IndoStar Capital Finance back in black in Q1 with net profit at Rs 61 cr

IndoStar Capital Finance on Monday reported its consolidated net profit at Rs 60.9 crore in the April-June quarter of this fiscal year on lower provisions in commercial vehicle loans.

The non-banking finance company had posted a net loss of Rs 36.8 crore in the same quarter a year ago.

Company's net revenues during April-June quarter of FY23 were up by 32 per cent at Rs 167 crore as against Rs 126.6 crore in same period of FY22, IndoStar Capital said in a release.

The net profit is driven by lower credit cost provisions in the commercial vehicle loan segment from Q4 FY22, it said, adding that collections in Q1FY23 of Rs 1,312 crore resulted in gross collection efficiency of 181 per cent.

"The company had identified a stress pool in its CV (Commercial Vehicle) portfolio. The credit cost provisions for this stress pool were made in Q4 FY22.

"During the quarter the company made concentrated efforts to reduce the stress book, by driving customer settlements and sale of nearly 50 per cent of the stress book to an ARC," it said.

IndoStar said the stress book is about 5 per cent of AUM of Rs 8,247 crore as of 30 June 2022.

"We have strengthened controls, reviewed policies and upgraded technology systems across the spectrum of loan origination, credit appraisal, disbursal, loan management and collection processes."

Further, the company said it has raised incremental funding of Rs 1,850 crore since the beginning of this fiscal year and its liquidity position continues to be in a comfortable position.

Company's gross non-performing assets stood at 8.2 per cent and net NPAs at 3.6 per cent by the end of June quarter.

"The company continues to make focused efforts to further reduce the stress book. As part of its retailisation strategy, the corporate loan book has now been reduced to 15 per cent of AUM, with retail loans at 85 per cent, up from 78 per cent in FY2021," IndoStar said.

IndoStar Capital incurred losses of Rs 736 crore in fiscal year ended March 2022 and of Rs 214 crore in FY21 due to loan defaults in the aftermath of Covid-19 pandemic. It also exceeded the threshold specified for gross and net NPAs for certain borrowing arrangements.

These factors, among others, resulted in company's total liabilities exceeding total assets by Rs 2,206 crore at end of March 2022.

Besides, company's loan outstandings amounting to Rs 594 crore given to two borrowers exceeded the prescribed limit for a single borrower and group borrower.

IndoStar stated that these loans were sanctioned in the preceding financial years and there was no breach of SBL/GBL at the time of sanction/disbursement.

Auditor Deloitte Haskins & Sells LLP in its review report on standalone financial results of the company said because of the control deficiencies in CV and SME loans portfolio identified during FY22, it appointed an external agency to review existence of borrowers for these loan segments; assessing quality and risk to these loans as well as review of loan files for period between January 2022 and March 2022, among others.

Deloitte Haskins & Sells LLP said it also appointed an external law firm to review the transactions pertaining to the CV and SME loan portfolio for identifying the root cause of control deficiencies, evaluating business rationale for transactions executed through deficient control and examining documentation and interacting with identified employees/ex-employees to understand such transactions.

The auditor said the external law firm has not submitted its findings relating to the conduct review.

It also said that "a material uncertainty exists that may cast significant doubt on the company's ability to continue as a going concern."

IndoStar Capital said its fully-owned housing finance subsidiary IndoStar Home Finance continued to register strong performance with disbursement for Q1FY23 at Rs 115 crore. The AUM stood at Rs 1,467 crore, up by 45 per cent from year ago.

The gross NPA for housing finance business stood at 1.9 per cent, one of the lowest in the industry, it added.