Veritas Finance IPO Gets SEBI Nod: Is Rapid Growth Hiding Risks?

Veritas Finance is getting another chance to enter the stock market. After its earlier ₹2,800 crore IPO plan did not go ahead, the Chennai-based lending company has received SEBI's clearance for a revised public offering.

The company has an impressive growth story. Its loan book crossed ₹9,100 crore in FY26, growing more than 24% in a year. But here is what makes the IPO interesting: its profits grew much slower than its loans, while some indicators of loan quality weakened. So, is Veritas Finance simply investing in its next phase of growth, or should investors pay closer attention to the risks behind its expanding lending business? Here's what its financials reveal.

What Has SEBI Approved for the Veritas Finance IPO?

The Securities and Exchange Board of India (SEBI) issued its observations on Veritas Finance's revised IPO documents on October 19, 2026. The development was reported following the regulator's November 9 update. The company had submitted its revised draft red herring prospectus (DRHP) on July 29, 2026.

Here are the key details of the proposed IPO:

Source: Veritas Finance DRHP.

The fresh issue and OFS serve different purposes. Money raised through the fresh issue will go to Veritas Finance, helping strengthen its capital base for future lending.

The OFS will allow existing shareholders, including Lok Capital Growth Fund, British International Investment, Growth Catalyst Partners and two individual shareholders, to sell part of their holdings. Veritas Finance will not receive these OFS proceeds.

The company may also raise up to ₹180 crore before the IPO through a pre-IPO placement. If completed, this amount will be deducted from the planned ₹900 crore fresh issue. The total IPO size cannot yet be determined because the OFS is expressed in shares, and the final offer price has not been disclosed.

Why Is Veritas Finance Returning With a Revised IPO Plan?

This is Veritas Finance's second attempt to go public. In January 2025, the company proposed a ₹2,800 crore IPO, comprising ₹600 crore in fresh shares and ₹2,200 crore through an OFS. SEBI cleared that proposal in April 2025, but the company did not launch the issue.

Its latest proposal has a different structure. The fresh issue has increased from ₹600 crore to ₹900 crore, while the OFS is now specified as up to 1.28 crore shares instead of a fixed rupee amount. This change is relevant for investors because the company now proposes to raise more fresh capital to support lending growth. However, the old and new OFS sizes cannot be directly compared until the latest IPO's price band is announced.

The earlier IPO's failure to launch does not, by itself, indicate a problem with the business. But investors should evaluate the revised capital-raising plan alongside the company's latest financial performance rather than relying on the regulatory clearance alone.

How Does Veritas Finance Make Money?

Veritas Finance is a non-banking financial company (NBFC) established in 2015. It primarily lends to micro, small and medium enterprises (MSMEs), self-employed individuals and borrowers who may have limited access to formal bank financing.

Imagine a small business owner who wants to expand a shop but does not have the documentation or credit history typically required by a large bank. Veritas Finance serves such borrowers through different lending products.

As of March 31, 2026, its loan portfolio consisted of:

• Rural business loans: 64.67% of total loans
• Affordable home loans: 21.38%
• Used commercial vehicle loans: 9.02%
• Unsecured working capital loans: 4.93%

The company earns income mainly by charging interest on loans. It generally funds this lending through borrowings and its own capital. Its profitability therefore depends on how much it earns from borrowers, how much it pays to obtain funds, its operating expenses, and how much money it loses when borrowers fail to repay.

As of March 2026, Veritas Finance had 231,752 active borrowers and 444 branches, excluding service centres. This gives it an established lending network. However, its concentration in smaller businesses and relatively underserved borrowers makes loan repayment behaviour particularly important.

How Strong Are Veritas Finance's Financials?

Veritas Finance has reported consistent increases in its loan book, revenue and profit over the last three financial years.

But a closer look shows that profit growth has not kept pace with the expansion of its lending business.

Source: Veritas Finance's July 29, 2026 DRHP, financial statements and KPI disclosures.

In FY26, assets under management (AUM), which represent the company's managed loan portfolio, increased 24.30% year-on-year. Revenue from operations grew approximately 18.93%. However, net profit increased only 11.96%, from ₹295.11 crore to ₹330.40 crore.

Why does this matter?

For a lending business, a bigger loan book creates the opportunity to earn more interest. But that growth does not automatically translate into equally higher profit. Funding costs, lower lending yields, operating expenses and loan-loss provisions can all influence the final earnings.

Another important indicator is the company's net interest margin (NIM), which declined from 15.83% in FY24 to 14.06% in FY26. This means the interest income the company retains after its financing costs, relative to its average loan book, has reduced.

Its return on equity also declined from 12.27% to 11.25% over the same period. While Veritas remains profitable, investors should examine whether its growing loan portfolio can generate stronger returns on shareholders' capital.

Are Rising Bad Loans a Concern for Veritas Finance?

This is one of the most important aspects of the company's financial performance. Veritas Finance's gross Stage 3 loan ratio increased from 1.79% in FY24 to 2.21% in FY25 and 2.48% in FY26. Stage 3 loans represent credit-impaired loans and are broadly comparable to the bad-loan measure investors commonly track in banking and NBFC businesses. The increase indicates that a larger proportion of the company's loan book was classified as credit-impaired.

The absolute value of Stage 3 loans also increased from approximately ₹162.08 crore in FY25 to ₹226.40 crore in FY26, according to the company's disclosures. Another measure worth examining is the provision coverage ratio, which declined from 53.14% in FY24 to 44.85% in FY26. This measures the provisions held against Stage 3 loans.

A declining coverage ratio deserves attention because it can leave a lender more exposed to future losses if recovery from stressed borrowers is weaker than expected. However, these numbers should not be interpreted as evidence of an immediate financial crisis.

Veritas Finance's reported credit cost ratio was 2.58% in FY26, slightly lower than 2.63% in FY25. This indicates that the annual expense associated with credit losses, relative to average loans, did not increase during FY26 despite the higher Stage 3 ratio. The concern is therefore not simply that bad loans exist. It is whether their share continues to increase as Veritas expands its lending operations.

Why Does Veritas Finance Need ₹900 Crore Despite Being Profitable?

An important distinction for investors is that lending companies require capital to keep expanding their loan books.

Unlike a manufacturing company, which may raise IPO funds to build factories or purchase machinery, an NBFC needs a sufficient capital base to support the loans it provides. Veritas Finance's total borrowings increased from approximately ₹5,629.24 crore in FY25 to ₹7,374.10 crore in FY26.

Its debt-to-equity ratio also increased from 2.02 times to 2.36 times during this period. But borrowings are part of an NBFC's normal business model. The more important questions are whether the company can access funding at reasonable costs, maintain enough regulatory capital and collect repayments from its borrowers.

Veritas Finance's capital adequacy ratio stood at 33.19% in FY26, compared with 37.82% in FY25. Although the ratio declined as the business expanded, the company continued to report a substantial capital buffer.

The proposed ₹900 crore fresh issue is intended to strengthen its capital base and support future lending requirements. This could provide additional room for growth. However, raising more capital will create value for shareholders only if the company can deploy it profitably while controlling credit losses.

Source: Veritas Finance DRHP.

What Are the Biggest Risks Investors Should Understand?

Beyond the trends in profitability and bad loans, two structural risks deserve attention. 

First, exposure to borrowers with limited credit histories. According to its DRHP, loans to first-time borrowers represented 21.17% of the company's AUM as of March 31, 2026. Such borrowers may offer growth opportunities, but assessing their repayment capacity can be challenging. An unexpected decline in business income or household cash flow could affect their ability to repay loans.

Second, geographic concentration. Tamil Nadu, Andhra Pradesh, Telangana, Karnataka and West Bengal collectively represented 91.36% of the company's AUM as of March 2026. This concentration can help Veritas develop expertise in its core markets, but it also means regional economic disruptions could disproportionately affect its lending portfolio.

The company has also expanded into affordable housing and used commercial vehicle financing. These businesses offer opportunities to diversify revenue, although their long-term repayment performance will become clearer as the portfolios mature.

Is the Veritas Finance IPO Valuation Attractive for Retail Investors?

It is too early to determine whether the IPO is attractively priced because Veritas Finance has not announced its price band.

Investors will need to examine its proposed valuation against the financial returns and risks associated with its lending business. For example, the company can be compared with listed lending businesses such as Five-Star Business Finance, SBFC Finance, Aptus Value Housing Finance India and Aavas Financiers.

However, these companies operate with different borrower profiles and lending products, so valuations should not be compared without considering those differences. For NBFCs, the price-to-book value (P/B) ratio is particularly useful because it shows how much investors are paying relative to the company's book value. It should be assessed alongside return on equity, loan growth, credit costs and asset quality.

A lender growing rapidly but generating lower returns on equity may not deserve the same valuation as a lender with more stable earnings and stronger asset quality. Once Veritas Finance announces its IPO price band, investors can evaluate whether the proposed valuation adequately reflects its business growth and associated risks.

Author's Take: What Should Investors Watch Before the IPO?

Veritas Finance offers exposure to lending demand among underserved small businesses and self-employed borrowers. Its expanding loan book and established distribution network indicate that the company has successfully increased its scale.

However, the relationship between growth and profitability is becoming more important. In FY26, the company's AUM increased 24.30%, but profit grew only 11.96%. Meanwhile, its net interest margin declined and the gross Stage 3 ratio increased.

This does not automatically make the business unattractive. The company continues to generate profits, and its capital adequacy remains substantial. But the next phase of growth needs to be assessed against the quality of loans and the returns generated from additional capital.

Before evaluating the IPO, investors should focus on three developments: whether stressed loans stabilise, whether profitability improves relative to loan growth, and how the final IPO valuation compares with similar listed NBFCs.

The company's next disclosures and final red herring prospectus will be important because the audited financial figures discussed here cover the period through March 31, 2026.

Ultimately, SEBI's approval allows Veritas Finance to proceed towards a public listing. Whether the IPO offers reasonable value to investors will depend on its final pricing, financial performance and ability to grow without taking on disproportionate lending risks.

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