Tata Capital Anticipates Strong FY27 Performance Driven by AI Adoption and Declining Credit Costs

Tata Capital is heading into FY27 with confidence across all its key business metrics — growth, margins, operating efficiency, and credit quality — according to Rajiv Sabharwal, the company's Managing Director and CEO. In a conversation with ET Now, Sabharwal painted an optimistic picture, underpinned by steadily declining credit costs, a disciplined risk culture, and the growing use of data analytics and generative AI across the organisation.

Credit quality has improved every quarter. One of the standout numbers from Tata Capital's recent performance has been the sharp drop in credit costs. Sabharwal said this was not accidental — it reflects years of building a risk-first culture, deep use of scorecards, and increasingly, GenAI-powered collection calls and customer propositions. The improvement has been sequential and consistent. Credit quality on the retail unsecured book got better each quarter from Q2 onwards, and Sabharwal expects this trend to hold. The company has guided for credit costs of below 1%, a target he believes is well within reach given current early indicators — bounce rates, early-stage collections — all of which are trending positively.

Excluding the motor finance business acquired last year, Tata Capital grew its loan book at around 28% in FY26. The motor finance unit itself turned profitable in Q4 after breaking even in Q3 — ahead of expectations. The company's cost-to-income ratio improved by over 300 basis points compared to the previous year.

Looking ahead, the company has guided for loan book growth of 23–25% through FY28, with housing finance — now 30% of the total book — and retail products expected to lead the way. The overall book is predominantly retail and SME, which together make up 86% of total lending.

Sabharwal identified three simultaneous drivers that will lift return on assets going forward. First, margins will improve as the proportion of higher-margin products grows in the overall mix. Second, operating costs will continue to fall as GenAI adoption scales across more functions. Third, credit costs will stay low. The combination of better NIMs, fee income, lower opex, and sub-1% credit costs is expected to translate into meaningful ROA improvement, even if Sabharwal stopped short of putting a precise number on it.

On the geopolitical risk front, Sabharwal said Tata Capital has reviewed its portfolio specifically for West Asia exposure and found no material impact so far. Fuel prices have remained stable, and most MSMEs and corporates have been proactive — stocking up to three months of raw materials to keep production lines running, even if sourcing costs have risen somewhat. That said, he flagged two segments the company will continue to watch closely: MSMEs and the commercial vehicle segment, both of which are more vulnerable if the crisis prolongs and supply chains come under greater stress.

"Risk comes first before business," Sabharwal said, summing up the philosophy that he credits for the company's improving credit profile — and the one he says will keep it resilient if conditions deteriorate.