with China, is among the worlds largest gold consumer.

NBFCs have been a major driving force behind the growth of the organized gold loan market given their extensive network, faster turnaround time and the ability to serve non-bankable customers. A better economic environment will also drive funding needs of small businesses, which will further boost demand for gold loans.

Business Overview

IIFL Finance offers loan against gold jewellery to small businessmen, vendors, traders, farmers and salaried people at competitive rates and fast turnaround time. The Company follows a strong verification process and our officers are experienced, certified and trained in asset quality practices. Further, the gold ornaments pledged with us are safely stored in fire-proof and burglary-proof vaults in our gold loan branches, which are under electronic surveillance at all times.


The companys major focus was to increase profitability and operational efficiency along with tightening of our risk framework. It is because of our continued investments in digitization that helped us in providing enhanced customer experience and reduced turnaround time.


We expect gold loan industry to exhibit healthy growth in FY20 and we are we well placed to capitalize on this opportunity. We also plan to reap on the benefits of digital capabilities built during the past year and bring in cost optimization by going completely paperless.

MSME & Others

Traditionally, SMEs have remained a financially unorganised sector. The operations and ownership of such businesses have remained confined to the family or a small group of associates. The credit gap in the SME segment has been very high in India. As a part of the financial inclusion drive, the government has, in Budget 2018-19, rightly focused on micro, small and medium enterprises (MSMEs) as the preferred route for rapid job creation and self-employment. The MSME sector employs over 111 million people and contributes nearly 31% of Indias GDP.

With increasing synergy between banks and NBFCs on account of co-origination, assignment etc., the future remains very positive to explore the MSME lending space.

Business Overview

Our focus is to create a significant position in the rapidly growing low ticket and high yielding MSME segment. We have been providing financial solutions to MSMEs by using technology as an enabler and deliver faster turnaround time to ensure customer satisfaction. We have also e-integrated with all our partners for seamless end-to-end process.


Loan assets grew significantly during FY19 on the back of strong growth in the customer base. The Company continued to leverage its customized product offerings and strengthened its sales as well as support team. Investments in technology and partnerships during the year have helped in achieving operating efficiency.


The company will continue to target the under-served MSME segment that lack adequate financial facilities due to small loan ticket sizes, difficulties in credit evaluation, distribution etc while focusing on proprietary underwriting methods. We will continue to focus on enhancing customer experiences by providing seamless and integrated services throughout the customer lifecycle.

Mortgage Loans

A burgeoning middle class, rising disposable income and support from the government in terms of interest rate subsidy as well as tax reliefs have increased the affordability of homes in Asias third- largest economy. The home loans segment in India, the largest business segment for NBFCs (incl. HFCs), is expected to grow at

14-16% in FY20, as they focus on self-employed customers and lower ticket size, according to a report by ICRA. The housing credit growth was driven by disbursements on construction linked loans, growth in the small ticket affordable housing segment and demand from Tier II/III cities.

Business Overview

The company provides loans for purchase of residential property, home construction, home improvement, and plot loans. It also offers a range of loans backed by mortgage of residential or commercial properties to small & medium enterprises for working capital requirements, business use, purchase of commercial property and other similar purposes. IIFL has in place a robust platform to undertake necessary checks regarding the borrowers credit background, and to conduct legal and technical security evaluation. It leverages on external as well as internal appraisal of properties, including valuations by international property consultants for large mortgage loans.


IIFL believes in "Housing for all" mission of the government and is actively participating in their initiatives - mainly the credit linked subsidy scheme. The company is also looking forward to build associations with various state housing boards as a key loan partner for affordable housing projects.

The company has expanded its reach in Tier 2 areas and plans to leverage group company network of 1000+ touch points to increase our presence. The company has also started sourcing all its Home loans to salaried customers through tablet and in the coming year all home loans will be sourced digitally.


On the regulatory front, National Housing Bank amendments in capital adequacy, deposit mobilisation and leverage norms are positives for HFCs going forward. Also, with the implementation of a single tax (GST), consumers will not be subjected to the pain of double taxation. The year ahead is full of opportunities as the confidence of customers has increased after implementation of RERA. The company expects the growth to sustain by focusing on affordable housing, investments in technological infrastructure and prudent risk management.


Risk management is a key element of IIFLs business strategy and is integrated seamlessly across all of its business operations. The objective of IIFLs risk management process is to optimise the risk-return equation and ensure meticulous compliance with all extant laws, rules, and regulations applicable to all its business activities.

IIFL seeks to foster a strong and disciplined risk management culture across all of its business activities and at all levels of employees. IIFL takes a holistic view of risk management and undertakes an enterprise-wide risk management approach under the Enterprise Risk Management (ERM) Framework. IIFL believes that ERM provides a sound foundation to ensure that the risktaking activities across the company are in line with the business strategy, the risk appetite approved by the Board and regulatory requirements.

The Company operates primarily in the financial services space. India Infoline Finance Ltd. is an NBFC registered with RBI, and the housing finance subsidiary namely India Infoline Housing Finance Ltd.. is registered with National Housing Bank.

Your company adopts the three lines-of-defence model wherein management control at the business entity level is the first line of defence in risk management. Various risk control and compliance oversight functions, established by the management are the second line of defence. Finally, the third line comprises the internal audit/ assurance function.

The compliance function forms a critical part of the Companys operations. IIFLs experienced compliance and audit and risk management teams play a vital role in ensuring that rules and regulations are strictly followed in all processes, not just in letter but also in spirit. The risk management discipline is centrally initiated but implemented at across the company. Each of the main businesses viz. NBFC, HFC and MFI, have a dedicated risk management teams in place.

IIFL has adopted digital initiatives in all its key businesses, starting with loans and credit as well as customer service, internal operations and HR. Digitization helps in growing business faster and to achieve critical mass and further grow exponentially using Do-It-Yourself model in a seamless manner with the cutting edge technology with minimum physical infrastructure and manpower. Digitization ensures less human intervention and superior customer service. Moreover, technology vastly eliminates the scope for any fraud, omission, and commission of errors.

The diversified financial services at IIFL are exposed to various risks that are either inherent to the business or exposed to the changes in external environment. In order to maintain financial soundness of the company, it seeks to promote a strong risk culture throughout the organization. All major risk classes viz Credit Risk, Market Risk, Operational Risk, Fraud Risk, Liquidity Risk, Business Risk and Reputational Risk are managed via well defined risk management processes.

Risk Risk Response Strategies
Credit, Liquidity and Finance Risk IIFL has a separate multi-level Credit and Investment Committee, consisting of Directors of the Board / Head of the Departments, for India Infoline Finance Ltd and India Infoline Housing Finance Ltd., to consider medium to large credit proposals. However, smaller proposals are decided at appropriate level as per the approval matrix.
The Group has in place Risk Management Committee and Asset Liability Management Committee (ALCO), consisting of Directors and senior officials. They regularly meet and review the policies, systems, controls, and positions of the financing business. The Risk Management Committee reviews the risk management processes, covering credit and underwriting controls, operations, technology and compliance risks.
Also in place are product specific lending policies, credit approval committees and regu monitoring of exposures.
In the housing finance business, every policy and procedure is approved jointly by CEO, CRO and policy head in consultation with concerned functional heads.
Technology Risk Management periodically reviews various technology risks such as protecting sensitive customer data, identity theft, cybercrimes, data leakage, business continuity, access controls, etc.
Company has put in processes, systems and tools for ensuring vigilant monitoring, audit logging and suspicious activity reporting.
Audit logs are reviewed for any anomalies and pattern deviations on a periodic basis
Company has implemented tools for mitigating various security risks - restriction of tool access mobile device management and secured internet access.
Risk Risk Response Strategies
Compliance Risk The Company has a full-fledged compliance department manned by knowledgeable and well- experienced professionals in compliance, corporate, legal and audit functions.The department guides the businesses/support functions on all regulatory compliances and monitors implementation of extant regulations/circulars, ensuring all the regulatory compliances, governance and reporting of the company.
The company has implemented business-specific Compliance Manuals, limit monitoring systems and AML/ KYC policies.
In the year, compliance with corporate acts, including Companies Act, RBI-NBFC regulations, NHB- HFC regulations and so on was verified by independent secretarial auditors on the holding company and major subsidiaries, during the year. Their reports and recommendations were considered by the Board and necessary implementations have been initiated.
The compliance requirements across various service points have been communicated comprehensively to all through compliance manuals and circulars. To ensure complete involvement in the compliance process, reporting processes have been instituted by heads of all businesses/ zones/area offices and departments, through submission of quarterly compliance reports. The compilations of these reports are reviewed by the Audit Committee/Board and are also submitted to regulatory authorities, periodically. Besides, the internal auditors verify the compliances as part of their audit process.


IIFLs human resource department is aligned with business strategy, implement digital solutions, and build a strong culture of transparency and service orientation within the organisation. The Company continued to put in place people-friendly policies and practices in the past year and continues to focus on adopting best practices for its HR policies.

Strong Management Team

The Company continues to attract professional and experienced talent from various sectors including, BFSI, Technology, Software and Start-ups. This has created a transparent, meritocratic and performance driven culture. With the right leadership at the helm, we are able to attract and create a professional team driven by a sense of purpose.

Training & Development

Leveraging technology and ensuring the last mile employee connect and reach has been the motto of learning and development efforts at IIFL. Various learning methodologies like video based learning, micro learning modules, learning in vernacular languages, blended mix of classroom supported by digital learning etc have been deployed here across roles and business verticals. Our flagship pre trained model - Readiness for IIFL through Skill Enhancement (RISE), won the most coveted People Matters recognition for being the Best in On boarding Solutions this year. Micro/ byte sized anytime anywhere learning is implemented through our mobile learning app - Handy Train. Leadership development at IIFL focuses on building capability

of the front line managers through structured classroom interventions and at mid and senior levels through various Management Development Programs (MDP) through premiere institutes like IIMs, ISB, MDI etc in India & abroad, including Kellogs in USA. Regulatory and compliance sensitization is brought in at all levels across the organization through learning events and modules on aspects such as Anti Bribery & Corruption, Information Security, Data Privacy, Anti Money Laundering, Prevention of Sexual Harassment etc.

Fast Track Career Path

In line with our meritocratic culture we have introduced the Role Elevation Panel Process to fast track careers of high-performers through a fair and transparent panel process. This has encouraged employees to perform their best and grow rapidly in their career within the organisation.

Special fast track program was formulated for the recognized high potential employees. These include program towards honing their skills and competencies, special learning and development initiatives which will enable them to meet their career aspirations within the organisation.

Employee Engagement

IIFL believes in engaging its work force and grooming them to become leaders of tomorrow. We have participated and received certification by "Great Place to work" survey that studies the work culture. According to GPTW survey a great workplace culture is a High-Trust, High-Performance Culture. A great workplace is one where employees TRUST the people they work for, take PRIDE in what they do, and ENJOY (Camaraderie) the company of the people they work with. Such organizations are characterised by great leadership, consistent employee experience, and sustainable financial performance.

The certification represents the most definitive employer-of- choice and workplace quality recognition that any organization can receive

We also use Workplace as a creative and robust communication platform that serves multipurpose as employees are able to communicate business information, posts relevant articles news and photographs, conduct polls and surveys to actively engage on this platform which proves to be a quicker and interesting way of communication

Monthly, Quarterly and Annual Rewards and Recognition programs are conducted to not only appreciate the exemplary contributions of performing employees, but also to make it aspirational for the others to leverage their potential.

Other engaging events like sports, cultural and festive celebrations, contests, etc are regularly conducted which enable employees to de-stress, improve team bonding and bring about a new spurt of exuberance within the employees.

Encouraging Performance

IIFL, as an organisation, holds performance and potential to determine employee growth and promotions. Individual Performance Measures (IPMs) for employees is IIFLs very own way of setting expectations across clearly demarcated parameters. Thereafter an effective feedback mechanism from time to time helps the employees to improve their skills. This helps in alignment of the organizational objectives and employees personal goals. An effective PMS helped Company in recognition and rewarding peoples performance.

Technology Enablement

The Company uses Adrenalin as a one stop employee interface for all their human resources related requirements. This system is easily accessible 24X7 through intranet and as a mobile app.

Apart the yearly survey regular connect with employees is enabled via adoption of an AI Bot to chat with employees during their service completion years in the organization to understand their work experience , seek their feedback and suggestions, with an aim of creating a more conducive work environment.

Management Connect

Considering the importance of management interaction, our Chairman has a periodic live connect session "Ask Nirmal" with all employees through Facebook @ Work. During this session the management discusses the company overview, goals and future plans, opportunities and challenges etc. The sessions are also opened to live questions from employees which are answered by the management. These sessions have enabled all employees to be aligned with the Companys vision, get clarification or bring to the managements notice any concerns and helped enhance management connect across hierarchy. The Top 10 Performing employees across all business are announced on this forum by the Chairman for their significant contributions during the previous month.

Business Heads too conduct regular Town halls @Workplace which enables them to connect with all their employees at one go and set their business expectations. This is apart from their frequent interactions with their team during the monthly and quarterly reviews. Business suggestions are accepted from all the employees and the feasibility of these suggestions are discussed during the Town hall

As on March 31, 2019, the company has a strong workforce of 16,779 employees.


The Companys internal audit is conducted as per the Annual Audit Plan approved by the Audit Committee. The scope of internal audit covers all aspects of business including regular front-end and back-end operations and internal compliances. It lays emphasis to check on process controls, measures undertaken by the Company to monitor risk and to check on leakages or frauds. The Company has invested in ensuring that its internal audit and control systems are adequate and commensurate with the nature of business, regulatory prescriptions and the size of its operations. Moreover, the Company successfully reaudited ISO/IEC 27001:2013 certificate during the year and implemented effective information security processes reinforcing our commitment to provide robust and secure technology for all our customers.

The internal control system is supplemented by concurrent and internal audits, as well as special audits and regular reviews by the management. For Company-wide internal audits, the Company has distributed the audit of major businesses to separate top audit firms to have wider and heterogeneous verification approach and inputs, and derive larger value from the audit process. In this regard, the Company has in place KPMG for NBFC, HFC and MFI businesses.

The Company has put in place enhanced risk based supervision systems and ensures continuous monitoring. The Company has an internal team of audit professionals at its head office in Mumbai, supported by regional teams at zonal offices. The Company has in place separate internal audit teams dedicated for major business verticals i.e., NBFC, HFC and MFI. The internal team undertakes special situation audits and follows up on implementation of internal auditors recommendations and action taken reports. In addition, the Company complies with several specific audits mandated by regulatory authorities such as SEBI / Exchanges /

Depositories, and the reports are periodically submitted to the regulators.

The Board/Audit Committee reviews the overall risk management framework and the adequacy of internal controls instituted by the management team. The Audit Committee reviews major instances of fraud on a quarterly basis and actions are taken on the same. It also focuses on the implementation of the necessary systems and controls to strengthen the system and prevent such recurrence. The internal processes have been designed to ensure adequate checks and balances, regulatory compliances at every stage. Internal audit team carries out a risk-based audit of these processes to provide assurance on the adequacy and effectiveness of internal controls for prevention, detection, reporting and remediation of frauds.


The Company has in place adequate internal controls with reference to financial statements and operations and the same are operating effectively. The Internal Auditors tested the design and effectiveness of the key controls and no material weaknesses were observed in their examination. Further, Statutory Auditors verified the systems and processes and confirmed that the Internal Financial Controls system over financial reporting are adequate and such controls are operating effectively.


The outlook for Indian economy remains optimistic as there is a sustained rise in consumption and a gradual revival in investments, especially with a greater focus on infrastructure development. It is expected that the government will focus on faster policy implementation and encourage private sector spending to boost investments. While focusing on government spending, India needs to maintain fiscal deficit within the target range. Meeting the revenue collection and disinvestment targets would be crucial to ensure the budgeted reduction in the fiscal- deficit-to-GDP ratio. Continued implementation of structural and financial sector reforms with efforts to reduce public debt is important to ensure the economys growth prospects. In the near term, continued fiscal consolidation is needed to bring down Indias elevated public debt. This should be supported by strengthening Goods & Services Tax compliance and further reducing subsidies.

That said, the economy remains vulnerable to domestic and geopolitical risks, especially economic and political changes that can affect relative crude oil and other prices and hurt current and fiscal account deficit. Trade tensions are also high on account of trade wars between countries. As said above, fiscal expansion is the key to growth. However, the pressure will be on government spending if private investments loose steam.

Our company in past few years has made substantial investments in people, processes and technology and continues to focus on delivering steady performance. We are cognizant of the changes in the financial services sector and well prepared to overcome challenges and sustain performance.

For IIFL Finance Limited (formerly IIFL Holdings Limited)

Nirmal Jain
Date: September 03, 2019
Place: Mumbai