Tata Capital Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Record AUM growth, broad-based: AUM added ~INR 16,800 crores, the highest ever quarterly increase, driven by festive demand and GST reduction benefits across a diversified portfolio.
• Unsecured retail recovery is real: Disbursements hit a four-quarter high, up 30% YoY and 13% QoQ, while slippages and bounce rates improved, giving management confidence to reinvest in growth toward the 15% AUM target.
• Asset quality improving, credit costs falling: Credit costs declined 10 bps to 1% (ex-Motor Finance) as slippages moderated across retail, including unsecured; management now expects to hit its sub-1% credit cost target "much before" FY28.
• Motor Finance breaks even, repositioning underway: The business hit breakeven in Q3 as disbursements rose 17% QoQ, non-Tata OEM share reached 19%, and the mix shifted toward used CVs and LCVs; growth is expected to resume in H1 FY27.
• What to watch next quarter: Whether the unsecured disbursement momentum converts into AUM growth and lower Stage 3 ratios, the pace of Motor Finance's disbursement build, and any margin pressure from competitive intensity in housing and corporate lending.

Retail Momentum & Unsecured Recovery

• Disbursement engine restarted: After a period of conservative policy tightening, unsecured disbursements rose sequentially for the third straight quarter, with Q3 volumes 30% higher YoY and 13% above Q2. Early indicators on cohorts booked over the last 15 months show better metrics, supporting the decision to reinvest in distribution.
• Asset quality leading indicators improving: Missed payment rates improved QoQ, collection efficiencies trended better, and slippages in unsecured retail showed a significant improving trend. The proportion of assets in Stage 1 (0 DPD) grew, pointing to a healthier forward pipeline.
• FEMI rates declining: First EMI bounce rates have been coming down for 14-15 months, a result of tightened credit policies and increased checks. Collection efficiencies for both personal loans and business loans are inching up.
• The 15% AUM ambition: Unsecured retail currently sits at 10.4% of AUM, leaving what management calls "ample runway" to reach its stated 15% target. As AUM grows, the gross NPA ratio is expected to drop mechanically, though a marginal uptick in Stage 3 is possible near-term before normalization.

Sabharwal: "Quarter 3 disbursements were 30% higher on a Y-o-Y basis and 13% over quarter 2. With unsecured retail exposure currently at 10.4% of AUM, it leaves us with ample runaway to achieve our stated vision of increasing it to 15% of the AUM."

Motor Finance Turnaround

• Break-even achieved: The Motor Finance business broke even in Q3, a milestone in its deliberate repositioning away from the legacy captive model. Disbursements grew 17% QoQ, and credit costs declined with fewer slippages.
• Portfolio reshaping in progress: The business is reducing HCV exposure while increasing used CVs and LCVs. Non-Tata OEM share in new CV disbursements reached 19%, confirming the transition to an open-market, brand-agnostic model. Used vehicle demand, muted in Oct-Nov due to post-GST price uncertainty, picked up in December with momentum continuing into January.
• Growth and ROA timeline: Management expects growth to resume from H1 FY27, with progressive ROA improvement through the year and the targeted ROA achieved by FY28. The Motor Finance book proportion is expected to decline from ~9.5% to 7-8% by March 2028 as the overall company grows at 23-25% and Motor Finance grows at a slightly lower pace.
• Workforce structure: Of ~5,300 Motor Finance employees, approximately 83-84% are in sales and collections, with operations at ~11%. A separate credit function breakdown was not provided.

Sabharwal: "Our business and Motor Finance business broke even in Q3."

Margins, Funding & Operating Leverage

• NIM expansion with a caveat: NIM rose 14 bps QoQ to 6.6%, including a 17 bps contribution from IPO proceeds. While the declining cost of funds helped, a significant portion of the benefit was passed on to customers, keeping core margins stable.
• Cost of funds trending down: Overall cost of funds declined to 7.2%, down 14 bps QoQ on a daily average basis, with benefits of policy rate easing flowing through steadily each quarter since the start of FY26.
• Operating leverage kicking in: Cost-to-income improved ~129 bps QoQ (ex-labour code impact), as past investments in technology, data infrastructure, and branch expansion begin to enhance efficiency. Management is confident of closing FY26 with cost-to-income in the 38-39% range, with a medium-term target of 33-34% by FY28.
• Housing margins stable but competitive: Housing finance delivered another strong quarter with 30% YoY AUM growth and 25% PAT growth (ex-labour code). However, margin benefits from lower funding costs were passed on to borrowers due to competitive intensity, especially in the prime segment, and margins are expected to remain stable in coming quarters.
• Medium-term margin levers: Management sees potential for margin expansion through product mix optimization toward higher-yield segments (unsecured retail, affordable housing, secured business loans), growth in fee-based businesses, and continued lower funding costs.

Asset Quality & Credit Costs

• Credit cost trajectory ahead of plan: Credit costs improved 10 bps QoQ to 1.0% (ex-Motor Finance) and 1.2% (including Motor Finance). Management stated it expects to reach the sub-1% credit cost target "much before" the originally stated FY28 timeline, with reductions coming from both Motor Finance and retail unsecured.
• Stage 3 stable, slippages moderating: Stage 3 ratios were broadly in line with Q2 levels. The increase in Stage 3 including Motor Finance was primarily attributable to ongoing degrowth in that book rather than incremental stress. Lower slippages in Q3, including in unsecured retail, are expected to translate into better Stage 3 metrics over coming quarters.
• Home loan portfolio clean: A marginal 2-3 bps uptick in home loan Stage 3 to 0.8% was attributed to rounding, with management stating there is no stress in the portfolio and slippages remain very minimal and well controlled.
• Loan Against Property confidence: Management cited 14-15 years of in-house experience, a team with 22+ years of expertise, cash-flow-based underwriting rather than pure asset-backing, and no increase in delinquencies or bounce rates as the basis for confidence in this book, even as some competitors shifted from unsecured to secured lending.

Sabharwal: "As far as credit cost is concerned, we are coming close to what our guidance is and in terms of what guidance we had given for FY '28, I think we should be able to reach there much before than what we had stated."

Business Mix & Growth Drivers

• SME and supply chain surge: The SME business, always strong in Q3 and Q4, got a major boost post-GST cuts. The supply chain business within SME saw a particularly large spurt, with Q2 having been muted because GST cuts were announced prospectively, making the Q3-over-Q2 jump look even stronger.
• Corporate book opportunistic, not margin-dilutive: The corporate loan book saw a spurt from demand triggered by GST cuts. Management emphasized this was not at the expense of margins, as minimum spread targets are enforced for each business.
• Housing finance delivering consistency: AUM grew 30% YoY, PAT up 25% YoY (ex-labour code), cost-to-income improved 114 bps, credit costs at 0.1%, net NPA at 0.4%, and ROA stable at 2.4% across all quarters of FY26.
• Diversification as philosophy: Management explicitly rejected the idea of a hierarchy among businesses, stating each business is equally important, a stance that underpins the portfolio's ability to capture opportunities wherever they arise.

Sabharwal: "We don't consider any business to be the most important and others around it to serve as the next in line business. Each business for us is very important."

Guidance & Commitments

Key Metrics