Northern Arc targets 30% growth, ROA of 3.8% as retail lending, fee income expand, says CEO Ashish Mehrotra

Northern Arc Capital expects its return on assets (ROA) to rise to 3.7–3.8% over the next two years, driven by stronger net interest margins, a growing direct-to-customer (D2C) book, and a powerful fee-income franchise, Managing Director & CEO Ashish Mehrotra told ET Now.

Fee income + retail lending to drive ROA expansion

Mehrotra said Northern Arc’s fee franchise—covering asset management, fund management, performing credit and placement—already contributes 25–27% of profits and adds 70–80 basis points to ROA.

As the retail business scales, the company expects NIM to expand from 9.1% currently to 11–12% over two years.


“With fee income rising to 110–120 basis points and credit costs stabilising, we expect ROA to move towards 3.7–3.8%,” he said. Operating costs have already declined from 40% to 37%.

Loan book to grow 27–30% annually

Northern Arc’s direct lending business—primarily MSME, secured underbanked borrowers, and consumer lending—is recording over 15% growth from a small base.

Overall AUM growth is expected to close FY25 at 22–25%, and rise to 27–30% in FY26, supported by higher NIMs and fee income.

“We operate on two engines: a high-volume credit solutions business that builds fee income, and a fast-growing retail on-book lending franchise. Together, this supports both profitability and balance-sheet growth,” Mehrotra said.

Credit costs easing; to settle at 2.3–2.6%

Credit costs, which were elevated last year due to MFI stress and a regulatory one-off, have already normalised from 3.2% to 2.7%, he said.

Northern Arc expects to close FY25 at 2.5–2.7% and stabilise at 2.3–2.6% as retail share rises.

“The underlying portfolio is behaving well and the mix shift will continue to improve credit cost outcomes,” he added.

Focus areas: Secured MSME, consumption-led retail, and rural scorecard-driven lending

The company will continue deepening its presence in secured MSME, consumer credit and rural convenience financing—segments driven by India’s expanding consumption economy.

“These will deliver both strong balance-sheet growth and margin expansion,” Mehrotra said.