L&T Finance Q4 FY26: Retail scale meets AI-led risk discipline

L&T Finance closed FY26 with a clear message for investors: the retail transformation under Lakshya 2026 is largely done, and the next phase is about compounding the franchise with a tighter, AI-driven risk engine. In Q4 FY26, consolidated profit after tax came in at ₹ 807 Cr, up 27% year on year, translating into a return on assets of 2.40%. For the full year, PAT was ₹ 2,981 Cr after a one-time New Labour Code impact, and ₹ 3,003 Cr before that impact. Retailisation reached 98% of the book and retail loans grew to ₹ 1,19,508 Cr, up 26% year on year.

Growth was not narrow. Retail disbursements rose to ₹ 24,107 Cr in Q4, up 62% year on year, driven by a broad push across Two Wheeler Finance, Personal Loans, Rural Business Finance and the ramp-up in Gold Finance. Profitability stayed resilient despite the scale-up investments. Q4 NIM plus fees was 10.47%, slightly higher than Q3, while credit cost improved sequentially to 2.64% from 2.83%.

A retail book that is now the core business

The FY26 story is best read through the balance sheet shift that Lakshya 2026 set out to deliver. At launch in FY22, retailisation stood at 51% in Q4. Four years later, it is 98%. The consolidated book is ₹ 1,21,728 Cr, and almost all of it is retail. The wholesale book reduced further to ₹ 2,220 Cr as of 31 March 2026 from ₹ 2,582 Cr a year ago.

Retail disbursements in FY26 were ₹ 83,213 Cr, up 39% year on year. The company highlighted steady disbursement run-rates through the year, helped by GST 2.0 tailwinds and festive demand. In Q4, Rural Business Finance disbursements rose 41% year on year to ₹ 7,208 Cr. Urban Finance disbursements were ₹ 9,850 Cr, up 61% year on year, with Personal Loans at ₹ 3,786 Cr, up 98% year on year. Two Wheeler Finance disbursed ₹ 2,930 Cr in the quarter, up 58% year on year. Gold Finance disbursements rose sharply quarter on quarter to ₹ 2,779 Cr.

Behind the growth is an expanding distribution engine. New customer acquisition increased to 8.3 lakh in Q4 FY26 from 5.2 lakh in Q4 FY25. Active sourcing points grew across products, and Gold Finance branches reached 330 by the end of Q4 after adding 200 branches since acquiring the business in June 2025.

Profitability stayed strong, but the next step is returns

Lakshya 2026 laid out clear targets: retailisation above 95%, retail growth above 25% CAGR, consolidated GS3 below 3% and NS3 below 1%, and RoA in the 2.8% to 3% range. The company met most of these in Q4 FY26, but RoA remains the gap. In Q4, consolidated GS3 was 2.88% and NS3 was 0.96%. Retail GS3 was 2.53%. Retail book CAGR from FY22 to FY26 came in at 28%. RoA, however, was 2.40% in Q4 and 2.37% for FY26.

The detailed bridge explains why the transformation has been profitable but not yet at the target return range. NIM plus fees improved meaningfully over the four-year cycle, rising from 7.84% in FY22 to 10.33% in FY26, but operating expenses also rose as the company invested in retailisation and technology. Credit cost improved versus FY22, but stayed elevated at 2.54% in FY26, reflecting the cycle and the company’s continued de-risking of portfolios.

FY26 also included an annual Expected Credit Loss model refresh. The company shifted ₹ 301 Cr of provisions from Stage 3 and Stage 2 into Stage 1, improving Stage 1 provision coverage on the performing book. It also subsumed ₹ 125 Cr of macro-prudential provisions into the ECL model. The reallocation had no profit and loss impact, but it is a balance sheet quality signal because Stage 1 exposure is about 96% of total.

A useful operating metric is slippages. Additions to GS3 before write-offs reduced sharply through FY26, from ₹ 944 Cr in Q1 to ₹ 402 Cr in Q4. This aligns with the company’s claim that underwriting and collection tooling is improving risk outcomes.

AI moved from a theme to measurable execution

L&T Finance is now describing its retail franchise as AI-driven and prime-focused. Two internal projects sit at the centre.

Project Cyclops is the underwriting engine. It has already been implemented in Two Wheeler Finance, Farm Equipment Finance, SME Finance and Personal Loans. Project Nostradamus is the portfolio management layer, live in Two Wheeler Finance with a rollout planned in Personal Loans in Q1 FY27.

The company provided one of the clearest outcomes in Two Wheeler Finance. For a sourcing cohort observed over 10 months, the 30+ DPD delinquency for the LTF Cyclops book was materially lower than the peer sets shown, reaching 2.8% at month 10 versus higher levels for industry segments. LTF also showed the transformation of credit hygiene using Net Non Starters metrics. In Two Wheeler Finance, indexed NNS dropped to 11% by March 2026 from a base of 100% in March 2024, after full Cyclops implementation around January 2025. In Farm Equipment Finance, indexed NNS dropped to 24% by March 2026, following full implementation around June 2025.

Collections is the second AI lever. In Urban Finance businesses, the company reported AI bot penetration rising to 81% in Q4 FY26 and pre-delinquency management success improving to 82%. Self-cure success increased to 30% with 83% AI bot penetration. It also reported 72 lakh plus unique bot-based customer interactions in FY26 and collections of ₹ 4,000 Cr plus through these channels, highlighting a materially lower cost per resolution compared with physical collections.

Operational productivity is also being built in. In SME Finance, underwriting turnaround time reduced after the Helios co-pilot, from 21 hours to 14 hours for SEP customers, and from 37 hours to 25 hours for SENP customers.

The strategic implication is straightforward: if these engines keep reducing slippages and improve early cures at scale, the company has a clearer path from 2.4% RoA towards the 3% plus ambition under Lakshya 2031.

Asset quality and funding: stability as the base for growth

On asset quality, the company maintained consolidated GS3 at 2.88% and NS3 at 0.96% in Q4 FY26. Retail GS3 improved sequentially to 2.53% from 2.83% in Q3. Stage 3 assets in retail were 2.53% of gross assets in Q4 versus 2.90% a year ago.

In the key high-volume products, the company highlighted best-in-class 0 DPD book metrics versus industry. For the immediately preceding quarter reported by CRIF Highmark, LTF’s 0 DPD was 96.4% in Rural Group Loans and Micro Finance versus 75.5% for the industry, 89.0% in Farm Equipment Finance versus 80.7%, and 91.6% in Two Wheeler Finance versus 81.0%.

Rural underwriting guardrails remain central to the story. The company reiterated that it onboards only 0 DPD JLG customers, maintains strict association limits, and caps total JLG indebtedness for three lenders including LTF at up to ₹ 2 lakh. A 700 plus member risk control unit supports audits across sourcing, disbursement and collections.

Funding is another stabiliser. The weighted average cost of borrowings declined to 7.17% in Q4 FY26, and the yearly WACB reduced to 7.35% in FY26. Borrowings outstanding increased to ₹ 1,09,888 Cr by March 2026, supported by a diversified mix across bank loans, NCDs, CP and ECB. The company continues to hold AAA ratings from domestic agencies and investment grade international ratings aligned with India’s sovereign.

From Lakshya 2026 to Lakshya 2031: a shift in ambition

The company positioned FY26 as a report card for Lakshya 2026 and a starting point for Lakshya 2031. The new plan sets book growth at 20% plus, credit cost below 2%, RoA at 3.0% to 3.2%, and RoE at 16% to 18%.

To bridge the gap, L&T Finance is trying to do two things at once. First, keep growth broad-based across rural and urban products while defending credit performance. Second, improve operating leverage through technology and AI-led productivity. The first half of that equation is already visible in disbursement and book momentum. The second is where execution will be judged, because opex plus credit cost remains the key drag between today’s profitability and the stated RoA trajectory.

Another indicator is customer franchise depth. The company reported a total database of 2.8 Cr plus customers, with active customers of about 92 lakh. Repeat disbursement share by value rose to 43% in Q4 FY26, suggesting that cross-sell and retention can become more meaningful drivers of growth and risk outcomes over time.

Investor takeaways

L&T Finance exits FY26 with a retail book that is already at scale, not a work in progress. The headline numbers show strong momentum: 62% year-on-year growth in Q4 retail disbursements, 26% year-on-year growth in the retail book, and 27% year-on-year growth in Q4 PAT. Asset quality remains within the Lakshya 2026 bands, and funding costs are trending down.

The next debate is not whether the company can grow retail. It is whether AI-led underwriting, collections and operating productivity can sustainably lower credit cost and improve operating leverage enough to lift RoA closer to the 3% range over the Lakshya 2031 cycle. The early evidence, including lower slippages and improving early cures, is encouraging. But the company will need to prove that these benefits persist through credit cycles and continued growth.