Can this microfinance lender lead the industry’s turning in FY26?

This vulnerability resurfaced once against 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, increases 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.

Spandana sphoorty took a similar approach. In FY25, it Wrote off Loans Worth 1,618 Crore – A Move That DENT DENT DEND Profits. However, with most of the clean-up now behind it, it is positioning it sesself for a turnard 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-yar to 6,819 Crore in FY25. Disbursions 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 HIGER BOROWERAGE, WeaKening of the Joint Liability Group Model, Deterirateing Borrower Discipline, and Sociopolitical Interference – Offorced lenders to TINDERCE CERDERCE CEREDERENCE Norms and proceed with great care.

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 in fyering in

It plans to grow its aum book by 20%, Driven by a Similar Increase in disbursions, most of which is expected in the second half of fy26. The company now plans to lend to quality borrows – WHO Currently Account for 51% of its borrower base as per internet lending regulations – to support the future green.

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 – Unrecoveble Loans – Rose from 259 Crore (in FY24) to 1986 Crore in FY25.

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 cover 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 Writ-of -FF 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, Branchs with a white a white Reported even higher collection efficiency of 99.3% in March.

As a result, spandana now plans to scale up its weekly-model Branchs, which are showing better collection performance. The company believes improve collections to about 99% Helps Support Profitability Going Forward.

Recovery from 90+ Day Past-Due Accounts has also picked up meaningful, 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, aide by a dedicated team and the early arrival of the monsoon, which typically supported rural cash flows.

Striat 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 Teverage Front.

To tackle the issue further, spandana has decided on stricter credit filters. It will now cease lending to borrowers with overdue loans exceding 60 days with any registered entity, where the loan amount exceeds 3,000. Additional, it will also also avoid lending to borrowers who have available 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-inside 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 adequaacy remains well Above regulatory norms, with a capital-to-Risk-andweighted assets ratio (cross) of 37.1% as of March 2025, Well Above The RBI ‘Mandated 15%.

Liquidity healthy; Rights issue planned

The company’s liquidity position controls 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 potental tarnaarda.

Valuation factors in stress

Spandana’s share price has declared 64% in the last one year, currently trading at 262. This correction has been brought priced in many of the concerns, with the stock now valued at a price-to-book (p/b) Multiple of 0.7x, significly below ites 10-Ayar Meedi P/B of 1.5X.

Going forward, a sustained recovery in key metrics-porticularly in asset quality, disbursment growth, and collection efficiency-Will be Crucial to Re-also 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 written 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 want to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only,