Arman Financial Services reports Q3FY25 loss as microfinance sector faces turmoil

Arman Financial Services Limited, a Gujarat-based non-banking financial company (NBFC) specialising in microfinance, micro-enterprise (MSME) loans, two-wheeler loans, and Loan Against Property (LAP), posted a net loss of INR 7.3 crore in the third quarter of fiscal year 2025. This sharp decline from a profit of INR 42 crore in the same quarter last year underscores the microfinance sector challenges that have led to a slowdown in disbursements and an increase in impairment costs.

The company’s consolidated assets under management (AUM) contracted by 6.5% year-on-year, amounting to INR 2,280 crore as of December 31, 2024. The microfinance division bore the brunt of the downturn, contributing to the overall financial strain. Despite these challenges, Arman Financial Services reported a 10.9% year-on-year growth in gross total income, reaching INR 530.7 crore for the first nine months of FY25.

How Did the Microfinance Segment Impact Arman Financial Services’ Performance?

Namra Finance Limited, the wholly owned microfinance subsidiary of Arman Financial Services, reported a significant decline in performance due to industry-wide stress in microfinance lending. The subsidiary’s AUM declined by 13.6% year-on-year to INR 1,768 crore, while gross total income fell 11.2% to INR 120.9 crore in Q3FY25. A steep increase in provisioning led to a loss of INR 17.2 crore, in stark contrast to the INR 34 crore profit recorded in Q3FY24.

The company cited overleveraging, weakening of borrower discipline, and rising employee attrition as major issues affecting the sector. High household indebtedness and stagnant real-income growth have further constrained repayment capacity, resulting in an increase in defaults and provisioning costs. As a result, Arman Financial Services significantly tightened underwriting standards, prioritising portfolio quality over growth.

The company’s gross non-performing assets (GNPA) stood at 4.41%, while net non-performing assets (NNPA) remained at 0.56%. Provisioning for bad loans surged 73.5% year-on-year to INR 113.25 crore, reflecting the challenges in maintaining loan portfolio quality.

Which Business Segments Showed Strength Amid the Downturn?

While the microfinance segment struggled, Arman Financial Services saw strong growth in MSME, two-wheeler, and Loan Against Property (LAP) lending. AUM in these segments surged 30.9% year-on-year, reaching INR 512 crore by the end of Q3FY25. Gross total income in these divisions also grew 32.4% to INR 44.9 crore, helping partially offset losses in microfinance lending.

The pre-provision operating profit (PPoP) for these segments rose 67.3% year-on-year to INR 21.9 crore, demonstrating resilience despite overall sector headwinds. Profit after tax in this segment increased 5.7% year-on-year to INR 9.9 crore, reinforcing the company’s ability to generate stable income from diversified loan products.

The asset quality of this segment remained robust, with GNPA at 3.4% and NNPA at 0.9% for MSME loans. Arman Financial Services reported a capital adequacy ratio of 39.5%, ensuring a strong financial base to withstand continued industry volatility.

How Is Arman Financial Services Managing Its Liquidity and Borrowings?

Despite the downturn, Arman Financial Services maintained a healthy liquidity position, with INR 262.3 crore in cash, bank balances, and liquid investments as of December 31, 2024. Additionally, the company secured INR 120 crore in undrawn credit facilities, ensuring continued access to funds without liquidity constraints.

Total borrowings amounted to INR 1,765 crore, with a well-diversified funding mix. The company sourced 33.9% of its borrowings from banks, 11.8% from NBFCs and financial institutions, 20.3% from non-convertible debentures (NCDs), and 29.7% from direct assignments. Notably, Arman Financial Services has not faced any funding restrictions from lenders, a key strength given the liquidity crunch in the broader microfinance sector.

What Strategic Actions Is Arman Financial Services Taking to Overcome Industry Challenges?

In response to the ongoing microfinance sector challenges, Arman Financial Services has adopted a cautious strategy, prioritising collections, risk mitigation, and asset quality improvement. The company has strengthened its credit underwriting processes, introduced a dedicated branch-level credit assessment team, and expanded its collections workforce to manage delinquencies effectively.

Vice Chairman & Managing Director Jayendra Patel highlighted that early indicators suggest a possible stabilisation in credit quality. In December 2024 and January 2025, early-stage delinquency trends began improving, suggesting that the worst of the microfinance downturn may be easing. However, he cautioned that sustained improvement is necessary before any shift in strategy towards growth.

What Is the Outlook for Arman Financial Services?

Looking ahead, Arman Financial Services aims to maintain financial stability, optimise operations, and reinforce risk management practices. While the microfinance sector remains under pressure, the company’s diversified loan portfolio and strong liquidity position provide some insulation against further downside risks.

With early signs of credit cycle stabilisation emerging, the next few quarters will be crucial in determining whether Arman Financial Services can reverse its AUM decline and return to profitability. The company remains committed to navigating macroeconomic uncertainties while strengthening its operational efficiencies in an increasingly volatile lending environment.