Muthoot Microfin swung to a net profit of ₹170 crore in FY26 from a net loss of ₹223 crore in the previous year. In an interaction with Narayanan V, CEO Sadaf Sayeed attributed the turnaround to loan growth, improved underwriting quality and lower provisions. He also spoke about the company’s FY27 growth plans and the improving stress situation in the microfinance industry. Edited excerpts:
What factors contributed to the improvement in profitability?
Our asset quality has improved significantly, with Gross NPA reducing by 95 basis points from 4.84% in Q4FY25 to 3.89% in Q4FY26. The improvement in asset quality also led to a sharp reduction in credit cost, which declined to 3.5% in FY26 from 9.4% in FY25. These two fundamentals are very important.
Our cost of funds was also down by 75 basis points to 10.27%. We are consciously pivoting towards higher-ticket, business-oriented and secured lending, which is not only enhancing yields but also improving portfolio resilience and customer stickiness. Operating expenses are coming down and asset quality is improving. All this will lead to better profitability going forward. Formally, we can now say that we are back to normal operations. Profitability from here will further improve as we leverage our infrastructure.
Has the stress in the microfinance sector improved?
The microfinance industry is firmly out of the woods. You can see the improvement in portfolio performance. All the disbursements made after the industry guardrails were introduced are performing much better. Companies have also received some liquidity support through government intervention. A ₹20,000 crore credit guarantee scheme has been announced, which will help smaller entities that were facing liquidity challenges access funds.
That will further smoothen the process, though there is already significant improvement. From our side, we did not see any challenge in raising funds. Definitely, microfinance from here on will continue to improve. Our collection efficiency improved by more than 575 basis points year-on-year, from 90.68% in FY25 to 96.43% in FY26. I think all the challenges in terms of political interventions, elections, or state-level regulations are behind us. There is nothing of that sort impacting growth right now.
What is the progress of your asset diversification strategy?
Our gross loan portfolio grew 13% year-on-year to ₹14,005.6 crore in FY26. A major portion of the growth came from new products, including individual loans, where the AUM has crossed ₹2,300 crore. Our loan against property portfolio crossed ₹50 crore of AUM, while the gold loan portfolio stood at around ₹75 crore. The majority of the growth has come from these three products.
Our Joint Liability Group (microfinance) loan book remained flat at around ₹11,200 crore. We have given long-term guidance of a 65:35 mix between JLG and non-JLG loans. For the previous financial year, we had guided for an 85:15 mix and ended at 83:17. We expect to be close to 75:25 in terms of JLG and non-JLG mix by the end of this financial year.
What is your growth guidance for FY27?
In FY26, our AUM grew by 13.3% even as the industry de-grew by 20%. For the current year, we are looking at 12-15% growth in AUM and a return on assets of around 2.5%. Last year, we raised around ₹9,000 crore. This financial year, we are looking to raise around ₹12,000 crore. We already have a good pipeline of sanctions, and the credit guarantee scheme will further help. We are in active discussions with some of the leading banks to avail of that benefit.