SBFC Finance Limited: Navigating Growth with Prudence in Q2 FY26

SBFC Finance Limited, a prominent player in India's financial services sector, recently unveiled its performance for the second quarter and first half of fiscal year 2026. The company demonstrated robust growth across key metrics, underpinned by a strategic focus on secured lending and disciplined risk management. The results reflect a concerted effort to balance expansion with asset quality in a dynamic market environment.

For Q2 FY26, SBFC Finance reported a significant 30% year-on-year increase in Profit After Tax (PAT), reaching ₹109 crore. This growth was supported by a 29% year-on-year rise in Assets Under Management (AUM), which stood at ₹9,938 crore by the end of September 2025, even crossing the ₹10,000 crore mark in October 2025. The company's Net Interest Margin (NIM) improved to 10.48%, and its Return on Average AUM (RoAAUM) was a healthy 4.56%. These figures highlight the company's ability to generate strong earnings while expanding its loan book.

Strategic Focus and Asset Quality Management

SBFC Finance Limited primarily focuses on providing secured MSME loans to small businesses, with a ticket size ranging from ₹5 lakh to ₹30 lakh. This segment, valued at ₹41 lakh crore, is growing at a robust 24% CAGR, presenting a significant addressable market. The company's commitment to quality is evident in its loan book, with 100% of its assets being secured by properties and gold. Furthermore, 88% of its AUM comes from customers with a CIBIL score above 700, and 95-96% of newly onboarded customers have CIBIL scores above 700.

Despite the strong growth, management acknowledged a challenging credit environment, particularly noting an increase in the 1+ DPD (Days Past Due) bucket over the past several quarters. Specific stress points were identified in lower ticket size loans (below ₹7 lakh) and certain geographies, notably Karnataka, which experienced a portfolio shake-up in early 2025. In response, the company has proactively tightened its credit underwriting filters, stopped lending below ₹7 lakh, and raised the minimum CIBIL score for new customers to 700. This strategic recalibration aims to mitigate risk and ensure sustainable asset quality.

Operational Efficiency and Future Outlook

Operational efficiency remains a key focus for SBFC Finance. The cost-to-AUM ratio improved to 4.40% in Q2 FY26, down from 4.60% in Q2 FY25, reflecting enhanced operating leverage. The company's cost of operations has decreased by 112 basis points since its IPO, demonstrating effective cost management even while expanding its branch network. The yield on its loan book stood at 18.01%, with a spread of 9.05%, indicating healthy margins.

Looking ahead, SBFC Finance Limited maintains a positive outlook, guiding for a 5-7% quarter-on-quarter AUM growth. The company plans to add 20-25 new branches annually, with a particular emphasis on expanding its gold loan offerings, aiming to add approximately 15 gold loan branches in the next two quarters. Management anticipates that credit costs, while potentially inching up by another 10-15 basis points, will eventually stabilize. The company's Return on Equity (RoE) target remains at 15%, supported by ample capital and a disciplined approach to leverage.

Conclusion: A Balanced Approach to Growth

SBFC Finance Limited's Q2 FY26 performance showcases a balanced strategy of aggressive growth coupled with prudent risk management. By focusing on secured lending, continuously refining its credit underwriting, and enhancing operational efficiencies, the company is well-positioned to capitalize on the vast opportunities in the Indian MSME financing market. The management's transparent communication regarding challenges and proactive measures to address them instills confidence in its ability to deliver sustainable value to shareholders.