L&T Finance · risk themes across the available quarters.
Bear-case history
Escalating geopolitical tensions (Iran-West Asia conflict) created uncertainty requiring higher surplus liquidity (₹4,200 crores at peak) and contributed to NIM compression of 24bps. Rising debt equity ratio (3.73x to 3.97x) increased borrowing costs by 25bps. Cost of funds may rise 4-5bps in FY27.
While monsoon has improved (deficit reduced to 14% below LPA by July 10), El Niño concerns remain. Rural business finance and tractor businesses are directly exposed to rainfall patterns. Management acknowledged localized risk in certain geographies but noted reservoir levels are acceptable and industry has deleveraged significantly.
IRDAI regulatory changes on insurance commissions could impact fee income, as insurance commissions represent a healthy proportion of fees. Management acknowledged industry-wide concern and factored this into plans, with payments business as an alternative fee revenue source (2-2.5 year buildout).
Remaining wholesale book of ~₹2,000 crores (now largely standard assets post-ARC settlement) requires 2-3 years for resolution. G3 contains one asset (Super Tech) with 61% PCR. Management expects over-realizations but has committed not to take these to P&L, creating macro provision buffer instead. This defers potential upside.
Post repo rate cuts, housing loan rates have faced downward pressure with increased competition. Management is being judicious and focusing on LAP over pure home loans, leading to moderated housing disbursement growth (-2% QoQ).
Personal loan disbursements grew 114% YoY and 50% QoQ to ₹2,918 Cr. While management emphasizes risk-calibrated growth and strong credit guardrails, the speed of scaling through digital partnerships warrants close tracking of early delinquency indicators.
Newly acquired gold loan business is scaling rapidly (₹983 Cr quarterly disbursements) with 330+ branches targeted by FY26 end. Integration into multi-product Sampoorna branches and maintaining credit quality while expanding geographically presents execution challenges.
Board approved utilization of ₹150 Cr of macro provisions during Q2, leaving residual balance of only ₹125 Cr. Rebuilding will depend on ARC portfolio resolutions over 18-24 months, potentially limiting buffer against future shocks.
Regulatory guardrails on JLG lending constrain growth. Previously guided at 20-25%, management now targets 15-20%. This impacts a portfolio representing ~25% of total book and high-yield business.
Management explicitly cautioned that credit cost trajectory may not move in 'metronomic regularity' and depends on quarterly collection efficiency. Some quarters may show less improvement than others.
Analyst questioned whether company will resort to individual lending in MFI markets to compensate for lower MFI growth. Management indicated pilots possible in FY28, not FY27, signaling slower compensation timeline.
Analyst raised question on whether Q4 FY26 ECL refresh would be positive or negative impact on credit cost. Management response focused on FY27 Q4 benefits, deflecting near-term guidance.