Spandana Sphoorty: Rebuilding for Growth Amidst Operational Shifts

Spandana Sphoorty Financial Limited is navigating a period of strategic recalibration, as evidenced by its Q2 and H1 FY26 performance. While the company reported a net loss of ₹249 Crore in Q2 FY26 and ₹609 Crore for H1 FY26, and Pre-Provision Operating Profit (PPOP) remained negative, underlying operational metrics suggest a concerted effort towards rebuilding and strengthening its core business. The company's focus on improving asset quality, enhancing operational efficiency, and recalibrating its lending strategy is becoming increasingly visible.

Disbursements have shown a significant uptick, with ₹934 Crore disbursed in Q2 FY26, a substantial increase from ₹280 Crore in Q1 FY26. This surge indicates a renewed push for growth, albeit with a cautious approach to portfolio quality. The company's Assets Under Management (AUM) stood at ₹4,088 Crore at the end of September 2025. Despite the overall AUM contraction, the performance of the new portfolio, originated under stricter credit rules, is a standout, boasting a 99.9% Net Collection Efficiency. This highlights the effectiveness of the revised lending criteria in mitigating risk.

Operational Excellence and Asset Quality

The company's commitment to operational excellence is evident through several initiatives. Upfront credit bureau validation has been implemented to reduce loan processing time and optimize field team bandwidth. The maximum ticket size for loans has been increased to ₹98,000, reflecting a data-driven approach based on vintage analysis. Furthermore, the rationalization of 101 branches during H1 FY26, coupled with manpower alignment, is expected to yield significant reductions in overhead costs and improve productivity per loan officer.

Asset quality, a critical metric for microfinance institutions, shows encouraging trends. The X-bucket collection efficiency has consistently improved, reaching 98.7% in September 2025. Even with seasonal impacts like rains and festive holidays in October, efficiency remained strong at 98.5%. This improvement is broad-based, with major states like Karnataka now aligning with the national average. The company's robust balance sheet, supported by a successful ₹400 Crore rights issue, maintains a healthy liquidity of ₹1,179 Crore and a strong CRAR of ~47%, providing a solid foundation for future growth.

Strategic Recovery and Future Outlook

Spandana Sphoorty has intensified its recovery efforts through a multi-channel approach, including legal avenues like demand notices and Lok Adalats, dedicated recovery teams, external agencies, and digital collection methods such as QR codes, SMS links, and BBPS payments. These initiatives have started yielding measurable outcomes, with ₹48 Crore recovered in Q2 FY26. The company's subsidiary, Criss Financial, is also undergoing a strategic shift, aiming for a 70-30 secured-unsecured lending ratio, with a strong focus on Micro LAP to enhance portfolio quality.

Management guidance points towards a positive trajectory, with expectations of turning PPOP positive in the coming quarters. For FY27, the company projects a 20% AUM growth rate and anticipates credit costs to be contained within 2.5%-3%. The recent upward revision of loan processing fees to 1.5% and interest rates to 23%-26% (effective October 1, 2025) is expected to bolster yields and Net Interest Margin (NIM) as the new, higher-quality portfolio expands. While the journey involves overcoming current losses and high operational costs, the strategic clarity and disciplined execution suggest a focused path towards sustained growth and profitability.