Northern ARC

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.