The digitally focused non-bank lender, which caters to retail borrowers, small businesses and corporates, is expected to gain from the faster pace of credit growth among non-banking financial companies (NBFCs).
Yet, investors must weigh the company’s scale, brand strength, and AAA credit rating against near-term concerns around profitability and asset quality.
IPO highlights
The ₹15,511-crore initial public offering (IPO), the fourth-largest in India, opens on Monday and will remain open for subscription until Wednesday. The company has priced the offer at ₹310-326 per share, comprising a fresh issue of ₹6,846 crore and an offer for sale worth ₹8,666 crore.
The NBFC will channel the proceeds to strengthen the company’s tier-I capital or risk buffer for future lending.
Growth story
Founded in 2007, Tata Capital has grown into one of India’s largest NBFCs. As of June, it had served 7.3 million customers, offering products across retail, small and medium enterprises (SME), corporate, and entrepreneur segments.
Retail loans rose to 61.3% of its portfolio in Q1FY26, up from 56.7% in FY23. SME lending, in contrast, declined from 32.6% in FY23 to 26.2% in FY25, while corporate lending climbed modestly to 12.5%.
The loan book expanded to ₹2.33 trillion by March, clocking 37.3% compounded annual growth rate (CAGR) over FY23–FY25—the fastest among large NBFCs.
Branch expansion was even more aggressive, with the network growing 3x since March 2023, ahead of Bajaj Finance Ltd, Cholamandalam Investment and Finance Co., L&T Finance Ltd, and HDB Financial Services Ltd. The merger with Tata Motors Finance expanded its footprint.
“If you look at our growth numbers, the headline rate seems higher because of the merger with Tata Motors Finance,” Rajiv Sabharwal, managing director and chief executive officer at Tata Capital, told Mint. “On paper, it looks like we are growing at about 38%. But if you strip away the merger impact, our organic growth is closer to 28.5%—which, even by itself, is very strong.”
Digital push
Technology and the Tata brand are the twin engines of Tata Capital’s strategy. Over 98% of customers are digitally onboarded, and 99% of collections happen online. Cross-selling within the Tata ecosystem, from Croma’s retail stores to Tata Motors’ dealerships, gives the company a ready pipeline of customers.
“Tata Capital, though a late entrant in high-margin segments, has gained ground by leveraging the Tata group ecosystem—Tata Motors, Croma and Tata Housing—for cross-selling,” said Prashanth Tapse, senior VP, research analyst at Mehta Equities. “This, along with rapid branch expansion in Tier 2 and Tier 3 cities, has built a strong captive base, positioning the company to sustain robust loan growth into H2FY26.”
The company’s network has expanded fourfold in recent years. “With more than 25 products in our portfolio, we essentially have multiple engines of growth. Product depth coupled with reach is driving momentum,” Sabharwal said.
According to Ratiraj Tibrewal, director at Choice Capital, growth for Tata Capital has come from strong retail and SME demand, digital distribution, and branch expansion, with housing finance a key driver. “Supported by risk controls and product diversity, Tata Capital now aims to deepen Tier 2/3 penetration and scale digital origination.”
Quality watch
A key comfort factor is asset quality. Between FY23 and FY25, Tata Capital maintained a median net Stage 3 loan ratio (share of bad loans over 90 days overdue) of 0.4%, in line with Bajaj Finance, and posted the highest provision coverage ratio among peers at 74%. This suggests it is well-shielded from credit shocks.
“Our philosophy is to keep credit costs below 1%. Every business decision is taken through a risk-management lens,” Sabharwal said. “The loan book remains largely secured, with only 12% exposure to unsecured retail loans.”
Yet risks remain. The merger with Tata Motors Finance dragged on quality, with gross Stage 3 loans spiking to 7.1% in FY25 and triggering a ₹181-crore loss. Net Stage 3 levels stayed under control, and Tata Capital’s prudent underwriting and risk management have kept asset quality healthy, said Tapse. “Yet, sustaining sub-1% net Stage 3 loans amid rapid growth may be challenging in the coming quarters, warranting caution.”
According to Tibrewal of Choice Capital, the loan mix provides resilience, with over three-fourths of the book secured by collateral. “Going forward, the company’s strategy should be to prioritize quality growth over volume, ensuring that asset quality remains stable even as the book expands.”
Tata Capital’s contingent liabilities are another metric to watch. They currently stand at ₹6,793 crore or 18.5% of its FY25 profit, though down from 26.4% in FY23. Chief financial officer Rakesh Bhatia told Mint that these were largely tax-related and historically resolved in the company’s favour.
Analysts, too, view the risk as limited. “At 3-4.5% of equity, it is a manageable risk, though worth tracking if it rises year-on-year,” said Tapse. Tibrewal calls the liabilities small relative to the company’s strong net worth.
Profitability lag
Tata Capital’s growth has not translated into peer-level profitability. Net profit rose from ₹2,945.7 crore in FY23 to ₹3,655 crore in FY25, posting a modest CAGR of 6.6%. In contrast, Cholamandalam posted 43% CAGR, Bajaj Finance 13%, and L&T Finance 17.6%. Rising borrowing costs have hurt margins, with the cost of funds climbing from 6.6% in FY23 to 7.8% in FY25.
The pressure is most evident in profitability ratios. Tata Capital’s net interest margin is only 5.1%, the lowest among large NBFCs, compared to 9.37% for Bajaj Finance, 8.24% for Shriram Finance, and 8.21% for L&T Finance. Its return on equity has slipped to 15.5%, well below Bajaj Finance and Cholamandalam (both above 20%), while return on assets at 2.3% trails Bajaj Finance’s 4.44%.
The NBFC’s management attributes this to aggressive growth and the merger. “The merger has had an impact, but improvement will start showing from this year itself,” said Sabharwal.
“The decline in RoE is primarily due to capital infusion to support rapid balance sheet growth and branch expansion. With scale and operating leverage, RoE should recover above 15% in the next 12-18 months,” said Tibrewal.
Tapse, too, noted that falling RoE reflects the high-growth phase needing equity infusion. Tata Capital must improve profitability and capital efficiency. With branch-led operating leverage, better cost efficiencies and focus on RoE-accretive segments, RoE could return to high teens by FY26-27, he said.
NBFC momentum
The broader NBFC cycle is a silver lining.
In FY25, NBFC credit grew 18.3%, nearly double India’s nominal GDP growth and far ahead of bank credit at 11%. Analysts expect 17-18% growth to sustain in FY26.
This secular trend supports large NBFCs like Tata Capital, which are well-placed to capture demand for retail and SME credit.
