Summary
Utkarsh Small Finance Bank Limited - Q3 FY26 Earnings Call Summary Monday, February 02, 2026, 05:15 PM IST
Event Participants
Executives 5 Amit Acharya (Chief Risk Officer), Govind Singh (MD & CEO), Sarjukumar Pravin Simaria (CFO), Sourabh Ghosh (Head – Consumer Banking), Virender Sharma (Head – Micro Banking)
Analysts 4 Ashlesh Sonje (Kotak Securities), Avnish Tiwari (Vaikarya Change LLP), Bhumin Shah (Equirus), Deepak Poddar (Sapphire Capital), Sagar (Spark Capital), Shreya Chatterjee (Ageless Capital Finance)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Gross Loan Portfolio | ₹17,542 crores | -3.9% YoY; reflects a conscious 16% contraction in the JLG portfolio to moderate risk. |
| Total Deposits | ₹18,045 crores | +5% YoY; growth driven by retail term deposits (+24% YoY) and CASA (+16% YoY). |
| Net Interest Margin (NIM) | ~8.0% - 8.2% | Moderated due to slippages; management targets ~8.5% by FY28. |
| CASA Ratio | 22.0% | Improved from previous periods; CASA + RTD now represents 82% of total deposits vs 70% YoY. |
| GNPA | Not explicitly stated (Total) | JLG GNPA remains elevated; fresh slippages in Q3 were ₹426 crores (down from Q2). |
| Net Loss | ₹375 crores | Loss due to elevated credit costs and legacy JLG stress; management expects Q1 FY27 return to profit. |
| Credit Cost | ~9.5% (Annualized Q3) | Elevated due to legacy provision requirements; guided to 3.0%-3.5% for FY27. |
| Prov. Coverage Ratio (PCR) | 68.5% (JLG) | Total Micro Banking PCR at 69%; CV/CE PCR at 34%. |
| Cost-to-Income | 110% | Impacted by lower income from slippages and one-time staff costs (₹9 crores). |
| CRAR | 20.1% | Strengthened by ₹950 crore rights issue in Nov-25; Tier 1 capital at 17.1%. |
| LCR | 207% | Maintains high liquidity with surplus of approximately ₹4,700 crores. |
Geographic & Segment Commentary
- Micro Banking (JLG & MBBL): JLG book contracted 16% QoQ as the bank prioritized collections over growth; however, Micro Banking Business Loans (MBBL) grew 80% YoY, representing 19% of the micro-portfolio. JLG exposure has been reduced to 33% of the total gross loan book from 88% in March 2020. Management noted X-bucket collection efficiency reached 99.5% in December 2025.
- MSME & Housing: MSME loans grew 24% YoY to ₹4,275 crores, aided by the new Micro LAP segment (18% yield). Housing loans grew 13% YoY to ₹965 crores, focusing on Tier 2/3 centers with 30% of the book in the affordable segment (under ₹30 lakhs).
- Wheels (CV/CE): The portfolio contracted 3% YoY to ₹1,102 crores due to tightened underwriting and geographic exits. Disbursement yields improved 30 bps to 12.8% as the bank pivoted toward used vehicles (35% of disbursements vs 15% YoY).
Company-Specific & Strategic Commentary
- Portfolio Diversification: Secured lending increased to 50% of the total loan book, up from 41% YoY, to reduce cyclicality.
- Credit Guarantee (CGFMU): 50% of the microfinance book is now covered under CGFMU as of Q3 FY26, de-risking incremental disbursements.
- Reverse Merger: A petition was filed with NCLT on December 26, 2025, for the amalgamation of the holding company into the bank; the first hearing occurred in January 2026.
- Productivity & Branch Strategy: Management will pause branch expansion (currently 1,100+ branches) to focus on sweating existing assets and improving cost-to-income through automation (Utkarsh 2.0).
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Loan Book Growth | 25% - 30% (FY27-28) | Driven by a revival in microfinance and rapid expansion of LAP and MSME. |
| Return on Equity (ROE) | 10% (FY27); 15% (FY28) | Recovery predicated on lower credit costs and operational leverage. |
| Credit Cost | 3.0% - 3.5% (FY27) | Expected reduction as legacy stress is fully provided for and slippages decline. |
| Cost-to-Income | 57% (FY28) | Expected to drop from current levels as top-line growth resumes without branch expansion. |
Risks & Constraints
| Risk | Context |
|---|---|
| Legacy Asset Quality | Legacy JLG stress continues to necessitate high provisioning, leading to a quarterly net loss of ₹375 crores. |
| Segment Concentration | Despite diversification, 35% of the book remains in JLG (including BC), which remains sensitive to regulatory guardrail transitions. |
| Elevated Cost of Funds | Cost of funds rose to 8.1% as the bank replaced cheap institutional deposits with more expensive retail term deposits to meet ALM needs. |
Q&A Highlights
Asset Quality & Collections
- Question: What is the current run rate of slippages and status of the SMA pool? (Avnish Tiwari)
- Answer: JLG 1-90 DPD pool fell from ₹378 crores in October to ₹163 crores in January; 0-30 DPD fell from ₹170 crores to below ₹50 crores. X-bucket collection efficiency is now “near normal” at 99.5%+ (Govind Singh).
Credit Costs & Profitability
- Question: When will the bank return to profitability? (Bhumin Shah)
- Answer: Management expects to be back in the “trajectory of profitability” by Q1 FY27. Credit costs are targeted to drop to 3%-3.5% in FY27 and sub-2.5% in FY28 (Sarjukumar Simaria).
Liability Strategy
- Question: Why was deposit growth so low sequentially? (Sagar)
- Answer: Intentional recalibration to reduce cost. The bank repaid ₹2,000 crores of expensive institutional deposits and replaced them with retail funds while maintaining ₹4,700 crores in surplus liquidity (Govind Singh).
Segment Performance (Wheels)
- Question: What is the GNPA in the CV/CE segment? (Sagar)
- Answer: GNPA stands at 12.2%. The bank is running down the old portfolio and focusing on second-hand vehicles with higher yields in specific geographies (Amit Acharya).
Key Takeaway
Utkarsh SFB reported a challenging Q3 FY26 with a net loss of ₹375 crores, primarily driven by legacy JLG stress and elevated credit costs. Despite the bottom-line pressure, the bank demonstrated structural resilience by increasing secured lending to 50% of the total book and hitting 99.5% collection efficiency in the JLG segment by December. The successful ₹950 crore rights issue bolstered the CRAR to 20.1%, providing a sufficient capital buffer for the planned 25-30% loan growth in FY27. Management has paused branch expansion to focus on cost optimization and productivity, aiming for a 15% ROE by FY28 as credit costs normalize. While legacy NPAs remain a drag, the bank’s transition toward a diversified, retail-funded, and secured-asset model suggests a recovery is currently underway starting Q4 FY26.
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