IndoStar Capital Finance Limited has taken a significant step in its retailisation strategy by selling a substantial portion of its legacy corporate loan book to Phoenix ARC Private Limited. The transaction, which was completed on August 25, 2023, involved Stage 2 accounts with outstanding dues amounting to Rs 915.00 crore.

Transaction Details

The sale was executed through an ARC (Asset Reconstruction Company) sale under the Swiss Challenge method, with the accounts being resolved at carrying value. This move aligns with IndoStar's strategic shift towards retail lending and away from corporate loans.

Regulatory Compliance

The transaction was carried out in accordance with the RBI Transfer of Loan Exposures Directions 2021, ensuring adherence to regulatory guidelines for such sales. This compliance underscores IndoStar's commitment to following proper procedures in its portfolio management activities.

Strategic Implications

This sale marks a pivotal moment in IndoStar Capital Finance's ongoing transformation:

• Retailisation Focus: By divesting a significant portion of its corporate loan book, IndoStar is reinforcing its strategy to focus more on retail lending.
• Balance Sheet Management: The move is likely aimed at improving the company's asset quality and reducing exposure to potentially stressed corporate assets.
• Risk Mitigation: Transferring Stage 2 accounts to an ARC could help IndoStar in managing its risk profile more effectively.

Market Impact

The transaction represents a substantial shift in IndoStar's loan portfolio composition. Investors and market analysts will likely be watching closely to assess the impact of this move on the company's financial health and future growth prospects.

As IndoStar Capital Finance continues to execute its retailisation strategy, this transaction stands out as a significant milestone in its journey towards reshaping its business model and loan book structure.

IndoStar Capital Finance Limited (ICFL) has reported a significant increase in net profit for the first quarter, primarily driven by a one-time gain from the sale of its housing finance subsidiary. The non-banking financial company (NBFC) also announced strategic changes in its business focus and credit policies.

Financial Highlights

• Net profit surged to INR 535.00 crores, compared to INR 11.00 crores in the same quarter of the previous year
• One-time gain of INR 1,176.00 crores from the sale of Niwas Housing Finance
• Net Interest Income (NII) increased by 10% year-on-year to INR 158.00 crores
• Assets Under Management (AUM) grew 9% year-on-year to INR 7,783.00 crores

Operational Performance

• Disbursements for the quarter stood at INR 858.00 crores, down from INR 1,081.00 crores in the previous quarter and INR 1,416.00 crores year-on-year
• Average disbursement yield was 18.40%
• Gross Stage 3 assets at 4.04% and Net Stage 3 assets at 1.68%
• EMI to EMI collection efficiency at 89%, while EMI plus overdue collection at 94%

Strategic Developments

IndoStar Capital Finance has completed the divestiture of its 100% subsidiary, Niwas Housing Finance Private Limited, marking a strategic shift towards becoming a focused stand-alone NBFC. The company now operates with two core segments: vehicle finance and micro loans against property.

Randhir Singh, Managing Director and Executive Vice Chairman of IndoStar Capital Finance, stated, "This strategic transition marks a new chapter in our value creation journey, enabling sharper execution, deeper market penetration and agile capital allocation across its core lending businesses."

Credit Policy Adjustments

The company has implemented proactive credit policy adjustments in response to collection softness observed both within its portfolio and across peer industries. These measures include:

1. Tightening underwriting discipline
2. Revising the technical write-off policy to 200 days past due
3. Writing off INR 161.00 crores of loans that crossed the 210 DPD threshold
4. Making an incremental provision of INR 255.00 crores on select security receipts

Future Outlook

IndoStar Capital Finance expects disbursements to pick up sequentially in the coming quarters, targeting a 15% increase in the next quarter. The company aims to achieve 12-15% AUM growth for the current fiscal year and 15-17% for the next fiscal year.

The management remains focused on disciplined execution, operational efficiency, and portfolio quality. The company plans to strengthen its multiproduct branch model, deepen rural reach, and embed digital processes across the value chain.

Cost Optimization and Borrowing Profile

IndoStar has launched a focused internal cost optimization initiative, aiming to achieve annualized savings of 8% to 10% compared to last year's operating costs. The company's incremental cost of borrowing has improved to 9.20%-9.50%, down from 9.70%-9.80% in the previous quarter.

Jayesh Jain, Chief Financial Officer, commented, "We expect to replace another INR 1,480.00 crores of higher cost debt over the next 3 quarters, which should further improve our borrowing profile."

With a strong capital adequacy ratio of 32.70% and a debt-to-equity ratio of 1.7x, IndoStar Capital Finance is well-positioned to fund future growth while maintaining financial stability in the evolving market landscape.