Five-Star Business Finance Navigates Q3FY26 with Strategic Focus on Asset Quality and Growth

Five-Star Business Finance Limited, a prominent Non-Banking Financial Company (NBFC) specializing in secured financial solutions for small businesses and self-employed individuals, has reported its performance for the third quarter of Fiscal Year 2026 (Q3 FY26). The company, known for its deep understanding of the informal lending ecosystem, has adopted a prudent and strategic approach amidst prevailing market dynamics, prioritizing asset quality and strengthening its operational backbone over aggressive growth.

For Q3 FY26, Five-Star Business Finance reported a Profit After Tax (PAT) of 277 crore, marking a 1% increase compared to Q3 FY25. The company's Loan Portfolio, or Assets Under Management (AUM), stood at 12,964.1 crore, reflecting a 16% year-on-year growth. Disbursements during the quarter were 976.4 crore. While Net Interest Margin (NIM) was 16.04%, Return on Assets (ROA) was 7.00%, and Return on Equity (ROE) was 15.80%. These figures reflect a period of strategic consolidation, where the company has deliberately moderated its growth pace to address asset quality concerns and reinforce its collection mechanisms.

Reinforcing Asset Quality and Collections

Management emphasized its three-step approach to tough times: understanding the crisis, fixing problems, and accelerating growth. The company believes it is in the final stages of 'fixing problems,' with a clear positive signal observed in Q3 FY26. The proportion of the current portfolio (Stage-1 assets) increased marginally from 81.67% in September to 81.77% in December, indicating stabilizing improvements in collections for the current book.

Collection efficiency remains robust, with overall efficiency at 96.6% and unique customer collection efficiency at 95.1%. Despite a slight elevation in Stage-3 (Gross NPA at 3.18%) and 30+ Days Past Due (DPD at 12.81%) slippages, the company is confident in its ability to roll back these customers or settle loans without principal loss, expecting improvements to be visible in Q4 FY26 and beyond. Recoveries from NPA and technical write-offs amounted to 23 crore in Q3 FY26, contributing to a healthy recovery trend.

Five-Star Business Finance is committed to a prudent approach to write-offs, avoiding large-scale technical write-offs that could negatively impact borrower behavior and credit culture. Instead, the focus is on concerted recovery efforts to ensure borrowers remain serious about their repayment obligations. This strategy, while potentially taking longer, aims to build a sustainable credit culture.

Strategic Investments and Financial Prudence

The company continues to invest significantly in its people and physical infrastructure. In Q3 FY26, 35 new branches were added, bringing the total to 835. The number of business and collection officers increased by 678, with the total collection officers reaching 2,452, up from 1,329 in December 2024. This expansion supports the company's intensified focus on collections and asset quality.

Financially, Five-Star Business Finance maintains a robust liquidity position, with 2,276 crore on its balance sheet and unavailed sanction lines of less than 1,500 crore as of December 31, 2025. The company successfully availed 460 crore of incremental debt at a weighted average rate of 8.09%, with the cost of funds on the overall book dropping by over 50 basis points year-on-year to 9.12%. This helps in largely protecting the spread despite a marginal increase in operating expenses and credit costs.

A significant development during the quarter was the signing of a loan agreement for a $100 million facility with the Asian Development Bank (ADB), a testament to the company's strong financial standing and diversified liability franchise, which includes relationships with 45 lending partners.

Technology and Governance as Growth Enablers

Five-Star Business Finance is leveraging technology to drive efficiency and productivity. The company has implemented a comprehensive tech stack, including Finn One Neo for automated workflows, a paperless underwriting model, and cloud-based data management. Strategic projects focus on Loan Origination, General Ledger, HRMS, Treasury, Collections, and Customer Scoring Models. These initiatives aim to improve Turnaround Time (TAT), enhance data reliability, and facilitate a shift towards digital collections.

The company's governance framework is robust, with a strong emphasis on independent director representation and comprehensive policies covering conduct, corporate governance, fair disclosure, grievance redressal, KYC, and risk management. This commitment to strong governance and transparent practices underpins investor confidence.

Outlook: Poised for Accelerated Growth

While Q3 FY26 saw moderated growth due to a strategic focus on collections, management expressed confidence in returning to a stronger growth trajectory in the coming quarters. The ongoing efforts to stabilize asset quality and reinforce collection mechanisms are expected to yield positive results, paving the way for accelerated disbursements and portfolio expansion. The company's long-term vision, coupled with its prudent financial management and strategic investments, positions it well to capitalize on the vast untapped MSME credit gap in India.