IIFL Finance Ltd

Learning from every crisis, emerging stronger

Dear Stakeholders,

I am pleased to present our Company's Integrated Annual Report for FY 2023-24, highlighting another year of robust and sustainable growth. Before delving deep into our performance, I want to share my views and learnings from the recent regulatory development at our Company. In March 2024, the Reserve Bank of India (RBI) highlighted several material supervisory concerns in our gold loan portfolio and directed our Company to immediately cease and desist from sanctioning or disbursing gold loans, as well as from assigning, securitising, or selling any of its gold loans. The Central Bank said that these supervisory restrictions will be reviewed upon completion of a special audit to be instituted by the RBI. Meanwhile, RBI said that our Company can continue servicing its existing gold loan portfolio through usual collection and recovery processes. Our team has worked swiftly and comprehensively towards addressing all concerns raised by the RBI. We are fully committed to meet all regulatory standards and have implemented necessary remedial measures.

Here, I would like to underline the role played by our Company in widening the ambit of organized lending within the country. Since our inception, we have focused on serving the underserved sections of the society through our diverse range of loan products. Over 80% of our gold loans are used by borrowers for productive purposes, including construction and/or repair of house, education of children, farming and small businesses or service units. We also focus on MSMEs, who are growing rapidly and are employment-oriented, through our digital lending products. Before the RBI order, our Company was adding about 30,000+ customer accounts every day across our vast phygital network. Over the years, we have served over 8 million customers belonging to the bottom of the economic pyramid with 86% of the loans provided to customers with annual income of less than ? 3 Lakh and thereby have helped them fulfil their aspirations.

Several of these borrowers are now free from the vicious and never-ending cycle of borrowing at exorbitant rates

from unregulated moneylenders. The current embargo has slowed down this momentum and there is a risk that some of our gold loan borrowers might reach out to the unorganized lenders for meeting their financial needs.

We, however, continue to make strides in all our other businesses supporting the unwavering credit demand of small businesses in India.

As on date, the Special Audit (which commenced on April 23, 2024) has been concluded and we wait for RBI's response thereof. With unflinching resolve, we are determined to navigate this challenge with fairness, transparency, integrity, and utmost importance for compliance and regulations that has always remained the bedrock of our success. We are confident that we will bounce back strongly once the embargo in the gold loan business is lifted while we continue to operate in other businesses.

Coming back to our performance during the year, we continued to excel across all key financial and non- financial metrics, including loan AUM, branch network expansion, employee growth, and digital reach. We solidified our dominant position in the industry. Our performance is yet another testament to our ability to identify opportunities, develop effective strategies, and execute them with precision, driving responsible growth. It also underlines the prudent and disciplined approach we follow while managing our finances.

Favorable macroeconomic environment

India remains a bright spot in the global economic landscape, standing out amidst global vulnerabilities and geopolitical concerns. This resilience stems from a strong domestic demand, combined with a revival in rural consumption, robust investments particularly in infrastructure, and sustained momentum in manufacturing. The strength of the Indian economy is evidenced through the country's real GDP growth in FY 2023-24, which surged by 8.2%, a remarkable feat given the performance of the major global economies. Continued traction in the construction sector, which experienced a double-digit growth, fuelled by strong demand for residential properties, was another key highlight.

India's financial services sector exemplifies the country's economic progress and potential. Rising incomes, a strong Government focus on financial inclusion, and rapid digital adoption are expected to combine and drive the sectoral growth rapidly through 2035. India's digital payments could surpass US$ 1 Trillion by 2030 (Source: Nasscom-Arthur D Little report). The sector's long-term fundamentals are sound, with a vast opportunity landscape for well-run, responsible financial services companies.

NBFCs play a pivotal role in accelerating the pace of financial inclusion in India, providing credit to key and niche sectors of the economy, from infrastructure to the unbanked sections of society. Their integral role in diversifying the Indian financial sector by mobilizing resources and offering loans at affordable rates remains one of the major highlights of India's growth story. By 2023, the NBFC sector registered significant growth, reaching an impressive size of US$ 326 Billion*, symbolizing its growing influence in the financial domain. This robust growth is primarily driven by the increasing demand for specialized financial services, especially from Micro, Small, and Medium Enterprises (MSMEs) that face challenges in securing loans from traditional banking institutions.

Our performance during the year

We stand firm on our commitment to serve the underserved, combined with our emphasis on digitalization. Our persistent focus culminates into enhanced customer experiences, while reinforcing our strong positioning in the market. Additionally, our transparent communication empowers customers to make informed decisions, establishing us as their preferred lender in a competitive marketplace. The trust bestowed upon us by our customers is evidenced through the exceptional performance of all products during the year under review, leading to a 22% increase in our AUMs compared to FY 2022-23. Our focus on quality is depicted in our strong asset quality ratios (GNPA of 2.3%, NNPA of 1.2%). We take pride in our world-class IT infrastructure, which helps us achieve a fine balance while acquiring customers efficiently and serving them seamlessly.

The benefits of our expanding branch network and strategic technological investments over the past two years are now evidently bearing fruit. As one of the select few, we adeptly scaled the bank partnerships model with a keen focus on asset quality, making us preferred partners for Indian banks. Additionally, we persist in playing the role of a major enabler in promoting financial inclusion and transforming our customers' aspirations into achievements.

We are rapidly integrating Environmental, Social, and Governance (ESG) principles across all our operations, creating shared value for all stakeholders. By leveraging our strategic goals of enhancing stakeholder value while maintaining a balance between high growth and sound credit underwriting practices, we are set to maximize on macroeconomic opportunities. Embracing the dual strategy of propelling organic growth and pursuing partnership-driven expansion, we aspire to achieve even greater heights. Our agile and effective strategy, coupled with our scalable business model are key enablers for our future growth.

Concluding thoughts

At this critical juncture, I thank each one of you, for your continued trust and support. Your belief in our capabilities and mission remains our greatest strength. Together, we have overcome numerous challenges so far and have celebrated every success. I extend my heartfelt gratitude for your enduring trust and collective spirit, and I eagerly anticipate navigating this phase together with grace and strength.

Our actions are guided by our commitment to all stakeholders, encompassing customers, employees, lenders, investors and partners. I would like to reiterate our Company's unwavering commitment to remain compliant with the highest standards of RBI regulatory requirements both in letter and in spirit, today and in the future. We are more than just a Company; we are a community serving millions of customers and channelling credit to underserved segments of society. Let us continue to strive towards our shared goals, making a meaningful impact in the lives of those we serve. Your support during this pivotal phase of our journey is invaluable to us.

Best regards,