Tata Capital Q4 FY26: Profitability Improves as Motor Finance Turnaround Takes Shape

Tata Capital closed Q4 FY26 with a combination investors typically like to see in a diversified NBFC: strong AUM growth, improving asset quality, and visible operating leverage.

The company reported performance in two ways: excluding Motor Finance for cleaner year on year comparability, and including Motor Finance to reflect the consolidated franchise after the Tata Motors Finance merger (effective May 8, 2025). This split matters because Motor Finance is still in the middle of a turnaround and carries a higher NPA profile than the core retail and SME book.

Excluding Motor Finance, net AUM stood at Rs 2,51,885 crore as of March 31, 2026, up 28% year on year and 7.6% quarter on quarter. Q4 PAT (excluding non-recurring items) was Rs 1,459 crore, up 51% year on year, with annualised ROA improving to 2.5% and credit cost declining to 0.8%.

Including Motor Finance, net AUM was Rs 2,77,275 crore, up 6% quarter on quarter. Q4 PAT (excluding non-recurring items) was Rs 1,502 crore, up 16% quarter on quarter. ROA improved sequentially to 2.3% with credit cost at 0.9%.

Core performance: scale with improving efficiency

Tata Capital’s book remains anchored in granular lending. Retail and SME collectively account for about 86% of net AUM, with corporate at 14.3%. Within retail, secured products remain dominant, while retail unsecured is reported at 10.3% of net AUM.

The company also continues to build operating leverage. Excluding Motor Finance, the cost to income ratio for Q4 FY26 was 36.1% versus 37.8% in Q4 FY25. On a consolidated basis including Motor Finance, cost to income was 38.3% for Q4 FY26 and also 38.3% for FY26, an improvement from 41.6% in FY25.

Asset quality improved sequentially in Q4. Excluding Motor Finance, GNPA and NNPA were 1.5% and 0.5% respectively at March 2026, with provision coverage of 65.1%. Including Motor Finance, GNPA and NNPA were 2.0% and 0.9%, with provision coverage of 56.2%.

Financial snapshot (consolidated)

Note: Metrics are as disclosed in the investor presentation and are stated excluding non-recurring items.

Motor Finance: fitness first, then growth

Motor Finance is the biggest swing factor in the consolidated story. The company has consciously shrunk this book while improving its economics and risk profile. Net AUM in Motor Finance declined from Rs 33,513 crore in March 2025 to Rs 25,390 crore in March 2026.

Management described a turnaround plan built around five levers: multi-OEM sourcing, product mix change, liability optimisation, cost reduction, and IT systems integration.

The operating indicators shared in the presentation suggest tangible movement. Non-Tata OEM contribution in new vehicle disbursements increased from 0% in Q4 FY25 to 26% in Q4 FY26. The network was rationalised by over 90 branches, and employee strength reduced to 4,849 from 6,351 in March 2025.

Management also stated that Motor Finance achieved break-even in Q3 FY26 and delivered PAT of Rs 43 crore in Q4 FY26. IT integration with Tata Capital is targeted for completion by Q1 or Q2 FY27, and management expects growth to resume from the first half of FY27.

This approach makes Motor Finance less about short-term AUM optics and more about underwriting discipline and sustainable profitability. However, investors should continue to track how the asset quality behaves through weaker seasonal quarters. Motor Finance gross stage 3 was still elevated at 8.0% at March 2026.

Housing finance: a strong, high-quality profit pool

Tata Capital Housing Finance (TCHFL), a 100% subsidiary, remains a standout contributor in terms of profitability and asset quality.

For Q4 FY26, TCHFL reported net AUM of Rs 86,653 crore, up 29% year on year and 6% quarter on quarter. PAT was Rs 527 crore, up 34% year on year. Cost to income improved to 29.4% in Q4 FY26 from 32.0% in Q4 FY25, while net NPA was stable at 0.3%.

The housing portfolio is diversified across prime and near-prime home loans, affordable housing finance, LAP, and developer finance. TCHFL reported a portfolio mix of 40% prime and near-prime home loans, 20% prime LAP, 21% developer finance, 18% affordable housing finance, and 1% micro housing.

Branch presence has expanded sharply over time, from 57 branches in March 2019 to 350 branches in March 2026. This expansion, combined with operating efficiency, supports the company’s claim of a best-in-class return profile in housing finance.

Digital and AI: moving from narrative to measurable outcomes

Tata Capital’s technology discussion is unusually metric-heavy for a lender, which helps investors validate execution.

The company reported that 97% of customers are onboarded via digital platforms, 98% of retail disbursements use scorecards or a business rule engine, 99% of collections happen via digital channels, and 98% of customer queries are addressable digitally.

On AI, management highlighted specific benefits: underwriting assist reduced SME credit memo preparation time from nearly two days to around 20 minutes, with a 30% productivity increase and 85% adoption in SME. The unified voice hub supports sales, service, and collections, with 90% of welcome calls handled through AI. Document intelligence has processed over 2 crore documents and is supported by 80 plus bots.

This matters because Tata Capital’s FY28 guidance includes a material improvement in cost to income to 33% to 34%, and management repeatedly linked future efficiency to digitisation and AI-led automation.

Funding, liquidity, and balance sheet position

Tata Capital’s liability profile is presented as a core competitive advantage, supported by its AAA domestic rating and BBB international rating. Average cost of borrowings declined sequentially to 7.1% in Q4 FY26 from 7.2% in Q3 FY26.

As of March 2026, consolidated total borrowings were Rs 2,35,977 crore, with total equity of Rs 44,658 crore. The total borrowings to total equity ratio was 5.3x. The company also disclosed a consolidated liquidity buffer of Rs 29,489 crore.

Standalone capital adequacy (CRAR) was 19.0% at Q4 FY26, with Tier 1 at 15.9%.

What management is guiding for FY28

The company reiterated FY28 guidance including Motor Finance:

AUM CAGR of 23% to 25% (FY25 to FY28E) Cost to income of 33% to 34% Credit cost below 1.0% and net NPA below 1.0% PAT CAGR above 30% (FY25 to FY28E) ROA of 2.5% to 2.7% and ROE of 17% to 18%

In the concall, management also discussed macro watchpoints including the conflict in West Asia and evolving El Nino conditions. They stated that they had not observed material stress in their portfolio, but were monitoring MSME and commercial vehicle segments closely.

Takeaways

Tata Capital’s Q4 FY26 update strengthens the case that the core franchise is compounding with improving profitability and asset quality. The key investor question now shifts to whether Motor Finance can sustain the turnaround through the full credit cycle and begin adding growth without reintroducing instability.

If the company delivers on its FY28 cost to income and credit cost targets while scaling high-yield segments like unsecured retail and Motor Finance, the guidance implies a structurally stronger return profile than the consolidated FY26 base.