Northern Arc Capital: A Historic Quarter of Growth and Strategic Momentum

Northern Arc Capital Limited has delivered a landmark performance in the third quarter of fiscal year 2026, marking a period of unprecedented growth and profitability. The company not only surpassed the significant milestone of INR 15,000 crore in Assets Under Management (AUM) but also reported its highest-ever quarterly Profit After Tax (PAT) of INR 101 crore. This achievement underscores Northern Arc's strategic focus on expanding credit access to India's underserved households and businesses, leveraging a diversified financial services platform.

The quarter's robust performance was driven by a healthy consumption-led demand, supported by favorable economic reforms such as GST rate cuts and festive spending. Despite geopolitical uncertainties and tariff-related pressures, the Indian economy demonstrated strong resilience, providing a conducive environment for Northern Arc's growth trajectory. The Reserve Bank of India's supportive step of reducing the repo rate by 25 basis points further aided domestic demand and credit expansion.

Driving Growth Through Diversified Lending

Northern Arc's AUM posted a strong growth of 23% year-on-year and 7% quarter-on-quarter, reaching INR 15,121 crore. This growth significantly outpaced the industry, reflecting sustained momentum across its key segments. The direct-to-customer (D2C) business emerged as a primary growth engine, contributing 56% of the total AUM. Within the D2C portfolio, consumer finance demonstrated exceptional momentum with AUM growth of approximately 45% year-on-year, while the MSME portfolio grew by a robust 41% year-on-year.

The company's strategic investments in expanding its physical footprint, including the addition of 17 new branches during the quarter, have been instrumental in driving MSME growth. Given the significant under-penetration of MSME credit in India, these investments position Northern Arc for sustainable and scalable growth in the coming quarters. In rural finance, the company consciously calibrated its microfinance portfolio, leading to a significant improvement in asset quality metrics, with incremental PAR 0+ accretion reverting to pre-stress levels and 30-plus DPD improving sequentially to 80 basis points.

Financial Summary (Q3 FY26)

Strategic Pillars: Technology and Risk Management

Northern Arc's comprehensive credit solution ecosystem is built on leveraging capital-light fee streams and a balance sheet-led lending model. The fee-based business continues to be a key differentiator, with placement volumes growing by 73% year-on-year and 43% quarter-on-quarter to INR 3,669 crore. The performing credit fund also saw a 15% year-on-year growth to INR 3,207 crore, contributing to a strong fee income growth of 50% year-on-year.

The company's proprietary technology platforms, including Nimbus (B2B platform), nPOS (API-based on-lending and co-lending platform), Altifi (bonds platform), and NuScore (machine learning-based underwriting scorecards), are showing early signs of monetization. These platforms are crucial for enabling efficient and responsible credit flow, reducing information and risk barriers, and delivering credit at scale. The company's prudent risk management framework and conservative provisioning philosophy ensure asset quality is maintained within desired ranges, despite some sector-wide stress in unsecured business loans and small-ticket LAP segments.

Segment Revenue Breakdown (Q3 FY26)

Financial Health and Outlook

Northern Arc's financial metrics reflect robust health. Net Interest Income (NII) for Q3 FY26 stood at INR 371 crore, up 39% year-on-year, with Net Interest Margins (NIMs) improving by 60 basis points quarter-on-quarter to 9.9%. The cost of funds improved meaningfully, declining to 8.5% in Q3 FY26 from 9.4% in Q3 FY25. Net revenue, including fee income, rose 39% year-on-year to INR 403 crore, while the operating expense ratio remained stable at 3.7%.

Pre-Provisioning Operating Profit (PPoP) grew by 51% year-on-year and 24% quarter-on-quarter to INR 265 crore. The Return on Assets (ROA) saw a marginal uptick to 2.7%, and Return on Equity (ROE) increased by 60 basis points quarter-on-quarter to 10.7%. The company's liquidity remains comfortable, with a positive cumulative mismatch across all time buckets and surplus liquidity of INR 1,400 crore. The debt-to-equity ratio improved from 3.9x in March 2024 to 3x as of December 2025, and the capital adequacy ratio stands strong at 23.1%, providing ample headroom for future growth.

Northern Arc Capital is well-positioned to achieve its guided AUM growth of over 20% for the current fiscal year, with a target ROA of 3.2% for FY27 and a long-term AUM growth target of 25% plus over the next three years. The company's focus on a diversified portfolio, technological innovation, and prudent risk management underscores its commitment to sustainable growth and value creation for its stakeholders.