Summary
Capital Small Finance Bank Limited - Q3 FY 2026 Earnings Call Summary Friday, January 30, 2026 4:00 PM
Event Participants
Executives 6 Aseem Mahajan (CFO), Bharti Babutta (IR), Munish Jain (Executive Director), Raghav Aggarwal (CRO), Sahil Vijay (Head of Treasury & IR), Sarvjit Samra (MD & CEO)
Analysts 5 Avnish Tiwari (Vaikarya Investment Management), Chinmay Nema (Prescient Capital), Gaurav Purohit (Systematix Group), Krish Mehta (Enam Holdings), Parth Kotak (Plus91 Asset Management)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Total Deposits | ₹9,931 crores | +18.5% YoY, +7% QoQ; Retail deposits constitute >90% of total base. |
| Gross Advances | ₹8,164 crores | +19.8% YoY, +3.3% QoQ; Driven by MSME and Mortgage segments. |
| CASA Ratio | 35.9% | Improved from 33.9% QoQ; Driven by strong SURU branch performance. |
| GNPA | 2.68% | -2 bps QoQ; Asset quality remains stable despite seasonal SMA uptick. |
| NNPA | 1.35% | -3 bps QoQ; PCR improved slightly to 50.46%. |
| Cost of Deposits | 5.86% | -6 bps QoQ; Benefit of term deposit repricing starting to flow through. |
| NIM | 4.0% | Stable QoQ; Yields on advances stabilized at 11% following earlier rate cuts. |
| PAT (Adj.) | ₹38 crores | +12% YoY; Excludes ₹5.13 crore one-time charge for New Labour Code. |
| ROA (Adj.) | 1.3% | Stable QoQ; Reported ROA at 1.2% including exceptional employee cost item. |
| CRAR | 21.6% | Strong capital position; Average LCR for the quarter stood at 215.8%. |
Geographic & Segment Commentary
- MSME & Business Loans: This segment was the primary growth driver this quarter, increasing 10% QoQ and 42% YoY to reach 25% of the total portfolio. Management expects MSME to continue leading growth over the next 12 months.
- Agriculture: Moderated to 28% of the mix from 30% QoQ due to seasonal post-harvest cash inflows and a cautious lending stance following floods in Punjab. The segment remains highly secured by land with an average ticket size of ₹12 lakhs and yields of 12.62%.
- Geographic Expansion: Advances outside the home state of Punjab grew at twice the bank’s average rate, now accounting for 24% of the total book. Growth in Delhi NCR and Rajasthan is primarily driven by MSME and LAP products.
Company-Specific & Strategic Commentary
- Partnership-led Lending: Initiated a new FLDG framework with partner NBFCs targeting high-yielding secured lending in geographies like Rajasthan where branch density is lower. This is expected to be ROTA accretive with credit risk primarily borne by partners.
- Deposit Repricing Strategy: 64% of the term deposit book is slated for repricing at lower rates over the next three quarters (23% in Q4, 46% in Q1 FY27, and 27% in Q2 FY27). Management expects this to be the primary driver of NIM expansion in FY27.
- Productivity & Efficiency: Excluding a one-time employee cost of ₹5.13 crores, the cost-to-income ratio improved to 60.9% from 61.7% QoQ. The bank aims for continued operational discipline to reach a 1.6% ROA target by FY29.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Advances Growth | 20%+ for FY26 | Targeting an accelerated 23-24% CAGR to reach ₹16,000 crores by FY29. |
| ROA | 1.4% (FY27) to 1.6% (FY29) | Expected 5 bps improvement in Q1 and Q2 FY27 driven by NIM expansion. |
| ROE | 15%+ by FY29 | Driven by asset growth, LDR improvement, and operational efficiencies. |
| Branch Network | 300+ branches by FY29 | Focus on deepening presence in contiguous states and intensifying penetration. |
| Credit Cost | 0.15% to 0.25% | Management expects to keep credit costs range-bound in line with historical levels. |
Risks & Constraints
| Risk | Context |
|---|---|
| Seasonal SMA Volatility | SMA 1 & 2 pools rose to 6.46% due to harvesting cycles in North India. Management expects this to normalize below 5% by March 2026 as agri-cash flows settle. |
| Monetary Policy Lag | While deposit repricing provides a tailwind, a 5.25% repo rate environment may pressure lending yields before the full benefit of lower deposit costs is realized. |
| Specific NBFC Exposure | A legacy MFI NBFC account caused stress in Q1. While recovery is ongoing (₹7.5 crore net exposure remaining), MFI remains a sensitive segment representing 0.58% of the book. |
Q&A Highlights
Asset Quality & SMA
- Question: Why has the SMA 1 and 2 pool increased this quarter? (Avnish Tiwari)
- Answer: This is seasonal; in North India, agri-cash flows hit in Nov/Dec but take time to reach MSME/Self-employed borrowers. We expect SMA to drop below 5% by March. (Munish Jain)
NIM & Deposit Repricing
- Question: Can you provide the bridge for NIM expansion given the high CASA growth? (Krish Mehta)
- Answer: The biggest lever is repricing 64% of high-cost term deposits. 46% of the book reprices in Q1 FY27, which should lead to meaningful NIM expansion of ~10-15 bps by Q2 FY27. (Munish Jain)
Partnership Economics
- Question: How do the economics work for the new NBFC partnerships? (Gaurav Purohit)
- Answer: We use an FLDG framework with partners we have banked with for years. Payouts are linked to portfolio quality, making it a high-ROTA, low-credit-cost business for us in new geographies. (Munish Jain)
Agri Book Performance
- Question: Is the increase in Agri GNPA a concern given the sub-5% growth in that book? (Chinmay Nema)
- Answer: The increase is optical because the denominator (total Agri loans) declined due to heavy seasonal recoveries. Slippages are well-guarded by 50% LTV land collateral. (Munish Jain)
Key Takeaway
Capital Small Finance Bank delivered a steady Q3 FY26, characterized by robust 19.8% YoY growth in advances and a significant improvement in the CASA ratio to 35.9%. Profitability was impacted by a one-time ₹5.13 crore charge related to the New Labour Code, but adjusted ROA remained stable at 1.3%. The bank successfully expanded its MSME book by 42% YoY while maintaining a highly secured portfolio (99% secured). Strategically, the bank is pivoting toward partnership-led lending and aggressive deposit repricing, with 46% of term deposits set to reprice at lower rates in Q1 FY27. Management expressed confidence in reaching an ROA of 1.6% and an advance book of ₹16,000 crores by FY29. Investors should monitor the normalization of SMA levels and the successful transmission of lower deposit costs into NIM expansion over the next two quarters.
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