Muthoot Microfin Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Normalization takes hold, credit cost halves: Credit cost fell from 9.4% last FY to 3.6% in Q2, with overdue collections tripling to ~₹19 crores per month, signaling the operational stress cycle is firmly behind.
• Diversification into secured and individual loans is now a material, clean book: The non-JLG portfolio of ~₹475 crores (Individual Loans, Micro LAP, Gold Loans) carries zero delinquency so far, a strategic shift management calls a long-term earnings differentiator.
• Margins are recovering on both sides of the balance sheet: NIM improved from 11.5% to 11.9% QoQ as yield rose to 18.6% and overall finance cost dropped to 10.6%, with further rate transmission expected in H2.
• Branch rationalization unlocks a structural cost lever: 84 branches identified for closure or merger will save ~₹50 crores next financial year, while cost-to-income is guided back toward the low 50s this year from ~60% today.
• What to watch next quarter: Whether the promised overachievement on all guidance parameters materializes, the pace of cost-to-income improvement, and any early stress signals in the rapidly growing Individual Loan and Gold Loan books.

Asset Quality & The Turnaround

• Collections engine restarted: Overdue collections jumped from ~₹6 crores per month to ~₹19 crores per month, driving a steady decline in credit cost from 9.4% last FY to 4.3% in Q1 and 3.6% in Q2. The improvement is attributed to better customer cash flow, strong ground-level demand, and improved credit discipline.
• Fresh slippage contained: From a ₹350 crores Stage 2 pool, around ₹110 crores flowed to NPA in the quarter; the rest either remained or rolled back. Stage 3 improved from 4.85% to 4.61%, a function of write-offs and collections. SMA recovery was described as very good.
• Provision coverage adequate: Provision coverage stands at ~70%, with Stage 1 at 1.39% and Stage 2 at 7.7%. A ₹230 crores management overlay built at the beginning of the year for a stressed state portfolio has been fully absorbed, and management sees no need for additional overlays.
• Customer quality is the new underwriting focus: 65% of disbursements go to existing customers, and unique customers (39% of the base, borrowing only from Muthoot) show just 3.8% 30+ dpd versus 45% for overleveraged customers with four-plus lenders. An in-house scorecard now replaces Equifax, showing higher correlation with portfolio performance.

Sadaf Sayeed: "If you look at the 39% customers who are absolutely unique, the 30-plus par in them is around 3.8% only as compared to the customers who have more leverage or more lenders to them."

Portfolio Diversification

• Three new products launched: Individual Loans, Micro LAP, and Gold Loans were introduced this quarter, building a non-JLG book of ~₹475 crores that is pristine with no delinquency so far. Management frames this as a structural shift toward a sustainable long-term earnings profile.
• Individual Loan mechanics: The ₹468 crores portfolio runs on an entirely digital platform backed by eNACH, with a 95% cheque clearance rate and a 5% bounce rate collected within three days. Centralized underwriting targets customers with 700+ credit scores, and collection burden does not fall on the relationship officer.
• Gold Loan via group synergy: The Board approved a business correspondent relationship with Muthoot FinCorp, where Muthoot Microfin sources and refers customers for a fee, with no additional investment required. The partnership brings customer loyalty, as secured loan customers are more likely to maintain a healthy relationship.
• Micro LAP is a slow-build, long-tenure asset: The portfolio is small so far but carries zero delinquency and stays on the book longer, requiring more time to build. Average ticket size is ~₹3 lakhs versus ~₹60k for IGL and ~₹1.3 lakhs for Individual Loans.

Sadaf Sayeed: "This is the advantage of being from a Muthoot Pappachan group, and this is the advantage we have over all our competitors that within our group, there are enough and more know-how as well as infrastructure to do multiple businesses."

Margins & Profitability

• NIM expansion underway: Net interest margins improved from 11.5% to 11.9% QoQ, driven by yield transfer from prior rate changes, optimization of fund utilization, cheaper cost of funds, credit cost reduction, and operating cost rationalization. Yield rose from 18.1% to 18.6% and will further improve.
• Cost of funds falling across all instruments: Overall finance cost dropped from 11.02% to 10.6%. Term loan rates fell from 10.5% to 10.29%, ECBs from 11.33% to 11.12% (with a recent raise at 9.8%), and securitization from ~9% to 8.63%. Commercial paper was introduced this quarter. A rating upgrade from A+ stable to A+ positive and a new global rating for an ECB listing on the INX exchange support further transmission in H2.
• Cost-to-income elevated but turning: Cost-to-income rose to ~60% from ~47-48% last year due to portfolio stress, but has started to decline as disbursements increase, yield improves, and cost rationalization measures take hold. Branch profitability metrics are now system-driven, with every branch measured on PPOP and post-credit-cost profits.
• Branch rationalization delivers structural savings: 84 branches identified for closure or merger, with some already closed and others served notice. Staff are given the option to move or are eased out. Simultaneously, new branches are opening in expansion areas like Assam, Andhra, and Telangana. Savings of ~₹50 crores are expected in the full financial year next year.

Sadaf Sayeed: "We have identified 84 such branches, out of which around a few branches we have already closed, and a few would be getting closed, we have served the notice and everything."

Funding & Liquidity

• Large-ticket PTC transactions executed: A ₹500 crores PTC with State Bank of India, the largest single-tranche PTC for the company, was completed alongside PTCs with HSBC, Axis Bank, and Kotak. Total PTC raised stood at ₹1,500 crores with public and private sector banks. A direct assignment with Bank of Maharashtra was also completed.
• Lender support broad-based: All lender types are supportive, including public and private sector banks, foreign banks, and BFIs. The rating upgrade and global rating have widened the funding universe.

Guidance & Commitments

Key Metrics