L&T Finance aims to expand MFI portfolio fivefold

L&T Finance, a subsidiary of L&T Finance Holdings, is targeting a fivefold increase in its microfinance loan portfolio in the next 24-30 months. The company had scaled down this business following the crisis in Andhra Pradesh’s microfinance sector in October, 2010.

“We started the microfinance business in 2008 and scaled it up to Rs 700 crore before the crisis. Currently, our microfinance portfolio is a little over Rs 400 crore. There is strong demand for micro-loans and we expect our portfolio to touch Rs 2,000 crore in the next two to two and a half years,” Dinanath Dubhashi, managing director and chief executive of L&T Finance, told Business Standard.

A crisis had hit the microfinance sector after the Andhra Pradesh government introduced a new law, restricting private players from offering micro-loans in the state. The legislation affected loan recoveries, impacted the profitability of microfinance firms and eroded investors’ confidence in the sector.

Currently, L&T Finance offers micro-loans across six states—Gujarat, Karnataka, Maharashtra, Odisha, Tamil Nadu and West Bengal. The company has joined hands with Institute for Financial Management and Research to offer such loans in Uttarakhand, too. L&T Finance also plans to start microfinance operations in Kerala and Madhya Pradesh in the coming months.

The company has written-off its entire microfinance loan book in Andhra Pradesh.

“Currently, we are lending Rs 100 crore (of micro-loans) a month. The repayment rate is about 100 per cent. We are also open to inorganic growth opportunities, including acquisition of microfinance companies,” Dubhashi said, adding L&T Finance hadn’t identified any acquisition target in the microfinance space yet.

It is unlikely L&T Finance will opt for a non-banking financial company-MFI licence. According to Reserve Bank of India guidelines, if a financial services firm does not convert itself into an NBFC-MFI, its loans to the microfinance sector cannot exceed 10 per cent of its total assets.

Separately, Dubhashi said L&T Finance had trimmed its commercial equipment and commercial vehicle (CE & CV) financing business due to a rise in bad loans amid the uncertain macroeconomic environment.

“We are hardly doing any additional business in CE & CV financing. There was a time when we used to lend Rs 300-400 a month. Now, it is only a fraction of that. There aren’t many good opportunities in the market and the repayment record has not been satisfactory through the past couple of years,” he said.