IndoStar Capital Finance Limited: Navigating Retail Growth with Digital Precision in Q3 FY26

IndoStar Capital Finance Limited has unveiled its Q3 FY26 earnings, showcasing a strategic pivot towards retail-led growth, primarily driven by its Vehicle Finance and Micro Loan Against Property (LAP) segments. The company's consolidated revenue from operations for the quarter stood at INR 346.4 crore. Despite an increase in Gross Stage 3 and Net Stage 3 non-performing assets (NPAs), management highlighted significant improvements in asset quality for newer originations and a strong operational momentum.

The quarter saw a total loan portfolio of INR 7,692 crore, with disbursements reaching INR 1,117 crore, marking a robust 20% quarter-on-quarter growth. This growth was largely propelled by the Vehicle Finance segment, which saw disbursements increase by 21%. The strategic decision to exit the affordable housing finance business has allowed IndoStar to streamline its focus on core retail segments, enhancing its position as a scalable and growth-oriented lending platform.

Strategic Focus and Operational Excellence

IndoStar's strategic transition is evident in its disciplined approach to underwriting and collections, bolstered by significant investments in technology. The company has rolled out a scorecard-based credit approval process and is leveraging digital tools like Indo Mitra, Scorecards, and Connector Apps to enhance efficiency across sourcing, underwriting, and collections. E-application, e-agreement, and eNACH are already live, with e-KYC set to launch shortly. This digital push has resulted in high adoption rates, with nearly 100% of Micro LAP customer onboarding now digital.

The Vehicle Finance segment remains the primary growth engine, accounting for approximately 93.02% of the total AUM. The company is actively scaling up its used vehicle financing, leveraging deep domain expertise to diversify its portfolio into passenger vehicles, farm equipment, and construction equipment. This focus aligns with broader industry trends, where used vehicle loans are expected to outpace new vehicle financing.

Micro LAP: A Promising Growth Avenue

The Micro LAP segment, though smaller, is a key diversification strategy. Launched in FY2024-25, it has shown steady momentum, with disbursements of INR 30 crore and an AUM of INR 128 crore in Q3 FY26. The company is expanding this business through a structured rollout across Tier 3 to Tier 5 towns, offering loan tenures up to 10 years with an average ticket size of INR 6-7 lakh and yields around 22%. The asset quality in this segment is notably strong, with only a minimal number of customers in 1+ DPD, reflecting robust credit and collateral underwriting.

Financial Health and Outlook

IndoStar maintains a strong balance sheet with a capital adequacy ratio of 41.4% and a healthy liquidity position, with its Liquidity Coverage Ratio (LCR) reported between 1.61x and 1.78x, well above the RBI mandate. The cost of borrowings has eased to 10.3%, with incremental borrowing costs at 9.1%, contributing to stable Net Interest Margins (NIMs).

Management is optimistic about the future, expecting sequential improvements in disbursements and continued growth in profitability. They aim to double Micro LAP AUM in the next financial year and plan to increase their frontline sales team by 30% in the coming quarter. The company targets a credit cost of approximately 2% plus/minus a few basis points, demonstrating a clear focus on managing risk while pursuing growth. IndoStar's proactive measures in credit underwriting, digital adoption, and strategic segment focus position it for sustainable growth in the evolving Indian financial landscape.