Digital Lending Sector Surge: Profitability and Asset Quality Drive Fintech Recovery in FY26

Digital Lending Sector Surge: Profitability and Asset Quality Drive Fintech Recovery in FY26​

India's digital lending sector is charting a positive course into Fiscal Year 2026, marking a significant pivot from a period of intense regulatory scrutiny and funding uncertainty. After two challenging years focused on rapid expansion, lenders are now demonstrating resilience by prioritizing sustainable business models over unchecked growth.

The industry faced substantial headwinds following tighter regulations and increased provisioning requirements for high-risk unsecured lending segments. Consequently, many fintech companies were forced to reduce disbursals, tighten their underwriting standards, and concentrate intensely on collections efficiency.

However, the environment appears to be stabilizing. Lenders report improving credit demand across salaried consumers, small businesses, and merchants. The general trend in asset quality is showing signs of recovery after a period of significant stress. A senior banker noted that "collections have improved, underwriting has become more disciplined."

Profitability Takes Center Stage for Digital Lenders​

The focus on prudent lending practices has translated into substantial financial improvements across the sector. Several leading digital lenders reported marked gains in profitability as they refined their risk management frameworks.

Aye Finance, for example, saw its revenue climb to Rs 1,815 crore in FY26, up from Rs 1,460 crore in FY25 and Rs 1,040 crore in FY24. The company reported a net profit of Rs 194 crore, an improvement over the previous year's Rs 175 crore.

KreditBee is poised for double-digit growth in FY26, expecting a 25 percent increase in operating revenue and a 45 percent rise in profit compared to FY25. Its assets under management (AUM) rose by 44 percent to Rs 15,000 crore from Rs 10,100 crore in FY25.

Mumbai-based Kissht also reported strong performance, with operating revenue rising 68 percent year-on-year to reach Rs 619 crore in Q4 of FY26. For the full fiscal year, profit jumped nearly 75 percent to Rs 281 crore from Rs 161 crore in FY25. The company's founder emphasized that their disciplined portfolio management and strong capitalization post IPO positioned them well for scale in subsequent years.

Lower Funding Costs Fuel Financial Turnaround​

The shift towards stable, lower-cost funding has provided a significant boost to the sector's health, particularly for financial institutions undergoing transformation. Slice Small Finance Bank successfully executed a major turnaround in FY26.

The bank posted its first full-year net profit of Rs 48.4 crore in FY26, a sharp reversal from a net loss of Rs 217 crore in FY25. Revenue increased by 132 percent to reach Rs 1,403 crore. This turnaround followed the merger with North East Small Finance Bank, which enabled Slice to accept customer deposits directly.

By replacing dependence on expensive institutional borrowing with lower-cost retail deposits, Slice significantly improved its debt-to-equity ratio to 0.14 from 0.97 in FY25. The bank's CASA ratio reached 39.8 percent, reflecting a healthy reliance on customer funding.

Asset Quality and SME Focus Show Resilience​

SME-focused lenders are maintaining robust asset quality while expanding their footprint. Oxyzo Financial Services reported a 24 percent rise in revenue to Rs 1,494 crore in FY26, with profit after tax rising 11 percent to Rs 375 crore.

The NBFC expanded its loan book to Rs 10,545 crore from assets growing by 28 percent to Rs 11,822 crore. Oxyzo maintained excellent asset health, reporting gross non-performing assets (GNPA) at 0.74 percent and net non-performing assets (NNPA) at 0.3 percent. The company strengthened its business by acquiring the wealth-tech platform GoldenPi.

Challenges Persist Amid Growth Trends​

While many lenders report robust profitability, not all firms experienced proportional growth across the board. Navi Finserv, led by Sachin Bansal, saw a 46 percent decline in consolidated profit after tax to Rs 93.3 crore in FY26 from Rs 172.2 crore in FY25.

On a positive note, the company's standalone figures showed resilience, reporting an 8 percent increase in operating revenue to Rs 2,461 crore and a 32 percent rise in profit to Rs 292.21 crore. Navi Finserv attributed this trend to continued substantial investment in technology infrastructure and data-led underwriting capabilities throughout the financial year.

The overall performance suggests that digital lenders have successfully transitioned into FY26 with a heightened focus on capital efficiency, disciplined risk management, and solid portfolio quality.