Detailed Narrative
Q3 FY26 Overall Performance and Strategic Priorities
Fedbank Financial Services reported a business AUM of INR17,500 crores, marking a 17% Y-o-Y growth, or 32% Y-o-Y excluding the divested business loans. The company's strategic priorities remain focused on capital allocation to high ROA/ROE gold and LAP businesses, aiming for a fully secured lending portfolio. Net interest income grew 16.8% Y-o-Y to INR318.9 crores, and net profit for the quarter stood at INR87.9 crores. The company maintained its credit cost at 0.9%, staying below its target of 1% plus or minus 10 bps.
Robust Gold Loan Business Growth
The gold loan business demonstrated remarkable growth, with AUM increasing 52% Y-o-Y to INR7,905 crores and tonnage growing 5% Y-o-Y to 11.2 tons. Disbursals reached a record INR7,853 crores in Q3 FY26, contributing to a net AUM growth of INR1,174 crores. The company opened 54 new gold branches this quarter, bringing the total to 113 for the year, with AUM per branch reaching INR13.3 crores. Management reaffirmed its confidence in achieving 10% to 12% year-on-year tonnage growth.
Mortgage (LAP) Business Update
Mortgage AUM grew 20% Y-o-Y to INR9,084 crores. The Medium Ticket LAP business performed consistently, disbursing INR545 crores while maintaining yields. In Small Ticket LAP, disbursals were INR208 crores. The company is strategically reducing exposure to the INR5 lakh to INR7 lakh segment due to market pressures🌐 and MFI spillover, leading to an increase in average ticket size. Efforts are underway to rebuild the ST LAP business with a focus on growth and quality.
Asset Quality and Collection Enhancements
Gross Stage III increased to 2.1% from 1.9% last quarter, primarily due to higher forward flows from Stage 2 to Stage 3 in the ST LAP portfolio. Delinquencies (1+ DPD) decreased from 7.5% to 7.1%, and (30+ DPD) from 4.6% to 4.5%. Management acknowledged that ST LAP stress was an internal issue related to collection infrastructure, which has been strengthened with senior leadership onboarding and verticalized teams. The unsecured lending portfolio has diminished to nearly 0.6% of on-book assets, down from 10% at the fiscal start.
Profitability, Cost Management, and Funding
Operating profit grew 11.7% Y-o-Y to INR149.4 crores. The cost-to-income ratio worsened by approximately 10 bps due to investments in new branches, higher gold loan incentives, and a one-time📎 INR3.9 crores impact from labor code regulations. However, the weighted average interest cost of total borrowings decreased by 32 bps Q-o-Q to 7.87%. The company increased fixed rate borrowings from 11% to 29% of total borrowings to lock in spreads, and the incremental cost of borrowing in Q3 FY26 was under 7.6%. ROA improved from 2.2% to 2.5% and ROE expanded 130 bps from 11.4% to 12.7% over the last four quarters.
Shift from Direct Assignment to Co-Lending
Net income from Direct Assignment (DA) significantly decreased to INR1 crore for the 9 months of FY26, compared to INR62 crores in the same period last year. This reduction is a conscious choice as the company aims to increase core income and reduce reliance on DA income. Management indicated a continued reduction in direct assignments in Q4 and the medium-term, with a migration towards co-lending, aligning with new co-lending guidelines effective January 1, 2026.