SBFC Finance: Navigating Growth with Prudence in Q3 FY26

SBFC Finance Limited, a prominent player in India's financial services sector, has delivered a robust performance in the third quarter of fiscal year 2026, showcasing impressive growth in its Assets Under Management (AUM) and profitability, alongside a strong focus on operational efficiency and asset quality. The company's strategic approach, particularly in the secured MSME and gold loan segments, continues to yield positive results despite a cautious macroeconomic environment.

For Q3 FY26, SBFC Finance reported a significant 29% year-on-year (YoY) growth in AUM, reaching ₹10,478 crore. This marks a substantial milestone, crossing the ₹10,000 crore threshold. Quarter-on-quarter (QoQ) AUM growth stood at 5.4%. The company's profit after tax (PAT) surged by 34% YoY to ₹118 crore, reflecting effective financial management. The Return on Average AUM (RoA) improved to 4.67%, and the Return on Average Tangible Equity (RoE) reached 14.56%, indicating enhanced shareholder value creation.

Strategic Focus and Segmental Performance

SBFC Finance primarily focuses on secured MSME loans and loans against gold (LAG), with nearly 100% of its book being secured. The MSME AUM stood at ₹8,497 crore, constituting approximately 81.1% of the total AUM, and grew by 25% YoY. The gold loan portfolio, at ₹1,954 crore, represented 18.7% of the total AUM and demonstrated a strong 48% YoY growth. This diversified yet secured portfolio underpins the company's resilient business model.

Management highlighted its deep understanding of the MSME segment, which is characterized by customers borrowing between ₹5 lakh and ₹30 lakh. This segment represents a market size of ₹4 lakh crore, growing at a CAGR of 24%. SBFC's pan-India footprint, with 230 branches across 17 states and 2 Union Territories, allows it to tap into this vast opportunity effectively. The company's credit underwriting framework, tailored for underserved and underbanked informal customers, emphasizes understanding income and cash flow at a family level, evaluating historical asset creation, and conducting reference checks.

Operational Efficiency and Asset Quality

Operational efficiency remains a key focus for SBFC. The cost-to-AUM ratio improved to 3.93%, reflecting enhanced operating leverage. The company is committed to a 50 basis points reduction in operating cost for FY26 and has already achieved a 150 basis points reduction in its cost-to-income ratio by the end of the current fiscal year. This is being driven by continuous investment in its branch network and leveraging technology, including AI, automation, and agentic call centers.

Asset quality remained stable, with Gross NPA at 2.71% and a Provision Coverage Ratio (PCR) of 46.21%. Net NPA stood at 1.48%. The management emphasized a cautious approach, particularly in Q3, by tightening lending filters based on bureau scores and temporarily pausing disbursals in certain Southern and Eastern markets where bureau numbers were 'flashing amber'. This proactive risk management strategy aims to safeguard the portfolio's health, even if it leads to a temporary moderation in disbursal volumes.

Macroeconomic Outlook and Management Commentary

Aseem Dhru, the MD & CEO, provided a comprehensive macroeconomic outlook, noting the potential for hardening interest rates due to significant government borrowing. He also highlighted concerns from the RBI's financial stability report regarding increasing household debt, which could impact future loan growth. Despite these headwinds, Mr. Dhru pointed to the positive 'wealth effect' from rising gold prices, benefiting the company's gold loan segment.

In a significant development, Mr. Dhru announced his transition to a Non-Executive Vice Chairman role, with Mahesh Dayani taking over as MD & CEO. This planned succession underscores the company's commitment to leadership continuity and stability. Management also confirmed its guidance for FY26, expecting AUM growth of 5-7% QoQ, a 50 basis points reduction in operating cost, and credit costs remaining stable with a 5-10 basis point variation.

Conclusion

SBFC Finance Limited's Q3 FY26 performance demonstrates a balanced approach to growth and risk management. The company's strong AUM expansion, improved profitability, and stable asset quality are testaments to its focused strategy in the secured MSME and gold loan segments. While macroeconomic uncertainties persist, SBFC's proactive measures in operational efficiency, prudent underwriting, and strategic leadership transition position it well to navigate future challenges and sustain its growth trajectory. The management's transparent communication and commitment to long-term value creation instill confidence in its strategic direction.