Northern Arc Capital delivered a strong Q3 FY26, achieving record-high quarterly profit and surpassing INR15,000 crores in AUM. This growth was primarily fueled by the Direct-to-Customer (D2C) segment, particularly in consumer and MSME finance, while the microfinance portfolio showed signs of stabilization. The company maintained healthy margins and capital adequacy, despite acknowledging industry-wide stress in certain unsecured loan segments, and provided clear forward-looking targets for AUM growth, profitability, and credit costs.
vs Q4 FY26
Notable Quotes from the Call
Most Confident Moment
And generally, if you see March is the best quarter for any NBFC. So, we are very confident of crossing 2.8% in quarter four.
Least Confident Moment
I'm hoping it should come this quarter, but the legal process can take time.
| Metric | Value | YoY |
|---|---|---|
| AUM | ₹15K Cr | +23.0% YoY |
| PAT | ₹101 Cr | +33.0% YoY |
| NII | ₹371 Cr | +39.0% YoY |
| NIM | 9.9% | — |
| ROA | 2.7% | — |
| ROE | 10.7% | — |
Segment Breakdown
| Metric | Latest | Trend |
|---|---|---|
| AUM(crores) | 16594 | |
| Net Revenue(crores) | 325 | |
| PAT(crores) | 101 | |
| GNPA | 1.36% | |
| Credit Cost | 2.7% | |
| Capital Adequacy | 22.6% |
| Category | Target | Priority |
|---|---|---|
| AUM Growth | AUM Growth→upward of 20% | High |
| AUM Growth | Long-term AUM Growth→25% plus | High |
| Credit Cost | Credit Cost→within 2.7% to 3% range | High |
| Credit Cost | Credit Cost→below 3%... anywhere between 2.8% to 3% | High |
| Credit Cost | Credit Cost→around 2.7% to 3.0% | High |
| Profitability | ROE→15 to 16 | High |
| Profitability | ROA→3.2% | High |
| Profitability | ROA→crossing 2.8% | High |
| Profitability | Return on Assets→3.0%- 3.2% | Medium |
| Margin | NIM→10% to 10.25% | Medium |
| Fee Income | Fee Contribution→110-120 basis points | Medium |
| AUM Mix | D2C Composition→65% and 70% | Medium |
| Branch Expansion | New Branches→about 50 plus | Medium |
| Severity | Risk |
|---|---|
medium | Stress in unsecured business loan and small-ticket LAP segments Stress continues to build in these segments, impacting NBFCs across the spectrum. Management |
medium | Muted offshore funding participation and challenging liquidity Repo rate cuts have not fully translated into MCLR reduction from broader capital flows, making liquidity challenging. Management |
medium | Higher PAR accretion in small-ticket MSME The small-ticket MSME segment is experiencing a higher degree of PAR accretion, though Northern Arc's average ticket size is higher (INR12-13 lakhs). Management |
Areas of Evasion(1)
Northern Arc Capital achieved its highest ever quarterly profit after tax of INR101 crores in Q3 FY26, marking a 33% YoY and 10% QoQ increase. The company also surpassed the INR15,000 crore AUM milestone, reaching INR15,121 crores, reflecting a robust 23% YoY and 7% QoQ growth. Net Interest Income (NII) grew by 39% YoY to INR 371 crores, with Net Interest Margin (NIM) improving by 60 basis points QoQ to 9.9%.
The Direct-to-Customer (D2C) business was a primary growth driver, accounting for 56% of total AUM and growing 29% YoY to INR8,492 crores. Within D2C, consumer finance demonstrated strong momentum with AUM growth of 45% YoY to INR4,226 crores, while MSME finance grew 41% YoY to INR3,292 crores. The company plans to add over 50 branches in the coming quarters to further penetrate the under-served MSME credit market, which is a key growth engine.
The company reported healthy asset quality with GNPA of 1.36% and NNPA of 0.69%. Credit costs for Q3 FY26 stood at 2.9%, excluding a one-time📎 recognition of INR23 crores for internal ECL assessment in digital business. Management expects credit costs to remain stable within the 2.7% to 3% range for Q4 FY26 and targets 2.7% to 3.0% for FY27, emphasizing a prudent risk management framework and optimizing risk-adjusted returns.
Northern Arc has consciously calibrated its microfinance portfolio over the past six quarters, starting from June 2024, leading to incremental PAR 0+ accretion reverting to pre-stress levels. Over two-thirds of the MFI book now comprises loans originated under new MFIN guardrails, and nearly 55% is covered under CGFMU. Rural disbursements in Q3 stood at INR260 crores, with December alone seeing INR100 crores, indicating a return to pre-stress levels and confidence to scale this business back in a calibrated manner.
The fee and other income segment witnessed significant growth, up 49% YoY and 50% QoQ to INR 32 crores, primarily driven by a 73% YoY increase in placement volumes to INR3,669 crores. The company leverages its proprietary technology platforms such as Nimbus (B2B credit flow), nPOS (API-based co-lending), Altifi (bonds platform), and NuScore (ML-based underwriting) to build a comprehensive credit solution ecosystem and drive fee accretion, with early signs of monetization.
Northern Arc's cost of funds improved meaningfully, declining to 8.5% in Q3 FY26 from 9.4% in Q3 FY25, a reduction of 90 basis points. The debt-to-equity ratio improved from 3.9x in March 2024 to 3x as of December 2025. Capital adequacy remains strong at 23.1%, well above regulatory requirements, providing ample headroom for growth over the next three years, with 25% of funding sourced from offshore and DFI partners.
Management is confident in achieving an AUM growth upward of 20% for FY26 and a long-term AUM growth of 25% plus over the next three years. They target an ROA of 3.2% for FY27 and aim to reach 15-16% ROE within 6-7 quarters. The company expects NIM to improve to 10-10.25% as the D2C mix increases from 56% to 65-70%, projecting a 3.0%-3.2% return on assets over the next 4 to 6 quarters.