Fitch Ratings stated on Monday that IIFL Finance, an Indian non-bank lender, is expected to experience a decline in its annual earnings compared to the previous year, attributed to lower net interest margins and increased credit costs.

Earlier this month, IIFL Finance declared that it had registered an 8% dip in loan assets under management, which were then at Rs 71,410 crore ($8.24 billion) for the first three quarters of the fiscal year ending March: The company showed a loss of Rs 14.46 crore for the period, excluding taxes and one-time gain, compared with a profit of Rs 558 crore last year during the same period.

Nirmal Jain, Managing Director, IIFL, stated that this was a tough quarter owing to asset quality issues in the microfinance segment, while it noted that the gold loan business was suffering as IIFL was trying to win back customers.

The Reserve Bank of India had temporarily banned the gold loan disbursements by IIFL Finance in March 2024 following "significant supervisory concerns," but lifted that ban in September. Besides this, IIFL also faced the continuance of some issues, including raids by the tax authority at all three of its companies.

Fitch Ratings stated that the company's immediate outlook would be clouded by delinquencies in loans and contraction in interest margins and that such outcome could threaten the company's credit ratings as well. Fitch currently rates IIFL Finance at 'B+' with a stable outlook based on its assessment over the past nine months.

The rating agency noted that IIFL's performance would thus reflect the broader weaknesses that the sector is enduring, including microfinance and other unsecured sectors, as credit costs still remain elevated.