Spandana Sphoorty Financial Ltd Partly Paidup Q4 FY2026 Concall Summary

Key Takeaways

• Return to profitability after six quarters: Spandana posted its first PAT (₹5 cr) since the crisis, driven by a sharp disbursement ramp to ₹500 cr/month and a 12% QoQ AUM increase.
• Asset quality is healing fast: GNPA fell to 3.8% from 4.2% and 1-90 DPD halved to 1.3%, as the new book, now 80% of AUM, seasons with strong collection efficiency of 99.7%.
• The new underwriting engine is working, but it rejects two-thirds of applicants: Rejection rates remain at 60-65%, a deliberate choice to prioritize quality over volume, which caps near-term growth even as sourcing expands.
• A new individual loan product is the next growth lever: A pilot launching in June/July targets existing enterprise owners with better underwriting and 100% e-NACH, aiming to capture customers graduating from the group loan model.
• What to watch next quarter: Whether the individual loan pilot meets its milestones, the pace of blended yield improvement as the GNPA book runs off, and any impact from El Nino on the agricultural customer base.

Turnaround Mechanics

• Disbursement engine restarted: Monthly disbursements climbed from ₹300 cr in Q2 to ₹500 cr in Q4, reflecting both recovery in business activity and aggressive new customer acquisition of 1.2 lakh borrowers in the quarter.
• AUM finally grew again: AUM rose 12% QoQ to ₹4,420 cr, the first increase after eight quarters of contraction, driven entirely by the new book originated under stricter guardrails and a new BRE.
• Profitability restored: PPOP strengthened to ₹39 cr from ₹8 cr QoQ, PBT swung to a ₹8 cr profit from a ₹125 cr loss, and PAT came in at ₹5 cr, aided by an opex reduction to ₹161 cr from ₹195 cr.
• Customer satisfaction rebounded: The score jumped from 22% in Q3 to 71% in Q4, with all but one complaint resolved within RBI TAT, a signal that operational discipline is returning to the field.
• Seasonal risk is acknowledged but not quantified: Management called El Nino and fertilizer issues a "passing cloud" and is being cautious in sourcing, but the agricultural portfolio's sensitivity to these factors remains a fragility.

Venkatesh Krishnan: "The efforts are on to ensure that after six quarters of painfully painstaking efforts, we are back in the black and from here on we should retain the momentum and grow the book sustainably, which is very important, and ensuring that we stick to all the guidelines and Spandana is again back in the reckoning, people start respecting Spandana."

Asset Quality & The New Book

• New book performance is the core proof point: Underwriting changes made in November are producing a portfolio that is "performing pretty strongly," with 8 months of seasoning now visible in the numbers.
• Early delinquencies collapsed: 1-90 DPD halved to 1.3% from 2.5%, a direct result of the stricter sourcing norms adopted in January that bar lending to any customer 30+ days past due on disbursal day.
• GNPA and NNPA improved as the mix shifted: GNPA fell to 3.8% from 4.2% and NNPA to 0.73% from 0.92%, not because the legacy book recovered but because the new, higher-quality book now dominates AUM at 80%.
• Spandana's norms are stricter than the industry SRO guardrails: 98% of disbursements went to regular customers, and the company adopted a policy of not lending to borrowers who are 30+ DPD on the day of disbursal, going beyond the three-lender norm and ₹2 lakh indebtedness cap effective 1st April.
• Rejection rates stay high by design: At 60-65%, the rejection rate caps how fast disbursements can grow from the existing branch network, and management expects this to persist, with defaulters who lacked adverse intent only re-entering the mainstream in 2-3 years.

Venkatesh Krishnan: "Any level of growth, I can't compromise on collection efficiency, especially in the X-bucket. It has to be 99.5%, I can understand some months hovering between 99.3% and 99.5%, some months going up to 99.6%. But irrespective of the book size, I can't compromise on collection efficiency."

Revenue & Margin Levers

• Yield is rising at the point of disbursement: Current disbursement yield is ~25.25%, but the blended yield sits at 22.8% because the legacy GNPA book drags it down; as that book runs off during FY27, blended yield should inch closer to the ideal.
• Cost of funds is falling meaningfully: Marginal cost of borrowings dropped 120 bps to 12% in Q4, and management expects the blended cost to stay below 12.5% for FY27, providing a tailwind to NIM.
• NIM contracted despite these improvements: NIM fell to 9.9% from 11.1%, largely because the cost of borrowings from previous quarters still flows through the P&L with a lag, a headwind that should ease as cheaper marginal funding replaces older debt.
• Opex has room to fall further: Opex dropped from ₹195 cr to ₹161 cr QoQ, and management sees further optimization possible without compromising efficiency or growth, targeting a medium-term opex-to-AUM ratio of 7-8%.
• Branch infrastructure is already built for scale: The 1,250-branch network can support up to ₹12,500 cr of AUM at a ₹10 cr per branch assumption, so growth from the current ₹4,420 cr requires adding frontline headcount but no new fixed-cost branches or head office capacity.

The Individual Loan Pivot

• A new unsecured individual loan product is launching in June/July: It targets existing group-loan customers who run an enterprise, with ticket sizes of ₹1 lakh to ₹4 lakh, 100% e-NACH repayment, and a personal visit by a credit officer who collects PAN and verifies the business.
• Underwriting is deliberately conservative for the pilot: Despite the product's ₹4 lakh upper limit, Spandana will cap indebtedness at the MFIN norm of ₹2 lakh, and will only lend to customers with a visible shop, stock, and sales, implying income levels above ₹3 lakh.
• Distribution leverages the existing branch network: The product will be offered in the same branches as group loans, allowing customers to graduate to an individual loan if they have an enterprise; over time, Spandana may also target new-to-Spandana customers with a track record elsewhere.
• Criss Financial will scale it after the pilot: Once Spandana's pilot hits its milestones, the product will be handed to the subsidiary to source individual loans under the new criteria, creating a second distribution channel.
• The market size is unquantified: When asked about the organized industry size for individual loans, management pushed back on a ₹10,000 cr estimate but did not provide an alternative, leaving the addressable opportunity undefined.

The Evolving JLG Model

• Group liability is weakening structurally: EMI sizes have risen from ₹400-500 to ₹1,800-2,000, making it "highly improbable" for group members to cover a defaulting member's instalments across multiple institutions, eroding the traditional JLG credit discipline.
• Digital repayment is creating a conflict with meeting centres: 22% of Spandana's repayments are now digital, and management acknowledges that customers who pay online will not attend a meeting centre just for the sake of attendance, weakening the social collateral model.
• The industry is discussing a 50% digital repayment target: Spandana is engaging with SROs to set this as an industry aim, which would formalize the shift away from the physical meeting-centre model that has defined microfinance for decades.
• Collection discipline is being enforced through process, not peer pressure: If a customer does not honour an instalment on the demand date, Spandana reaches out the very next day, a regimented daily recovery process that substitutes for the weakening group guarantee.

Venkatesh Krishnan: "If customers are paying me online and if I expect them to attend meeting center just for the sake of attending, it's not going to happen. So, there is always going to be a conflict between meeting center and digital repayment."

Technology & Operations

• LOS platform migration to Perfios is underway: The individual loan product is expected on the new platform before end of Q1 FY27 or early Q2, with JLG migration targeted for October-November 2026, a timeline that carries execution risk given the complexity.
• AI initiatives are exploratory, not transformational: Spandana is looking at AI for MIS automation, bot calling for bounced and 90+ DPD customers, and call-centre CSAT targeting 95%, but management declined an analyst's suggestion to use UPI cash-flow data for underwriting, stating existing controls are sufficient.
• Data science work is a 3-4 month project: The company is analysing which borrower types and markets repay better, an effort that could refine underwriting but has not yet produced actionable insights.
• CFL merger is a 5-6 month process: The merger has begun and will consolidate the subsidiary, whose GNPA has already improved from 11.45% to 6.50% due to an ARC transaction and better collections.
• Micro-LAP is a small but intended growth area: The subsidiary portfolio stands at ~₹322 cr, and management wants to grow it, though no specific target or timeline was given.

Guidance & Commitments

Key Metrics