Tata Capital Navigates Growth and Integration in Q2 FY26

Tata Capital Limited, a prominent Indian financial services company, has reported a robust performance for the second quarter of Fiscal Year 2026, marked by significant growth and strategic integration efforts. The company's Assets Under Management (AUM), excluding the newly merged Motor Finance business, surged by an impressive 22% year-on-year, reaching ₹2,15,574 crore. On a consolidated basis, including Motor Finance, AUM grew by 2.7% quarter-on-quarter to ₹2,43,896 crore. This growth was accompanied by a strong Profit After Tax (PAT) of ₹1,128 crore (excluding non-recurring income), representing a 33% year-on-year increase. Consolidated PAT, including Motor Finance, stood at ₹1,097 crore, an 11% sequential increase.

The quarter's performance reflects Tata Capital's ability to leverage a diversified product portfolio and a strong macroeconomic environment. The company's Net Interest Income (NII) also saw a healthy rise, contributing to an overall Net Total Income of ₹3,330 crore (excluding Motor Finance), a 28% year-on-year growth. Including Motor Finance, Net Total Income was ₹3,774 crore, up 4% quarter-on-quarter. Despite some moderation in credit offtake in unsecured loans, microfinance, and commercial vehicle financing earlier in the year, the company saw a pickup in growth across both Retail and Enterprise segments towards the end of Q2, driven by factors like GST cuts.

Strategic Integration and Asset Quality Management

A pivotal event for Tata Capital was the completion of the merger with Tata Motors Finance Limited (TMFL) on May 8, 2025, with an appointed date of April 1, 2024. This integration is a key strategic initiative, and while it led to a sequential decline in the Motor Finance net loan book by ₹2,996 crore to ₹23,698 crore as of September 25, management expects stabilization by Q4 FY26 and growth from Q1 FY27. The company is actively transforming this business, focusing on a multi-OEM model, increasing the share of used commercial vehicles, and streamlining operations through branch rationalization and IT system integration. The merger has also brought a benefit of lower cost of funds for the erstwhile TMFL borrowings.

Asset quality showed significant improvement, with credit costs declining by 30 basis points quarter-on-quarter. The annualized credit cost on average net loan book for the consolidated entity (including Motor Finance) stood at 1.3% in Q2FY26, down from 1.6% in Q1FY26. Excluding Motor Finance, it was 1.1%, down from 1.4%. Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) for the consolidated entity were 2.2% and 1.1% respectively, as of September 30, 2025. The company's provision coverage ratios remain healthy at 52.8% (consolidated) and 64% (excluding Motor Finance), underscoring prudent risk management.

Operational Efficiency and Digital Leadership

Tata Capital continues to prioritize operational efficiency and digital transformation. The company's 'Phygital' distribution model, combining 1,479 branch locations across 27 states and union territories with end-to-end digital capabilities, serves a fast-growing customer franchise of 7.7 million. Digital adoption is high, with 97% of customers onboarded via digital platforms and 99% of collections processed through digital channels. The company is also pivoting to an AI-led transformation, leveraging multi-LLM architecture and advanced analytics for superior customer experience and operational excellence.

Despite an increase in the cost-to-income ratio to 39.7% (including Motor Finance) in Q2FY26, primarily due to the annual employee payout cycle and merger-related costs, management expects this ratio to reduce to 38-39% for FY26 and further to 33-34% over the next three years, driven by technology investments and distribution footprint expansion. The balance sheet remains well-capitalized, with a Capital to Risk-weighted Assets Ratio (CRAR) of 21.5% post-IPO and a debt-to-equity ratio of 4.9x, providing ample flexibility for growth.

Outlook and Future Trajectory

Tata Capital's management is confident in delivering sustained quality growth. For FY26, AUM growth is guided at 22-25% (excluding Motor Finance) and 18-20% (including Motor Finance). Consolidated PAT growth is expected to be around 35%, with Return on Equity (ROE) in the range of 13-14%. Over the next three years, the company targets an AUM CAGR of 23-25%, with RoAs between 2.5-2.7% and credit costs below 1%. The focus remains on disciplined execution, optimizing product mix towards high-yield segments like Affordable Housing, and leveraging its strong brand trust and digital prowess to create long-term value for all stakeholders. The company's journey post-listing is characterized by strategic clarity and a commitment to best-in-class asset quality metrics and consistent returns.