Can this microfinance lender lead the industry's turnaround in FY26?
This vulnerability resurfaced once again as the post-pandemic credit boom lost momentum in FY25. Initially driven by low interest rates, credit growth began slowing as borrowing costs rose and economic activity weakened. This shift strained borrower repayment ability, increased asset quality stress, and severely hit profitability across the sector.
To limit further damage, many lenders opted to write off bad loans and reset their books. The intent was to enter FY26 with a cleaner slate, as the industry looks ahead to a potential recovery.
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Spandana Sphoorty took a similar approach. In FY25, it wrote off loans worth ₹1,618 crore—a move that dented profits. However, with most of the clean-up now behind it, it is positioning itself for a turnaround in FY26. So, where does Spandana stand after this reset?
AUM contracts
Let's start with assets under management (AUM), which declined sharply by 43% year-on-year to ₹6,819 crore in FY25. Disbursements also fell 48% to ₹5,605 crore, as Spandana adopted a cautious lending stance. This is evident from the AUM per branch, which fell from ₹7.3 crore in March 2024 to ₹3.8 crore in March 2025.
This conservative approach directly contributed to the drop in the overall loan book. The management said FY25 was one of the most challenging periods for the microfinance industry. Multiple headwinds—including higher borrower leverage, weakening of the Joint Liability Group model, deteriorating borrower discipline, and sociopolitical interference—forced lenders to tighten credit norms and proceed with greater caution.
The impact of this is also visible in customer numbers, which fell from 3.3 million in March 2024 to about 2.5 million by March 2025. However, now the company remains confident of reviving growth in FY26.
It plans to grow its AUM book by 20%, driven by a similar increase in disbursements, most of which is expected in the second half of FY26. The company now plans to lend to quality borrowers—who currently account for 51% of its borrower base as per internet lending regulations—to support the future growth.
Asset quality worsens
Not just AUM, but asset quality stress also increased—a trend often seen in times of stress in the microfinance industry. Spandana impairment cost—unrecoverable loans—rose from ₹259 crore (in FY24) to ₹1986 crore in FY25.
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Gross non-performing assets (GNPA) increased by 4.1 percentage points to 5.6%, while net NPAs rose by 0.9 percentage points to 1.2%. On the positive side, Spandana continues to maintain a healthy provision coverage ratio of 80%.
The management attributed much of the stress to elevated field-level attrition, which hurt operational efficiency and contributed to rising delinquencies. To strengthen collections, the company has now deployed around 700 loan officers, who will focus on recovery from 90+ day old loans and the write-off pool.
Early recovery signs
Despite a challenging year, Spandana is starting to see early signs of recovery. Gross collection efficiency declined from 94% in Q1 to 90.9% in Q4FY25. But the company highlighted an improving trend in net recovery from bad assets.
Net collection efficiency for loans overdue by more than 90 days (called X-Bucket) improved from 96.4% (Nov-24) to 98.6% in March 2025. Interestingly, branches with a weekly repayment model reported even higher collection efficiency of 99.3% in March.
As a result, Spandana now plans to scale up its weekly-model branches, which are showing better collection performance. The company believes improving collections to about 99% helps support profitability going forward.
Recovery from 90+ day past-due accounts has also picked up meaningfully, rising from ₹11 crore in Q1FY25 to ₹52 crore in Q4 FY25. In total, Spandana recovered over ₹90 crore in the last fiscal. In FY26, the company expects a further recovery, aided by a dedicated team and the early arrival of the monsoon, which typically supports rural cash flows.
Strict credit filters to address borrower leverage
Lender overlap—the proportion of borrowers taking loans from three or more MFIs, including Spandana, has also shown signs of improvement. Lender overlap declined from 23% (Feb-25) to 20.3% in April 2025, indicating some relief on the leverage front.
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To tackle the issue further, Spandana has decided on stricter credit filters. It will now cease lending to borrowers with overdue loans exceeding 60 days with any regulated entity, where the loan amount exceeds ₹3,000. Additionally, it will also avoid lending to borrowers who have availed a loan in the past 12 months, effective June 2025.
Profitability severely hit
While green shoots are visible, elevated stress levels kept credit costs high, which impacted profitability in FY25. The company's total income declined by just 3% to ₹2,424 crore, indicating a relatively stable topline. Net interest income also fell by 5% to ₹1,228, as the net interest margin contracted by 1.3 percentage points to 12.8%.
However, the bigger concern was on the operating front. Pre-provision operating profit dropped sharply by 35% to ₹608 crore, as the cost-to-income ratio rose to 60.6% from 43.5% in FY24.
This situation was further aggravated by impairment, which rose from ₹259 crore (FY24) to ₹1,986 crore (including write-offs of ₹1,618) in FY25. As a result, the company moved from a profit of ₹501 crore in FY24 to a net loss of ₹1,035 crore in FY25. Needless to say, the return ratios—return on assets and return on equity—turned negative.
Capital position stays strong
Spandana's net worth declined from ₹3,707 crore to ₹2,633 crore due to the heavy loss in FY25. However, its capital adequacy remains well above regulatory norms, with a capital-to-risk-weighted assets ratio (CRAR) of 37.1% as of March 2025, well above the RBI's mandated 15%.
Liquidity healthy; rights issue planned
The company's liquidity position continues to offer comfort. It reported a cash balance of ₹2,030 crore as of March 2025, enough to meet short- and medium-term requirements.
Additionally, shareholders approved a ₹750 crore capital raise in March 2025, and the company plans to raise further capital in Q2 FY26 via a rights issue, with promoter participation, which signals confidence in a potential turnaround.
Valuation factors in stress
Spandana's share price has declined 64% in the last one year, currently trading at ₹262. This correction has largely priced in many of the concerns, with the stock now valued at a price-to-book (P/B) multiple of 0.7x, significantly below its 10-year median P/B of 1.5x.
Going forward, a sustained recovery in key metrics—particularly in asset quality, disbursement growth, and collection efficiency—will be crucial to re-rating, with most of this expected to unfold from the second half of FY26.
Madhvendra has over seven years of experience in equity markets and has cleared the NISM-Series-XV: Research Analyst Certification Examination. He specialises in writing detailed research articles on listed Indian companies, sectoral trends, and macroeconomic developments.
Disclosure: The writer does hold the stocks discussed in this article. The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
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The Hindu
2 minutes ago
- The Hindu
In Bihar, a matter of life and debt
Chandra Devi, 53, holds up a loan slip, its creases more prominent than its text. It states that she borrowed a loan of ₹35,000, allegedly from RBL Bank, a private sector institution, in May 2024. 'I have to repay the loan and an interest rate of do taka (2%),' Chandra declares. But the slip states that the interest rate is a hefty 25% over two years. Chandra is sitting in a mango orchard with a group of women at Dekuli Chatti village in Darbhanga district of Bihar. Around her, children climb trees under an overcast sky. Some of them clamber to the top, others hang upside down from branches. Their mothers sit on a yellow plastic sheet spread over the grass. While watching their children's antics, they share their struggles on repaying dues. According to the 2022 caste survey of Bihar, 34% of households in the State earn ₹6,000 or less per month. In June 2025, Piramal Enterprises, an Indian non-banking financial company (NBFC) focused on financial services, published a study. In it, they stated that the share of Indian households from economically weaker sections of society — that is, those earning ₹1-2 lakh a year — who borrowed from formal channels, such as banks and NBFCs, contracted by 4.2% between 2018-19 and 2022-23. At the same time, the share of households borrowing from informal or non-institutional sources of credit, such as money lenders, friends, families, and shopkeepers, grew by 5.8%. The data also shows that Bihar accounts for the highest share (18%) of households in India who borrow from non-institutional lenders. The study was based on data from the Centre for Monitoring Indian Economy, an independent private entity that serves as an economic think tank as well as a socioeconomic database. However, many households that borrow from non-institutional lenders also borrow from microfinance institutions, which are regulated by the Reserve Bank of India (RBI), the country's central bank. The RBI defines a microfinance loan as 'a collateral-free loan given to a household having an annual income up to ₹3,00,000'. According to Sa-Dhan, an RBI-approved self-regulatory body for the microfinance sector, there are 224 such institutions in India. While loans from microfinance institutions help impoverished borrowers across India, borrowers are often unable to repay them and fall behind. They also sometimes run away, fearing that microfinance companies will demand repayment using strong-arm tactics. As a result, many households remain trapped in a cycle of debt. When loans become nightmares Chandra belongs to the Musahar community. Musahars are among the 18 Scheduled Castes in Bihar who were recognised as Mahadalits by Chief Minister Nitish Kumar in 2007. They are socially and economically the most backward among Scheduled Castes. Chandra says she doesn't know the name of the bank from which she borrowed a loan; instead, she identifies it by its location — Donar, a locality in Darbhanga. 'I was asked to give my Aadhaar card, nothing else,' she says, about the process of securing the loan. The slip she holds says the loan was taken for 'agriculture-livestock/diary/poultry/cattle' purposes, but Chandra, the mother of two daughters and a son, says she borrowed it for her older daughter's wedding. Before the wedding, the groom's family demanded a motorcycle as part of dowry. Chandra borrowed money from the village mahajan (money lender). When that didn't suffice, she went to a women's self help group (SHG). Finally, she secured a loan, allegedly from RBL Bank. As Chandra's husband has been out of work for several months due to an illness, her family depends entirely on the amount her son sends home. 'He sells apples in Kolkata, so he cannot always send money.' she says. 'After all, everything is so expensive these days.' Chandra also worries that she has a teenage daughter who will 'soon be of marriageable age.' Punam Devi, 42, who is also from the Musahar community, keeps two documents close to her chest. One shows that she took a loan of ₹40,000, allegedly from Pyramid Finserve, an emerging NBFC, in July 2024. Punam borrowed the loan for her younger son, who had been diagnosed with meningitis. The other document shows that she borrowed another loan of ₹75,000, allegedly from Utkarsh Small Finance Bank Limited, a commercial bank focused on 'providing banking and financial services, particularly to underserved and unserved sections of the population, primarily in rural and semi-urban areas.' This loan, borrowed to pay for treatment of her husband who lost a leg in an accident, was cleared on March 23 this year with an interest rate of 28%, as per the document. Punam says she had to pay installments every fortnight. After her husband's accident, the family's income is now nearly negligible, making it all the more challenging for them to repay the loan. Both men were treated at private hospitals. 'We don't get admission in government hospitals,' she says. The other women nod along. Parvati Devi, 38, says her husband works in Bengaluru, Karnataka, as a daily wage labourer. He left 15 days ago and will return only next year. 'We had to borrow money for our eldest daughter's wedding,' says Parvati, who also belongs to the Musahar community. 'We borrowed nearly ₹1.5 lakh from the local money lender four years ago. Unable to repay the loan, I took three loans from three microfinance institutions.' Her total liability amounted to ₹1.35 lakh and she had to pay monthly installments of about ₹7,000. 'Agents never fail to turn up' Chandra, Punam, and Parvati sought loans for weddings or for treatments in hospitals and struggled to repay the amounts. Many of these women accessed microfinance institutions through group lending. In this process, borrowers form small groups and the members of the group are jointly liable for each other's loans. Banks appoint agents to recover overdue loan payments or outstanding debts. The women say recovery agents never fail to turn up, and the amount of money their families have is usually never enough to meet the final sum. This week, a recovery agent stood at Parvati's door, threatening and abusing her the entire day. 'I was not scared,' Parvati says. 'I shouted at him as well. He said he would file a case against me. I told him, so be it.' The recovery agent left only after she managed to put together the amount, which fell short of ₹1,000, she says. Mina Devi is due to pay her monthly instalment of ₹2,450, but she is ₹50 short. 'He [the recovery agent] won't take the amount until I give him the full amount,' she complains. Mina worries about his response. 'Last time he told me, 'Why don't you go to the road and beg? And in the process if you die, the loan will be waived off.'' According to the RBI, when a borrower dies and there is no collateral, the lender can recover the amount from the legal heirs, and only up to the limit of what the heirs inherit. Mina's husband spends at least six months working in the fields in Punjab, so she has to deal with the agents on her own. 'When a male member of the family is not around, the agent hangs around for hours,' she says. Rekha Devi has three separate loans to repay, with the total liability amounting to close to ₹1 lakh. 'He [recovery agent] asked me why I don't sell my body if I have no money to pay the instalment,' she says. The women say the agents often threaten to take away possessions they have painstakingly collected over the years — beds, pressure cookers, gas cylinders, even the odd plastic chair. In Somini Devi's case, this became a reality. Somini's husband is no more. She has six children — three daughters and three sons — and all of them are married. She says she has been left alone to repay the loans she borrowed for their weddings and for other expenses. 'The recovery agent took away everything I had — a table, a chair, my bed, the cooker, the gas cylinder, and even my supply of wheat for the year. He stripped my house empty.' When asked if she reported the incident to the police, she stares blankly. 'How can we?' she murmurs. The women say at least 20-25 families in their village alone have fled fearing recovery agents. As they start counting and naming the families, many of them turn towards Pawan Devi. Pawan took loans from five microfinance institutions for her son's wedding, but she has been unable to repay the amount. Pawan and her family fled the village, spent more than a year in Punjab, and returned only last week. Pawan cannot recall the name of the village where she and her family stayed. 'Barring the biting cold, it was better there,' she says. 'The landlord didn't charge us for electricity or water. There were clean toilets. And we had a regular income working in the fields.' Pawan says what she cherished the most about her stay in Punjab was the absence of recovery agents. But the agents she dreads are now back at her doorstep. 'They come every other day. Sometimes they stand outside for hours. Sometimes they enter the house and start rifling through our papers. The other day, they took away my son's Aadhaar card,' she says. Around 30 kilometres away at Navtol village in Bhawanipur panchayat of Darbhanga district, Mahesh Kumar Roy, who says he is a recovery agent with Muthoot FinCorp, is on his daily rounds of the village. Mahesh, who hails from Darbhanga, goes from house to house on his motorcycle. He pulls out the sheaves of papers rolled up between his motorcycle handles and runs his finger along the names. 'Since 2022, when I joined the company, I have been given 1,100 households to track. At least 450 families who defaulted on their loans have disappeared. I make regular rounds, but all I see is locked homes,' he says. Mahesh adds that people 'disappear only after they have paid 15-16 installments' and 'after we have managed to recover at least 60% of the principal amount.' Mahesh prides himself as a 'decent' agent. Aware of the reputation that recovery agents have, he looks at the crowd gathered around him and asks them whether he is intimidating or threatening. They all say 'no'. Rules on paper The RBI issued exhaustive guidelines in 2022 collating the piecemeal directives it had issued earlier. It said that the lenders must 'provide the flexibility of repayment periodicity on microfinance loans as per borrowers' requirement'. That is, the repayment period of the loan must be moulded to the requirements of the borrowers, rather than the needs of the lender. 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Time of India
17 minutes ago
- Time of India
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Time of India
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- Time of India
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