L&T Finance Navigates Q3 FY26 with Record Retail Growth and Strategic AI Integration

L&T Finance, a prominent Non-Banking Financial Company (NBFC) in India, has reported a robust performance for the third quarter of Fiscal Year 2026, ending December 31, 2025. The company achieved its highest ever quarterly core Profit After Tax (PAT) of ₹760 crore, marking a significant 21% year-on-year growth. Even after accounting for a one-time exceptional impact of ₹29 crore related to the New Labour Code, the PAT stood strong at ₹739 crore, an 18% increase from the previous year. This impressive financial outcome was underpinned by record retail disbursements and a strategic focus on digital transformation and asset quality.

The quarter saw all-time high retail disbursements totaling ₹22,701 crore, a substantial 49% increase year-on-year and 20% quarter-on-quarter. This growth propelled the retail book to ₹1,11,990 crore, reflecting a healthy 21% year-on-year expansion. The consolidated loan book also grew by 20% YoY to ₹1,14,285 crore. The strong performance was broad-based across key retail segments. Farmer Finance disbursements reached ₹2,783 crore, growing 12% YoY, while Rural Business Finance recorded ₹6,740 crore, up 47% YoY. Urban Finance, encompassing Two-Wheeler Finance, Personal Loans, Home Loans, and LAP, contributed ₹9,671 crore in disbursements, with Two-Wheeler Finance and Personal Loans showing impressive growth of 33% and 118% YoY, respectively. SME Finance disbursements stood at ₹1,550 crore, a 24% YoY increase, and the newly acquired Gold Finance business demonstrated significant momentum with ₹1,408 crore in disbursements, up 43% QoQ.

Strategic Pillars Drive Performance

L&T Finance's performance in Q3 FY26 is a testament to its 'Lakshya 2026' strategic goals and the '5 Pillar Strategy' of execution. The company has already achieved or is well on its way to achieving several key milestones. Retailisation, a core objective, stood at 98% of the overall book, surpassing the >95% target for FY26. The retail book growth achieved a 28% CAGR between FY22 and FY25, exceeding the >25% CAGR target. While Gross Stage 3 (GS3) and Net Stage 3 (NS3) levels are at 3.19% and 0.92% respectively, the company is actively working towards the <3% and <1% targets. The Return on Assets (RoA) for Q3 FY26 was 2.31% (2.37% before exceptional items), with a clear trajectory towards the 2.8%-3.0% target by Q4 FY27.

Digital initiatives, particularly in credit underwriting and portfolio management, have been pivotal. Project Cyclops, an AI-driven underwriting engine, is now operational in Two-Wheeler, Farm Equipment, SME, and Personal Loans, showing significant reductions in Net Non-Starter (NNS) rates. Project Nostradamus, a proprietary AI portfolio management engine, is live in Beta mode for Two-Wheeler Finance, providing real-time actionable insights. Project Helios, an AI Co-Pilot for underwriting, has reduced turnaround time by 30% in SME Finance, saving 1.5 hours per case. These technological advancements are not only enhancing efficiency but also strengthening risk management frameworks.

Asset Quality and Financial Health

Despite the one-time impacts, L&T Finance demonstrated improving asset quality trends. The company did not utilize any macro-prudential provisions in Q3 FY26, indicating a stabilizing credit environment, particularly in Rural Business Finance. The core credit cost, excluding the one-time impact, was 2.74%, a 24 bps decrease quarter-on-quarter, moving closer to the guided trajectory. Collection efficiencies remained robust across all segments, with Rural Business Finance 0 DPD CE improving to 99.7% in December 2025. The company's delinquency levels are significantly better than the industry average across various product categories, including Rural Group Loans, Farm Equipment Finance, Two-Wheeler Finance, Home Loans, and LAP.

From a financial health perspective, Net Interest Margins (NIMs) + Fees improved considerably by 19 bps QoQ to 10.41%, driven by stable yields and a reduction in the cost of borrowings due to efficient Treasury management. The Weighted Average Cost of Borrowing (WACB) reached its lowest ever quarterly level at 7.25%. The company maintains a diversified liability mix and strong credit ratings, including 'AAA' from domestic agencies and investment grade ratings internationally, which supports its competitive funding profile. The prudent Asset Liability Management (ALM) strategy ensures positive cumulative liquidity gaps across various time buckets.

Outlook and Future Focus

L&T Finance remains optimistic about its future trajectory, expecting the structural momentum to continue into Q4 FY26 and beyond. The normalization of the Rural Business Finance segment and the increasing contribution from Project Cyclops-underwritten portfolios are expected to further improve asset quality and reduce credit costs. The company plans to expand its Gold Loan branches to over 330 by the end of FY26 and continues to focus on enhancing customer acquisition and building capabilities in new businesses, as evidenced by the launch of its first multi-product Sampoorna Branch in Ujjain. The management's commitment to a risk-first, tech-first approach, coupled with a robust business model, positions L&T Finance for sustained, profitable growth and continued value creation for its stakeholders.