Annual Report 2025-26
MD and CEO’s letter to shareholders
Powering India’s credit ecosystem by enabling the seamless flow of credit to underserved households, entrepreneurs and businesses.
Dear Shareholders,
Every year, as I reflect on Northern Arc’s journey, I find myself returning to a simple question:
What kind of institution are we trying to build?
Sixteen years ago, we started with a clear belief. India’s growth story could not be complete unless credit reached every deserving individuals, household, and small business, irrespective of where they lived. The challenge was never the lack of demand for credit. It was the absence of an ecosystem that could deliver credit responsibly, consistently and at scale.
That belief continues to define Northern Arc today.
While we are recognised as a financial institution, we have never viewed ourselves as merely a lender. We see ourselves as an enabler of India’s credit ecosystem, bringing together borrowers, originators, investors, technology and risk management capabilities to ensure that capital flows to where it can create the greatest impact at scale. Every business we have built, every partnership we have forged and every investment we have made has been guided by this single purpose.
As India’s economy continues to formalise, millions of individuals, households and small businesses are entering the formal financial system. Rising aspirations, expanding digital infrastructure and deeper financial inclusion are transforming the way credit is originated, distributed and consumed. We believe this represents one of the most significant long-term opportunities in India’s financial services landscape.
But the scale of this opportunity also demands a different way of thinking.
One can ask, “How much of this opportunity can we capture ourselves?” Or one can ask, “How much of this opportunity can we help India realise?”
For us, the answer has always been the latter.
Helen Keller once wrote, “Alone we can do so little; together we can do so much.” Those words capture Northern Arc’s philosophy better than any strategy document. They inspired us to build an institution that collaborates rather than competes, enables rather than replaces, and believes that strengthening the ecosystem creates value for everyone. This philosophy has shaped Northern Arc from the very beginning and continues to guide every decision we make.
Guided by this philosophy, Northern Arc has evolved into one of India’s most diversified technology-led financial services platforms. Today, our ecosystem spans 368 originator partners, 57 digital lending partners and 432 branches, enabling credit to ~140 Million borrowers across the country.
Our diversified model is intentional. It combines a growing Direct-to-Customer lending franchise with a well-established Credit Solutions platform, allowing us to participate across multiple lending segments while remaining resilient through changing economic and credit cycles. This diversification has become one of our greatest strengths.
Over the years, I have often reminded our teams that we are not merely in the business of lending; we are in the business of managing risk.
Growth creates value only when it is sustainable. Every lending decision reflects a careful balance between opportunity and discipline. Over the past sixteen years, Northern Arc has successfully navigated every major disruption that confronted India’s financial sector, including demonetisation, the IL&FS crisis, the COVID pandemic, the microfinance cycle, liquidity disruptions and more recent geopolitical uncertainties. Each of these events tested our resilience. More importantly, they reinforced a lesson that continues to guide us today: institutions built on prudent risk management endure.
Our long-term strategy has been anchored around three simple yet enduring principles, “Strengthen, Grow and Reimagine”.
The first priority has been to strengthen the foundation of our franchise. Over the past sixteen years, we have built one of India’s most differentiated Credit Solutions platforms, connecting originators, lenders and investors through a technology-led ecosystem. We believe this franchise represents a unique and durable competitive advantage, one that is difficult to replicate given the relationships, capabilities, data and trust that have been built over time.
Having strengthened this foundation, our focus has been to grow our Direct-to-Customer lending business by leveraging the insights, underwriting expertise and ecosystem advantages developed through our Credit Solutions platform. This has enabled us to build a granular retail franchise while remaining disciplined in our approach to risk.
The third pillar is to reimagine how we serve customers and partners. Whether through technology-led lending, digital distribution, or expanding into asset and wealth management solutions, we continue to explore new ways of leveraging our platform to create greater value for every participant in the credit ecosystem.
We believe this strategy has created strong and sustainable competitive moats around our business. More importantly, it has enabled us to build a diversified institution where each business reinforces the others, creating a flywheel of growth that becomes stronger with scale. The outcomes we are delivering today, in our financial performance, the quality of our franchise and the confidence of our stakeholders, reinforce our conviction that this strategy is creating long-term value and positioning Northern Arc for its next phase of growth.
Over the last five years, Assets Under Management have grown at a CAGR of approximately 26% to INR 16,594 Crore as on 31 March 2026. During the same period, our Direct-to-Customer portfolio has expanded from INR 986 Crore in FY21 to INR 9,792 Crore in FY26, increasing its contribution to our lending portfolio from 19% to 59%.
This transformation has fundamentally changed the composition of our business. A more granular retail portfolio has strengthened our earnings profile, expanded our Net Interest Margin from 5.6% to 9.4% and supported a five-year Profit After Tax CAGR of 43%, reaching INR 406 Crore, while maintaining Net NPAs below 1%.
These numbers represent more than financial growth represent outcome of a sharply executed strategy. They demonstrate that disciplined execution, when pursued consistently over time, creates sustainable shareholder value. FY26 further demonstrated the resilience of our business model.
Against the backdrop of improving regulatory conditions and recovering credit demand, Northern Arc delivered its highest-ever annual profit of INR 406 Crore with year-on-year growth of 33%, while continuing to strengthen portfolio quality. Our AUM grew by 22% year-on-year to INR 16,594 Crore, outpacing industry growth, led by a 39% increase in our Direct-to-Customer portfolio, which now contributes 59% of our lending assets.
This progress reflects a strategy that we have consistently articulated over the past several years: building a diversified, granular retail lending franchise supported by disciplined underwriting, deep customer understanding and a technology-enabled operating model.
Consumer Finance continued to be one of our fastest-growing businesses. AUM increased by 50% to INR 5,092 Crore, supported by strong consumption demand, robust partnership with 24 Digital Partners and proprietary on-lending platform, nPOS. As India’s consumption economy continues to expand, we believe responsible consumer lending will remain a meaningful long-term opportunity.
Our MSME Finance business also delivered another year of strong growth, with AUM increasing 43% to INR 3,691 Crore. Alongside business expansion, we strengthened our operating capabilities through branch additions, improved collection efficiencies and a secured lending approach supported by fully registered mortgage structures. India’s entrepreneurs continue to represent one of the country’s greatest growth engines, and we remain committed to supporting them responsibly.
Following strong growth post COVID, the microfinance industry witnessed a significant correction driven by borrower over-leveraging. We responded early by moderating portfolio growth, strengthening collections, enhancing field recovery capabilities and increasing portfolio surveillance. These proactive measures helped improve collection efficiency to 99.6% by March 2026 while allowing us to resume disbursements in a calibrated manner as portfolio quality improved.
Our approach throughout the cycle remained unchanged. Growth is important but preserving asset quality and protecting long-term franchise value are even more important.
While our Direct-to-Customer franchise has grown significantly, our Credit Solutions platform continues to remain the foundation upon which Northern Arc was built.
Over the last sixteen years, this platform has evolved into a comprehensive ecosystem supporting originator partners through capital access, technology, structuring expertise and risk management capabilities. We remain selective in choosing our partners, with 88% rated BBB or above and around 95% maintaining capital adequacy ratios exceeding 20%.
By strengthening our partners, we strengthen the broader credit ecosystem.
Our fee-based businesses further complement this model by creating diversified earnings streams while deepening client relationships. During FY26, placement volumes reached INR 11,834 Crore, while our credit funds managed assets of INR 3,092 Crore. Together, these businesses reinforce our integrated financial services platform and reduce dependence on any single business line.
Our vision of building a comprehensive credit ecosystem extends beyond lending and into enabling wider participation in India’s capital markets. Altifi, our retail bond platform, is a reflection of this vision. By providing retail investors access to high-quality debt securities underwritten by Northern Arc, we are democratising an asset class that has traditionally been accessible primarily to institutional investors.
The platform today serves over 95,000 registered investors, with one of the highest average investment values per customer in the industry. This is a strong endorsement of the trust that investors place in Northern Arc’s underwriting capabilities, disciplined risk management and long-standing track record. More importantly, Altifi strengthens our ecosystem by connecting individual investors with quality fixed-income opportunities while broadening the sources of capital available to borrowers. Its growing acceptance reinforces our belief that institutions built around customer trust, transparency and consistent value creation are best positioned to deliver sustainable long-term growth.
Risk management remains the foundation of everything we do.
Today, our underwriting framework is supported by more than 50 Million loan performance data points, over 30 proprietary underwriting models and a team of more than 100 dedicated risk professionals. The combination of technology, analytics and human judgement enables us to respond quickly to changing market conditions while maintaining disciplined underwriting standards.
This disciplined approach translated into stronger financial outcomes during the year. Credit costs reduced by 42 basis points to 2.8%, Net NPAs improved to 0.6%, Stage 2 assets declined to 1.5% and Return on Assets increased to 2.8%, despite macroeconomic uncertainty and a prudent management overlay.
An equally important pillar of our franchise is the strength of our liability profile. Over the years, we have built a well-diversified funding base comprising a balanced mix of domestic and offshore lenders, enabling us to access capital across market cycles. This diversified liability franchise, combined with a strong capital position and a positive Asset-Liability Management (ALM) profile across time buckets, provides us with both stability and financial flexibility.
More importantly, it reflects the confidence that our lending partners have in our business model, governance standards and risk management capabilities. Supported by our consistent financial performance and strong credit profile, we continue to enjoy access to funding on competitive terms, reinforcing our ability to grow responsibly while maintaining a resilient balance sheet.
As we look ahead, our confidence comes not only from the opportunities before us but also from the institution we have built to pursue them.
India’s credit market continues to offer enormous headroom for growth. Millions of individuals, households, and businesses remain underserved, creating a long runway for responsible financial institutions. Supported by a strong Board, an experienced leadership team, proprietary technology, disciplined risk management and a diversified business model, we believe Northern Arc is well positioned to grow its lending assets by 20-25% CAGR in coming years while continuing to deliver sustainable, risk-adjusted returns.
Yet, our aspiration extends beyond building a larger balance sheet.
We aspire to build an institution that remains trusted across credit cycles, respected by customers and partners, valued by investors and recognised for expanding financial inclusion responsibly.
When credit reaches deserving borrowers, entrepreneurs create businesses, families improve their quality of life and communities prosper. If Northern Arc can continue enabling that progress, we will have created lasting value not only for our shareholders but also for the country we serve.
On behalf of the Board, I extend my sincere gratitude to our employees, customers, partners, investors and shareholders for your continued trust and confidence. Every milestone we have achieved reflects your belief in Northern Arc and the unwavering commitment of our people.
Our journey over the past sixteen years has strengthened our conviction. The opportunities before us are even greater, and we look forward to building the next chapter together.
Thanking You.