Paisalo Digital Limited — Q1 FY26 earnings call

Call held 22 Jul 2025

Management summary

Paisalo Digital reported a strong Q1 FY26, with AUM growing 14% YoY to INR 5,230.2 crores and PAT increasing 14% YoY to INR 47.2 crores. The company expanded its customer base to 11 million and maintained robust asset quality with GNPA at 0.85%. Strategic co-lending partnerships, including a new one with SBI for MSME/SME, are expected to drive future growth, while the company focuses on its hybrid distribution model and disciplined risk management.

Highlights

  • Assets under management grew by 14% year-on-year, reaching INR 5,230.2 crores supported by a 16% year-on-year increase in disbursement to INR 758.1 crores.

  • Recorded highest-ever total income of INR 218.7 crores, reflecting a 17% year-on-year growth.

  • Net interest income rose by 28% year-on-year to INR 124.4 crores, underpinned by prudent asset liability management and a healthy loan mix.

  • Profit after tax of INR 47.2 crores, translating to a 14% year-on-year growth.

  • Achieved an important milestone of 11 million customer franchise, adding approximately 1.5 million customers in Q1 itself.

  • Gross NPA and Net NPA stood at 0.85% and 0.68%, respectively, with collection efficiency improving to 99.8%.

Concerns

  • Analyst raised concerns about the company's Return on Equity (RoE) not expanding significantly despite scaling, given its relatively lower leverage compared to peers, though management expects expansion.

Key financials

  1. Assets Under Management (AUM) ₹5,230.2 Cr +14%YoY
  2. Total Income ₹218.7 Cr +17%YoY
  3. Net Interest Income (NII) ₹124.4 Cr +28%YoY
  4. Profit After Tax (PAT) ₹47.2 Cr +14%YoY
  5. Return on Equity (RoE) 11.9%
  6. Gross NPA 0.85%
  7. Net NPA 0.68%
  8. Collection Efficiency 99.8%
  9. Cost of Borrowing 10.7%
  10. Debt-to-Equity Ratio 2.15×
  11. Capital Adequacy 39.5%

What they filed

Q1 FY27: revenue up 21.4%, net profit up 29.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue176 194 190 210 216 +23%236 +22%256 +35%255 +21%
Net profit50 62 45 47 51 +2%66 +6%71 +58%61 +30%
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.

Capital allocation

high confidence
  • Debt Gross ₹3,478.6 Cr Cost 10.7%
    Total borrowing stood at INR 34,786 million, with a cost of borrowing at 10.7%. ... The liabilities of the company are from banks and FIs at about 68%, NCDs about 18%. We raised our first foreign currency convertible bonds, USD denominated, last financial year. That's contributing about 12%, and commercial paper contributing about 2%.
  • Liquidity Liquidity disclosed Capital adequacy stood at a robust 39.5%, reinforcing our ability to absorb shocks while continuing to expand our lending base.
    Our capital adequacy stood at a robust 39.5%, reinforcing our ability to absorb shocks while continuing to expand our lending base.

Guidance & targets

Asset Quality

  • Long-term NPA (including write-offs) Asset Quality · long-term · High confidence less than 2%
    So, our long-term outlook for NPAs is we have been talking about, so we are an NBFC which gives, the only forward-looking statement that we give is our long-term outlook on NPAs which is less than 2% including write-offs.

    — Santanu Agarwal

Profitability

  • Return on Equity (RoE) Profitability · over time · Low confidence will definitely expand
    No, the ROE will definitely expand. With the expansion of our asset-light co-lending model, we are definitely expecting an increase in the ROE, but since we are not allowed to make a forward-looking statement, the exact guidance cannot be provided.

    — Santanu Agarwal

AUM Growth

  • AUM Growth Trajectory AUM Growth · over the time period · Low confidence confident on the growth trajectory
    based on the past performance of the AUM with a CAGR of about 25% in the last three years and 20% in the last five years, we are confident on the growth trajectory over the time period.

    — Santanu Agarwal

Branch Expansion

  • Branch Network Expansion Branch Expansion · over the next couple of quarters · Medium confidence add more branches
    So, over the next couple of quarters, we should see that expansion coming into place.

    — Santanu Agarwal

What to watch in Q2 FY26

Operational rollout of SBI co-lending for MSME/SME

By Q4 FY26
Current Tied up with SBI for co-lending to MSME and SME in Q1 FY26.
Target Operational rollout expected.

Why it matters

This partnership is expected to significantly scale MSME and SME loan offerings and contribute to AUM growth, making its operationalization a key growth driver.

In Q1, we have tied up with SBI for co-lending to MSME and SME, operational rollout of which is expected by Q4 of FY26.

Risks & concerns

  • Lower Return on Equity (RoE) compared to peers due to lower leverage

    medium

    An analyst noted that Paisalo is an 'underleveraged NBFC' with a 4x or 5x leverage, which contributes to a lower RoE compared to peers, and questioned the plan to achieve 15%+ RoE. Management acknowledged this but stated RoE will expand with the asset-light co-lending model, without providing a specific numerical target due to regulatory constraints.

    Analyst acknowledged

Q&A highlights

7 direct
Loan growth acceleration with SBI co-lending for MSME/SME Direct
With the new co-lending tie-up in the MSME and SME segment, we are now expecting that the balance MSME and SME segment should also contribute in helping us expedite the co-lending growth in the portfolio.

Highlights a key growth driver and the expected impact of a new strategic partnership on the MSME/SME segment.

Asked by Sandy Mehta

Outlook on Net Interest Margins (NIM) and Non-Performing Assets (NPAs) sustainability Direct
So, our long-term outlook for NPAs is we have been talking about, so we are an NBFC which gives, the only forward-looking statement that we give is our long-term outlook on NPAs which is less than 2% including write-offs. So, we are hoping to maintain our NPA levels in the same level that we are there. In terms of our margins, the margins for the quarter have gained by about 31 basis points on a year-on-year basis to about 6.5%. We are confident of maintaining our historical performance on the same.

Provides specific long-term NPA target and expresses confidence in the sustainability of current margin performance.

Asked by Sandy Mehta

Management's plan to achieve 15%+ Return on Equity (RoE) Partial
No, the ROE will definitely expand. With the expansion of our asset-light co-lending model, we are definitely expecting an increase in the ROE, but since we are not allowed to make a forward-looking statement, the exact guidance cannot be provided.

Analyst challenged the current RoE and sought specific targets, but management cited regulatory constraints for providing numerical guidance, indicating a potential area of investor concern.

Asked by Kaustav Bubna

Benefits of the co-lending business model Direct
The co-lending segment for the company gives us a couple of benefits, which are that as a co-lender, for Paisalo, we have higher ROA and ROE on account of better leverage and higher spread. It also reduces our capital dependency by down selling of the portfolio. Co-lending in general also helps us take care of the three biggest risks that are present in any NBFC lending model, which is the liquidity risk, ALM risk, and credit cost risk. And it also strengthens our credibility and regulatory leverage.

Explains the strategic advantages and risk mitigation aspects of the co-lending model, highlighting its contribution to profitability and capital efficiency.

Asked by Darshil

Customer retention and growth strategies for the 11 million customer base Direct
since we have access to the BC network, every single small income generation customer has also access to the banking-as-a-service services that we provide through our business correspondent network, which eases their entire financial life cycle by providing them cross-sell and up-sell opportunities, all the way from domestic transfer, remittances, withdrawals, and social security schemes, on which the company earn the small commission, which is widely spread out across 22 states. So, this also gives us an additional point of retaining the customers, giving us an overall CPC on these kind of customer base of two.

Details the company's strategy for leveraging its Business Correspondent (BC) network for comprehensive customer lifecycle management, cross-selling, and retention.

Asked by Darshil

Competitive landscape and customer behavior tracking for default prevention Direct
So, the competition is not such a big concern because we are not only better in terms of credit underwriting, We are better in terms of NPA, we are better in terms of geospatial mapping and we have a large market base to address wherein we have the right to select cherry-pick the right customers which fall into the credit parameters and the risk portfolios that we require to ensure maximum repayment for us. ... See, we have our own proprietary CCC model that is the Character, Credit Evaluation and Credibility model which we use for the underwriting of the borrowers. ... Further, we use the AI/ML models to analyze the digital footprints of the borrower, also understanding the behavioral pattern of the borrower.

Addresses concerns about competition by highlighting the vast untapped market and the company's proprietary risk assessment models and advanced analytics for credit underwriting and default prevention.

Asked by Darshil

Co-lending proportion in different segments and cost bearing mechanism Direct
So, you are absolutely correct in saying that currently all of the co-lending is happening in the small income generation sector. And we have just recently in quarter 1 tied up for SME and MSME sector. ... In terms of your origination cost getting reimbursed, so we are getting a servicing fee and a processing fee on the co-lending portfolio, which fairly covers our servicing cost well.

Clarifies the current focus of co-lending in the small income generation sector and the mechanism for covering origination costs, indicating profitability and operational efficiency.

Asked by Vikas Kasturi

Liability side management in a falling interest rate cycle and geographical challenges in MSME segment Direct
So, if you look at borrowing cost for the quarter, it's at about roughly 10.7%. And if you look at the historical performance of our borrowing cost, it has come down over the last 5 years from about 13% to the current 10.7%. ... No. So, there aren't any geographical or regional specific challenges in the MSME segment.

Provides insights into the company's cost of funds trajectory and reassures about the absence of significant regional or geographical challenges in the MSME segment.

Asked by Shweta Upadhyay

3 min read 6 chapters

Detailed narrative

Q1 FY26 Performance Overview

Paisalo Digital reported a strong Q1 FY26, with Assets Under Management (AUM) growing 14% year-on-year to INR 5,230.2 crores, supported by a 16% increase in disbursements to INR 758.1 crores. The company achieved its highest-ever total income of INR 218.7 crores, marking a 17% year-on-year growth. Net Interest Income (NII) also saw a significant 28% year-on-year increase to INR 124.4 crores, up from INR 103.5 crores in Q1 FY25. Profit After Tax (PAT) grew 14% year-on-year to INR 47.2 crores, reflecting consistent profitability and operational rigor.

Business Model and Strategy

Paisalo operates as a specialized digitally-enabled NBFC, focusing on lending to underserved and financially excluded segments, including emerging MSME and SME businesses. The company employs a 'high-tech, high-touch' hybrid model, integrating deep on-ground presence with a scalable technology platform. This approach allows for accessible and tailored credit products, including income generation loans for new-to-credit consumers and entrepreneurial loans for small business owners. The MSME and SME-focused loan book, which constitutes the majority of the portfolio, is designed to finance real productivity, with loans typically underwritten based on local business ecosystems and asset-backed lending where applicable.

Asset Quality and Risk Management

The company maintained robust asset quality, with Gross NPA at 0.85% and Net NPA at 0.68% as of Q1 FY26. Collection efficiency remained strong at 99.8%, an improvement from 99.2% in the same quarter last year. Paisalo utilizes a proprietary Character, Credit Evaluation, and Credibility (CCC) model for underwriting, which includes geospatial mapping, field investigations, and AI/ML models to analyze digital footprints and behavioral patterns. This disciplined approach, combined with a deep-rooted presence in rural and central urban areas, has enabled consistent growth while mitigating risk.

Co-lending Partnerships and Growth Drivers

Paisalo continues to expand its institutional partnerships for an asset-light expansion strategy through co-lending programs. The company has five existing co-lending arrangements, primarily in the small income generation loan segment, with partners like State Bank of India, Punjab National Bank, Bank of Baroda, Karnataka Bank, and UCO Bank. In Q1 FY26, a new co-lending tie-up with SBI for the MSME and SME segment was signed, with operational rollout expected by Q4 FY26. This collaboration is anticipated to significantly scale MSME and SME loan offerings by blending SBI's banking infrastructure with Paisalo's digital credit platform, offering benefits like higher ROA/ROE and reduced capital dependency.

Customer Franchise and Distribution Network

Paisalo achieved a significant milestone by reaching an 11 million customer franchise, adding approximately 1.5 million new customers in Q1 FY26. The company's pan-India distribution network comprises about 3,997 touchpoints across 22 states and union territories, including 401 branches, 2,214 distribution points, and 1,382 business correspondents. This extensive on-ground presence is crucial for last-mile credit access in Tier 2 and Tier 3 towns. The business correspondent channel also provides banking-as-a-service, enabling cross-sell and up-sell opportunities for customers, enhancing customer retention and overall customer lifetime value.

Capital Structure and Funding

The balance sheet remains healthy and well-capitalized, with total borrowing at INR 3,478.6 crores and a comfortable debt-to-equity ratio of 2.15x. The cost of borrowing for the quarter was approximately 10.7%, a reduction from about 13% five years ago. The company's liabilities are primarily sourced from banks and financial institutions (68%), NCDs (18%), foreign currency convertible bonds (12%), and commercial paper (2%). Capital adequacy stood at a robust 39.5%, providing ample headroom for growth and absorbing potential shocks.

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