IIFL Finance is planning to raise ₹2,500-5,000 crore by selling a 10-20% stake to a minority investor, while promoters may subscribe to warrants to limit dilution, Nirmal Jain, founder of IIFL Group, said. Fairfax Financial Holdings is likely to reduce or exit its investment in IIFL Finance after its proposed acquisition of a 60% stake in IDBI Bank, he said. In an interview with ET's Saloni Shukla and Sangita Mehta, Jain also talked about potential benefits for IIFL Capital of becoming part of IDBI Bank. Edited excerpts:
With Fairfax bringing IIFL Capital under IDBI Bank, what happens to its stake in IIFL Finance?
Given that IIFL Finance is an RBI-regulated NBFC, I think regulatory norms may not permit a bank and an NBFC with overlapping loan products to be under common ownership. Fairfax is therefore likely to reduce or exit its stake in IIFL Finance over time. The timeline is undecided, but even a year should be acceptable.
Are there discussions with private equity or strategic investors to acquire Fairfax's stake in IIFL Finance?
A large investor's exit creates an opportunity to bring in a private equity investor with a meaningful stake. IIFL Finance also needs primary equity capital to maintain an adequate margin of safety in capital adequacy. Apart from the 2024 rights issue, its last primary investment from an external investor was in 2016.
Will Fairfax exit IIFL Finance?
Fairfax would be best placed to answer that. We are willing to cooperate, depending on investor requirements. A private equity investor could infuse fresh capital, while the same or another investor acquires Fairfax's existing stake.
How much fresh capital are you looking to raise for IIFL Finance?
We are looking at a minority investor, with no question of ceding control to a strategic investor. The proposed dilution is 10% to 20%. At the current market capitalisation of around ₹26,000 crore, this translates into roughly ₹2,500 crore to ₹5,000 crore. Promoters may also bring in additional capital through warrants to maintain their stake after the dilution.
Would you be interested in topping up your stake in IIFL Finance?
R Venkataraman and I, as promoters, can subscribe to some warrants to keep our dilution as low as possible.
How do you see the synergies for IIFL Capital as part of IDBI Bank?
Being part of a bank and a Fairfax subsidiary will create significant synergies for IIFL Capital across investment banking, wealth management and other capital-market activities. It should improve its credit rating and provide access to the bank's SME, wealth and retail customers for investment products, cross-border transactions and capital-market activities. The existing customer relationships will also lower acquisition costs, as seen with ICICI Bank and HDFC Bank.
Do you aspire to become a bank?
Not really. Our model is to complement and partner with banks. Of India's 85 million MSMEs, I estimate nearly 80 million have working-capital requirements of less than ₹1-2 lakh. Servicing such small-ticket borrowers economically is difficult for traditional banks. That is where NBFCs, with specialised underwriting capabilities and operating models, can play an important role to drive financial inclusion.
Are you looking to bring in an investor for Samasta MFI?
We are open to bringing in an investor, but the timing and structure are unclear, and current market conditions are not conducive. An IPO or demerger are also options, but no decision has been taken.
What is your strategy for the home-loan business, and could it be separately listed?
We will focus on affordable housing, with loans of ₹15-25 lakh for homes and expect AUM to grow 18-20%. Abu Dhabi Investment Authority owns 20%, and the business is well capitalised, so we do not need another investor now. A separate listing could be considered later, possibly through a demerger that gives the parent's shareholders proportionate shares in the subsidiary.
Gold loans account for more than half of IIFL Finance's AUM. Are you concerned about concentration risk?
Our total AUM is around ₹1.24-1.25 lakh crore, and about ₹65,000 crore of that is gold loans. We are comfortable with gold loans being 50-60% of the book, but over the longer term we want to diversify the mix. Presently, unsecured lending and microfinance have slowed, and some of those customers are also moving towards gold loans. We remain cautious about concentration. We are developing loans against property and other products, and are open to adding more through our branch and digital networks.
What is your view on the microfin cycle amid floods, rainfall volatility and stress in some states?
Banks and NBFCs must be careful about loan recovery, as headline rainfall numbers may not capture regional and district-level nuances. While agriculture's declining share in GDP and the growth of allied activities have reduced the broader economic risk, we remain cautious and assess each district and local area separately.