Northern Arc: Sustained Growth and Strategic Expansion in Q3FY26

Northern Arc Capital Limited delivered a robust performance in the third quarter of fiscal year 2026, showcasing significant growth across its key financial and operational metrics. The company, a prominent player in financing India's underserved households and businesses, reported a Pre-Provision Operating Profit (PPoP) of INR 265 crore, marking an impressive 51% year-on-year increase and a 24% sequential rise. Profit After Tax (PAT) also saw substantial growth, reaching INR 101 crore, up 33% from the previous year and 10% quarter-on-quarter. This strong financial showing underscores Northern Arc's disciplined execution and effective strategy in a dynamic market.

The quarter's performance was further bolstered by a Gross Transaction Volume of INR 10,401 crore, reflecting a 33% year-on-year and 18% quarter-on-quarter expansion. Lending Assets Under Management (AUM) grew to INR 15,121 crore, an increase of 23% year-on-year and 7% quarter-on-quarter. The Net Interest Income stood at INR 371 crore, demonstrating a 39% year-on-year growth. These figures highlight Northern Arc's ability to scale its operations while maintaining strong profitability, driven by its diversified business model and deep market penetration.

Diversified Growth and Strategic Segment Expansion

Northern Arc operates through two primary business models: Direct to Customer Lending and Credit Solutions, both contributing significantly to its overall growth. The Direct to Customer Lending segment, focused on MSME, Consumer, and Rural finance, has expanded its reach to over 2.6 million customers through a network of 368 branches and 55 digital partners. This segment's AUM reached INR 8,492 crore, with a direct-to-customer mix of 56%, up 255 basis points year-on-year.

Within Direct to Customer Lending, the MSME segment recorded an AUM of INR 3,292 crore, serving over 41,000 customers primarily through branch and digital channels. Loans in this segment are typically secured by collateral or First Loss Default Guarantee (FLDG), with ticket sizes ranging from INR 5 lakhs to 25 lakhs. Consumer Finance, with an AUM of INR 4,266 crore, caters to approximately 1.98 million customers through digital channels, offering quasi-secured loans with ticket sizes between INR 50,000 and 5 lakhs. The Rural Finance segment, with an AUM of INR 934 crore and over 500,000 customers, focuses on branch-based, unsecured loans covered by the Credit Guarantee Fund for Micro Units (CGFMU), with ticket sizes from INR 40,000 to 60,000. This granular approach allows Northern Arc to effectively address the diverse credit needs of its target segments.

The Credit Solutions business model continues to be a cornerstone of Northern Arc's strategy, empowering originator partners across the full credit continuum. This segment's Lending AUM stood at INR 6,629 crore, supported by over 350 originator partners. Fund Management AUM reached INR 3,207 crore, with placements volumes totaling INR 9,068 crore for 9MFY26, a 13% increase year-on-year. Northern Arc leverages proprietary technology platforms like Altifi for distribution, nPOS for co-lending and on-lending, and NuScore for AI/ML-based credit scorecards, enhancing efficiency and reach. The company has also strategically rebalanced its portfolio mix, with a notable shift towards MSME and Consumer finance, while maintaining a strong presence in other sectors.

Financial Summary

Segment Overview: Direct to Customer Lending

Prudent Risk Management and Robust Financial Health

Northern Arc's financial health is underpinned by a robust risk management framework and strong asset quality. The company reported a Net Non-Performing Asset (NPA) of 0.69% and a Gross NPA of 1.36% as of December 31, 2025. This is supported by a comprehensive risk management approach that includes proprietary underwriting models, predictive models based on 50 million loan data points, and dedicated risk monitoring and collection teams. The exposure to the top 10 borrowers has significantly reduced from 27.2% of AUM in March 2021 to 8.3% in December 2025, indicating a highly granular and diversified portfolio. The direct to customer lending book has also grown from 19% of AUM in March 2021 to 56% in December 2025, further enhancing portfolio stability.

The company maintains a strong liability franchise with diversified funding sources, including banks, offshore financial institutions, and NBFCs/DCM. Its proactive liquidity management ensures consistent adherence to RBI norms and ALCO guidelines, with no negative cumulative mismatch across all buckets. As of December 31, 2025, Northern Arc held INR 762 crore in cash and bank balances and had INR 715 crore in undrawn sanctions, reflecting a comfortable liquidity position. The Net Worth stood at INR 3,788 crore, growing 11% year-on-year, and the Book Value per Share was INR 235, also up 11% year-on-year, demonstrating a solid capital base.

Operational Excellence and Sustainable Outlook

Northern Arc's operational efficiency is evident in its key financial ratios. The Net Interest Margin (NIM) was 9.9% in Q3FY26, an increase of 150 basis points year-on-year. Return on Assets (RoA) improved to 2.7%, up 32 basis points year-on-year, and Return on Equity (RoE) reached 10.7%, an increase of 180 basis points year-on-year. The Cost to Income Ratio stood at 34.3% for Q3FY26, indicating efficient cost management. These metrics reflect the company's ability to generate strong returns while maintaining operational discipline.

The company's robust technology stack plays a crucial role in its operational excellence, enabling end-to-end digital journeys from lead generation and customer onboarding to credit underwriting, disbursal, and loan servicing. SaaS offerings like NuScore and nPOS are instrumental in enhancing efficiency for both Northern Arc and its originator partners. Beyond financial performance, Northern Arc is deeply committed to sustainability, integrating ESG principles into its business model. This includes a responsible financing framework, adherence to investment codes, and a focus on impact-focused funds and financing for green energy, e-mobility, and infrastructure sectors. This commitment ensures that Northern Arc not only delivers financial returns but also contributes positively to society.

Northern Arc Capital Limited's Q3FY26 results demonstrate a company in a strong growth trajectory, marked by strategic expansion, prudent risk management, and operational efficiency. The consistent performance across diverse segments, coupled with a robust financial foundation and a clear focus on technology and sustainability, positions Northern Arc for continued success in addressing the credit needs of India's underserved markets. The company's disciplined execution and forward-looking strategy instill confidence in its long-term value creation for stakeholders.