Capital Small Finance Bank Limited — Q1 FY26 earnings call

Call held 25 Jul 2025

Management summary

Capital Small Finance Bank Limited reported a strong Q1 FY26 with robust deposit and advances growth, stable NIM, and improved operating efficiency. Asset quality remained resilient despite a temporary increase in credit cost due to NBFC/MFI slippage. The bank is focused on strategic branch expansion and maintaining a balanced growth trajectory while targeting a net NPA below 1% by fiscal year-end.

Highlights

  • Total deposits grew to INR9,110 crores, reflecting 17.1% year-on-year and 9.5% sequential growth, supported by favorable monetary policy cues and sustained customer trust.

  • Gross advances stood at INR7,437 crores, up 16.4% year-on-year and 3.5% quarter-on-quarter, with 99.8% of the loan book being secured.

  • Operating profit grew by 24%, driven by a 38% increase in non-interest income and an improvement in the cost-to-income ratio to 60.5% from 62.6%.

  • Net Interest Margin (NIM) was maintained at 4.1%, supported by robust liquidity management and prudent asset deployment.

  • Asset quality remained strong with Gross NPAs at 2.7% and Net NPAs at 1.4%, with SMA1 and SMA2 accounts showing notable improvement from 6.42% a year ago to 5.47%.

Concerns

  • Profit for the quarter was INR32 crores, marking a 7% year-on-year growth, which is relatively modest compared to operating profit growth.

  • Credit cost increased to 0.37%, with 0.19% attributed to slippage from NBFC/MFI exposure, although management stated this is temporary.

  • Customer base declined from 7.8 lakhs last quarter to 7.6 lakhs this quarter, explained by management as a cleansing activity of zero/low balance accounts.

Key financials

2 periods

Headline

  • Total Deposits
    ₹9,110 Cr
    YoY +17.1% QoQ +9.5%
  • Gross Advances
    ₹7,437 Cr
    YoY +16.4% QoQ +3.5%
  • Net Interest Margin (NIM)
    4.1%
    QoQ 0%
  • Operating Profit Growth
    24%
    YoY +24%
  • Non-Interest Income Growth
    38%
    YoY +38%
  • Cost-to-Income Ratio
    60.5%
    QoQ -3.4%
  • Profit (PAT)
    ₹32 Cr
    YoY +7%
  • Return on Assets (RoA)
    1.2%
  • Gross NPAs
    2.7%
    YoY 0% QoQ +3.9%
  • Net NPAs
    1.4%
  • SMA1 and SMA2 as % of Advances
    5.5%
    YoY -14.6%
  • Credit Cost
    0.37%
  • CASA Ratio
    35.9%
  • Cost of Deposit
    5.9%
  • Cost of Funds
    6%
  • Credit-to-Deposit Ratio (CD Ratio)
    80.9%
    QoQ +1.6%
  • Average Loan Ticket Size
    ₹16.6 lakh
  • Fixed Rate Advance Book
    47.4%
  • EBL-linked Book
    11.3%

Q1

  • Disbursements
    ₹865 Cr
    YoY +15% QoQ +13%

What they filed

Q1 FY27: revenue up 16.6%, net profit up 28.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue224 235 231 247 256 +14%272 +16%273 +18%288 +17%
Net profit33 34 34 32 35 +6%34 +0%40 +18%41 +28%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • MSME Portfolio
    0.256 yoy_decimal Growth0.09 qoq_decimal Growth
  • LAP (within Mortgage)
    0.236 yoy_decimal Growth0.054 qoq_decimal Growth
  • Mortgage Book
    0.16 yoy_decimal Growth0.039 qoq_decimal Growth
  • Agriculture Portfolio
    30% Share of Portfolio (Q1 FY26)32% Share of Portfolio (Q4 FY25)
  • MSME and Trading Portfolio
    22% Share of Portfolio (Q1 FY26)21% Share of Portfolio (Q4 FY25)
  • Corporate Loan Book
    14% Share of Portfolio (Q1 FY26)13% Share of Portfolio (Q4 FY25)
  • Mortgage Portfolio
    27% Share of Portfolio
  • Disbursement Mix - MSME
    28% Share of Disbursements
  • Disbursement Mix - Large Corporates
    23% Share of Disbursements
  • Disbursement Mix - Mortgage
    21% Share of Disbursements
  • Disbursement Mix - Agriculture
    20% Share of Disbursements
  • Disbursement Mix - Consumption and Other
    8% Share of Disbursements

Guidance & targets

Credit Growth

  • Loan Growth Credit Growth · FY26 · High confidence 20%
    For the FY '26, we are targeting a credit growth or loan growth of 20%

    — Munish Jain

  • Secured Loan Book Growth Credit Growth · FY26 · High confidence 20%
    Our endeavour will continue to organically grow our secured loan book growth of 20% during the fiscal by targeting MSME & trading, mortgage and agriculture segment.

    — Munish Jain

Profitability

  • Return on Assets (RoA) Profitability · current fiscal · Medium confidence retain and slightly improve

    From 1.4% (FY'25) today

    We intend to retain and slightly improve the ROTA in the current fiscal, which we have in FY '25.

    — Munish Jain

  • Net Interest Margin (NIM) Profitability · Medium confidence around the same level, plus/minus a few basis points
    we intend to maintain it around the same level, plus/minus a few basis points.

    — Munish Jain

Asset Quality

  • Net NPA Asset Quality · current fiscal · Medium confidence below 1%
    As far as the net NPA target is concerned, yes, we were anticipating or targeting to make it below 1% -- last time we talked about that is, by this FY -- this current fiscal, we intend to do it.

    — Munish Jain

Branch Expansion

  • New Branches Branch Expansion · this financial year · High confidence 20 to 25
    in this financial year, we intend to add 20 to 25 branches. And by adding 1 more state as well, presently, we are in 5 states and 2 union territories. We'll be entering to one more state to our area of operation.

    — Sarvjit Samra

  • New Branches in Haryana Branch Expansion · 12 to 15 months · High confidence about 13
    we have a plan to add about 13 branches more in Haryana.

    — Sarvjit Samra

Credit Cost

  • Credit Cost Credit Cost · coming 3 quarters · High confidence 0.1% to 0.2%
    We strongly believe in the coming 3 quarters, we will maintain our credit cost in the delta of 0.1% to 0.2.

    — Munish Jain

Efficiency

  • Credit-to-Deposit Ratio (CD Ratio) Efficiency · next coming 3 quarters · Medium confidence improve
    Over the next coming 3 quarters, we intend to improve the average CD ratio, which will be giving us a benefit of the NIM.

    — Munish Jain

Market context

  • Agri Portfolio Growth Credit Growth · period to come · Medium confidence double digit
    our first target is to grow our agri portfolio in double digit... Now we want to take it to the double-digit growth in the period to come.

    — Munish Jain

What to watch in Q2 FY26

Agri Loan Portfolio Growth

Q2 FY26
Current Degrowth in Q1 FY26 (INR90 crores decline)
Target Double-digit growth

Why it matters

Agriculture is a significant segment (30% of portfolio), and its growth trajectory impacts overall loan book and profitability.

In the Q2, you will see the agri portfolio will be seeing growing.

Risks & concerns

  • Temporary slippage from NBFC/MFI exposure

    medium

    0.19% of the 0.37% credit cost in Q1 FY26 was attributed to NBFC/MFI slippage, but management believes it is temporary and limited to Q1 FY26.

    Management downplayed

  • Seasonality in Agri Portfolio

    low

    The agri portfolio typically sees degrowth in Q1 due to harvesting and recovery efforts, but is expected to grow in Q2.

    Management acknowledged

  • Decline in customer base

    low

    Customer base reduced from 7.8 lakhs to 7.6 lakhs, which management explained as a cleansing activity of zero/low balance accounts.

    Analyst acknowledged

Q&A highlights

8 direct
Branch expansion targets beyond current 195 branches Direct
in this financial year, we intend to add 20 to 25 branches. And by adding 1 more state as well, presently, we are in 5 states and 2 union territories. We'll be entering to one more state to our area of operation.

Clarifies the bank's aggressive expansion plans for the current fiscal year, including geographic diversification.

Asked by Rehan Saiyyed

Digital lending or co-lending partnerships with fintech players Direct
Presently, co-lending is not an opportunity available for the small finance banks, and that is not permissible under the regulatory guidelines. For the other partnership based lending, we are flexible depending upon the opportunities, specifically for the lending product, which falls in our DNA i.e. secured lending product. We are open for a partnership-based lending, but we are not looking forward for any fintech-based partnership.

Outlines the bank's conservative stance on fintech partnerships and adherence to regulatory guidelines for SFBs, focusing on secured lending.

Asked by Rehan Saiyyed

Loan and deposit growth target for FY26 Direct
For the FY '26, we are targeting a credit growth or loan growth of 20%, and we intend to improve our CD ratio. So we will be calibrating our deposit growth to support our advanced growth.

Provides clear numerical guidance for credit growth and explains the strategy for deposit mobilization to support it.

Asked by Rehan Saiyyed

Stress in MFI-NBFC book and temporary nature of slippage Direct
And we are anticipating the present slippage, which has come in the Q1 FY '26 is typically temporarily and only limited to the Q1 FY '26. And we are not anticipating any further slippage from this particular book, given the present information available with this.

Addresses concerns about asset quality, clarifying that the NBFC/MFI slippage is considered a one-time event and not indicative of broader stress.

Asked by Sugandhi

Confidence in Haryana expansion and growth strategy Direct
Presently in Haryana, we have 20 branches. And in the current expansion, which is going on, we'll be adding say, from 12 months to 15 months, we have a plan to add about 13 branches more in Haryana. So Haryana, there's a lot of expansion, which is in the pipeline in Haryana.

Details the specific plans and confidence in expanding operations in Haryana, aiming to replicate the success seen in Punjab.

Asked by Sugandhi

Challenges in loan disbursement or demand slowdown given liquidity buildup Direct
No, that's not the case. Rather, on the contrary, I just want to clarify a few of the things. We accelerated our deposit growth post the interest rate cuts. Before the interest cuts, we were not accelerating our deposit or the borrowing acceleration.

Explains that the liquidity buildup is a strategic move post-interest rate cuts to support future advance growth, not a sign of demand slowdown.

Asked by Shubham Silvadia

Decline in customer base from 7.8 lakhs to 7.6 lakhs Direct
It is not the case. Actually, it is the cleansing activity has been done during the current quarter that customer which is there in the customer ID is being created but not having any portfolio or is running with no/petty balance for a longer period, for a very long period. So we cleansed and cleaned out that particular thing.

Clarifies that the reduction in customer count is due to a deliberate cleansing of inactive accounts, not a loss of active customers.

Asked by Pritesh

Impact of RBI's relaxation on PSL norms and its effect on growth strategy Direct
So that we are not restricted by the growth because earlier we need to ensure that my non-PSL does not exceed 25%, now which has increased to 40%, which is giving me a further opportunity to grow and accelerate the speed as we move forward. So that is the biggest benefit I'm seeing from this particular change.

Highlights the positive impact of regulatory changes on the bank's ability to accelerate growth in non-PSL segments, particularly housing loans.

Asked by Divyansh Gupta

3 min read 7 chapters

Detailed narrative

Q1 FY26 Financial Performance Overview

Capital Small Finance Bank reported a robust Q1 FY26, with total deposits growing 17.1% year-on-year to INR9,110 crores and gross advances increasing 16.4% year-on-year to INR7,437 crores. Operating profit saw a significant 24% growth, supported by a 38% rise in non-interest income. The bank's cost-to-income ratio improved to 60.5% from 62.6% in the previous quarter, while Net Interest Margin (NIM) remained stable at 4.1%. Profit for the quarter stood at INR32 crores, a 7% year-on-year increase, and Return on Assets (RoA) was 1.2%.

Deposit Franchise Strength and Cost Management

The bank demonstrated strong momentum on the deposit front, with total deposits reaching INR9,110 crores, reflecting 17.1% YoY and 9.5% sequential growth. CASA levels remained healthy at 35.9%, indicating a stable, low-cost deposit base. The cost of deposit was 5.9%, and the cost of funds was 6%. Management highlighted that deposit growth is calibrated to support advances, and the bank is leveraging optimal pricing post-interest rate cuts.

Credit Growth and Diversified Loan Book

The lending book expanded steadily, with gross advances at INR7,437 crores, up 16.4% YoY and 3.5% QoQ. The portfolio remained highly secured, with 99.8% being secured and zero direct MFI exposure. Key growth drivers included the MSME portfolio (up 25.6% YoY, 9% QoQ) and LAP within mortgage (up 23.6% YoY, 5.4% QoQ). The average ticket size was INR16.6 lakhs, and the loan book is well-diversified across agriculture (30%), mortgage (27%), MSME & trading (22%), and corporate loans (14%).

Asset Quality and Provisioning

Asset quality remained strong and stable, with Gross NPAs at 2.7% and Net NPAs at 1.4% as of June 30, 2025. SMA1 and SMA2 accounts improved to 5.47% of advances from 6.42% a year ago. The credit cost increased to 0.37%, with 0.19% attributed to a temporary slippage from NBFC/MFI exposure. The bank maintains a Provision Coverage Ratio (PCR) of 50% plus, with sectoral PCRs ranging between 40% to 55%.

Strategic Branch Expansion and Geographic Focus

The bank plans to add 20 to 25 new branches and enter one more state during the current financial year, expanding beyond its current presence in 5 states and 2 union territories. A significant focus is on Haryana, with plans to add about 13 branches in the state over the next 12 to 15 months. Management aims to replicate its successful Punjab model in Haryana, viewing it as the 'next Punjab' for growth.

NIM Stability and Interest Rate Environment

Despite sharp interest rate cuts, the bank maintained its NIM at 4.1% in Q1 FY26. This stability is attributed to robust liquidity management and a strategy of increasing the fixed-rate advance book, which now stands at 47.4% (up from 38.79% on March 31, 2024). The bank's EBL-linked book is 11.25%, making it less susceptible to immediate rate cut impacts. Management intends to maintain NIM around current levels, plus/minus a few basis points.

NBFC/MFI Exposure and Risk Mitigation

The bank's exposure to NBFC/MFI segments is less than 1% of its total portfolio, primarily targeting secured lending. While there was a temporary slippage from this segment contributing 0.19% to credit cost in Q1 FY26, management views this as a one-time event and does not anticipate further stress. The bank's NBFC book is secured against receivables and collateralized, with 57% of the MFI book having an A-plus rating.

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