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IIFL Finance’s Rs 6,414 crore capital raise, led by Blackstone’s Rs 5,000 crore investment, marked a significant vote of confidence in the company’s business model and growth prospects, said Nirmal Jain, founder and managing director of IIFL Finance.

Speaking first to Moneycontrol after the fundraise, Jain expressed confidence that the investment will strengthen the NBFC’s capital position, with pro forma capital adequacy rising from 17 percent to around 30 percent, while reducing net gearing from 4.6x to 2.8x.

Improved asset quality, a predominantly secured loan book and strong growth in assets under management will further reinforce its financial position and could support a future credit rating upgrade, he said.

Jain spelled out that the company plans to deploy the fresh capital towards expanding its lending operations, particularly gold loans, while reducing borrowing costs and maintaining a 16–18 percent return on equity target.

He also dismissed speculation about demerging IIFL Finance’s housing finance and microfinance businesses, while reaffirming Fairfax’s continued shareholding in the group's ongoing strategic partnerships and long-term growth prospects. Edited excerpts:

What does roping in Blackstone as an investor in the company mean to IIFL Finance?

It is a vote of confidence in IIFL Finance and in the opportunity in Indian retail credit. It’s also the largest primary investment by a private equity investor in a listed Indian NBFC in the last five years, and Blackstone invested after thorough diligence.

For us, it means three things: growth capital for years ahead, a long-term partner with global depth in risk, governance and technology, and greater credibility with lenders, rating agencies and investors. It supports our next phase of growth.

Will this transaction result in a rating upgrade for your company? If yes, please help us with more details on this.

Ratings are for the agencies to decide, but the fundamentals have improved. Capital adequacy rises from about 17 percent to about 30 percent on a pro forma September 2026 basis, and net gearing falls from 4.6x to 2.8x. About 90 percent of our book is secured, mostly by gold and mortgages, and gross NPA has come down to 1.5 percent. Our ratings were recently reaffirmed with improved outlooks.

Add a marquee long-term shareholder and a promoter group that is investing more, and we believe this supports the case for an upgrade. It matters: every 25 basis points saved on borrowings is worth about Rs 200 crore a year.

What was the main attraction in IIFL for Blackstone to look at a Rs 6,000 crore-plus kind of an investment?

Blackstone is investing Rs 5,000 crore. The total raise of Rs 6,414 crore also includes Rs 1,264 crore from the promoters and Rs 150 crore from Anchorage Capital.

What attracted Blackstone was a scaled, secured, profitable platform in large, underpenetrated markets. We have more than 5,000 branches, Rs 1.24 lakh crore of AUM, up 38 percent year-on-year, a 90 percent secured book and improved asset quality. Q2 FY27 profit was up 93 percent year-on-year. Investment in technology and AI is largely done, and the management team has a long track record. They saw a platform ready for sustained, steady growth.

What happens to Fairfax's investment in IIFL Finance? Will it continue to remain a shareholder?

Fairfax is a valued, long-standing shareholder and remains one. After this issue, its holding will be about 10.9 percent on a fully diluted basis. Any future decision on that stake is for Fairfax to take, and it would not be right for me to speculate.

With the Tier-1 capital increasing to 28 percent, how would you ensure that the excess capital does not become a negative carry for the company? Please help us understand how you plan to invest this excess capital.

To be precise, our capital adequacy rises from about 17 percent to about 30 percent on a pro forma September 2026 basis.

The capital will not sit idle for long. Our gold loan business alone disburses Rs 2,000–3,000 crore a month, so the new equity will go into lending quite soon. Either way, debt goes down. Until the money is lent out, it reduces our borrowings, and once it is lent out, it replaces money we would otherwise have borrowed. So there is no negative carry. Lower gearing and a better cost of funds support our margins, and we remain committed to a 16–18 percent RoE.

Gold loans have become a mainstay for IIFL. Would you look at further diversifying your loan book through inorganic acquisitions?

Gold loans are about half our AUM. The rest is home loans, loans against property and other small-business credit, and microfinance, so we are already well diversified. Each of these businesses has a good organic runway, and we have the branches, technology and people to capture it.

Acquisitions are not a priority. Organic growth on our own platform gives us better control over quality, culture and returns.

Concerns are cropping up about the sustainability of asset quality in the gold loan business. What is your view on this?

Our view is positive. Gold is among the safest and most liquid forms of collateral in retail lending. At a typical 75 percent LTV, the borrower has a cushion of a third of the loan value. In practice, the cushion is larger because we lend only against the pure gold content, while the customer has also paid for design and making charges and the jewellery carries sentimental value. Customers generally come back for their gold.

A sharp fall in gold prices can temporarily raise delinquency. Some marginal borrowers may be unable to renew or transfer their loans within LTV limits, but the eventual loss is negligible. Our gross NPA has come down to 1.5 percent, our processes have been completely overhauled, and AI-led branch supervision and audit add another layer of control.

There are conversations around demerging and listing the housing and MFI loan businesses separately. At what stage of consideration are these plans?

There is no such proposal before the Board. IIFL Home Finance and IIFL Samasta are both well capitalised, at about 39 percent and 26 percent capital adequacy respectively, and are performing well within the group. We always look at ways to unlock value for shareholders, but there is nothing to announce.

Now that you are ruling out a demerger of subsidiaries, will you be open to roping in investors in housing finance and MFI businesses?

We are not ruling it out, but at an appropriate time the Board has to decide on the best way to structure. But nothing at this point in time.

Two back-to-back big deals have happened within the IIFL group. What does this signify to you as a promoter?

It shows that the businesses we started building 30 years ago have institutional quality that respected long-term investors recognise. Fairfax's deeper commitment to IIFL Capital and Blackstone's investment in IIFL Finance both reflect that.

For Venkat and me as promoters, not much has changed. We continue to focus on IIFL Finance, the largest company in the group. At 5paisa, we are building a strong management team and drawing on our DNA, our long experience in the markets, and technology and AI. At IIFL Capital, we will support Vasu, Nem and the team, who have very strong credentials, strategically, and they will leverage the Fairfax and IDBI Bank relationships as feasible.

Recently, there has been some backlash about Fairfax making IIFL Capital a subsidiary of IDBI Bank post the IDBI Bank divestment. Will this have any negative impact on the ongoing deal with Fairfax and IIFL Capital?

I do not see any negative impact. The IIFL Capital transaction is proceeding through the regulatory process as planned. IIFL Capital is a well-governed, regulated business, and any future group structure will follow regulatory approvals. Fairfax has been a committed, long-term partner to the IIFL group for over a decade, and we expect that to continue.