Muthoot Microfin Boosts IT Spending by 40% to Combat AI Cyber Threats

Muthoot Microfin Ltd has announced a substantial increase in its information technology (IT) spending by 40% for the current financial year. This strategic move aims to bolster [cybersecurity](/topic/cybersecurity) measures in response to the rising threat of AI-assisted cyberattacks targeting financial institutions. Sadaf Sayeed, the company's chief executive officer, emphasized the importance of this investment, stating that it is crucial to prevent data leakage and unauthorized access to their application systems.

The decision to ramp up IT expenditure comes in the wake of a critical advisory issued by the Indian Cyber Crime Coordination Centre (I4C) and the Indian Computer Emergency Response Team (CERT-In). On November 4, these agencies warned banks, non-banking financial companies (NBFCs), and fintech firms about an escalation in AI-assisted cyberattacks. CERT-In identified a specific threat actor, dubbed 'CRAFTY FALCON', which utilizes AI tools to pinpoint vulnerabilities in payment and disbursement systems, executing attacks at machine speed.

Sayeed noted that Muthoot Microfin has developed its application system in-house and hosts it on a private cloud, incorporating multiple layers of security. "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," he stated. This proactive approach is critical as financial institutions face increasingly sophisticated cyber threats.

In addition to enhancing cybersecurity, Muthoot Microfin is observing a notable shift in rural consumption patterns. Sayeed reported that households are now spending more on nutrition and higher-quality products, such as milk and dairy. This change in spending behavior is attributed to improved income levels and financial inclusion initiatives by the government, which have expanded access to formal credit.

The lender currently serves approximately 3.2 million customers, with 2.2 million actively using its customer application. This digital engagement is expected to facilitate increased collections and further investment in technology and security systems. Sayeed highlighted that higher spending on nutrition could lead to improved health and productivity, ultimately supporting income generation and repayment capacity.

Muthoot Microfin's financial performance has been robust, with assets under management (AUM) rising by 22% year-on-year to ₹15,322 crore in the July-September quarter, surpassing its earlier growth guidance of 18-20%. Disbursements also saw a significant increase of 27%, totaling ₹2,900 crore, marking a 10% sequential growth.

The company's net profit surged to ₹110.8 crore, up from approximately ₹30 crore a year earlier, bringing the first-half FY27 profit to ₹192 crore. The return on assets stood at 3%, at the upper end of its guidance range of 2.5-3%. Furthermore, asset quality improved, with gross non-performing assets (GNPA) declining by 32 basis points to 3.38%. The overall collection efficiency was reported at an impressive 98.1%, with zero-bucket collection efficiency at 99.8%.

Sayeed expressed optimism regarding the future, projecting that GNPA could fall to between 2.5% and 2.75% by the end of FY27, with net NPA expected to remain below 1%. Fresh slippages during the quarter were around ₹30 crore, while recoveries from overdue accounts amounted to ₹57 crore.

Muthoot Microfin is actively diversifying its lending portfolio beyond its traditional joint liability group (JLG) lending business, which currently constitutes 69% of its portfolio. The remaining 31% comprises non-JLG products. The individual loan portfolio has expanded to approximately ₹4,163 crore, with monthly disbursements nearing ₹450 crore. This segment boasts an NPA level of just 0.02% and a standalone return on assets of around 8%, with individual loans carrying an average interest rate of 24.5%.

In addition to individual loans, the lender disbursed around ₹463 crore in gold loans and ₹82 crore in loans against property during the quarter. Recently, Muthoot Microfin introduced consumer durable loans to capitalize on festive-season demand. This diversification strategy is anticipated to support growth, enhance portfolio quality, and strengthen customer retention.

Looking ahead, Muthoot Microfin is targeting an AUM of approximately ₹17,000 crore by the end of the financial year. The company's commitment to investing in technology and security, coupled with its strategic diversification into new lending products, positions it well to navigate the evolving landscape of rural finance and cybersecurity threats. As Sayeed noted, the ongoing changes in rural consumption patterns and the increasing reliance on formal credit are likely to further bolster the lender's growth trajectory in the coming years.