What is your Lakshya 2031 strategy and how does it build on your previous strategy?

Lakshya is L&T Group’s five-year strategic planning framework, with each business having its own roadmap. L&T Finance became a part of this process in 2021. The first phase, Lakshya 2021-26, focused on transformation — moving from a wholesale-heavy NBFC to a predominantly retail-focused lender.

Lakshya 2026-31 is about delivery. Over the 10-year journey from 2021 to 2031, we expect to complete our transformation into a diversified retail financial services company. Our loan book, currently around ₹1.3 lakh crore, is targeted to grow to about ₹3 lakh crore by 2031, implying a compound annual growth rate (CAGR) of around 20 per cent.

What are the financial targets under Lakshya 2031?

We have four key targets: Achieve over 20 per cent annual loan growth; keep credit costs below 2 per cent; maintain return on assets (RoA) between 3 per cent and 3.2 per cent; and deliver return on equity (RoE) of 16-18 per cent.

How do you see L&T Finance evolving by 2031?

By 2031, we see ourselves as a highly digital, diversified retail financial services company with a strong presence across both urban and rural India. Unlike many NBFCs that are either rural- or urban-focused, we have a balanced portfolio. Today, our assets are split — roughly 61 per cent urban and 39 per cent rural. We believe India’s next major growth phase will be driven by both urban and rural markets, with rural India potentially growing faster in percentage terms. Our balanced franchise positions us well to benefit from this trend.

How will your loan portfolio evolve?

Our broad product mix will remain largely intact, but there will be changes within individual segments. We are targeting a secured-to-unsecured loan mix of 60:40 from the current 56:44. Gold loans will be one of our fastest-growing businesses. We expect the gold loan portfolio to expand from about ₹3,000 crore today to nearly ₹40,000 crore by 2031.

Rural business finance will continue growing at around 20 per cent annually, doubling to roughly ₹60,000 crore. Personal loans are also expected to grow significantly, potentially tripling over the period. Businesses such as tractors and two-wheelers will largely grow in line with industry growth rates. We are also scaling up newer products such as micro loan against property and rural business loans, leveraging our long-standing relationships with microfinance customers.

What role will branch expansion play in this strategy?

Branch expansion is a key growth driver, particularly for gold loans. We plan to open around 500 new branches during FY27 and expect to have around 2,000 branches by FY29. These will increasingly become “Sampoorna” branches, meaning they will offer at least three core products, including SME loans, personal loans and home loans or loan against property, in addition to gold loans wherever applicable. The objective is to make each branch a comprehensive retail financial services outlet.

Has the West Asia conflict affected your MSME portfolio?

Our SME business focuses on relatively small-ticket loans, typically up to ₹1 crore, unlike banks that cater to larger borrowers. While we did observe some stress in export-oriented clusters such as the Basmati belt in Uttar Pradesh, Morbi’s tile industry and certain fisheries and export hubs, these were localised. We tightened our underwriting early and have not seen any material spillover into the overall portfolio.

What is your outlook on interest rates and funding costs?

Assuming there are no major geopolitical disruptions, we do not expect interest rates to rise further this financial year. Inflation appears manageable, although developments in West Asia remain a risk. We also maintained higher liquidity during the quarter, as a precautionary measure. Average liquidity increased from ₹8,000-9,000 crore in the previous quarter to around ₹13,000 crore. We prefer carrying excess liquidity rather than being caught short during periods of market stress.

How do you view the RBI’s scale-based regulation framework for upper-layer NBFCs?

The RBI is justified in regulating upper-layer NBFCs almost like banks, because of their systemic importance. At our current balance sheet size of around ₹1.3 lakh crore, we are larger than several small finance banks. We are a large microfinance lender, and any irresponsible behaviour could create systemic risks within the lending segments we operate in. The scale-based regulation framework reflects this reality. From a governance and supervisory perspective, there is virtually no difference between how an upper-layer NBFC and a bank are regulated.

Would L&T Finance like to become a bank?

At present, no. Apart from regulatory constraints on large corporate groups becoming banks, the economics have changed. Banks today face an intense battle for deposits as consumers have more investment alternatives and hold lower balances in bank deposits.

As an NBFC, we can access market borrowings without being constrained by deposit mobilisation. Being an AAA-rated entity, we enjoy competitive funding costs — in fact, our weighted average borrowing cost is even lower than that of some leading NBFC peers.

Would you consider a digital banking licence, if available?

Yes, provided two conditions are met. First, the framework must permit professionally managed conglomerates to participate. Second, it should be a truly digital banking model without the burden of an extensive branch network. Global digital banks such as Nubank, Kakao Bank and Revolut demonstrate that such a model can work. A digital banking licence would be an interesting opportunity.

You reported your highest-ever quarterly net profit, but net interest margins (NIMs) came under pressure. How do you see profitability evolving?

We don’t look at NIMs in isolation. We focus on NIMs-plus-fee income, and our guidance is to maintain the combined metric in the 10-10.5 per cent range. During the latest quarter, NIMs compressed because funding costs increased marginally and balance sheet growth led to some dilution. However, fee income improved by around 20 basis points, offsetting the decline. As a result, NIMs plus fees remained stable at around 10.47 per cent. Going forward, we’re working on increasing yields through high-yield products such as gold loans, micro loan against property, two-wheeler finance and SME lending.

Are you looking at acquisitions to accelerate growth?

Inorganic growth is not our primary strategy, but we remain open to opportunities that satisfy three conditions: easily integrable size; filling an important capability gap; and attractive valuation. That was the rationale behind our acquisition in the gold loan business.

Earlier you said rural India could grow faster than urban India, yet your long-term portfolio mix is around 60 urban and 40 per cent rural. Isn’t that contradictory?

Not really. While we believe rural India will grow faster in percentage terms, we also have to manage portfolio risk carefully. A 40 per cent rural share on a ₹3 lakh crore balance sheet still translates into a rural portfolio of nearly ₹1.2 lakh crore, which is substantial. Rural lending is inherently more volatile because of weather patterns, agricultural cycles and policy changes.

There is also a grey area between urban and rural markets. For example, many gold loan branches operate in semi-urban centres that serve surrounding rural areas. Operationally they may be classified as urban.

The microfinance industry has gone through multiple stress cycles. What enabled L&T Finance to outperform?

We adopted strict underwriting guardrails well before the industry. Our key principles include one customer, one L&T Finance loan; no top-up loans if a customer is overdue even one day; no lending to those who are delinquent with other lenders; no lending where household leverage exceeds ₹2 lakh; and suspending fresh sourcing whenever collection efficiency in a centre falls below 98.5 per cent.

We also invested heavily in collections before the industry downturn. In 2023, anticipating stress, we added around 1,000 collection employees, reducing accounts per collector from about 580 to 400.

Operational discipline has also been critical. We continue to follow the joint liability group (JLG) model, insist on centre meetings for repayments and have a high proportion of exclusive borrowers.

Some events, such as the Karnataka ordinance, were impossible to predict, but overall these guardrails helped us outperform the industry.