Bajaj Finance’s Q1 FY26 earnings are an indicator of what’s happening across India’s retail lending sector: decent growth numbers, but a rising undertone of stress in certain loan segments. This shift isn’t isolated—recent management commentary from Kotak Mahindra Bank and SBFC Finance reinforce the same concerns.
Bajaj Finance: Growth With Caveats
The headline numbers for Bajaj Finance continue to dazzle. Assets Under Management (AUM) surged 25% year-on-year to ₹4.41 lakh crore. Net profit jumped 22% to ₹4,765 crore. New loan bookings grew 23%.
Yet, asset quality has weakened. Gross NPA rose to 1.03% from 0.86% in the previous year, and loan loss provisions spiked 26% YoY with credit cost of 2%. Management flagged stress emerging most sharply in the MSME (Micro, Small and Medium Enterprises) segment—which accounts for around 12% of the company’s book. There were also signs of increased slippages in auto finance and rural unsecured segments. 28bps quarter-on-quarter increase in SME delinquency and 135bps spike in auto finance NPA. While overall growth guidance was maintained, there was an explicit warning that credit quality could be under pressure if economic growth remains soft.
Kotak Mahindra Bank: Shift Away from JLG Model and Rising Loan Stress
Kotak Mahindra Bank’s Q1 FY26 results painted a similar picture: standalone net profit fell 7% YoY to ₹3,282 crore despite a healthy 14% YoY loan growth. The culprit was a 109% year-on-year surge in provisions and contingencies, mainly due to stress in the microfinance (MFI) and retail commercial vehicle (CV) segments.
Gross NPA nudged up to 1.48%, with management directly attributing the rise to slippages in both MFI and CV books. The bank’s credit cost jumped to 0.93%, from lower levels in prior quarters. Recognizing persistent stress, Kotak is now moving away from the traditional Joint Liability Group (JLG) model for its microfinance lending. The CEO commented that “the JLG model alone isn’t reliable” and Kotak will focus more on direct credit assessment of individual customers, even if it means rethinking the cost structure and growth model in MFI.
SBFC Finance: Strong Growth, Watchful on Credit Costs
Like its larger peers, SBFC Finance reported a robust 28% YoY profit growth and 30% revenue rise in Q1 FY26. However, a closer look reveals a tick-up in Gross NPA ratio—now 2.78% (up from 2.60%). Credit costs climbed to 1.10% for the quarter and there was a 100-basis point increase in early-stage delinquencies, especially in smaller ticket-size loans and certain regions. Management has responded by tightening underwriting and rationalizing distribution channels.
A Sector-Wide Theme for FY26?
Across all three lenders—Bajaj Finance, Kotak, and SBFC—the message is clear: loan growth remains strong, but rising credit costs and NPA ratios show that stress is building, particularly in MSME, MFI, and some unsecured retail loan segments. The investors must look beyond just NPA ratios and start tracking “flow” metrics like credit costs and new slippages.
As India’s consumers and small businesses navigate a challenging economic environment post-pandemic, the sharp pickup in delinquencies and provisioning is a trend we can’t ignore. The coming quarters may test the resilience of lenders’ business models—and reward those who proactively manage emerging risks while sustaining long-term growth.