L&T Finance Limited (LTF), a prominent player in India's non-banking financial sector, has received its inaugural investment grade credit ratings from two major international rating agencies. Both S&P Global Ratings and Fitch Ratings assigned LTF a 'BBB-' long-term issuer credit rating, marking a significant milestone for the company.

S&P Global Ratings Assessment

S&P Global Ratings assigned LTF a 'BBB-' long-term and 'A-3' short-term issuer credit rating with a positive outlook. The rating agency highlighted several key factors supporting their assessment:

• Strong association with parent company Larsen & Toubro (L&T), which holds a 66.24% stake in LTF
• Expectation of ongoing and extraordinary support from the L&T group
• LTF's strategic importance to L&T's focus on building a strong services portfolio
• Strong capitalization, with a risk-adjusted capital ratio forecast to remain at 14.50%-15.00% over the next two years
• Shift towards more diversified retail lending, improving the company's risk profile

Fitch Ratings Perspective

Fitch Ratings also assigned LTF a 'BBB-' Long-Term Foreign- and Local-Currency Issuer Default Rating (IDR) with a stable outlook. Fitch's assessment emphasized:

• Expectation of extraordinary support from parent company L&T if required
• LTF's role as a source of strategic growth and diversification for the L&T group
• Increasing contribution to L&T's consolidated profitability, reaching 11.60% in FY25
• LTF's position as one of India's largest non-bank financial institution franchises
• Improved risk frameworks, asset quality, and profitability

Business Profile and Performance

Both rating agencies noted LTF's strong market position and diversified loan book:

• Total loan book of INR 977.60 billion as of end-March 2025
• 97% of the loan book focused on retail segments
• Key lending areas include rural business finance, home loans, farmer finance, and two-wheeler finance
• Profitability, as measured by return on adjusted assets, at about 2.40% for FY25

Outlook and Potential Rating Changes

S&P Global Ratings maintained a positive outlook, reflecting the outlook on India's sovereign credit rating. An upgrade of LTF would be contingent on an upgrade of India's sovereign rating.

Fitch Ratings assigned a stable outlook, indicating that any upgrade would depend on a substantial strengthening in L&T's credit profile or an increase in LTF's strategic role within the L&T group.

These investment grade ratings are expected to enhance LTF's ability to access global capital markets and diversify its funding sources, potentially leading to lower borrowing costs and supporting the company's growth strategy in the competitive Indian financial services sector.

L&T Finance , a prominent player in the Indian financial services sector, has reported significant growth in its retail loan book for the first quarter, driven by strong performance in urban finance and increased retailisation.

Retail Loan Book Expansion

L&T Finance witnessed an impressive 18% year-on-year growth in its retail loan book, which reached Rs 99,800.00 crore in Q1. This substantial increase underscores the company's focus on expanding its retail lending operations and capitalizing on the growing demand for retail financial products.

Urban Finance Leads Disbursements

The urban finance segment emerged as the frontrunner in loan disbursements, with a notable figure of Rs 6,850.00 crore. This performance highlights L&T Finance's strong presence and competitiveness in urban markets, where demand for financial services typically remains robust.

Retailisation Strategy Gains Momentum

L&T Finance's strategic shift towards retailisation has shown significant progress. The company reported that its retail portfolio now constitutes 98% of its total loan book, up from 95% in the previous year. This 3 percentage point increase demonstrates the company's successful execution of its retailisation strategy, which aims to reduce exposure to wholesale lending and focus more on retail customers.

Segment-wise Performance

The company's performance across various segments showed mixed results:

• SME Finance: This segment experienced growth, indicating increased lending activities to small and medium enterprises.
• Farmer Finance: The farmer finance segment also reported growth, suggesting expanded support for agricultural lending.
• Rural Business Finance: In contrast to other segments, rural business finance witnessed a decline, potentially reflecting challenges in the rural economy or a strategic shift in the company's focus.

Conclusion

L&T Finance's Q1 performance, marked by significant growth in its retail loan book and led by strong urban finance disbursements, reflects the company's robust strategy in the retail lending space. The increased retailisation and growth in key segments like SME and farmer finance underscore the company's adaptability to market demands and its focus on diversified retail lending portfolios. However, the decline in rural business finance suggests potential areas for future strategic considerations.

As L&T Finance continues to expand its retail presence, investors and market watchers will likely keep a close eye on how the company balances growth across various segments and manages potential risks in an evolving financial landscape.