Muthoot Microfin says drought exposure is 3.6% mostly insured

Muthoot Microfin Limited said on November 6, 2026 that drought-affected districts in Maharashtra and Karnataka represented about 3.6% of its on-book portfolio, or about Rs 550 crore, and that more than 81% of this exposure carried natural-catastrophe, or NATCAT, insurance cover. Management reported no adverse collection impact at that stage.

How large is Muthoot Microfin's drought-affected exposure?

Muthoot Microfin mapped about Rs 550 crore of on-book loans to 34 drought-affected districts across Maharashtra and Karnataka, equal to about 3.6% of its portfolio. Management said the districts had differing rainfall deficits, with some severely affected and others moderately affected, following uneven monsoon conditions associated with El Nino.

Maharashtra accounted for 3.1% of Muthoot Microfin's on-book group-loan portfolio, while Karnataka accounted for 0.49%. The state figures total 3.59%, consistent with management's rounded 3.6% estimate, and show that Maharashtra constitutes the larger part of the mapped exposure.

The Rs 550 crore figure should be distinguished from Muthoot Microfin's total assets under management, or AUM, of Rs 15,323 crore at the end of Q2 FY '27. Management also said less than 2% of the overall portfolio was directly dependent on agriculture or located in rain-sensitive areas, a separate measure from loans located in the affected districts.

How much of the affected portfolio has NATCAT cover?

More than 81% of Muthoot Microfin's Rs 550 crore drought-area exposure carried NATCAT cover, according to management. NATCAT is insurance offered to customers for natural calamities, including drought, and management cited it as one of the factors behind its view that the identified exposure would not have a material business effect at that stage.

Muthoot Microfin said it has provided NATCAT cover since 2020. Management said the insurance had been tested during the Fengal cyclone in Tamil Nadu in late 2024, when it helped limit the portfolio effect, and that the book had remained largely unaffected through floods, heavy rains and recent monsoon deficits.

The call did not disclose the policy terms, claims filed, insurance recoveries, settlement timing or coverage on every affected loan. Management's assessment was therefore based on the limited 3.6% mapped exposure, NATCAT coverage on more than 81% of that exposure, and the less-than-2% share of the overall book said to be directly linked to agriculture or rain-sensitive areas.

Have collections or asset quality worsened after the monsoon deficit?

Muthoot Microfin said it had not seen an adverse collection impact from the drought conditions as of the November 6 earnings call. Company-wide collection efficiency rose to 99.2% in October from 98.1% in Q2 FY '27, an increase of 110 basis points, where one basis point is one-hundredth of a percentage point.

Management also reported a 2% improvement in electronic National Automated Clearing House, or E-NACH, presentation clearance as of November 5. It said field teams were monitoring local markets for early signals, but the company did not provide collection efficiency or E-NACH clearance figures specifically for the 34 affected districts.

Reported company-wide asset quality improved during Q2 FY '27. Gross non-performing assets, or GNPA, were 3.38%, down 32 basis points quarter on quarter, while net NPA was 1.05% and provision coverage was 69.6%. These measures cover the overall loan book and do not establish whether Maharashtra and Karnataka are performing differently from other regions.

Muthoot Microfin's credit cost was 2.6% in Q2 FY '27, within management's 2.5% to 3% guided range. Management said collections had improved month on month and quarter on quarter, but it did not issue a drought-specific credit-cost forecast or quantify a potential loss scenario if rainfall conditions or borrower cash flows deteriorated.

What portfolio changes may affect the drought risk assessment?

Muthoot Microfin's portfolio mix shifted toward non-joint-liability group, or non-JLG, lending during Q2 FY '27. JLG and non-JLG products represented 69% and 31% of the portfolio, respectively, compared with about 83% and 17% at the end of March, reflecting expansion in individual and secured lending products.

The Muthoot small and growing business, its individual-lending portfolio, reached Rs 4,164 crore and accounted for 27% of total AUM. Management reported 90-plus-day delinquency of 0.02% in this product and said it had largely graduated existing JLG borrowers with repayment records and credit scores of 700 or above.

Muthoot Microfin also disbursed about Rs 453 crore of gold loans during Q2 FY '27 through its co-lending partnership with Muthoot Fincorp. Micro loan against property, or Micro LAP, crossed Rs 100 crore of AUM in October and had about 18 months of seasoning, with management describing delinquency as near zero.

These newer portfolios do not change the disclosed Rs 550 crore exposure in drought-affected districts. They do, however, explain the movement from an 83:17 JLG-to-non-JLG mix in March to 69:31 in Q2 FY '27, while management continued to assess the monsoon-affected book through collections and insurance coverage.

What does management expect for FY '27?

Muthoot Microfin maintained its FY '27 target of 20% AUM growth after reporting 22% year-on-year AUM growth to Rs 15,323 crore in Q2 FY '27. Q2 disbursals increased 28% year on year to Rs 2,900 crore, and management said a seasonally stronger second half and the festive period could support momentum.

Management said it expected credit cost to be better than its guidance level and net interest margin and return on assets to be at the upper end of guidance. These are management expectations, not drought-loss estimates, and the company did not revise its credit-cost range in response to the Maharashtra and Karnataka rainfall conditions.

On funding, the average cost of borrowing fell to 9.93% in Q2 FY '27 from 10.13% in the preceding quarter, while incremental borrowing cost was 9.69%. Management said it had Rs 1,835 crore of balance-sheet liquidity and Rs 4,442 crore of unavailed sanctions at quarter-end, following corrections stated during the call.

Conclusion

Muthoot Microfin has identified a defined drought-related exposure rather than a portfolio-wide rainfall risk: about Rs 550 crore, or 3.6% of on-book loans, across 34 districts in Maharashtra and Karnataka. More than 81% of that exposure has NATCAT cover, while company-wide collection efficiency increased to 99.2% in October and GNPA declined to 3.38% in Q2 FY '27.

The next disclosed milestones are performance through the seasonally stronger second half of FY '27 and progress toward management's 20% AUM-growth target. Investors can also watch whether collection efficiency remains near October's 99.2%, whether credit cost stays within management's 2.5% to 3% range, and whether Muthoot Microfin progresses toward its Rs 30,000 crore AUM target for 2030.