India Ratings Upgrades Aye Finance Limited, Citing Improved Capitalization and Diversified Funding Profile

India Ratings Upgrades Aye Finance Limited, Citing Improved Capitalization and Diversified Funding Profile​

India Ratings and Research (Ind-Ra) has upgraded the credit ratings for Aye Finance Limited (formerly known as Aye Finance Private Limited), reflecting the company's strengthened capital position, improved lending portfolio quality, and diversified funding structure. Ind-Ra granted a Stable Outlook following these upgrades.

The rating actions covered several key instruments of the company:

Strengthening Fundamentals Drive Rating Boost​

The rating upgrade reflects several key strengths observed by Ind-Ra. These include improved capitalization following an equity raise during FY26 through an initial public offering, a seasoned hypothecation loan book, and a diversified funding profile. The company has also shown improved profitability buffers.

Aye Finance Ltd's AUM stood at INR70.44 billion at the end of FY26, having grown from INR55.25 billion in FY25 and INR44.7 billion in FY24.

The financial structure and portfolio mix at FYE26 are detailed below:

Operational Focus and Asset Quality​

Aye focuses on micro-enterprises in various segments, including manufacturing, trading, dairy, and services. The company operates using a cluster-based credit underwriting approach. At the end of March 2026, hypothecation loans comprised 76.8% of the overall AUM, while mortgage loans accounted for 21.6%, and quasi-mortgage loans represented 1.6%.

The company classified approximately 60% of its overall portfolio as secured in FY26 (up from 57.3% in FY25 and 59.9% in FY24). The average ticket size was noted at about INR0.13 million, with the largest portion of the portfolio being under INR0.4 million.

Improving funding diversification is another key strength, as the share of non-convertible debentures (NCDs) reduced to 21.3% of total debt ex-direct assignment in FYE26, compared to 31.1% in FY25. Bank term loan funding stood at around 26% of the overall funding mix.

Credit Costs and Risk Profile​

While the upgrade notes improved capitalisation, the ratings report also highlighted elements that remain monitored. A primary weakness noted is elevated credit costs due to hypothecation portfolio volatility. Gross non-performing assets (NPAs) increased to 4.77% in FY26 (compared to 4.21% in FY25 and 3.19% in FY24).

However, the company managed delinquency levels through adequate provision coverage of 63.66% in FY26. The pre-provisioning operating profit to credit cost remained stable at 1.74x in FY26 (down from 2.7x in FY24), indicating a management of profitability despite higher credit costs and operational expenses, which increased to 11.89% of AUM in FY26 due to the expansion of its collection team.

In terms of liquidity, Ind-Ra stated that Aye's asset liability profile is supported by adequate buffers, with unencumbered cash and cash equivalents and liquid investments amounting to around INR7.6 billion at end March 2026.

AYE Stock Price Movement​

As of 10:04 AM, shares of Aye Finance Limited are gaining ground in live trading, climbing by 0.64% to reach ₹162.41. The equity has been traded 277,143 times so far this morning as it continues its ascent.