Muthoot Microfin Limited (NSE: MUTHOOTMF, BSE: 544055) reported a sharp rebound in profitability for the quarter ended Dec. 31, 2025, supported by lower credit costs and improved operating metrics, even as income declined year on year amid branch consolidation and a tighter sourcing approach, according to the company’s Q3 FY26 investor presentation.
Q3 FY26 financial performance
Total income for the quarter declined 11.2% year on year to ₹6,054 million, reflecting a calibrated slowdown in disbursements and branch consolidation in select geographies. Despite the softer top line, profit after tax surged to ₹624 million, compared with a low base in the year-ago period, aided by a sharp reduction in impairment costs and improved collection efficiency.
Pre-provision operating profit stood at ₹1,753 million, down 30.5% year on year but up sequentially. Net interest margin was 12.0%, lower year on year due to higher funding costs, but broadly stable quarter on quarter. Return on assets improved to 1.9%, while return on equity rose to 9.1%, reflecting the earnings recovery. The cost-to-income ratio was 54.8%, higher year on year, partly due to operating deleverage.
Credit costs eased materially to 3.3%, supported by better collections and a moderation in delinquencies. Gross NPA stood at 4.40%, while net NPA improved to 1.34% by the end of December 2025.
Operating metrics and portfolio trends
Assets under management increased 5.4% year on year and 4.1% quarter on quarter to ₹130.8 billion. Quarterly disbursements rose 9.6% sequentially to ₹24.9 billion, led by a sharp increase in individual loan disbursements as the company expanded its non-JLG portfolio.
Active clients stood at 3.33 million, marginally lower year on year, reflecting a selective sourcing strategy focused on low-risk borrowers. Collection efficiency improved to 94.8%, with the X-bucket collection efficiency at 99.8%, indicating stability in repayments.
The company undertook branch consolidation during the quarter, with 43 branches closed, taking total closures to 66 branches in the first nine months of FY26. The network stood at 1,691 branches at the end of December 2025. Employee count declined modestly following rationalisation linked to branch mergers.
Nine-month FY26 performance
For the nine months ended Dec. 31, 2025, total income declined 13.3% year on year to ₹17.4 billion. Profit after tax for the period was ₹991 million, reflecting pressure from elevated credit costs earlier in the year and the impact of portfolio clean-up actions. Capital adequacy remained strong at 26.4%, providing headroom for growth.
The company continued to diversify its loan book. The non-JLG portfolio accounted for about 11.9% of AUM, up sharply year to date, led by growth in individual loans. Management said this shift is intended to improve portfolio resilience and reduce concentration risk over time.
Asset quality and collections
Provision coverage improved to about 70.5% for Stage 3 assets. The company highlighted a reduction in higher-risk borrower exposure, with a lower share of customers in the “own plus three lenders” category. Digital collections continued to scale, with digital collection share rising to about 27.8% in Q3 FY26, supported by wider adoption of the Mahila Mitra app and QR-based payment channels.
Funding and liquidity
Muthoot Microfin maintained diversified funding sources across banks, DFIs and capital markets. The company reported adequate liquidity buffers, including high-quality liquid assets and unutilised sanctions. Long-term ratings were reaffirmed at A+ with a positive outlook.
Outlook
Management expects disbursement momentum to improve in the second half of FY26, aided by growth in individual loans and stabilising collection trends. It guided for AUM growth of 5%–10% in FY26, with credit costs expected to normalise within the 4%–6% range and profitability metrics improving further in the fourth quarter.
Summary
Muthoot Microfin delivered a strong profit rebound in Q3 FY26 despite lower income, driven by easing credit costs, improved collections and disciplined sourcing. AUM growth remained steady, supported by the expanding individual loan portfolio, while asset quality showed signs of stabilisation.