Aye Finance Moves Forward with IPO While NBFC Sector Remains Cautious
In a bold move contrasting with widespread industry hesitation, microlender Aye Finance Ltd is proceeding with its initial public offering, becoming the first non-bank lender to test investor appetite after months of sector-wide delays. The venture capital-backed company has established a price band of ₹122-129 per share for its IPO, placing the firm's valuation at approximately ₹3,200 crore at the upper pricing limit.
Valuation Below Previous Funding Round
This pricing positions the company's valuation slightly below that achieved during its 2025 series G funding round, according to management disclosures to Mint. Aye Finance's managing director Sanjay Sharma explained the timing: "While we began actively preparing for the IPO around July-August, financial market conditions have been particularly volatile for our segment. Our merchant bankers recommended waiting, which extended our timeline, but we must proceed now as our IPO approval expires in April."
Sector-Wide IPO Delays
The company's decision to move forward comes as numerous non-banking financial companies have postponed their public offerings. These include:
- Veritas Finance Ltd
- Hero FinCorp
- SK Finance
- Belstar Microfinance
- Avanse Financial
- Credila Financial Services
These delays have occurred against a backdrop of sectoral challenges and increasing bad loans. A January report by Icra Ltd highlighted ongoing asset quality pressures for India's retail NBFCs as the effects of earlier rapid growth continue to materialize.
Scaled-Down Offering Structure
Aye Finance has significantly reduced its offer for sale component from the initially planned ₹565 crore to just ₹300 crore. Several key investors have adjusted their participation:
- LGT Capital reduced its share sale from ₹150 crore to ₹30 crore
- Alphabet's CapitalG decreased its equity offloading from ₹137 crore to ₹82.5 crore
- A91 Partners has completely withdrawn from the share sale after previously agreeing to sell ₹100 crore worth of shares
- Alpha Wave cut its OFS from ₹100 crore to ₹30 crore
- MAJ Invest increased its stake sale from ₹56 crore to ₹140 crore
Elevation Capital, holding a 16% pre-offer stake as the largest shareholder, is not participating in the share sale. The fresh issue component has also been reduced from ₹885 crore to ₹710 crore, with proceeds designated to strengthen the lender's Tier-1 capital buffer.
Asset Quality and Business Model
As of September 2025, Aye Finance reported non-performing assets at 4.85%, with write-offs at similar levels, bringing the overall stress pool to approximately 9% of gross advances. Sovan Satyaprakash, the lender's head of strategy and product, noted: "Our short-term loans with typical 24-month tenors mean credit costs and write-offs appear more quickly compared to longer industry products like five-year mortgages. Terminal losses are about 2% higher than historical averages due to recent industry over-lending, but we've seen sequential improvement over the last three quarters."
The company operates what Sharma describes as a 'phygital' model—a digital company with physical presence. Approximately 22% of their 30% assets under management growth originates from mature branches, demonstrating that expansion isn't strictly linear to physical footprint.
Market Context and Future Outlook
Icra anticipates NBFC net profitability will moderate in fiscal 2025-26, with credit costs likely remaining elevated. The rating agency projects modest improvement in 2026-27 as asset quality concerns ease, with stable interest margins and operating costs supporting sectoral profitability in the near term.
Sharma emphasized the company's strategic approach: "We recognize the risks of testing market waters but have opted for a reasonable valuation below our last private round. This represents a fair starting point for public investors. Consequently, selling shareholders have reduced their participation, seeking better value as the business scales further."
The company currently maintains a loan book of approximately ₹6,000 crore as of September. The primary capital raised through the IPO is expected to support growth to ₹15,000 crore in coming years, including accruals. The original ₹885 crore primary fundraising target would have potentially enabled expansion to a ₹16,000 crore book.
Aye Finance's IPO will open for subscription on 9 February and close on 11 February for retail investors, marking a significant test of investor confidence in the NBFC sector amid ongoing challenges.
