Muthoot Microfin raises IT spending by 40% to counter AI cyber threats

Defending against machine speed

Muthoot Microfin has increased its information technology (IT) spending by 40% during the current financial year. This investment is specifically aimed at bolstering cybersecurity and digital infrastructure to protect against increasingly sophisticated threats. The company is responding to a rise in AI-assisted cyberattacks that target financial institutions.

The urgency stems from recent warnings by Indian government agencies, including the Indian Cyber Crime Coordination Centre (I4C) and the Indian Computer Emergency Response Team (CERT-In). These bodies identified a specific threat actor known as 'CRAFTY FALCON' that uses artificial intelligence to find and exploit weaknesses in payment and disbursement systems. These attacks are notable because they occur at machine speed, allowing hackers to move faster than traditional manual defenses can react.

To counter these risks, the lender is focusing on preventing data leakage and unauthorized intrusions into its application systems. The company's application system is developed in-house and hosted on a private cloud, which allows for multiple layers of security. Management stated they made a huge amount of investment in security systems to ensure the integrity of their digital platforms.

Infrastructure and rural reach

The lender currently manages a large customer base of approximately 3.2 million people. Out of this total, 2.2 million customers actively use the company's customer application for their financial needs. This high adoption rate makes the security of the digital platform a primary concern for the firm's operations.

Muthoot Microfin is also focusing on expanding its digital collections to streamline how it receives payments from its users. By investing in technology, the company aims to provide a more seamless experience for its rural customer base. This digital shift is supported by a growing trend in rural areas where households are increasingly using formal credit systems.

The expansion into underserved markets is being fueled by government financial-inclusion initiatives and the broader growth of fintech companies. As more rural residents gain access to formal banking, the demand for secure, reliable digital tools increases. The company intends to continue its investment in these systems to maintain its competitive edge in the microfinance space.

Improving portfolio quality

Despite the heavy investment in security, the lender is reporting strong financial growth and improved asset quality. Its assets under management (AUM) rose 22% year-on-year to ₹15,322 crore during the July-September quarter. This growth exceeded the company's original guidance of 18-20% for the period.

The company's net profit also saw a significant jump, rising to ₹110.8 crore from roughly ₹30 crore in the same quarter a year ago. This performance is supported by a decline in gross non-performing assets (GNPA), which fell to 3.38%. The lender expects these non-performing assets to fall further by the end of the financial year.

Operational efficiency remains high, with overall collection efficiency standing at 98.1%. The company also reported a zero-bucket collection efficiency of 99.8%, indicating that it is successfully collecting payments on time. These metrics suggest that the company's underlying loan portfolio remains healthy even as it scales its operations.

Diversification and new markets

Muthoot Microfin is actively diversifying its lending products to reduce reliance on its traditional joint liability group (JLG) business. Currently, JLG lending accounts for 69% of the portfolio, but the company is expanding into other areas. Non-JLG products now make up 31% of the total, including individual loans and gold loans.

The individual loan portfolio has grown to approximately ₹4,163 crore, with monthly disbursements reaching nearly ₹450 crore. This segment has shown very low non-performing assets, at just 0.02%, and a standalone return on assets of around 8%. The average interest rate for these individual loans is 24.5%.

The lender also recently introduced consumer durable loans to capture demand during the festive season. By diversifying into products like loans against property and consumer durables, the company aims to improve customer retention. This strategy is intended to support long-term growth targets, including an AUM of ₹17,000 crore by the end of the year and ₹30,000 crore by 2030.

Changing rural consumption

The company is observing a notable shift in how rural households spend their money. Management noted that these households are spending more on nutrition and higher-quality products, such as milk and dairy. This shift toward better nutrition is expected to improve health and productivity for rural residents.

Improved health and productivity are seen as key drivers for better income generation and a stronger capacity for loan repayment. As rural consumers become more prosperous, their spending patterns evolve beyond basic necessities. This trend provides a positive outlook for the lender's ability to maintain a high-quality loan portfolio.

The company's cost of funds also fell below 10% for the first time, reaching 9.93% in the recent quarter. By using priority-sector lending certificates, the lender can access funds at rates of around 8% or lower. This helps maintain net interest margins while the company continues to expand its reach into underserved markets.