Northern ARC Capital Ltd (NSE: NORTHARC) Q3 2026 Earnings Call dated Jan. 30, 2026
Corporate Participants:
Ashish Mehrotra — Managing Director and Chief Executive Officer
Atul Tibrewal — Chief Financial Officer
Pardhasaradhi Rallabandi — Group Risk Officer & Governance Head
Analysts:
Raghav Garg — Analyst
Digant Haria — Analyst
Pawan Kumar — Analyst
Aravind R — Analyst
Sameer Bhise — Analyst
Shalin Kapadia — Analyst
Sanjay Ladha — Analyst
Prit Nagarsheth — Analyst
Darshil Jhaveri — Analyst
Aditya Singhania — Analyst
Anant Mundra — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the Q3FY 2026 conference call of Northern Arc Capital hosted by Ambed Capital. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call please please signal an operator by pressing Star then zero on your touchstone phone.
Please note that this conference is being recorded. I now hand the conference over to Mr. Raghav Garg from Ambit Capital. Thank you. And over to you.
Raghav Garg — Analyst
Good evening everyone. On behalf of Ambit Capital, I would like to welcome you all to the third quarter FY26 earnings call for Northern Arc Capital. Joining us from the management Today we have Mr. Ashish Mehrotra, Managing Director and Chief Executive Officer, Mr. Atul Tiprivar, Chief Financial Officer. Mr. Padasadhi Ralbandi, Group Risk Officer and Governance Head and Mr. Chetan Parmar, Head of Investor Relations. I would like to thank the management. For the opportunity to host this earnings call. We can now begin the call with opening remarks from Mr. Ashish Mehrotra. Post which we can open the floor for questions. Thank you.
Ashish Mehrotra — Managing Director and Chief Executive Officer
And over to you Mr. Ashish. Hey. Thank you Raghav. Thank you very much. Good evening everyone. I’m delighted to welcome you to today’s call. Thank you for joining us for Northern Arc Capital’s conference call to discuss our performance for the quarter ended 31st December 2025. I’m also joined by my colleagues like Raghav said earlier. Atul Tibriwal, our CFO Parda Sarthi, our group Risk and Governance end Chigarh Seth, Head of Strategy and Chetan Parma, our head for investor relationship. I’m very pleased to share that we achieved two significant milestones during the quarter. First, we crossed the assets under management milestone of 15,000 crores.
And second, we reported our highest ever quarterly profit after tax of 100 crores at about 101 crores. The strongest in the Northern Earth Capital history. Turning to the broader environment, we continue to witness healthy consumption level led demand during the quarter supported by reforms such as GST rate cuts, festival spending and even all of this in midst of geopolitical uncertainties, tariff related pressures and so on. The Reserve bank of India also took a supportive step by reducing the repo rate by 25 basis point to 5.25% which is expected to further aid domestic demand and credit.
While we view the quarter performance with optimism, it is important to acknowledge the headwind facing the sector. Stress continues to build in the unsecured business loan and the small ticket LAP segments. The retail securitization volume year to date remained lower than last year by about 7%. The offshore funding participation has also stayed muted and liquidity continued to be challenging as the repo rate cuts have not yet fully translated into MCLAR reduction from broader capital flows. These challenges have impacted NBFC across the spectrum and even as the sector continues to play a critical role in supporting the Indian economy.
At the same time there are clear signs of improvement in microfinance. We are witnessing a revival in both growth and credit cost retail and HNI participation strengthening the liquidity through private NCD market where Northern Arc remains an active market maker. RBI to boost liquidity and reduce cost also provided support. As a result, sector is expected to grow continue to grow at about 15 to 17%. Against this backdrop our AUM posted a strong growth of about 23% on a 7% on quarter on quarter to reach 15,121 crore. Outpacing the industry and reflecting sustained momentum growth was driven by direct to customer business which accounted for about 56% of total AUM as of December 2025.
The D2C AUM as we call direct to customer business segment grew by about 29% on a yoy basis from 6,767 to about 8,492 crores in line with the strategy of growing direct to retail business at around 30%. Within D2C the consumer finance continued to demonstrate strong momentum with AUM growth of approximately 45% on a YoY basis to about 4,226 crore crore supported by festive demand and impact of GST rate cuts leading to better consumptions. This improvement in consumption demand sustained throughout the quarter and continued into the quarter for FY26 providing continued visibility for strong growth momentum.
MSME remain a key growth engine for Northern Arc Capital with portfolio growing at about 41% on y01 basis to about 3292 crores. This growth has been largely driven by expansion of our physical footprint with addition of 17 new branches during the quarter. Given the significant under penetration of MSME credit to msme, our ongoing investment in distribution people infrastructure positions as well for sustained and sustainable on scalable growth in the coming quarters in rural finance we consciously calibrated Like I said earlier in our calls, we consciously calibrated our microfinance portfolio over the past six quarters starting from June 2024.
The incremental par zero accretion has reverted to the pre stress level which is a very good sign over the 2/3 of the MFI book. Over 2/3 of our MFI book comprises of loan originated under the new MFIN guardrails and nearly 55% of our portfolio is covered under CGFMU with our 30 plus DPD improved sequentially to about 80 basis point in December. This sustained improvement and supported by strong growth on ground given our infrastructure gives us confidence to scale this business back in a calibrated manner going forward. Rural disbursement in Q3 stood at about 260 crores with December doing close to about 100 crores which is in line with what we were doing before the stress environment we started witnessing in the Q1 24.
We retained our operational footprint at about 278 branches and have about 1800 employees. We will further strengthen it as we go forward. Our intermediate retail business, part of our credit solutions platform has also recorded a healthy growth of 17% on yoy basis. Despite the unfavorable global environment, Indian economy has demonstrated strong resilience and well positioned to deliver healthy growth going forward. Our fee based businesses, a key differentiator for Northern Arc like we keep on saying, continues to complement our lending operation. Placement volume grew by about 73% yoy and 43% quarter on quarter to about 3669 crores.
Our performing credit fund grew by about 15% yy to about 3207 crores. This translates into strong fee income growth of about 50% on yoy basis and quarter on quarter to about 32 crore crores. This performance underscored a strategic focus in building a comprehensive trade solution ecosystem leveraging capital light fee streams along with a balance sheet and lending model. More importantly lending our enabling and leveraging our technology stacks and our risk capabilities. We spoke About Nimbus, our B2B platform which has enabled about 1 point over 1 trillion of credit flow through the platform and POS. Our API based on lending and co lending platform where we underwrite about 20 to 25,000 loans a day.
Our Altifi our bonds platform as a registered OBPP platform provides fixed income investment opportunities to over 80,000 registered investors on the platform. Our proprietary machine learning based underwriting scorecards known as NeoScore which essentially helps people to select the right set of customers both in terms of ticket size, price, default probability and so on. With these platforms we were built for our own use. We are seeing early signs of monetization giving us confidence that we can become an independent pre accretive business over time. Turning to asset quality, we continue to follow a prudent risk management framework and a conservative provisioning philosophy.
During the quarter credit cost increased to about 130 crores driven primarily by the higher provisioning in the consumer finance portfolio and some increase in the small ticket unsecured business secured and unsecured business loans. The high credit costs were attributable to internal assessment of of ECL for digital business resulting in recognition of one time cost of about 23 crores which is less than 60 basis points on an annualized basis. Excluding that a credit cost is about 2.9% for the quarter three the risk adjusted yield remains stable at 13.7% in Q3 an unchanged YoY marginally better by about 10 basis points versus previous quarter quarter two reflecting effective risk calibration and pricing discipline.
On a cumulative basis, credit cost for first nine months stands at about 3%. As we enter the final quarter we expect the credit cost to remain stable within 2.7 to 3% range. Overall, these development gives us confidence that we are well positioned to achieve a guided AUM growth of upward of 20% for this year. With that I’d like to hand over to ATUL to walk you through our financials in detail. ATUL over to you.
Atul Tibrewal — Chief Financial Officer
Thank you Ashish and good evening everyone. I appreciate you joining us for the Northern ARCS Q3 FY26 earnings call. Let me walk you through the financial performance. Our assets under management stood at 15,121 crore reflecting a growth of 23% YoYo and 7% Q1Q within the AUM mix. The direct to Customer business contributed 56% with MSME Finance at 22%, Consumer Finance at 28% and MFI consciously calibrated at 6%. The net interest income for Q3FY26 stood at 371 crores which is up by 39%. YoY NIMS for Q3FY26 improved by 60 basis points Q1Q at 9.9% on the interest rate environment.
Despite a cumulative 125bps policy rate cut by RBI. The transmission has been gradual with the one year bank MCLR declining by only 25 to 30 basis points on an average reflecting a lag effect and some tightening in the money market liquidity on a year on year basis, Northern Ark Capital’s cost of fund improved meaningfully declining to 8.5% in Q3FY26 from 9.6% in Q3FY25 representing a reduction of 90 basis points. We expect some additional benefit in cough in Q4 supported by MCLR reset on a significant portion of our existing borrowing fee and other income grew by almost 49% yoy and 50% q on q to rupees 32 crore mainly on account of strong growth in the placement volumes.
Net revenue including the fee income rose 39% yoy to rupees 403 crore. Our operating expense ratio for Q3FY26 was stable at 3.7%. The company is fully compliant with the new Labor Code and there is no material impact on the employee cost pre provisioning. Operating profit for the quarter grew by 51% YoY and 24% quarter on quarter to Rs 265 crores. GNPA and NNPA was 1.36% and 0.69% respectively. Profit after tax for quarter 3 FY26 increased by 33% YoY and 10% quarter on quarter to Rs 101 crores. ROA for the quarter saw marginal uptick quarter on quarter to reach 2.7%.
ROE for the quarter increased by 60 basis points quarter on quarter to 10.7%. On the liabilities front, in line with our debt strategy and AUM growth plans, we have continued to diversify our funding base with a clear focus on long term sources. Liquidity remains comfortable with positive cumulative mismatch across the time buckets. As of 12-31-2025 we hired surplus liquidity of almost 1400 crore with a mix of cash and undrawn bank sanctions. Total borrowing at the end of the quarter stood at 11,200 crores with approximately 65% linked to variable interest rate positioning us well to benefit from the ongoing decline in the interest rate market.
Our funding mix remains well diversified with 25% sourced from offshore and DFI partners and the balance 75% from domestic banks, institute institutions and capital market. Our incremental cost of fund in Q3 was 8.6% down from 9.6% same period last year. Tangible net worth stood at rupees 3,788 crore up 11% YoY. We have strengthened the balance sheet materially. Our debt to equity ratio improved from 3.9 times in March 24 to 3 times as of December 2025. Capital adequacy remains quite strong at 23.1%, well above the regulatory requirement, giving us ample headroom to grow the balance sheet over the next three years.
Thank you very much. And we would now like to open up for Q and A.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the Touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We will take a first question from the line of Dgant Hariya from Green Edge Wealth. Please go ahead.
Digant Haria
Yeah. Hi team. Congratulations on reaching two important milestones. My question is, you know, see two parts to my question. You know, first is see if we look at this quarter, our net income has gone up quite substantially. And in line with that, our provisions have also gone up substantially. So you know, because of this digital lending business, you know, should we look at Northern Arc as net income minus provisions as a number that we try to strive for or you know, if you can just extend because otherwise, you know, it just seems that provisions have gone up.
But you know, in isolation it looks like that. But if you look at net income minus provisions, you know that number we are at best ever in last five quarters. So just any thoughts here because you know, otherwise the reporting becomes confusing for us.
Ashish Mehrotra
Hey Dgan, so good to have you. And you know, very insightful question indeed. Like we’ve been saying in many of our conversations with you Priya, the way we look at the digital business is saying how do we optimize the risk adjusted ease? I think that’s the best way to look at it because in a high consumption led demand where you provide convenient financing solution, you look at various cohorts at various points in time and try and see how you get better risk adjusted return by providing superior product to customers. And like I said, our risk adjusted returns broadly remain stable while the yields have improved.
So we’ve had compensating marginally higher costs. But that’s perfectly fine as long as we’re holding the guidance on the risk adjusted basis. And that is where we look at that business since the very beginning because we believe that’s the best way to look at it. How much return are you making after adjusting for risk? Great.
Digant Haria
So Ashish, you don’t see any deterioration especially in that consumer or digital lending business?
Atul Tibrewal
There is no deterioration.
Digant Haria
You took some extra provisions also 23 crores.
Ashish Mehrotra
So just so you can, you know we continue doing that. The objective is that you continue to look at playing between the near prime segments and try and create many sets of product solutions between 3 months, 6 months, 12 months, 18 months financing, financing for education, financing for convenience and so on, so forth. So there are certain cohorts and certain geographies if I get technical between the risk band which try and get you maybe significantly better yield but also come with a compensatingly higher credit cost and idea is to optimize and look at how do you make better risk adjusted return.
So I think that’s the only metrics we look at it and that’s the metrics we are very obsessed with when we work along with a risk digital teams. That’s the.
Digant Haria
So I think this division would have made 3 to 4% ROAS. Right. We should look at the ROAS and we would be.
Ashish Mehrotra
That’s the only way to look at it. And that’s a very profitable business.
Digant Haria
Right, Right, right, right. Perfect. So. So that’s there. The second part of question is on the MSME piece, you know where you know I think the NPAs have gone up a bit, credit costs have gone up a bit and I think it’s an industry wide phenomena which we are seeing in that smaller portion of the lab. So where are we in terms of our. You know our evolution curve? Like you know is this credit cost cycle for us starting or you know we are also somewhere in middle and we hope to improve in the coming quarter.
Any, any color here you can give on this?
Ashish Mehrotra
No. So there are. There are two signs to it in msme. The small ticket MSME is we are seeing higher degree of power accretion. Having said so, our average ticket size is upward of 12 to 13. So we really don’t play in a real micro 2 to 4 lakh 5 lakh loan. But following the conservative piece we did seeing higher roll forward rate in the past but now we’ve actually seen a bounce rate has come down to about 27, 28%. So I think as things stabilizes like I said earlier, the first one to say that there is a little bit of stress is this underserved segment is largely visible in the microfinance sector.
The three most sets of products which those customers have. One is the unsecured business loan or a quasi secured or a secured business loan. The second is little bit of personal loan and the gold loan. The good thing is the way the gold is appreciated. I Don’t think there is any stress in that sector because the gold price has appreciated as a consequence the interest servicing and the principal payment would have happened or would have through the realization or liquidation of the security in case of unsecured business loan. I think the credit cost is marginally higher as the MFI stabilizes and we seeing massive improvement across the sector in our own piece.
First time we had a negative par 0 accretion. This means I’m doing better than what we were doing in December 23rd if that happening. We will see in couple of quarters this improvement on these lines. Also more importantly while we see higher provisioning our mortgage is 100% perfect. We do only registered or modt registered mortgages. So while I do assess customer income because they may not have income on the paper so there is an individual underwriting which is also at two stage one by the credit officer on the ground and second using data analytics by a centralized credit team who looks at the file again.
But we then ensure there is a perfect title and there is a mortgage which gets registered. Unlike in this segment where people who do this as a quasi secured just by submission of title deed or not looking at full 13 year of the title title search we do a perfect mortgage. So you know, while there could be higher provisioning but over a period of time this business should be less than 1 1/2 to 1.7 times trade cost.
Digant Haria
Perfect. Thank you so much Ashish for the detailed answers. And then we hope that you know you hit a century you keep on scoring more runs in the coming quarters. Thank you. Thank you.
Ashish Mehrotra
Also hoping for that. Thank you. Thanks for your.
operator
Thank you. We’ll take our next question from the line of Pawan Kumar from Edelweiss. Please go ahead.
Pawan Kumar
Thank you for the opportunity. Sir, three questions. Number one, can you please give the incremental cost of funds for the quarter? Number two, can you please explain jump in other expenses quarter on quarter. Third thing is can you explain the assignment transactions that we have done this quarter? There seems to be like, you know both the jump in the revenue from assignment and also like the, you know the credit cost. Are these two related?
Ashish Mehrotra
So I think the first two I’ll refer to my to Atul because he’ll give you more insightful answer. But let me tell you strategically the answer to your third point. Our assignment is less than 5% of overall revenue and of overall AUM. Unlike our peers we are pretty conscious that we will keep it at less than 5 to 6% or 7% of our overall assets. Under management and of overall revenue piece. So it’s done technically. Also like I said in many calls earlier, we started selling down or doing assignment of our book on the MFI book way back in April or June 24th idea.
Because we were seeing it’s best to get it off the balance sheet than to carry it. So we tactically look at these things, looking at how we would like to carry the risk forward and where we think we can optimize the risk adjusted return. Atul, do you want to go through the question on cost first?
Atul Tibrewal
I’ll cover the question.
Pawan Kumar
One thing before you go to the other two questions. I have just a follow up on this. The 6922 crore that you have transferred this quarter, is this mainly from the MFI book?
Ashish Mehrotra
No, no, that will include, it’ll include MFI plus some bit of msme. That’s, that’s for the full nine month period, correct?
Pawan Kumar
Okay.
Ashish Mehrotra
Yeah.
Atul Tibrewal
This quarter we would have sold close to 300 quarters but 300 crores. But for the entire nine months we would have sold close to 600 crores. On the question of opex, if you look at our Dupont, our opex has been quite steady at 3.6%. You know, last year nine months FY25 we were at 3%, 3.6% and nine months FY26 also we are at 3.7%. It has slightly increased in quarter three to 3.7%. But again this is in line with what we had shown in quarter two. So there has been no increase as such in the opex.
The way you know the servicer fee is presented in our published account is that it is shown as part of the opex. But you know, in the Dupont it is netted off from my interest income. So the servicer fee has, you know, increased a bit. But otherwise my, my overall OPEX has remained constant at 3.6%. On the question of the incremental cost of fund, as I had mentioned in my speech that our incremental cost of fund is currently at 8.6% and this has come down by close to 90 basis point if we have to compare with the similar period last year.
Pawan Kumar
Thanks Azar.
operator
Thank you. Take a next question from the line of Aravind R from Sundaram alternates, please go ahead.
Aravind R
Thank you so much for the opportunity and congratulations on the good set of numbers in the face of tough environment. So like it’s a follow up on MSME business, especially the direct business. I would like to understand how the, how is the early Delinquency indicators shaping up there. Is there any improvement or is there any stabilization there? Like I know like NPA numbers have been you know displayed in like a presentation like to understand like you know how was the you know early delinquency indicators are shaping up in that business particularly. Another question which is which I found some surprising was like in branches sequentially branches have declined a bit.
Can you help me understand what is happening there?
operator
Sir, you’re on mute.
Pardhasaradhi Rallabandi
Yeah, yeah. We have, we have seen. This is path Sardi. Hi. We have seen significant traction in the collections during the last quarter. The end on the newer cohorts, newer vintage is basically the disbursements in the last 12 to 15 months. The roll powers or the PAR also is lower than what it was during the earlier cohorts. To that extent what we are seeing is the historical more than 12 months back origination. But collection effort has improved significantly and the newer cohorts are performing better. So hopefully things would be better in the coming quarters.
Ashish Mehrotra
Actually we’re seeing a sequential improvement in our connection efficiency across the. Across the buckets. Fair to say that. And it’s also when we look at the new vintage book on a 6 MOP that’s performing significantly better on a 30 DPD one plus 3030 DPD. So I think that there is, there is a good piece and we continue to remain focused to grow that business. Those are important lines of business for us to grow. It’s also a long term earning annuity book like to the project.
operator
Aravind.
Aravind R
Yeah, yeah. I had another question on branches like you know there was a small decline in branches. I was just wondering like you know what is happening there.
Ashish Mehrotra
Yes. So like I said we did add a couple of branches on MSME but we optimize our branch network in the. In a rural finance business because that was the call. That’s perfectly fine. We plan to add about 50 plus branches in the coming quarter. So I think we are perfectly fine. You continue to optimize the geography where you think the concentration of customers is less where you should go go. And also with the new guardrails MFI of mfin we need to ensure we are actively positioned where we find larger number of underbanked and under penetrated places.
Aravind R
Yeah sure. And just one last request from my sidear like especially like when asset quality issues in some certain segments happens. If you can also provide the data and presentation itself will be very helpful to understand like you know how things would shape up in the subsequent quarters. Thank you sir.
Ashish Mehrotra
Yeah sure. We can get Chetan to share. By the way, we also publish given the amount of credit solution we provide, we do publish a sectoral report of what we are seeing and not only in our books but more importantly across you know 100, 200 partners across the five or six sectors where we operate and I think that’s available on the website. So we will have both of that data. That data could be pretty useful for you to gain insights on how the books are performing across consumer msme, rural vehicle finance, affordable housing. Happy to share that with you.
Chetan, can you please connect with that business? Thanks.
operator
Thank you. Take our next question from the line of Sameer BSE from Diamond Asia. Please go ahead.
Sameer Bhise
Yeah hi, thanks for the opportunity. Just wanted to ask on this provisioning bit on the digital portfolio. So the presentation says it’s more like a one time so how should one think about this provisioning trend on an ongoing basis? That’s one and secondly in context of that how to look at PCR on stage three and stage two both.
Ashish Mehrotra
Further. You want to take it?
Pardhasaradhi Rallabandi
Yeah. This is we have we had reviewed the all the cohorts that we have in the portfolio and the process that we follow for computation of the credit cost and the FLDG that is available on the cohorts etc. And the claims undertaker, more claims and a bit of a reconciliation over a period of time. It’s not this particular quarter, it’s over a period of time. And the impact of that while I do not pertain to this quarter when we recognize that there is an impact that needs to be recognized we recognized it and that is that has come to 23.4.
It is not an indication of the 23.4 coming every quarter
Ashish Mehrotra
and the second. Is you need to look at it on a risk adjusted basis. The number drop broadly remains.
Sameer Bhise
No. Fair enough. So. So this is more of a catch. Up of back book on when you kind of reassess the the post the fldg is that is that a fair takeaway?
Pardhasaradhi Rallabandi
That’s correct. The when we look at all the our commercial arrangements with the partners in terms of their digital lending portfolio. This. Is the post FLDG credit cost or the FLDG claim that we where the correction needed to be made.
Sameer Bhise
So then on an ongoing basis if the margin gains were to kind of sustain we should actually see the risk adjusted margin probably expanding. Is that.
Ashish Mehrotra
Yeah, I think that’s the endeavor as you continue to select better sets of you know as the data experiences improve you are able to identify better cohort of customers. Eventually cost is higher but you’re still able to hold the pricing. So as we go on quarter, on quarter basis we should look at improvement in that number. The way we look at it is also saying what are we going to make on a risk adjusted basis? I think that’s. Those are two pieces. Identify a better set of cohorts for us to target and offer convenient solutions and also ensure that we have better outcomes.
I think that’s where it is.
Sameer Bhise
And on the PCR basis, coverage
Ashish Mehrotra
PCR. Is more because of the change in the mix in the balance sheet because all our unsecured loans we write off on 90 DPD. So what is there on PCR is only the stage one, stage two which is coming on account of what we have on intermediate retail book and little bit of MSME book, secured book and the intermediate retail book.
Pardhasaradhi Rallabandi
As the proportion of the secured loans go up in the stress obviously for the secured the provision coverage requirement would be lower compared to non secured loans. If the secured book is actually underperforming, the provision coverage ratio will look lower. It basically because the recoverability of that is quite high.
Sameer Bhise
Sure. Okay, thank you so much. Congrats on a good set and all the best. Thanks.
operator
Thank you. We’ll take our next question from the line of Shaleen Kapadia from iifl. Please go ahead.
Shalin Kapadia
Hi sir, thank you for the opportunity and congratulations on hitting an all time high pattern. Sir, I had two questions so firstly on E so why has our E jumped so much in 3Qfy 26 almost by 80 basis points despite very minimal change in the AUM mix. And secondly sir, my question was on asset quality. So can you just give us some color on why credit cost has increased in MSME segment? Is it related to any particular geography or anything like that? So any color there would be helpful. And so second part to that asset quality question.
So basically our stage two has decreased substantially in this quarter. So can we say that we have basically arrested forward flows and hence we can see improvement in credit cost from 4Q onwards. So those are my questions sir. Thank you.
Pardhasaradhi Rallabandi
Yeah, the MSME power increase is something which is across the industry and if any we are in line with the industry are better. It is not a specific geography related issue to that extent. This is something which is, which is pretty much in line with the industry and there is nothing specific in our portfolio because of which there is an impact that is one second is that in terms of the overall credit cost our endeavor would be to contain it close to 3% or under 3%. The way we would want to look at it is that that is something that we will try to keep under check under 3%.
However, the objective as Ashish mentioned earlier is always to optimize the risk adjusted return and to that extent we would continue to have to focus on the risk adjusted return and keep the credit cost under check. The way I look at it, unattainably reducing credit cost is not something that is objective. If you do that and impact the yield on that, that’s not really a good outcome. Optimizing risk adjusted return is what we focus on.
Shalin Kapadia
And sir, why our yield has increased in 3Q.
Ashish Mehrotra
I think the yield is like we. Said is function of mix. We chose certain cohorts in the consumer finance space as a combination of the mix change between the intermediate retail and the direct to customer business and the cohorts in the digital lending business would have given you would have given a higher yield. We also came with a little bit of higher credit cost. So we continue to calibrate and ensure we make better risk adjusted return. That’s the objective.
Shalin Kapadia
Understood. Thank you so much.
operator
Thank you. Next question is from Divyansh Agarwal from Ionic Asset Managers. Please go ahead. Divyansh, please unmute your line and go ahead with your question please. Since there is no response we’ll move on to the next question from Sanjay Laddha from Bastion Research. Please go ahead.
Sanjay Ladha
Yeah Hi sir. Thank you for the opportunity. So just wanted to understand the business dynamic of Northern and as to between our own lending and the gross transaction volume. So what is the fees charge on the you know placement disbursement and funds book and where where does we show this fees charge in our P and L is it shown in the interest income and if that’s the case what is the percentage of you know that interest income in that case.
Ashish Mehrotra
Thanks. You know let me clarify the if there is a fee linked to the loan disbursal that get amortized over the tenure of the loan. What you see in a in our PPR which what Atul spoke to fee and other income of 32 crores for last quarter that includes the fee we earned earn from our placement business which is about anywhere between 21 to 25 basis point then we earn about 110 basis point of fee on our assets under management. In our funds business which is Cat 2, Cat 3 AIF and PMS business where our assets under management is about 3200 crores we do performing credit fund across in the same sectors way we operate in the similar segments and the other fee comes from you know, NPOs and scorecards and so on so forth.
So I think those are the three large heads of the fee fee which is linked to the loan being disbursed is yet amortized as part of the interest along over the life of the loan. It is there on a separate line. You will see see that separate line as a fee on a separate line in the financial.
Sanjay Ladha
Just wanted to clarify that in the interest income the major major chunk of the interest is just a AUM of our B2C lending or do we include the which you said that you know the management fees as well from the other cohort.
Ashish Mehrotra
Sorry I’m not clear. Can I request you to disturbance line at our end?
Sanjay Ladha
I just wanted to understand that this fee the AUM which we have like 15,000 odd crore of AUM and the interest income which we saw or show on the PNL that is part of only of the AUM book or there would be other part as well on the interest income line item which we showed.
Ashish Mehrotra
Only of the lending exposure on the NBFC balance sheet in consolidation you do see a fee income which comes from 100% owned subsidiary which is Northern Arc Investment Managers which is our funds business which appears in the fee line.
Atul Tibrewal
So in the investor presentation the interest income is 533 crore for quarter two and 602 crore for quarter three. So this 602 crore is on a total AUM of 15,121 crore. So this is the on balance sheet book that we have and this fee, this interest income has been earned on that book.
Sanjay Ladha
So thank you for the clarity. My another question would be on since you know the net interest margin has inch up slightly higher. Just wanted to understand where we you know in a longer term basis what is the sustainable range we see on that side? Anything to look at.
Ashish Mehrotra
I think if you go to the go to the dew point you will see that our interest income net interest income is about anywhere from 9.3 to about 9.9% which is where we ended last quarter. We make fees fees gives us another kicker taking a loaded nim to about 10.7 which in last quarter was 9.9. And I think that our endeavor is as our mix improves with higher composition of direct customer business from where we were two or three years ago we moved to now 56%. And also as we continue to build our funds business, our fee franchise, our bonds platform which will create more accretive fee.
My forward looking view would be if we can see what we see contribution on the fee at 90 basis points should get to about 110, 120 basis point and you know net interest margin anywhere between nine and a half to ten, ten and a quarter is a very good for us to play as the mix goes from 56 to 65 and 70% I think that’s where it is. So that gives you a better piece and our objective is to over a period of time get to three three and a half return on assets over the next four to six quarters.
Sanjay Ladha
Thank you so much sir. Anadar, my last question would be on the credit cost inch up across the MSME consumer and Google side is the stress has been gone out, do we see further inch up going forward or how one should think of because as you in the starting comment you already said that you seen the growth and credit cost going down from here on. So just wanted to understand how going forward how should we do?
Ashish Mehrotra
Sure, thank you. If you follow the market for the last eight six quarters the first we saw elevation of credit costs on account of over leveraging and bunch of other stuff in the MFI segment from where we stand today both at an industry level and our own balance sheet. While our balance sheet on the rural is not very large we’ve seen a massive improvement and our portfolio today performing better than what portfolio was performing in December 23rd or January 24th. This means there was a period of stress that stress has gone passed out. We’re seeing improvement in collection, in recoveries and more importantly we are able to collect more money than the money which than people who are not paying.
So par zero accretion has now become negative. I think that’s where it is consumer finance for us is our strategy is to since we run a digital convenient financing solution is to find interesting cohort of customers and ensure we make better risk adjusted return return. There is because of the stress in the MFI little bit of higher stress in the unsecured in the small ticket business loan. While that’s a very small part of our book as a consequence we’ve seen higher degree of provisioning there. But my sense is over next two to three quarters that should continue to show an improvement in that line.
Sanjay Ladha
Thank you so much father. Thank you. Yeah, thank you. Thank you so much.
operator
Yeah, thank you, thank you. We’ll take our next question from Nagar Sheth from Wealth Advisor. Please go ahead.
Prit Nagarsheth
Yes, good evening and congrats on wonderful numbers and I’m sorry to ask this but again on the MHME side one of the other peers on the lower ticket size, say between 2 to 5 lakhs was saying that the behavior was the problem and they are not providing for everything and they are working to improve the behavior. So could you shed some color on how are you going about navigating that space?
Ashish Mehrotra
Just clarify. I said it earlier. We do not operate at 2, 3 lakh segments. Our average ticket size about 12 to 14 lakhs. While we do assess income of the individual, but an independent risk officer visiting these customers and then we centrally underwrite using both data analytics and a virtual conversation by the second risk officer whose centrally headquartered team both looks at both analytics, look at the field touch reports and looking at then drawing the assessment. So there are two levels of assessment and approval process. Unlike the comparison you drew in our case, 100% of these mortgages are perfect.
We do full title search, we do one or two valuation depending on the loan quantum and then we register that mortgage. So there could be movement in delinquency in our case. But given it’s a perfect mortgage, my sense is over a period of time, while you seeing currently slightly higher level of credit, cost of provisioning, that should start coming off. And also like Parda and I said earlier, we’re seeing sequential improvement in collection efficiencies, reduction and bounce rate. That should also add to it.
Prit Nagarsheth
Gotcha. The other question I had was on the ROE side of things. So if your ROE targets are anywhere between three to four over the next four to six, eight quarters, how do you see your roe? Can you shed some light on that?
Ashish Mehrotra
I think if you look at the leverage and you adjust for it, our endeavor is to get to 15 to 16 ROE by six to seven quarters.
Prit Nagarsheth
For that to happen, I’m assuming that the disbursement and lending will happen.
Ashish Mehrotra
One is the mix change higher the D2C. Like I was explaining the ROA tree in the earlier question, you know, if our loaded NIM is currently at about 10.7 and you know, as we stabilize, we should see an improvement in interest income composition from 9, 9 and a half, 9.9 by about 30 to 50 basis point and we should see another 30 basis point improvement in our fee franchise. That clearly translates into better return on assets and better return on equity.
Prit Nagarsheth
All right, great. Thank you guys.
Ashish Mehrotra
Thank you.
operator
Thank you. We’ll move on to our next question from Darshi Zaveri from Crown Capital. Please go ahead.
Darshil Jhaveri
Hello, Good evening team. Thank you for taking my question. Firstly, congratulations on a great set of results, sir. Hopefully I’m audible.
Ashish Mehrotra
Yes, yeah, yeah.
Darshil Jhaveri
Yeah, hi. So number one, just wanted to get, you know, sorry for asking the question a bit again. So credit cost, we are very okay with it having around 3%. Right. So can we assume that, you know, even for FY27 that would be the levels that you know, we are looking at, sir?
Ashish Mehrotra
Oh, I, I think as we see improvement, I think we should end this year with below 3% credit costs between anywhere between 2.8 to 3%. I think that’s where should be endeavor would be to end lower. I think as we go forward a forward looking when we do our model and the segmental stuff, we should be around 2.7 to 2.8.
Darshil Jhaveri
Okay, okay, okay, fair enough, sir. And so the ROAS that we are targeting right now, like I think I, if I correct me if I heard it correctly, it’s around 3, 3 to 4%. Right. So what would it, what would be 8 for FY27, sir?
Atul Tibrewal
For FY27 we are targeting a ROA of 3.5%.
Darshil Jhaveri
Okay, okay, okay. 3.5%, sir. Yeah, fair enough. And just one, you know, maybe you know, a bit industry related question. So what we are hearing in terms of MFI is that like a behavioral change where you know, people are more than willing to, you know, go delinquent or you know, is that something that’s becoming a concern for us that you know, the practice is to default on the loan or something is that, you know, can you just, you know, give a bit of color of how that industry is, you know, going on or are we seeing any on ground problems about that? Sir?
Pardhasaradhi Rallabandi
That was the case a couple of quarters back in terms of the on ground, the delinquencies rising, etc. E. The way we look at it, at least what we understand is that it is not that deliberately people are trying to default and assume that there are no consequences of default. People appreciate the borrowers do appreciate that the credit history will be impacted and their ability to raise further loans will be impacted. What we have seen really is some amount of over leveraging at the borrower level playing out and particularly in Monado geographies, definitely Karnataka, when there was an ordinance.
There is an impact we have seen locally at that point of time that is almost nine, ten months back. But beyond that there is no specific behavior of wanting to default. Assuming that there are no consequences of that. That is not something which is across the board or anything significant.
Ashish Mehrotra
We need to appreciate this is core for the growth of the financial inclusion. Access to money is important for the growth of rural India it contributes significant part of our gdp. You know any misuse and abuse of it really restrict them for the future. And the MFIN guardrail essentially is towards that effect. Not only from how do we educate these rural borrowers but more importantly how do we also act like responsible lenders. The current crisis in that sector is predominantly led by over leveraging or over lending with the MFIN guardrail being followed. Like I said in my opening remarks, I think we are seeing a significantly better behavior.
If you look at an interesting level, the market has already shrunk by almost from 4 16,000 crores to about 3,23,30,000 crores. That’s almost shrunk by about 30%. So it’s important both for the borrowers and for lender to follow the responsible behavior as we go about building it. This is key for the growth of the rural economy and for us to operate in a manner that we able to provide financing solution to the right set of people.
Darshil Jhaveri
Okay, fair enough, fair enough. Just a last question sir. In terms of liquidity are we looking to, you know maybe there is some you know additional debt or equity like is that any other plans right now?
Ashish Mehrotra
Sir, we, we are current to debt. Equity is about 3%. So I think we have, we have enough for next 8 to 12 quarters of growth given that we are a profitable business. Debt we continue to raise, we raised about, continue to raise. We raised about 3,000 plus crores this quarter. We are a very high quality, diversified impact led financial institution. So I think that our debt profile is significantly superior than our peers with almost close to 30% of that coming from global and domestic. Multilateral gives us long term better pricing. So equity we don’t, I think we have enough headroom for growth for next about 8 to 12 quarters.
Darshil Jhaveri
Oh fair enough. Answer. Our long term aim growth target of 25% plus that’s, that’s what, that’s continuing right over the next three years. So like FY27 also we can expect such growth, right?
Ashish Mehrotra
Yeah. Yeah. That’s the end of it. That’s what we are working towards.
Darshil Jhaveri
Yeah. Thank you. Thank you so much.
Ashish Mehrotra
Yeah, thank you.
operator
Thank you. Next question is from Aditya Singhania from csim. Please go ahead.
Aditya Singhania
Thank you. I just wanted to clarify on the asset quality disclosure of the MSME segment I understand that there are two pieces within that one is the branch led business and the other is the digital business. Could you break down the portfolio as well as the asset quality performance in both these segments?
Pardhasaradhi Rallabandi
We will, we will separately get back to you under with a specific breakup that is not as part of this disclosure that we have made. Chetan would reach out to you but.
Aditya Singhania
Could you sort of give us some color on that because otherwise it just becomes a little confusing to understand, you know how this. Those individual segments have moved.
Pardhasaradhi Rallabandi
Digital partners. Anyway, we do 100% write off. Yeah. Just to be. Just to be clear, all our unsecured retail loans, whether it is consumer or business loans or rural finance, our approach is to write off as on DPD90. The only portfolio where we don’t write off and keep it as GNPA or 90 plus is is the secured retail loans which is basically our MSME secured which is a lab business that is as a principle on the absolute numbers. Don’t get mad here.
Aditya Singhania
Okay. I think it’ll be useful if the. Disclosure is given because otherwise it’s hard to make sense of the moving parts within that msme. The second question I had was on the if you could give some commentary on the ongoing NCLT resolution for the housing finance company.
Ashish Mehrotra
I think the way. Hi, this is Ashish. The way it stands I think company is going to be filing to NCLT with the final resolution bid that they are targeting to do in the next two weeks and subsequent to which we’ll see where it progresses. Our current provision is more than the highest bidder value so we hold more than sufficient required on our book.
Aditya Singhania
Okay, so you expect resolution this quarter?
Ashish Mehrotra
I’m hoping it should come this quarter but the legal process can take time and as part of the process we anyway continue to collect on from our customers and we will hopefully find resolution coming in. But I think company as the administrator files it hopefully that should take about four weeks from there on and they told me they’re planning to file by 15th February and CLT RBI approval will also be required because it’s a regulated entity. I think that should all happen between four to six weeks.
Aditya Singhania
All right, thank you so much.
operator
Thank you. As there are no further questions I now hand the conference over to management for closing comments. Over to you.
Ashish Mehrotra
Thank you very much. We thank you for very insightful and very engaging conversation. We thank you all for participation. Chetan will ensure if there is the more information required and to share with you on Monday. Wishing you all a great weekend.
operator
I’m sorry to interrupt sir. So we have few questions in the queue. Can we take it please?
Ashish Mehrotra
Sure, I’m available.
operator
Yeah. We have a question from Anant Mundra from my Temple Capital. Please go ahead.
Anant Mundra
Hi. Thank you for the opportunity sir. And Congratulations on a great set of numbers. So firstly, just following up on what the previous participant asked. So this 23 crores of extra provision that we’ve taken that lies on the. Digital loans on the MSME side or. That’S for the digital loans on the consumer side, that was question number one. And the second question was on the ROI guidance of 2.8% which we had. Given for a full year last quarter. Are we still holding on to that?
Pardhasaradhi Rallabandi
Yeah, on the first part, this is spread across multiple, multiple, multiple digital partnerships covering all the sectors, both the sectors of consumer and msme. So it’s not just one sector that is one. And second is that this is, this is not particularly pertaining to this quarter only. And that is why in the credit cost segment, in the great cost slide, we have shown it separately, this pertains to the, through the, through the look back period of more than two, two and a half years. That is. So to that extent this is not specifically ascribable to one of these either MSME or consumer sector.
It’s not just, it is predictable.
Anant Mundra
Got it, got it. And on the ROI guidance of 2.8%. Are we holding on the bat?
Atul Tibrewal
So basically if you look at our roe tree for the previous quarters, so we were at 2.5%, went up to 2.6 last quarter and this quarter we have ended at 2.7%. And generally if you see, you know, March is the best quarter for any NBFC. So we are very confident of crossing 2.8% in quarter four.
Anant Mundra
Thank you. Thank you. Thank you.
operator
Thank you ladies and gentlemen. We’ll take that as the last question for today. Over to the management sir, for closing comments.
Pardhasaradhi Rallabandi
Thank you. Thanks everyone for joining the call and sorry for keeping you long on a Friday evening. It has been a good quarter for us and we continue our endeavor to improve the results and provide good returns to our investors. Thanks for all the support.
operator
Thank you management team.
Ashish Mehrotra
Thank you.
operator
On behalf of Ambit Capital. That concludes this conference. Thank you for joining us and you may now disconnect your lines.
Ashish Mehrotra
Thank you. Thanks Raghav. Thanks.