Regency Fincorp Ltd Q4 FY2026 Concall Summary

Key Takeaways

• A transformative pivot year: AUM rose 45% YoY to ₹261.2 cr as the company deliberately shifted its book from unsecured JLG lending to secured MSME loans, which now form 61% of AUM.
• Profitability surged on the mix shift: PAT grew 170% YoY to ₹13.4 cr, driven by an 85% jump in total income and a more-than-doubling of NII, even as the company absorbed the cost of running down its legacy unsecured book.
• Asset quality is a deliberate trade-off: Net NPA rose to 0.74% from 0.31% as the company exited the JLG segment and absorbed the impact of the Karja Mukti Abhiyan in Punjab and Haryana, but management argues the 50% LTV on its now-dominant secured book makes recovery straightforward.
• A ₹400–₹450 cr funding pipeline will fuel the next leg: Fresh equity via CCDs and a strong lender pipeline will double the branch network to ~50 and scale the borrower-side business, with a stated ambition of ₹3,000 cr AUM by FY30.
• What to watch next quarter: The pace of the JLG book run-down, the PPI license approval and RedPay wallet launch, and whether the cost of funds begins its promised decline toward 11–12%.

The Strategic Pivot: From Unsecured JLG to Secured MSME

• A deliberate exit from microfinance: The company stopped all JLG disbursements in November and is now only collecting on the legacy book, which has shrunk to 10.5% of AUM. Management expects 70% of the JLG book to be run down by FY27 year-end and 100% by the end of the next calendar year.
• Secured lending now dominates: Secured disbursements contributed 57% of total disbursements in FY26, up from 23% in FY25, and the secured loan book now stands at 61% of AUM versus 18% a year ago. The unsecured MSME book was also rationalized, shrinking from ₹104 cr to ₹60 cr.
• The collateral comfort: With a 50% LTV on secured loans and residential property as the preferred primary collateral, management points to only one secured loan account in 90-day PAR, on which legal action is already underway and liquidation is expected in the coming quarter.
• Social dynamics aid recovery: Borrowers in tier-2 cities face meaningful social pressure from default, unlike those in tier-1 cities, which management cites as a structural recovery advantage in its northern India footprint.

Sarfaraz Mallick: "So by end of the coming financial year, we should have around 70% of the book rundown. By end of the next calendar year, the 100% JLG book would be zero."

Asset Quality: The NPA Story

• NPA rise is a segment-exit story, not a deterioration: Net NPA moved from 0.31% to 0.74% because the company chose to exit the JLG segment entirely, and the portfolio felt the impact of the Karja Mukti Abhiyan in Punjab and Haryana. No new JLG disbursements have been made since November.
• Still better than the industry: Management notes that the 0.74% net NPA is significantly better than the 1.5–1.6% industry average for the segment, and collection efficiency remains at 95–96% at 0 months and 97–98% at 0+ months across all segments.
• In-house legal recovery: Two liquidation cases are currently in progress with expected resolution in 50–60 days, handled by the company's in-house legal team rather than outsourced collectors.

Funding & The Liability-Side Strategy

• A ₹400–₹450 cr funding pipeline: The company has a strong pipeline to raise money through lenders this year, with the entire amount earmarked for scaling up the borrower-side business. Existing lender relationships include ICICI Bank, Axis Bank, Yes Bank, LC Venture Debt, and several NCD investors.
• Cost of funds is the next lever: Management is targeting a reduction in its cost of borrowing to 11–12% this year, with a net cost of funds of 10.5–10.25%, and expects a significant reduction within 12 months. PSU bank onboarding is expected to give access to funds at around 10%.
• The pass-through strategy: Once the cost of funds reaches 10–10.5%, the company plans to pass the 2% arbitrage to customers, allowing it to lend at 15–16% to good credit quality borrowers and attract better-quality customers.
• ALM discipline: The company does not extend loans beyond 60 months and maintains no ALM mismatch, a structural safeguard as it scales its liability book.

Sarfaraz Mallick: "What we want to do is that we want to reach to a stage where my borrowing goes to 10, 10.5 or 11%. The 2% arbitrage that I have, I want to pass on to the customer."

Digital & Technology Bets

• Cash My Salary is live: The digital lending platform targets salaried individuals earning over ₹45,000 per month, using AI-based verification including OTP to corporate email addresses. Approval takes 30–45 minutes, and management reports recovery is in "very good space."
• The PPI license edge: The company has received an NOC from the RBI for a PPI license and expects final approval in the coming quarter. The planned RedPay digital wallet will enable QR-code-based EMI payments, giving the company access to customer bank statements and behavior data that traditional NACH collections cannot provide.
• Borrower quality improves with digital: Digital lending borrowers typically have existing housing or car loans and will not default on small EMIs to protect their credit scores, a structural quality advantage over the JLG book.
• Technology transition underway: The company is investing in data-driven tools for underwriting, sourcing efficiency, and proactive collections, with a stated intent to bring MSME lending onto a digital platform "sooner or later."

Sarfaraz Mallick: "This will give edge over all the NBFCs who are doing traditional lending."

Growth Roadmap: Branches, Geography & Product Mix

• Branch network to double: The company currently operates 23 branches and plans to expand to approximately 50 branches by FY27 year-end or mid-calendar 2027, deepening its presence in Punjab, Haryana, Uttarakhand, and Uttar Pradesh.
• Geographic focus is northern India first: Expansion will concentrate on the northern belt, with a move into West India planned, but no entry into South India for the next 2–3 years. UP and MP in the eastern belt have been identified for future penetration after due diligence.
• The target product mix: Management aims for 80% of lending in MSME secured and 15–20% in digital lending to salaried borrowers, a portfolio it considers sustainable and resilient.
• No DSA dependence: 100% of leads are sourced in-house, with no Direct Selling Agents empanelled, giving the company full control over origination quality as it scales.

Sarfaraz Mallick: "Our focus is not on the race, our focus is on the quality, right? If our focus is on the quality, we will make sure that we might take time to build a quality book, but we will not miss the bus."

Margins & Operating Model

• NIM expected to hold or improve: Current NIM stands at approximately 10.75–11%, and management expects to maintain this level with a 75–80% secured book and declining cost of funds, with possible enhancement if the cost of funds falls further.
• Opex guidance set: Operating expenses are expected to run at around 2.5% to 2.75% going forward, as the company invests in branch expansion, technology, and people across sales, credit, and operations.
• The lending rate sweet spot: At a 10–10.5% cost of funds, the company can lend at 15–16% to good credit quality customers, a rate it believes is competitive while preserving margin.

Guidance & Commitments

Key Metrics