Capital Small Finance Bank Limited

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%.

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.

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 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%.

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.

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.

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.