Muthoot Microfin grew 13% while the industry fell 20%; The CEO explains what lies ahead

In a year when the microfinance industry collectively shrank by nearly 20%, Muthut Microfin quietly did the opposite. The company grew its assets under management by 13.3%, crossed the ₹14,000 crore AUM milestone it had promised investors, and emerged from the bruising credit cycle with meaningfully improved asset quality. CEO Sadaf Saeed sat down with ET Now to explain how and where the company goes from here.

significant numbers

Syed started with asset quality, the metric that has defined the microfinance sector’s woes over the past two years. Gross NPAs declined from 4.85% to 3.89% – an improvement of 95 basis points. Net NPAs remained low at 1.2%. But the number he was most proud of was collection efficiency, which rose to 96.48% from 90.6% a year ago — a 575 basis point swing that signals borrowers are making reliable payments again.

Credit cost, the annual charge lenders make for expected loan losses, came in at 3.5% for the full year, below the company’s 4-6% guideline. For the standalone fourth quarter, it fell further to 2.8%. Saeed said the long-term steady-state credit cost target is 2.5%, and the company has already achieved that.

Profitability followed. Full-year ROA came in at 1.7%, with the standalone fourth quarter printing 2.1%, ahead of the company’s own 0.5-2% guidance range. PAT for the year was ₹170 crore, adding to total net worth of ₹217 crore including OCI adjustments.

The strategy behind the recovery

The turnaround was not accidental. Muthoot Microfinance deliberately divested itself of its core joint liability group lending, which dominates 97% of the book. Today JLG sits at 83% with 17% in non-JLG products, ahead of the 85-15 target the company had guided for.

A unique new product is the personal loan. In just one year, Muthoot Microfin has built a personal loan book of ₹2,300 crore, and Saeed described the asset quality there as exceptional with zero delinquency over 30 days. Loans against property and gold loans are also being added to the mix.

Critically, 57% of the current balance sheet was originated this year – and on that fresh book, the 30-day delinquency rate is just 0.8%. The portfolio effectively has a clean core.

The Way Forward: Margins, Yields and ROA

Saeed’s further guidance was certain. NIM is expected to reach 12.5% ​​in FY27 and trend towards 13% later in the year due to rising yield on portfolio. The portfolio yield currently sits at 18.8% and is expected to exceed 20% – a 200 basis point expansion – as higher-yielding new loans accumulate in the book.

The cost of funds, meanwhile, is moving the other way. After falling 75 basis points to 10.23% last year, Saeed expects further declines as the rate cycle continues. Combine expanding yields with declining funding costs and declining borrowing costs, and the ROA path becomes clear – the company is guiding for 3-3.5% ROA over the next year.

Operational efficiency is also improving. The average balance per branch increased from ₹ 7.2 crore to ₹ 8.3 crore. The productivity of the field officer has increased from managing a portfolio of ₹1 crore to ₹1.5 crore. The operating expense ratio fell to 6.4% from a peak of 7%, with further improvement expected.

For a sector that has spent two years in recovery mode, Muthoot Microfin’s figures suggest that the tide has indeed turned.