Tata Capital Ltd Q4 FY2026 Concall Summary

Key Takeaways

• AUM growth on track, ex-motor finance beats: Consolidated AUM grew 20% YoY, but excluding the still-shrinking Motor Finance book, growth was 28% YoY, exceeding the guided range.
• Asset quality is the standout story: Net NPA fell 10 bps to 0.5% (ex-motor finance), with slippages at an eight-quarter low. Unsecured retail slippages dropped 60-70%, and credit costs improved 20 bps sequentially to 0.8%.
• Motor Finance hits profitability, pivot to growth: The acquired book achieved breakeven in Q3 and a ₹43 crore PAT in Q4, with management now guiding for growth to resume from H1 FY27.
• AI is delivering measurable operating leverage: Underwriting Assist cut credit memo time from 2 days to 20 minutes, boosting productivity 30%, while cost-to-income improved 335 bps YoY to 38.3%.
• What to watch next quarter: Whether the promised Motor Finance growth materializes in H1, the trajectory of incremental funding costs after the March uptick, and any early stress signals in SME sub-segments flagged for caution.

Asset Quality: The Broad-Based Clean-Up

• Slippages at multi-quarter lows: Overall slippages declined to their lowest level in eight quarters, driven by sharp improvements in the previously troubled unsecured retail book. Personal loan slippages fell 60% and microfinance slippages fell 70%.
• Unsecured credit cost on a steady downward path: Credit costs in the unsecured business have declined every quarter since Q1, a trend management attributes to a combination of analytics-driven credit engines and GenAI tools that now harness both structured and unstructured data.
• Motor Finance net slippages turned negative: Recoveries now exceed new slippages in the Motor Finance book, a direct result of post-merger underwriting changes that separated credit from sales, introduced new scorecards, and deployed analytics for early detection.
• Corporate and SME book shows no stress: Management sees no challenge in corporate or SME asset quality, with weekly reviews post-geopolitical tensions revealing no stress build-up. Credit costs in these segments are expected to remain negligible.
• Early-cycle indicators are benign: Bounce rates are declining quarter-on-quarter, and a collections approach that intervenes before a bounce occurs is now embedded. In April, Surat and Morbi clusters showed no impact, with collections looking almost as good as March.

Sabharwal: "Actually slippages have gone down and recoveries have improved. And that is the reason if you look at our Motor Finance business... our net Stage 3 assets have come down."

Motor Finance: The Turnaround Is Now a Growth Story

• Profitability achieved ahead of schedule: The acquired Motor Finance business broke even in Q3 FY26 and delivered a ₹43 crore PAT in Q4, validating the "fitness first" strategy that prioritized portfolio clean-up over volume.
• AUM decline was deliberate, not a sign of weakness: The 4% sequential AUM decline reflects a conscious strategy to shrink the book while fixing underwriting. Disbursements, however, grew 32% sequentially, signaling that the origination engine is restarting.
• Multi-OEM strategy is working: Non-Tata OEM share in new CV disbursements reached 26% in Q4, up from zero pre-merger, diversifying the portfolio away from a single manufacturer. The product mix has also shifted toward used CVs and medium/small CVs, reducing heavy CV concentration.
• Growth guidance is back: Management expects growth to resume from H1 FY27, with disbursements planned to grow close to 80%+ and book growth closer to 10% for the year, accelerating into FY28. The de-growth of FY26 "will not happen in FY27."
• ROA target set: Steady ROA improvement is expected through FY27, with a target of 2% ROA by FY28.

Sabharwal: "In the first year itself, we broke even in quarter 3 and have made money in quarter 4 and which will keep increasing going forward with every passing half year or so."

Margins & Profitability: The 60 bps Bridge to FY28

• Q4 margins improved, and the trend is upward: Net total income stood at 6.5% in Q4, better than the full-year average. On a daily average basis, NIM showed a 10 bps improvement, though a two-point average masks this due to timing effects.
• Cost-to-income is falling fast: The ratio improved 335 bps YoY to 38.3%, within the guided range. Management sees a path to 33-34% by FY28, driven by operating leverage from digitization, AI, and calibrated headcount growth focused only on sales and collections.
• The FY28 profitability bridge is explicit: Management laid out a 60 bps ROA improvement from current levels: 20-25 bps from lower credit costs (targeting ~1%), 15 bps from operating cost reduction, and the balance from NIM plus fee improvement via product mix shift rather than higher risk.
• AI could accelerate the opex lever: While the official estimate is a 15 bps opex reduction, management acknowledged that if AI and digitization initiatives go well, they "may be able to do even better than that."
• Fee income held steady: Fee income was stable at 1.1% in both Q3 and Q4, though non-interest income took a hit from mark-to-market on private equity investments due to the March stock market decline. Management is not perturbed, expecting markets to recover.

Sabharwal: "And because of digitization, AI and other things, we do believe that the estimate which we have taken on operating costs, if all goes well, we may be able to do even better than that. But at least I am sticking to only what we have communicated."

Funding & Liquidity: Lower Costs Ahead, With a Watchpoint

• Cost of funds declined sequentially: Overall cost of funds fell ~5 bps to 7.1% in Q4, supported by the AAA rating and a diversified liability franchise.
• FY27 cost of funds expected lower than FY26: Management's base case is for a lower full-year cost of funds, driven by a stock-versus-incremental logic: fixed-rate borrowings raised in FY26 and part of FY25 will keep running at lower cost and may not need full replacement.
• March saw a short-term blip: Incremental borrowing costs ticked up in March due to global developments. Short-term costs have since come off in April, but long-term costs have not yet reverted to December-January levels, a dynamic management says "we will need to watch."
• Motor Finance legacy repricing is largely done: Approximately 95% of the ₹25,000-26,000 crore legacy Motor Finance borrowing was repriced during FY26, with only residual amounts left due to reset dates.

Sabharwal: "Cost of funds is, I would say, a moving scale, tough to predict what is going to happen. But based on what we have seen and our estimate is, our cost of funds for the next year FY27 should be lower than the cost of funds for FY26."

Portfolio Strategy: Mix Shift Toward Higher-Yield, Within Guardrails

• High-yield businesses to outgrow the book: Affordable housing, unsecured retail, two-wheeler, and secured business loans are all targeted to grow at more than 25%, pulling the overall AUM growth to the 23-25% guided range.
• Unsecured mix to inch up, not leap: The unsecured proportion is expected to rise by at least one percentage point in FY27, moving from ~10% toward a 12% target, a pace management believes will not stress credit costs. The overall retail-plus-SME mix is also expected to inch up ~1%.
• Housing finance remains the anchor: AUM grew 29% YoY to ₹86,653 crores, with PAT up 34% YoY. Growth is expected to continue at a similar pace, driven by prime home loans, LAP, and an expanding affordable and micro-housing franchise.
• New segment entry: near-prime housing: To avoid competing at the 7.2-7.25% rates offered by other players, Tata Capital is entering the near-prime housing segment, targeting better yields without taking on sub-prime risk.
• Selective caution in MSME: Management has tightened policy in certain sub-segments, including hotels and travel-related businesses, and has communicated to the credit team to focus on working capital cycles and raw material availability. No alarming signs have been seen in April.

AI & Operating Leverage: Productivity Gains Are Now Quantified

• Underwriting Assist is a flagship use case: The platform reduced credit memo preparation time in SME from ~2 days to 20 minutes, improving underwriting team productivity by 30%, with an 85% adoption rate.
• Voice and document AI are scaling: A unified voice hub operating in 11 languages now automates 90% of welcome calls, while AI-driven early-bucket calling delivers 30% EMI collection from the allocated pool. The document intelligence engine has processed over 2 crore documents with 80+ operational bots, improving ops productivity by 35%.
• AI is not a substitute for credit policy: Management was explicit that the 14 bps credit cost reduction in FY26 came from a combination of AI tools and strong underlying credit policy and processes, not from AI alone. AI makes good processes better but cannot compensate for weak ones.
• Workforce training is underway: The company has initiated a program to train almost all manpower to understand the advantages of AI, signaling a top-down push to embed the technology across functions.

Sabharwal: "So AI helps in making it better, but if your credit policies are not strong, if your processes are not strong, then AI may not be able to assist you."

Guidance & Commitments

Key Metrics