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    SBFC Finance Q3 FY26 earnings call

    SBFC
    Financial Services·24 Jan 2026
    Management Summary

    SBFC Finance Limited reported strong Q3 FY26 results with robust AUM and PAT growth, alongside improved operational efficiency and return on equity. However, the company adopted a cautious lending stance due to macroeconomic concerns like rising household debt and potential interest rate hardening, leading to a decline in disbursement volumes. Management emphasized asset quality preservation and continued focus on cost reduction amidst these challenges.

    Highlights

    5

    • AUM grew 29% YoY and 5% QoQ to INR10,478 crores, with MSME AUM at INR8,497 crores and Gold Loan AUM at INR1,954 crores.

    • PAT increased 34% YoY and 8% QoQ to INR118 crores.

    • Return on average tangible equity improved to 14.56% from 14.09% in Q2.

    • Cost of borrowing reduced by 22 bps QoQ and 57 bps YoY to 8.74%, maintaining spread at 9.04%.

    • Cost-to-income ratio improved to 35%.

    Concerns

    4

    • Household debt increasing at double the rate of financial asset creation, potentially leading to slower loan growth next year.

    • Interest rates are expected to harden or remain stable, unlikely to soften.

    • Disbursement volumes declined due to tightened filters and cautious approach in Southern and Eastern markets, with bureau scores still 'amber'.

    • Approval rates continued to drop despite higher CIBIL scores, indicating customer over-leveraging.

    Key financials

    Single quarter

    11 metrics
    1. 01AUM₹10,478 Cr+29.0%YoY
    2. 02PAT₹118 Cr+34%YoY
    3. 03Yield17.8%-0.0%YoY
    4. 04Cost of Borrowing8.7%-0.6%YoY
    5. 05Spread9.0%+0.5%YoY

    Segment breakdown

    • MSME₹8,497 Cr81.3%
    • Gold Loan₹1,954 Cr18.7%
    Donut· Share of AUM

    Guidance & targets

    9
    CategoryTargetPriority
    AUM Growth
    AUM Growth
    5% to 7%
    		High
    Operating Cost
    Operating Cost Reduction
    50 basis points
    		High
    Operating Cost
    Opex Reduction (Post-IPO)
    150 basis points
    		High
    Credit Cost
    Credit Cost Variation
    5 to 10 basis point variation
    		High
    Credit Cost
    Credit Cost Variation
    5 to 10 basis point up or down
    		High
    Profitability
    ROE
    15%
    		Medium
    Gold Loan Mix
    Gold Loan AUM as % of Total AUM
    under 20%
    		High
    MSME Segment
    Average Ticket Size
    INR10 lakhs
    		High
    MSME Segment
    Customers from Tier 2 and Tier 3
    >85-90%
    		Medium

    What to watch in Q4 FY26

    5

    FY27 Opex Reduction Guidance

    April (next quarter's concall)
    CurrentNot be so much as 50 bps, will guide in April.
    TargetSpecific percentage or basis points reduction for FY27.

    Why it matters

    Provides clarity on future operational efficiency targets and cost management strategy.

    No, no, next year, we'll guide in April, but it will not be so much.

    Risks & concerns

    4
    RiskSeverity

    Macroeconomic interest rate hardening

    Interest rates are likely to harden or remain stable, not soften, impacting cost of funds. — Management acknowledged

    medium

    Rising household debt and weakening individual balance sheets

    Household debt doubled to INR15.7 trillion (2019-2025), growing faster than asset creation, indicating potential future stress. — Management acknowledged

    high

    Decline in disbursement volumes due to tightened underwriting

    Tightened filters in Southern and Eastern markets, and 'amber' bureau scores, led to reduced disbursements. — Management acknowledged

    medium

    Customer over-leveraging and dropping approval rates

    Approval rates dropping despite higher CIBIL scores, indicating customers are over-leveraged. — Management acknowledged

    medium

    Q&A highlights

    8

    “So, most of the impact that actually happened with respect to our disbursal growth came in from the Southern and the Eastern markets and what we did was that we had tightened our filters with respect to bureau scores and also paused some disbursal in some of our key markets and that's where the big impact is.”

    Explains the strategic decision behind lower disbursements, prioritizing asset quality over growth in specific regions.

    asked by Raghav

    2 min read6 chapters

    Detailed Narrative

    01

    Q3 FY26 Performance Overview

    SBFC Finance Limited reported a robust Q3 FY26, with AUM growing 29% YoY and 5% QoQ to INR10,478 crores. Profit After Tax (PAT) increased 34% YoY and 8% QoQ to INR118 crores, while Return on Average Tangible Equity improved to 14.56% from 14.09% in Q2. The company also achieved a cost-to-income ratio of 35% and maintained its spread at 9.04% by reducing its cost of borrowing by 22 bps QoQ.

    02

    Macroeconomic Headwinds & Industry Outlook

    Management highlighted several macroeconomic concerns, including the RBI's report on household debt doubling to INR15.7 trillion between 2019 and 2025, outpacing financial asset creation. This trend, coupled with an expectation of hardening or stable interest rates, suggests a potential slowdown in loan growth and increased caution in the lending environment for the next year.

    03

    Asset Quality and Lending Strategy

    Despite stable GNPA at 2.71% and PCR at 46.2%, the company adopted a cautious lending approach, particularly in Southern and Eastern markets, where bureau scores remain 'amber.' This led to a decline in disbursement volumes as filters were tightened and approval rates dropped, even for higher CIBIL scores, indicating customer over-leveraging. Management confirmed an ARC sale for MSME assets, which impacts 1+ DPD numbers.

    04

    Operational Efficiency and Cost Management

    The company continued its focus on operational efficiency, achieving a 35% cost-to-income ratio. A one-time📎 impact of INR2.24 crores from the new wage code was absorbed, yet the company managed to reduce operating costs. Management reiterated its target of a 50 basis points reduction in operating cost for FY26 and aims for further improvements in FY27, with specific guidance to be provided in April.

    05

    Gold Loan Business Performance

    The gold loan portfolio grew significantly by 48% YoY and 14% QoQ to INR1,954 crores, now constituting 19% of the total AUM. Management clarified that while gold loans are traditionally high-opex, they are profitable, and existing ME branches are increasingly offering gold loans, contributing to efficiency. The company intends to keep the gold loan mix under 20% of total AUM.

    06

    Management Transition

    Aseem Dhru, MD & CEO, announced his transition to a Non-Executive Vice Chairman role, handing over the baton to Mahesh Dayani. He emphasized continuity and his commitment to contributing as a coach, ensuring a smooth transition without disruption to the company's operations. A new Chief Collection Officer is expected to join by the end of March or early April.

    This is an AI-generated summary of a publicly available earnings call transcript.