Aye Finance Q3 FY26: Robust Growth, Improving Asset Quality, and Strategic Expansion

Aye Finance Limited, a prominent lender to India's unorganized micro-scale businesses, has delivered a strong performance in Q3 FY26, showcasing robust growth and significant improvements in asset quality. The company's Assets Under Management (AUM) expanded by 23.5% year-on-year and 5.5% quarter-on-quarter, reaching INR 6,356 crore. Disbursements for the quarter surged by 35% year-on-year to INR 1,310 crore, with 41,015 new borrowers added to its growing customer base. This performance underscores the company's effective strategy in addressing the credit needs of an underserved market segment, which is a significant employment generator in the Indian economy.

The company's total income for Q3 FY26 stood at INR 449 crore, marking a 21.3% year-on-year growth and a 4.96% quarter-on-quarter increase. Profit after Tax (PAT) demonstrated an impressive 87.09% year-on-year growth, reaching INR 43 crore, and a 23.37% quarter-on-quarter increase. This strong profitability was achieved despite absorbing a one-time impact of INR 1.7 crore due to changes in Labour Law regulations. The Net Interest Margin (NIM) remained stable at 14.21% in Q3 FY26, supported by a reducing cost of borrowing, which fell to 10.96% overall and 10.31% incrementally in the quarter.

Strategic Focus on Asset Quality and Diversification

Aye Finance has demonstrated a consistent focus on improving its asset quality. Credit cost has shown a continuous reduction over the last four quarters, approaching normal levels. The company's non-OD (overdue) collection efficiency reached 99.3% in December 2025, further improving to 99.4% in February 2026. Collection efficiency for Bucket 1 (overdue cases below 30 DPD) also improved significantly, rising from 42.8% in April to 58% in December 2025, and further to 60% in February 2026. This robust collection performance is a leading indicator of the health of its lending portfolio.

The company's portfolio is well-diversified across 18 states and 3 Union Territories, with a balanced spread across North, South, West, and East zones. This geographic diversification, coupled with a balanced industry mix (manufacturing, trading, dairy, service), provides stability and reduces concentration risk. The portfolio comprises 22% property-based loans (including 21% mortgage loans and 1.6% 'Saral' Property Loans) and 77.5% hypothecation loans, with 40% of these being secured hypothecation loans. The company aims to increase the mortgage loan share to 30% of the overall portfolio in the next three years, recognizing its potential for longer tenor and AUM stability.

Efficiency Drivers and Future Outlook

Aye Finance's operational efficiency is driven by its strong technology platform and data science capabilities. Loan origination is 100% paperless, and a significant portion of underwriting (32%) is powered by AI/ML models, with the remaining 68% utilizing a cluster-based methodology. Repayments are largely digital, with 96.84% of customers activated on NACH and 84.14% of collections through digital modes. The company's in-house data science team develops machine learning models for bounce forecasting and collection likelihood, further enhancing risk management.

The company's repeat business program is another key efficiency driver, leveraging ML models to identify and target quality customers for repeat loans. This strategy significantly reduces origination costs and improves customer lifetime value, contributing to a low annualized foreclosure rate of 3.33% for 9MFY26. An upsell team has also been deployed to convert eligible repeat customers to mortgage loans, further strengthening the portfolio.

Looking ahead, Aye Finance is confident in achieving its guidance of 29-30% AUM growth for FY26. The management has outlined a three-year vision targeting a CAGR of 28-33% for growth, credit cost in the range of 3.25-3.75%, operating expenses between 7-7.5%, RoA of 4-4.5%, and RoE of 17-20%. The company's diversified lender base, with its rating upgraded to A (stable) in July 2024, and a healthy capital adequacy ratio (CRAR) of 31.45% as of December 2025, positions it well for continued robust growth and profitability. The management's proactive approach to asset quality, strategic expansion into mortgage loans, and technology-driven efficiency underscore its commitment to sustained value creation for stakeholders.