Arman Financial Services Limited — Q2 FY26 earnings call

Call held 14 Nov 2025

Management summary

Arman Financial Services reported Q2 FY26 results showing early signs of recovery, with consolidated AUM stabilizing at INR 2,130 crores and impairment costs declining significantly. While H1 FY26 saw a net loss of INR 6.6 crores, Q2 FY26 registered a profit of INR 8 crores, driven by improved asset quality metrics like a 95.6% MFI collection efficiency and reduced GNPA/NNPA. The company continues its calibrated growth approach, particularly in Microfinance, while non-MFI segments like MSME, Two-Wheeler, and LAP demonstrate consistent momentum.

Highlights

  • Consolidated AUM at INR 2,130 crores as of September 2025, showing signs of stabilization and gradual return to growth.

  • Impairment costs trending down for 3 consecutive quarters from INR 89 crores (Q4 FY25) to INR 38 crores (Q2 FY26).

  • Q2 FY26 disbursements increased 26% YoY to INR 475 crores, and 21% sequentially.

  • Consolidated GNPA at 3.69% and NNPA at 0.53%, reflecting signs of normalization.

  • MFI collection efficiency improved to 95.6% in September, with 99.4% zero DPD repayment rate for new portfolio.

  • Non-MFI AUM grew 29% YoY to INR 623 crores, with Q2 FY26 PAT growing 12% YoY to INR 9 crores.

  • BCM (Branch Credit Officer) model shows 40% lower delinquencies in originated cases.

Concerns

  • Consolidated AUM is lower on a year-on-year basis.

  • Gross total income for H1 FY26 was down 15% YoY to INR 310 crores.

  • Net total income for H1 FY26 was down 11% YoY to INR 208 crores.

  • H1 FY26 reported a loss of INR 6.6 crores.

  • MSME segment is still experiencing stress, though less severe than MFI.

  • Cost-to-income ratio remains high due to declining AUM and necessary operational costs.

Key financials

3 periods

Headline

  • Consolidated AUM
    ₹2,130 Cr
  • Consolidated Impairment Costs
    ₹38 Cr
  • Consolidated GNPA
    3.7%
  • Consolidated NNPA
    0.53%
  • Consolidated Collection Efficiency (September)
    95.6%
  • Consolidated Capital Adequacy
    38.7%
  • Consolidated PAR 1-30
    1.2%
  • Consolidated Overall Cost of Borrowing
    12.5%

Q2 FY26

  • Consolidated Disbursements
    ₹475 Cr
    YoY +26% QoQ +21%
  • Consolidated PPOP
    ₹56 Cr
    YoY -28% QoQ 0%
  • Consolidated Profit
    ₹8 Cr

H1 FY26

  • Consolidated Gross Total Income
    ₹310 Cr
    YoY -15%
  • Consolidated Net Total Income
    ₹208 Cr
    YoY -11%
  • Consolidated Net Provision cum Write-off
    ₹104.78 Cr

What they filed

Q1 FY27: revenue up 33.8%, net profit up 400.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue181 165 199 151 159 −12%160 −3%176 −12%202 +34%
Net profit15 -7 13 -15 8 −47%22 +414%41 +215%45 +400%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of AUM
₹2,130 Cr Total
  • Namra Finance (MFI subsidiary) ₹1,507 Cr 70.8%
  • Stand-alone (Non-MFI: MSME, Two-Wheeler, LAP) ₹623 Cr 29.2%

Capital allocation

high confidence
  • Liquidity Cash ₹238 Cr Includes cash and bank balances, liquid investments, and undrawn CC limits.
    And we also have healthy liquidity position with INR 238 crores in cash and bank balances, liquid investments and undrawn CC limits.

Guidance & targets

Profitability

  • Return on Assets (ROA) Profitability · Q4 FY26 · Medium confidence 3-4.5%
    I can give you a good range, let's say, 3% to 4.5%, but let's see things will get stable. And I think you will have a better idea probably as early as fourth quarter where new realities are setting up.

    — Aalok Patel

Volume

  • MFI Monthly Disbursement Run-rate Volume · Ongoing · Medium confidence INR 180 crores
    I think once we reach, Vivek, in MFI, if we are reaching, let's say, about INR 180 crores of disbursements in a month, I will be happy.

    — Aalok Patel

Risk Management

  • MSME Portfolio CGTMSE Subscription Risk Management · Q3 FY26 · High confidence Start subscribing
    Arman has been given the registration for the same somewhere in September itself. we hope to start subscribing to it as we move in Quarter 3.

    — Vivek Modi

What to watch in Q3 FY26

MFI Monthly Disbursement Run-rate

Next quarter (Q3 FY26)
Current ~INR 111 crores/month (Q2 FY26)
Target INR 180 crores/month

Why it matters

Indicates recovery and growth momentum in the core MFI business, crucial for overall profitability.

I think once we reach, Vivek, in MFI, if we are reaching, let's say, about INR 180 crores of disbursements in a month, I will be happy.

Risks & concerns

  • Microfinance Industry Challenges

    medium

    The microfinance industry has navigated a challenging period marked by elevated credit stress, regulatory reforms, and significant write-offs, though early signs of recovery are now visible.

    Management acknowledged

  • MSME Asset Quality Stress

    medium

    Stress exists in the MSME segment, particularly in small ticket rural unsecured loans, though it is currently stable and less severe than in MFI.

    Management acknowledged

  • High Cost-to-Income Ratio

    medium

    The cost-to-income ratio remains high due to declining AUM and the necessity of maintaining operational costs for collection and new structures, with normalization dependent on growth.

    Management acknowledged

  • Credit Cycle Volatility

    medium

    The management acknowledges that credit cycles involve 'two steps forward and one step back' and is not ready to accelerate aggressively, indicating potential for future setbacks.

    Management cautious

Q&A highlights

7 direct
Capitalization and Future Growth Strategy Direct
I think finally, this last credit cycle made us realize that it's important to diversify the book... I don't think there is any industry in the world that can sustain 35%, 40% growth indefinitely. And a slow and calibrated approach is probably more of a long-term goal here.

Clarifies the company's cautious and diversified growth strategy post-crisis, emphasizing sustainability over aggressive growth rates.

Asked by Prithviraj Patil

MSME Portfolio Insurance Direct
CGFMU cover itself is applicable to NBFCs also. And for the unsecured loans that are under a threshold limit of INR 2 lakhs can be covered in the CGFMU, though there is a separate category for getting registered there., Arman has been given the registration for the same somewhere in September itself. we hope to start subscribing to it as we move in Quarter 3.

Indicates proactive risk mitigation efforts for the MSME portfolio, a key growth segment, by leveraging existing guarantee schemes.

Asked by Prithviraj Patil

LAP Portfolio Yields and Recalibration Direct
Partially, yes and no, because these are early days in LAP. And till the time we kind of reach a 5,000-10,000 customer base numbers, you will have to kind of keep yourself a bit felxible on these yields as long as you do not go below the threshold limits of, let's say, 18%.

Explains the dynamic pricing strategy for the LAP segment, balancing competitive rates with risk and profitability thresholds, and the importance of diversification.

Asked by Prithviraj Patil

MSME Asset Quality Stress Direct
But definitely, there is stress there, not as much as MFI, and it's something that we are tracking closely... The kind of MSME that we are doing, which is small ticket rural MSME loans, unsecured. That is obviously not going to be immune to whatever is happening in MFI.

Acknowledges ongoing asset quality challenges in the MSME segment, providing a realistic view of the impact of macroeconomics on this portfolio.

Asked by Ronak Chheda

Pricing Strategy and Yield Hikes Direct
So, that is something on the table. However, we have avoided it so far because pricing is very sensitive to regulators and many other external stakeholders. And so as much as we can manage without raising the pricing, I think that will be a better strategic decision.

Highlights the company's approach to pricing, balancing the need to cover risk with regulatory sensitivity and competitive pressures.

Asked by Ronak Chheda

Cost-to-Income Ratio Normalization Direct
Only when the growth returns. Because, the company has been put through enormous stress... it's very difficult to control operating cost, much easier to grow interest income, I feel at this point.

Explains the current pressure on profitability and links the normalization of the cost-to-income ratio directly to the return of AUM growth.

Asked by Sarvesh Gupta

Performance of Branch Credit Officer (BCM) Model Direct
largely, I think there is 40% lower delinquencies in the BCM originated cases versus non-BCM originated cases. So, there is clearly a correlation. Now whether the cost of the BCM justifies, that is the later date... But definitely, there is an advantage.

Provides strong quantitative validation for a key structural reform, indicating improved asset quality and strategic flexibility in the MFI business.

Asked by Srinath V.

Incorporation of AI in Business Partial
I take AI as an amazing tool as good as the Internet. But as long as you require people on the ground to knock on doors, AI is not going to do that... I have learned that you cannot model human behavior.

Offers insight into the company's practical and cautious stance on AI adoption, recognizing its limitations in their field-intensive business model despite its potential.

Asked by Amit Goyal

2 min read 7 chapters

Detailed narrative

Q2 FY26 Performance Overview and Recovery Signs

Arman Financial reported a Q2 FY26 profit of INR 8 crores, a significant improvement from a INR 14.6 crores loss in Q1 FY26, indicating early signs of recovery in the microfinance industry. Consolidated AUM stood at INR 2,130 crores as of September 2025, showing stabilization. Impairment costs have trended down for three consecutive quarters, reaching INR 38 crores in Q2 FY26 from INR 89 crores in Q4 FY25.

Asset Quality Improvement and Collection Efficiency

The company demonstrated visible improvement in asset quality, with consolidated GNPA at 3.69% and NNPA at 0.53%, reflecting normalization. MFI collection efficiency improved to 95.6% in September, supported by stronger borrower discipline. The MFI subsidiary, Namra Finance, saw its GNPA improve by 96 basis points to 3.77% and NNPA by 39 basis points to 0.26%.

Calibrated Growth and Diversification Strategy

Arman maintained a calibrated approach in its Microfinance business, with H1 FY26 disbursements at INR 605 crores, while steadily expanding its non-MFI segments. The non-MFI AUM (MSME, Two-Wheeler, LAP) grew 29% year-on-year to INR 623 crores, with Q2 FY26 disbursements increasing 34% YoY to INR 140 crores. This strategy aims to prioritize portfolio quality and risk discipline over aggressive headline growth.

Impact of Branch Credit Officer (BCM) Model

The implementation of the BCM model has shown tangible results, with BCM-originated cases exhibiting 40% lower delinquencies compared to non-BCM cases. This structural change, operational across 196 branches (50% of network), has strengthened accountability, enhanced risk oversight, and improved collection performance, reinforcing confidence in its long-term benefits for a more flexible microfinance model.

MSME Segment Performance and Risk Mitigation

While the MSME segment continues to deliver consistent momentum with 29% YoY AUM growth, it is not immune to macroeconomic stress, though less severe than MFI. The company is actively working on obtaining CGTMSE coverage for its unsecured MSME portfolio, with registration secured in September 2025 and plans to start subscribing in Q3 FY26 to add an additional layer of risk protection.

Profitability and Cost Management Challenges

Despite improved asset quality, the cost-to-income ratio remains elevated due to declining AUM and the necessity of maintaining collection staff and implementing new structures like BCM. Management indicated that normalization of this ratio is contingent on the return of robust growth, which would boost income. H1 FY26 saw a loss of INR 6.6 crores, but Q2 FY26 turned profitable with INR 8 crores.

Liquidity and Capital Adequacy Position

The company maintains a healthy liquidity position with INR 238 crores in cash, bank balances, liquid investments, and undrawn CC limits. Capital adequacy remains strong, with 38.73% for the standalone entity and 57.78% for Namra Finance, both well above regulatory requirements, providing a solid foundation for future growth.

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