Finova Capital Reports 11% Decline in FY26 Net Profit Amid Operational Challenges

New Delhi, India Jul 15, 2026 ALN: Norwest Ventures-backed lending tech startup Finova Capital has reported an 11% year-on-year (YoY) decline in its net profit for the fiscal year FY26, with net profit dropping to ₹165.3 Cr from ₹185 Cr in the previous fiscal year. This decline in profitability comes despite a notable increase in operating revenue, which rose by 21% to ₹921.4 Cr from ₹762.3 Cr in the previous year. The divergence between revenue growth and profit decline highlights the operational challenges the company faced during this period.

In examining the revenue breakdown, interest income represented a significant portion, contributing ₹901.7 Cr, while fees and commissions added another ₹10.6 Cr. The remaining revenue of ₹9.1 Cr came from net gains on fair value changes, which are typically related to investments made by the company. This revenue structure indicates that Finova's primary income source remains its lending operations, which have been affected by macroeconomic conditions.

Interestingly, Finova’s loan disbursements saw a sharp decline of 17%, falling to ₹1,161.9 Cr in FY26 from ₹1,396.9 Cr in the previous fiscal year. This decrease in loan disbursement is particularly significant as it suggests a cautious approach to lending amid rising concerns over asset quality and borrower default rates. However, the company's gross assets under management (AUM) still managed to grow by 10% to ₹3,827.8 Cr, indicating that while new loans are being issued at a slower pace, existing loans are still contributing to the overall asset base.

Moreover, the company reported a slight increase in both gross and net non-performing assets (NPAs), with gross NPAs rising from 2.39% to 3.22% and net NPAs increasing to 1.94% from 1.41%. These metrics are critical indicators of the company's financial health, as higher NPAs can signal increased risk in the lending portfolio. The rise in NPAs aligns with broader industry trends where non-banking financial companies (NBFCs) are grappling with asset quality issues, particularly in unsecured lending segments such as microfinance and personal loans.

In its annual report, Finova Capital emphasized that the results reflect its resilience and ability to navigate challenges in a complex external environment. The report noted that the moderation in profit was primarily driven by a challenging macroeconomic environment and market conditions affecting the retail and micro, small, and medium enterprises (MSME) lending sectors. The company has consciously prioritized asset quality and prudent provisioning over short-term profitability, which is a strategic move aimed at ensuring long-term sustainability.

As part of its operational strategy, Finova has implemented measures to mitigate risks associated with asset quality. This includes restructuring its operational framework to separate sales and risk verticals, thereby allowing for more focused risk management. Additionally, the company has revamped its collections function and adopted a micro-market-focused approach to better calibrate its exposure to specific geographies, especially those facing regional challenges that could impact borrower cash flows and collection efficiencies.

From a technological standpoint, Finova Capital is actively pursuing the integration of artificial intelligence (AI) solutions to enhance its operations. The startup is implementing AI-driven strategies for automating its collections processes and utilizing machine learning-based predictive models to optimize collections. Furthermore, the company is evaluating the use of AI for various operational tasks, including automated Personal Discussion (PD) processes, photo de-duplication to combat fraud, document processing, file verification, and multilingual voice AI for collections. This technological push reflects a broader trend within the financial services industry, where companies are increasingly leveraging technology to improve efficiency and reduce costs.

Founded in 2015 by Mohit Sahney and Sunita Sahney, Finova Capital operates as a middle-layer NBFC focused on providing MSME business loans and home loans, particularly within the unorganised sector in semi-urban and rural areas. The company has established a significant presence with over 450 branches across multiple states, including Delhi NCR, Rajasthan, Haryana, Punjab, and Uttar Pradesh. This extensive network allows Finova to cater to a diverse customer base, although it also presents challenges in terms of risk management and operational efficiency.

Finova Capital has successfully raised over $270 million in equity and debt funding from a variety of investors, including Faering Capital, Avaatar Venture Partners, Peak XV Partners, and Sofina. This financial backing has been crucial for the company's growth and expansion efforts. In terms of ownership structure, cofounder Mohit Sahney holds a 38% equity share capital in Finova, while Peak XV owns 20% and Norwest holds 14%. This distribution of ownership indicates a strong commitment from the founders and investors to support the company's long-term vision.

Where Did Finova Spend?

Despite the growth in its topline revenue, Finova’s total expenditure surged by more than a third, reaching nearly ₹700 Cr compared to ₹513.8 Cr in the previous year. This increase in expenses raises questions about operational efficiency and cost management within the company. Here are some of the key components of Finova's expenses:

• Employee Benefits Expense: Finova allocated ₹268.4 Cr towards employee benefits in FY26, marking a 23% increase from the previous year. This rise may reflect the company's efforts to attract and retain talent in a competitive market.
• Finance Costs: The finance costs for Finova surged to ₹243.6 Cr in FY26, an increase of 22% YoY. This escalation in finance costs can be attributed to higher borrowing rates and the overall cost of funds.
• Impairment On Financial Instruments: The cost associated with impairment tripled YoY, reaching ₹126.1 Cr from ₹42 Cr. This significant increase highlights the growing concerns regarding asset quality and the need for adequate provisioning against potential losses.
• Other Expenses: Finova's spending in this category, which encompasses costs such as marketing and technology expenses, rose by 18% to ₹53.7 Cr in FY26. This suggests a focus on enhancing brand visibility and technological capabilities.
• Depreciation, Amortization and Impairment: This category amounted to ₹8.2 Cr in FY26, reflecting a 16% increase compared to the previous year. This rise may indicate ongoing investments in fixed assets and technology.

In conclusion, Finova Capital's FY26 financial results illustrate the complexities and challenges faced by NBFCs in the current economic landscape. While the company has demonstrated growth in revenue, the decline in profit and rising NPAs underscore the need for vigilant risk management and strategic planning. The steps taken by Finova to enhance its operational framework and invest in technology may position it for better performance in the future, but the path ahead remains fraught with challenges as the industry navigates a changing economic environment.