Tata Capital Q4 FY26: Scale Up, Credit Costs Down, Execution Tight

Tata Capital closed Q4 FY26 with a familiar mix of speed and restraint: strong book growth in the core franchise, improving profitability, and a steady clean-up of the acquired motor finance portfolio. The quarter was also a reminder of what has changed after the Tata Motors Finance merger that became effective in May 2025. Management now frames performance through two lenses. Excluding Motor Finance, the underlying retail and SME-led business is best compared year-on-year. Including Motor Finance, the consolidated picture is best read quarter-on-quarter as the combined base is still settling.

In the core business excluding Motor Finance, net AUM reached ₹2,51,885 crore, up 27.9 percent year-on-year and 7.6 percent quarter-on-quarter. Profit after tax excluding non-recurring items came in at ₹1,459 crore, up 51.4 percent year-on-year and 13.6 percent quarter-on-quarter. Annualised return on assets rose to 2.5 percent, while annualised credit cost eased to 0.8 percent. Asset quality held firm with gross NPA at 1.5 percent and net NPA at 0.5 percent as of March 2026.

The consolidated view including Motor Finance showed net AUM of ₹2,77,275 crore, up 6.4 percent quarter-on-quarter. PAT excluding non-recurring items rose to ₹1,502 crore, up 16.4 percent quarter-on-quarter. Credit cost improved meaningfully to 0.9 percent, and the NPA line also moved in the right direction, with gross NPA at 2.0 percent versus 2.2 percent in December 2025, and net NPA at 0.9 percent versus 1.0 percent.

A quarter that blended growth with operating discipline

Two themes defined Q4 FY26. First, the engine room excluding Motor Finance continued to expand through retail and SME, which together accounted for about 86 percent of net AUM. Second, the consolidation strategy in Motor Finance continued to shrink the book and focus on better mix, while the group worked to compress credit costs and stabilize collections.

On operating efficiency, the core franchise kept tightening. Excluding Motor Finance, net interest income for Q4 FY26 was ₹3,127 crore, up 28 percent year-on-year, while cost to income improved to 36.1 percent from 37.8 percent a year ago. Credit costs also softened, down to 0.8 percent from 1.0 percent in Q3 FY26. The scale-up did not come with a deterioration in asset quality, which matters in a quarter where unsecured retail was still a topic across the sector.

The company highlighted that unsecured retail loans formed 10.3 percent of net AUM as of March 2026. It also described how earlier concerns in personal loans and microfinance were handled through policy and process interventions. In personal loans, the company slowed disbursements after identifying credit-quality concerns in Q3 FY24, introduced tighter checks including leverage scorecards and bureau checks at disbursement, strengthened fraud checks and collections, and then resumed scaling from Q1 FY26. It reported that personal loan slippages were down 60 percent since Q1 FY26. Microfinance followed a similar arc, with guardrails implemented in December 2024 and slippages reported down 70 percent since Q1 FY26.

The branch footprint shows how Tata Capital has built physical reach while pushing digital processes. As of March 2026, the company had 1,477 branches across 27 states and union territories. Customer franchise stood at 8.4 million. The quarter ended with 29,816 on-roll employees.

Portfolio shape: retail and SME at the center, corporate rising

Tata Capital’s book is large and deliberately diversified. As of March 31, 2026, consolidated net AUM including Motor Finance was ₹2,77,275 crore. Retail made up 58.3 percent, SME 27.4 percent, and corporate 14.3 percent. Within retail, home loans were 15.9 percent and loan against property was 14.0 percent of net AUM, reflecting the secured bias that helps keep credit costs contained across cycles.

A quarter-on-quarter view of segment AUM shows two important movements. Motor Finance continued to shrink by design, declining from ₹26,584 crore in December 2025 to ₹25,390 crore in March 2026, bringing its share down to 9.2 percent. At the same time, core segments kept adding scale. SME net AUM rose from ₹70,549 crore in December 2025 to ₹75,965 crore in March 2026. Corporate rose from ₹34,213 crore to ₹39,640 crore over the same period. In secured retail, loan against property increased from ₹36,193 crore to ₹38,812 crore.

This mix matters for two reasons. First, it keeps the consolidated franchise heavily granular. The company stated that about 99 percent of the book was organic and about 99 percent was granular based on ticket size below ₹1 crore. Second, it makes the earnings profile less dependent on any single product cycle. Motor Finance is the obvious exception, and the company has treated it as a transformation project rather than a growth lever.

Motor Finance: shrinking to improve quality, while building a multi-OEM model

The motor finance business is being reshaped under a turnaround plan. Tata Capital completed the acquisition of Tata Motors Finance on May 8, 2025, and Q1 FY26 was the first quarter of combined operations. By March 2026, Motor Finance net AUM stood at ₹25,390 crore, with the company noting that the loan book had been consolidated in line with the strategy to improve business metrics. From March 2025 to March 2026, net AUM declined by ₹8,123 crore.

The strategy is built around several levers.

One lever is moving to a multi-OEM model. The company reported that non-Tata OEM contribution to disbursements in new vehicle loans rose to 26 percent in Q4 FY26, up from 19 percent in Q3 FY26 and 13 percent in Q2 FY26. It also added over 400 dealers in the last nine months.

Another lever is product and mix changes. As of March 2026, the Motor Finance AUM mix was 42 percent heavy commercial vehicle new, 32 percent used vehicle, 23 percent intermediate, light, medium and small commercial vehicles new, and 3 percent other. Disbursement mix in Q4 FY26 showed used vehicle at 40 percent, HCV new at 31 percent, and ILMSCV new at 27 percent.

Cost and operating structure have also been reset. The company rationalised over 90 branches, bringing the motor finance network to 385 branches. Employee strength declined to 4,849 from 6,351 in March 2025. It also rolled out motor finance products in 117 Tata Capital branches since March 2025, an early sign of cross-platform distribution.

The last leg is systems integration. IT integration with Tata Capital is in progress, with a target completion by Q1 or Q2 FY27.

The near-term message is clear. The motor finance franchise is being made smaller before it is made better. That approach typically pressures near-term AUM growth but supports medium-term risk metrics and cost ratios. Q4 FY26 credit cost and NPA movement in the consolidated numbers suggest this clean-up is starting to show.

Housing finance: a strong subsidiary with clean metrics

Tata Capital Housing Finance Limited remains a key contributor and a stabiliser within the group. In Q4 FY26, TCHFL reported AUM of ₹86,653 crore, up 29 percent year-on-year and 6 percent quarter-on-quarter. PAT was ₹527 crore, up 34 percent year-on-year and 14 percent quarter-on-quarter. Cost to income improved to 29.4 percent from 32.0 percent a year ago. ROA was 2.6 percent and ROE was 19.9 percent.

Asset quality is a standout. The company reported annualised credit cost at 0.1 percent, with GNPA at 0.7 percent and NNPA at 0.3 percent.

The portfolio composition also shows measured risk-taking. In FY26 net AUM of ₹86,653 crore, prime and near-prime home loans formed 40 percent, prime loan against property 20 percent, developer finance 21 percent, affordable housing finance 18 percent, and micro housing 1 percent. The subsidiary’s branch count increased from 57 in March 2019 to 350 in March 2026.

Funding, capital and liquidity: strength that supports growth

A fast-growing lender is only as strong as its balance sheet and funding access. Tata Capital highlighted the highest possible domestic credit rating of AAA with stable outlook, and an international credit rating of BBB, with its first USD bond issue in January 2025.

Total borrowings as of March 2026 were ₹2,35,977 crore. Total equity was ₹44,658 crore and consolidated networth was ₹45,861 crore. Total borrowings to total equity stood at 5.3 times. Average cost of borrowings improved to 7.1 percent in Q4 FY26 from 7.2 percent in Q3 FY26. The company reported a consolidated liquidity buffer of ₹29,489 crore as of March 2026.

Capital adequacy remained comfortable on the standalone basis, with total CRAR at 19.0 percent in Q4 FY26, tier I at 15.9 percent, and tier II at 3.1 percent, against a regulatory CRAR requirement of 15 percent.

This balance sheet strength has been an important enabler for the company’s guidance and its ability to invest in distribution and technology without sacrificing risk buffers.

Technology and AI: digital processes are now the default

The investor presentation places technology at the core of execution, with a heavy focus on digitising the loan lifecycle and scaling AI capabilities. The company reported that 97 percent of customers were onboarded via digital platforms, 98 percent of retail disbursements were via scorecards or business rule engines, and 99 percent of collections were via digital channels. It also reported 180 plus digital partnerships.

AI is being applied across underwriting, document processing, service, and collections. The company described GenAI-powered credit memos and an in-house bank statement analyser called FinSight. It also highlighted large-scale document intelligence usage, with over 2 crore documents processed, and adoption levels of 87 percent in two-wheeler and 90 percent in microfinance. On service, it said 90 percent of welcome calls were through AI with an 80 percent manpower reduction for those calls, and 70 percent plus emails were serviced through AI assist. For collections, it reported 80 plus predictive models and 30 percent of early bucket collections using voice AI agents.

These metrics are not just technology showcases. They are directly linked to cost to income, turnaround time, and portfolio monitoring. In a period where unsecured retail needed tighter control, the link between analytics, underwriting policies, and collections outcomes became a key part of the operating story.

Guidance: FY26 delivered, FY28 targets raise the ambition bar

Tata Capital’s FY26 performance largely came in at or better than its stated guidance.

Excluding Motor Finance, AUM growth in Q4 FY26 was 28 percent year-on-year versus guidance of 22 to 25 percent. Credit cost at 0.8 percent was within the guided 0.8 to 0.9 percent range. ROA at 2.5 percent was in the guided 2.4 to 2.5 percent range. FY26 cost to income was 35.6 percent, within the 35 to 36 percent guidance band. FY26 ROE was 14.3 percent, within the guided 14 to 15 percent band.

Including Motor Finance, FY26 AUM growth was 20 percent year-on-year, matching the 18 to 20 percent guidance. FY26 cost to income was 38.3 percent, within the 38 to 39 percent guidance range. FY26 credit cost was about 1.2 percent, in line with the guidance of about 1.2 percent. FY26 net NPA was 0.9 percent, within the target of under 1.0 percent.

The longer-term FY28 guidance including Motor Finance is more ambitious. It targets AUM CAGR of 23 to 25 percent from FY25 to FY28, cost to income of 33 to 34 percent, credit cost below 1.0 percent, net NPA below 1.0 percent, PAT CAGR above 30 percent, ROA of 2.5 to 2.7 percent, and ROE of 17 to 18 percent.

These targets imply a sharper improvement in efficiency and returns than what the group is reporting today on the consolidated base. For investors, the credibility test will be whether motor finance integration and mix changes can reduce volatility while the core retail and SME franchise continues to add scale at controlled credit costs.

Takeaways for investors

Q4 FY26 showed disciplined execution across Tata Capital’s two-speed portfolio. The underlying franchise excluding Motor Finance delivered strong year-on-year growth in net AUM and PAT while improving credit cost and maintaining stable GNPA and NNPA. The consolidated franchise benefited from a sharp drop in provisions and improving asset quality, even as Motor Finance AUM continued to shrink.

The quarter also clarified what management is trying to build: a retail and SME-heavy, granular, digitally operated lending platform supported by strong liability access and a profitable housing finance arm. Motor Finance is being treated as a measured turnaround with clear milestones on mix, cost and integration.

If Tata Capital can keep credit cost trending below 1 percent, hold asset quality, and continue lowering cost to income while completing IT integration of Motor Finance by FY27, the FY28 return targets become less about aspiration and more about execution. For now, Q4 FY26 suggests the company is moving in that direction, one controlled quarter at a time.