Muthoot Microfin raises IT spending by 40% amid AI-driven cyber threats, changing rural demand

MUTHOOT Microfin Ltd has raised its information technology (IT) spending by 40% this financial year to strengthen cybersecurity and digital infrastructure as artificial intelligence (AI)-assisted attacks increasingly target financial institutions.

The lender is also seeing a shift in rural consumption, with households spending more on nutrition and better-quality products, including milk and dairy, managing director and chief executive Sadaf Sayeed told Mint.

"We have made a huge amount of investment in our security systems to ensure that there is no data leakage and there is no kind of intrusion into our application system," Sayeed said. The company developed its application system in-house and hosts it on a private cloud with multiple layers of security, he added.

The investments come amid heightened cybersecurity concerns. On 4 November, the Indian Cyber Crime Coordination Centre (I4C), under the Union Home Ministry, and the Indian Computer Emergency Response Team (CERT-In), under the Ministry of Electronics and Information Technology (MeitY), warned banks, non-banking financial companies (NBFCs) and fintech firms about an escalation in AI-assisted cyberattacks.

In a critical-severity advisory, CERT-In identified an AI-assisted threat actor named 'CRAFTY FALCON', which uses AI tools to identify vulnerabilities and exploit payment and disbursement systems.

Attacks were being carried out at machine speed, with hackers exploiting weaknesses in software and internet-facing systems to access payment application programming interfaces (APIs) and initiate unauthorised fund transfers. The agency also warned that some institutions had been targeted again despite remediation measures.

Muthoot Microfin currently has around 3.2 million customers, of whom 2.2 million use its customer application, Sayeed said. The lender is focusing on increasing digital collections and plans to continue investing in technology and security systems.

Sayeed said rural consumption patterns were changing, with households spending more on nutrition and better-quality products. Higher spending on nutrition could improve health and productivity, supporting income generation and repayment capacity. He also attributed the growing use of formal credit to government financial-inclusion initiatives and the expansion of banks, microfinance institutions and fintech companies into underserved markets.

Growth recovery

The lender's assets under management (AUM) rose 22% year-on-year to ₹15,322 crore in the July-September quarter, exceeding its earlier growth guidance of 18-20%. Disbursements increased 27% to ₹2,900 crore, up 10% sequentially.

Net profit rose to ₹110.8 crore from around ₹30 crore a year earlier, taking first-half FY27 profit to ₹192 crore. Return on assets was 3%, at the upper end of its 2.5-3% guidance.

Asset quality improved, with gross non-performing assets (GNPA) declining 32 basis points to 3.38%. Credit cost remained around 2.6%, while overall collection efficiency stood at 98.1% and zero-bucket collection efficiency at 99.8%.

Sayeed expects GNPA to fall to 2.5-2.75% by the end of FY27, with net NPA below 1%. Fresh slippages were around ₹30 crore during the quarter, while recoveries from overdue accounts stood at ₹57 crore.

Portfolio shift

Muthoot Microfin is diversifying beyond its traditional joint liability group (JLG) lending business, which now accounts for 69% of its portfolio. Non-JLG products make up the remaining 31%.

Its individual loan portfolio has grown to around ₹4,163 crore, with monthly disbursements of nearly ₹450 crore. The segment has an NPA level of 0.02% and a standalone return on assets of around 8%. Individual loans carry an average interest rate of 24.5%, Sayeed said.

The lender also disbursed around ₹463 crore in gold loans and ₹82 crore in loans against property during the quarter. It recently introduced consumer durable loans to tap festive-season demand. The diversification is expected to support growth, improve portfolio quality and strengthen customer retention.

Muthoot Microfin is targeting AUM of around ₹17,000 crore by the end of FY27 and remains on track to reach ₹30,000 crore by 2030.

Its cost of funds declined to 9.93% from 10.13%, falling below 10% for the first time. Incremental cost of funds fell 10 basis points during the quarter. The lender is increasingly using priority-sector lending certificates (PSLCs), through which it accesses funds at around 8% or lower, supporting net interest margins.

The lender's average lending rate is around 23.5%, allowing it room to absorb higher borrowing costs, Sayeed said. He does not expect significant margin pressure from a possible interest rate increase, as the company can pass higher costs on to borrowers.

The company has a capital adequacy ratio of 25.5%, liquidity of around ₹1,700 crore and sanctioned borrowing facilities of nearly ₹4,000 crore. It does not currently plan to dilute its stake, given its capital position and funding availability.

For the full financial year, Muthoot Microfin expects to achieve its profit guidance of ₹425-450 crore, against ₹192 crore in the first half. The company also expects to meet its approximately 20% AUM growth guidance, Sayeed said.