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Informist, Monday, Jul. 21, 2025

By Eshitva Prakash

MUMBAI – Creditaccess Grameen is expected to post a steep rise in its net profit on the back of improved operating performance and a successful diversification strategy, according to analysts. Normalising delinquency in the microfinance industry is also expected to help the company post better numbers.

Only three brokerage estimates are available for the company's June quarter earnings. Anand Rathi Securities Ltd. estimates the company will report a net profit of INR 983 million, more than double the profit of INR 472.10 million the company had reported in the March quarter. On the other hand, JM Financial Institutional Securities estimates Creditaccess will report a net profit of INR 722 million for the latest quarter, up 53% sequentially. Both these estimates show the net profit will be sharply lower on a year-ago basis. Creditaccess Grameen had reported a net profit of INR 3.98 billion in the year-ago quarter.

Estimates for the company's net interest income vary sharply. The highest estimate of INR 9.61 billion is from JM Financial Securities and the lowest of INR 8.53 billion is from Anand Rathi. In the March quarter, the company had reported a net interest income of INR 8.76 billion. The company had posted a net interest income of INR 9.27 billion in the year-ago quarter.

Persistent asset quality deterioration, regional regulatory issues in Karnataka that have resulted in higher provisioning costs and accelerated write-offs, and the impact of microfinance industry network guardrails are expected to drag down the company's net profit in the latest quarter.

The Karnataka government had issued an ordinance in February 2025 which aims to regulate microfinance institutions. The new ordinance penalises lenders for coercive loan recovery practices and this has led to higher provisioning for bad loans by Creditaccess Grameen. Asset quality concerns are pronounced as the company's loan portfolio in Karnataka accounts for around 32% of its total loan book, according to the latest data.

"New stress formation (in Karnataka) has largely normalised, supported by robust internal processes such as rigorous daily collection monitoring, detailed audit reports, and consistent tracking of center attendance," Motilal Oswal Securities said. Despite new stress formation normalising, credit costs are expected to remain high in the first half of FY26 after substantial provisions and write-offs in the previous financial year, according to brokerages. The company's gross and net non-performing asset ratios for FY25 were 4.8% and 1.7%, respectively. Provisions and loan losses are expected to fall to 5.42 billion in the June quarter from 5.83 billion in the previous quarter, according to Motilal Oswal.

Overall, Creditaccess Grameen expects its FY26 credit cost to be 5.5–6.0%, with most of the credit cost being front-loaded in H1FY26, to factor in the impact of the Karnataka ordinance, ICICI Securities said. "CREDAG (Creditaccess Grameen) has showed signs of stress peaking out, with PAR-0 (portfolio at risk) at 6.9% which was Q3FY25: 6.8%, and a normalisation in the pace of PAR-0 accretion, barring Karnataka" HDFC Securities said.

Despite these challenges, analysts point to several strengths supporting a positive outlook. The company's customer acquisition was robust in the March quarter and it added 261,000 new customers, with 43% being new-to-credit, according to Deven Choksey Research.

Motilal Oswal expects the company's growth plans will be well supported by the strong Tier-1 capital adequacy ratio of around 24%, which will also provide an adequate buffer to absorb shocks.

The diversification strategy followed by the company is also expected to bolster its performance. "The share of retail finance in the overall portfolio increased from 2.7% in FY24 to 5.9% in FY25, underscoring the company's successful diversification strategy and deeper market penetration," Deven Choksey Research said.

The company is actively cross-selling products such as housing and unsecured business loans to customers with strong credit histories, while aiming to protect its yields and margins, Motilal Oswal said. The company management expects the assets under management to grow 14–18% in FY26, Deven Choksey Research said. "CREDAG's AUM (asset under management) grew 4.6% QoQ (quarter on quarter) in Q4 with an uptick in disbursements, driven by new customer acquisitions… and is likely to sustain the momentum in FY26," HDFC Securities said.

Creditaccess Grameen is expected to post a return on assets of 3% in FY26, compared with 2% estimated for Fusion Finance and -1.7% for Spandana Sphoorty, a peer comparison by Motilal Oswal showed. "We expect the premium multiple to sustain due to superior operating performance and reversion to a steady state faster than peers," HDFC Securities said.

The company will announce its quarterly earnings Tuesday. Analysts will keenly monitor guidance on credit costs and gross loan portfolio growth, assets under management growth, and policy changes that may impact credit costs.

Of the 12 brokerage recommendations on the company available with Informist, 11 have a ‘buy' rating with an average target price of INR 1,352, while one brokerage has a 'hold' rating.  

Monday, shares of Creditaccess Grameen closed up 1.9% at INR 1,293.80 on the National Stock Exchange. The stock has risen 15% higher from May 19, after the company had announced its March quarter earnings.

Following are the Apr-Jun earnings estimates for Creditaccess Grameen based on reports from three brokerage firms in the descending order of the estimate of net profit:

End

US$1= 86.29 INR

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Deepshikha Bhardwaj

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