Arman Financial Services Ltd Forensic Report - SOIC x StockScans Report

as of Sep 2026

Arman Financial Services' record carries an unbroken string of unqualified audit opinions, but the profit engine behind that clean surface deserves scrutiny: reported earnings rest on discretionary fair-valuing of the entire loan book. A persistent off-book funding layer and a multi-year pattern of large write-offs add to the picture.

Key findings

  1. Reported profit rests on discretionary Level-3 fair-valuing of the entire loan book and an actuary-driven ECL model with large management overlays Major - Arman measures its loans at FVOCI, with fair value computed using the interest rate of loans disbursed in the last fifteen days of the year end, classified as Level 3. The ECL provision is based on a valuation report by Kapadia Actuaries and Consultants, with PD derived from a Vasicek Single Factor Model. During FY2025-26, Arman wrote off (net) ₹187.32 crore and retained a total ECL provision of ₹77.43 crore; the FY2023-24 standalone statement of changes in equity shows restatements to retained earnings, general reserve, and the equity component of compound financial instruments.
  2. A persistent off-book funding layer of direct assignments and securitization sits alongside reported debt secured by large cash-collateral deposits Major - Arman maintained around 5% to 10% of AUM as off-book through direct assignment transactions in each of FY2020 through FY2025. Namra maintained around 20% to 27% of AUM off-book during FY2024-25 and FY2025-26. Consolidated deposits include ₹196.88 crore given to a bank for an Overdraft facility, with ₹174.77 crore utilized as at 31 March 2026. Consolidated debt-to-equity ratio was 1.7x as on 31 March 2026 after adjusting overdrafts of ₹175 crore.
  3. Revenue quality is shaped by upfront gain recognition on assigned loan portfolios and a multi-year pattern of large net write-offs and ECL swings Major - Arman records gain on sale/derecognition of assigned loan portfolios upfront under Ind AS 109, while retaining the Minimum Retention Requirement portion on its books. The company wrote off (net) ₹236.95 crore on loans during FY2025 and retained total ECL provision of ₹117.43 crore on loans and advances as at March 31, 2025. During FY2026, the microfinance sector experienced elevated credit stress due to higher leverage and multiple borrowings by MFI customers, with higher ECL provisions recognised in Q1 and Q2 and reversals in Q3 and Q4. GNPA on total exposure stood at ₹82.48 crore as at March 31, 2026; GNPA on the on-book portfolio stood at ₹54.24 crore, representing 3.40% of the on-book portfolio.
  4. Operating cash flow swings violently between large negative and positive years while the company has paid no dividend for seven consecutive years Minor - Consolidated operating cash flow was ₹-476 crore in FY2025-26, ₹493 crore in FY2024-25, ₹-302 crore in FY2023-24, ₹-718 crore in FY2022-23, and ₹-281 crore in FY2021-22. The Board recommended no dividend for every year from FY2019-20 through FY2025-26, each time citing capital conservation. ROCE declined from 19.45% in FY2023-24 to 14.64% in FY2024-25 and 10.44% in FY2025-26.
  5. A single promoter family controls the board and executive roles, with father-to-son succession executed through pre-closed terms and re-designations Minor - Mr. Jayendrabhai Bhailalbhai Patel was re-designated from Vice Chairman & Managing Director to Whole-Time Director for 5 years effective February 12, 2026, pre-closing his Managing Director term. His son, Mr. Aalok Jayendra Patel, was re-designated from Joint Managing Director to Vice Chairman & Managing Director for 5 years effective the same date. At the 32nd AGM on September 27, 2024, the re-appointment of Mr. Aalok drew 96,122 votes against, including 96,102 from public institutions. Median employee remuneration decreased 13.08% in FY2025-26 while managerial remuneration increased 22.73%.
  6. Audit opinions have been unqualified across all years, but the FY2024 audit-trail exception shows the group lacked an edit-log facility until FY2025 Minor - The standalone and consolidated audit opinions were unqualified in every year from FY2020 through FY2026. The FY2024 audit reports stated the Company had not used accounting software with an audit trail (edit log) facility. From FY2025 onward, the audit trail feature operated throughout the year with no instance of tampering. The FY2022 reports contained an Emphasis of Matter paragraph on management's reduction of the COVID-19 ECL management overlay.

What to watch

Bottom line: This is a disclosed and audited record with unqualified opinions every year, but the substance of the profit sits in a subsidiary the principal auditor never examined, valued through discretionary Level-3 inputs and an actuary-driven ECL model. The risk is concentrated in measurement and coverage: a loan book fair-valued on a fifteen-day rate window, and an off-book funding layer reaching 27% of AUM at the subsidiary. Watch the tax appeals, the NCD maturities, and whether the auditor term changes again in FY2026-27.