Five-Star Business Finance, the Chennai-headquartered non-banking financial company that lends to small business owners and self-employed borrowers, reported a net profit of ₹299 crore for the second quarter of FY27 (July–September 2026), up 5% year-on-year and 10% over the June quarter, according to results and an investor presentation filed with the stock exchanges on 26 October 2026.
The quarter’s standout number was loan origination. Disbursements touched ₹2,078 crore, the highest in the company’s history, rising 39% sequentially and 74% from a year earlier. Assets under management grew 14% year-on-year and 7% quarter-on-quarter to ₹14,640 crore.
The reported profit includes a reversal of excess tax provisions relating to earlier years of about ₹18.75 crore, the company said in its notes to the accounts.
Collections and asset quality improve
Five-Star said its customer collection efficiency, excluding non-performing accounts, improved to 98.2% from 97.9% in Q1 FY27, while collections in the current (X) bucket rose to 99.4% from 99.2%. As a result, the share of AUM in the current bucket increased to 84.78% from 83.30%, and loans overdue by more than 30 days (30+ DPD) eased to 11.50% from 12.38% in the previous quarter.
Gross Stage 3 assets were broadly stable at 3.48%, slippages moderated to 0.68% from 0.70%, and credit cost improved to 1.80% of average AUM from 1.85%. The lender expects slippages and credit cost to stay broadly flat for the rest of the year despite headwinds across the industry.
Margins hold, but rate cycle is turning
Net interest margin stood at 19.87% of average AUM, against 19.97% in the June quarter and 16 basis points higher than a year ago. Five-Star raised ₹825 crore of fresh debt in the quarter at an all-inclusive cost of 8.43%, and its cost of funds on the book eased slightly to 8.78%.
With the Reserve Bank of India having moved into a tightening cycle, the company cautioned that borrowing costs on incremental debt and on the existing book may inch up, putting some pressure on spreads, though it expects to manage the cycle with limited impact. It reported a liquidity buffer of about ₹2,407 crore as of September-end, including unencumbered cash and undrawn bank lines.
“Bounced back stronger”
“After a year beset with challenges across multiple fronts, we have bounced back stronger than before,” said Lakshmipathy Deenadayalan, Chairman and Managing Director of Five-Star Business Finance. He said the quarter’s disbursement and collection numbers were among the company’s best ever and validated the corrective steps taken over the past few quarters.
Five-Star operates 875 branches across 11 states and union territories, with a strong presence in Tamil Nadu, Andhra Pradesh, Telangana and Karnataka. It focuses on secured loans with average ticket sizes of ₹3–5 lakh, largely to small businesses and self-employed individuals outside the reach of formal credit.
Why it matters
Small-ticket, secured MSME lenders have spent much of the past year tightening underwriting after a rise in early-bucket delinquencies across the segment. Five-Star’s record disbursements, paired with better collections and steady credit costs, suggest the stress cycle may be easing for well-capitalised players, even as rising funding costs and pockets of rural weakness remain on the watchlist for the rest of FY27.
