L&T Finance: Navigating Growth with Digital Prowess in Q2 FY26

L&T Finance, a prominent player in India's financial services sector, has delivered a robust performance in the second quarter of Fiscal Year 2026 (Q2 FY26), demonstrating strategic clarity and disciplined execution. The company's consolidated Profit After Tax (PAT) surged by 6% year-on-year to ₹735 Crore, reflecting a strong operational momentum. This growth comes as the company's retail book proudly crossed the significant ₹1 lakh Crore milestone, reaching ₹1,04,607 Crore, an impressive 18% increase year-on-year. The consolidated book also expanded by 15% year-on-year to ₹1,07,096 Crore, with a Return on Assets (RoA) of 2.41% for the quarter. These figures underscore L&T Finance's successful pivot towards a retail-focused, technology-driven lending model, even as the broader BFSI segment experiences a growth spurt.

Strategic Pillars Driving Performance

L&T Finance's performance is a direct outcome of its '5 Pillar Strategy', which focuses on enhancing customer acquisition, sharpening credit underwriting, implementing futuristic digital architecture, heightening brand visibility, and building capability. The company recorded its highest-ever quarterly disbursement of ₹18,896 Crore, a substantial 25% year-on-year and 8% quarter-on-quarter growth, indicating strong demand across all business lines. This growth is largely organic, with an anticipated additional boost from GST 2.0 reforms, particularly in the Two-Wheeler and Farm segments in Q3 FY26.

The microfinance sector, a key focus area, has shown green shoots of recovery, with sustained resilience and an uptick in both disbursement volumes and collection efficiencies. Rural Business Finance disbursements normalized to ₹6,316 Crore, up 16% year-on-year and 12% quarter-on-quarter, supported by improved collection efficiencies. Personal Loans witnessed an exceptional 114% year-on-year growth, reaching ₹2,918 Crore, primarily fueled by increased funnel off-take from strategic big tech partnerships. The Gold Loan business, a newly acquired segment, also gained significant momentum with quarterly disbursements of ₹983 Crore, and the company plans to expand its distribution strength to over 330 branches by FY26.

Digital Transformation and Asset Quality

At the heart of L&T Finance's strategy is its aggressive digital transformation. 'Project Cyclops', the AI-powered digital underwriting engine, is now fully operational across Two-Wheeler, Farm Equipment, and SME businesses. This initiative has dramatically improved transaction processing capacity from 100 Transactions Per Second (TPS) at launch to an impressive 1,400 TPS. The impact is evident in sharply lower portfolio bounce outcomes and reduced Net Non-Starters (NNS) for Project Cyclops-underwritten portfolios, contributing to a reduction in the overall gross credit cost.

'Project Nostradamus', an AI-driven automated real-time portfolio management engine, went live in beta mode for Two-Wheeler Finance in August 2025, with full implementation planned by December 2025 for all lines of business. This system provides data dashboards for early warning and proactive portfolio management. The company's PLANET App, a powerful digital channel, has garnered over 2 Crore downloads and received the 'Best Digital Finance Experience' award, further solidifying its digital leadership.

From an asset quality perspective, the company has maintained its Retail GS3 and NS3 levels close to the threshold targets (GS3<3% and NS3<1%). The overall 0 DPD (Days Past Due) collection efficiency improved by 15 basis points to 99.50% from 99.35% in the previous quarter, with Karnataka's CE improving substantially from 97.74% in Q4 FY25 to 99.03% in Q2 FY26. Management expects the overall credit costs to trend lower in the medium term, aiming for a 2% credit cost trajectory by FY27, without relying on macro-prudential provisions.

Outlook and Investor Confidence

L&T Finance's management expressed confidence in sustaining the strong growth trajectory, anticipating very good consumer sentiments in H2 FY26, leading to greater off-take of products and services. The company's focus on risk-calibrated growth ensures that while volumes expand, asset quality remains a priority. The recent rating upgrade from S&P to BBB/Stable, on par with India's Sovereign Credit Rating, further enhances its ability to access global capital markets and diversify its liability franchise.

L&T Finance's Q2 FY26 results highlight a company in a strong growth phase, underpinned by strategic digital investments and a clear vision for asset quality. The management's commitment to building a 'cycle-resilient business' through continuous process improvements and technological advancements positions it favorably for sustained performance in the evolving financial landscape. Investors can look forward to further insights during the upcoming Investor Digital Day, where the company will showcase its tech developments and future strategies.