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    Capital Small Finance Bank Limited

    CAPITALSFB
    Financial Services·30 Jan 2026
    Management Summary

    Capital Small Finance Bank delivered a robust Q3 FY26, marked by strong deposit and advances growth, coupled with improving asset quality metrics. The bank saw a decline in its cost of deposits and maintained stable NIM, with further expansion anticipated from deposit repricing. Strategic focus on secured lending, geographical expansion, and operational efficiency continues to drive performance, despite a temporary seasonal uptick in SMA-1/SMA-2.

    Highlights

    5

    • Total Deposits reached ₹9,931 crores, growing 18.5% YoY and 7% QoQ, demonstrating strong retail franchise strength.

    • Gross Advances grew to ₹8,164 crores, up 19.8% YoY and 3.3% QoQ, aligning with the stated 20%+ advance growth guidance for FY26.

    • Asset quality showed marginal improvement with Gross NPA at 2.68% (down 2bps QoQ) and Net NPA at 1.35% (down 3bps QoQ), supported by a slippage ratio improvement to 1.21% from 1.73% QoQ.

    • Cost of deposit declined to 5.86% from 5.92% in Q2 FY26, with management expecting further benefits from deposit repricing over the next 6 months.

    • PAT (without exceptional item) stood at ₹38 crores, up 12% YoY, and Return on Assets (without exceptional item) remained stable at 1.3%.

    Concerns

    2

    • SMA-1 and SMA-2 pool increased QoQ to 6.46% due to seasonal factors, though management expects normalization below 5% by March 31, 2026.

    • NIM remained stable at 4% this quarter, with significant improvement expected only from Q1 FY27 after deposit repricing fully materializes.

    What Changed2

    vs Q4 FY26

    Guidance items14 → 13 (-1)Risks discussed4 → 3 (-1)

    Key financials

    Single quarter

    11 metrics
    1. 01Total Deposits₹9,931 Cr+18.5%YoY
    2. 02Gross Advances₹8,164 Cr+19.8%YoY
    3. 03CASA Ratio35.9%+2%QoQ
    4. 04Gross NPA2.7%-0.0%QoQ
    5. 05Net NPA1.4%-0.0%QoQ

    Segment breakdown

    MSME/Business Segment
    10% Growth
    LAP
    3% Growth
    Business Loan Share
    25% Portfolio Share
    Agriculture Loan Share
    28% Portfolio Share
    Mortgage Loan Share
    26% Portfolio Share
    Corporate Loan Share
    14% Portfolio Share
    Out of Punjab Advances
    24% Portfolio Share
    List

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Liquidity

    Liquidity disclosed

    Capital adequacy ratio remained strong at 21.6% with average LCR for the quarter stood at 215.8%, reaffirming our strong capital and liquidity position and providing ample headroom for future growth.

    Guidance & targets

    13
    CategoryTargetPriority
    Credit Growth
    Secured Loan Book Growth
    20%+
    		High
    Loan Book Size
    Advanced Book
    INR16,000 crores
    		High
    Branch Expansion
    Number of Branches
    300+
    		High
    NIM
    NIM Expansion from Deposit Repricing
    3-5 bps
    		Medium
    NIM
    NIM Expansion from Deposit Repricing
    10 bps
    		Medium
    NIM
    NIM Expansion from Deposit Repricing
    15 bps
    		Medium
    Cost-to-Income Ratio
    Cost-to-Income Ratio (excl. exceptional)
    improve from 60.9%
    		High
    ROTA
    Return on Total Assets
    1.6%+
    		High
    ROE
    Return on Equity
    15%+
    		High
    Loan Mix
    Agri, Housing, LAP, Business Loan Share
    75-80%
    		High
    ROA
    Return on Assets
    1.4%
    		High
    Credit Cost
    Credit Cost Range
    0.15-0.25%
    		High
    LDR
    Loan to Deposit Ratio
    85-87%
    		Medium

    NIM expansion from deposit repricing

    Q4 FY26
    CurrentStable at 4%
    Target3-5 bps improvement

    Why it matters

    NIM expansion is a key driver for profitability and ROA targets, with significant portion of high-cost deposits due for repricing.

    as per the assessment, we shall be able to see the NIM expansion of around maybe 3 to 5 basis points in Q4 from the present level, of around 10 basis points in Q1 and around 15 basis points in Q2 FY '27. I'm talking, from the deposit repricing benefit.

    How to verify

    key_financials.metrics[label='NIM']

    Risks & concerns

    3
    RiskSeverity

    Seasonal uptick in SMA-1 and SMA-2 pool

    SMA 1 and 2 at 6.46% due to seasonal factors related to agriculture cash flow, expected to normalize below 5% by March 31, 2026. — Management acknowledged

    low

    Competitive pressure on deposit pricing

    Banks across the sector continue to prioritize deposit growth, resulting in persistent pricing pressure, particularly on term deposits. — Management acknowledged

    medium

    Lag in deposit repricing benefits

    While lending rates have largely adjusted, deposit transmission is evolving more gradually, with meaningful benefits expected over the next 6 months. — Management acknowledged

    medium

    Q&A highlights

    8

    “The portfolio, which had given challenges in the Q1, the recovery has started. We are able to get commitment/ understanding with the clients. And as per the understanding, we have recovered a decent amount in the Q3, and we are expecting the recovery as we move forward in the Q4 and the coming period also. So that particular pain, which we have seen in Q1, we strongly believe is over, and we are looking forward for the moving ahead of this and coming out of this very, very shortly. Almost we are out of it with no material amount left within this portfolio as well as of the net NPA book.”

    Analyst inquired about the recovery status of a problematic NBFC MFI book from Q1, which management confirmed is recovering and is expected to be largely resolved soon.

    asked by Avnish Tiwari

    2 min read5 chapters

    Detailed Narrative

    01

    Q3 FY26 Performance Overview and Growth Drivers

    Capital Small Finance Bank reported strong performance in Q3 FY26, with total deposits reaching ₹9,931 crores, an 18.5% YoY and 7% QoQ increase, supported by a healthy CASA ratio of 35.9%. Gross advances grew to ₹8,164 crores, up 19.8% YoY and 3.3% QoQ, aligning with the bank's FY26 guidance of 20%+ advance growth. Key growth drivers included the MSME/Business segment, which grew 10% QoQ and 42% YoY, and LAP, growing 3% QoQ and 18% YoY. Disbursements for the quarter rose 25% YoY to ₹919 crores.

    02

    Asset Quality and Credit Management

    The bank demonstrated marginal improvement in asset quality, with Gross NPA at 2.68% (down 2bps QoQ) and Net NPA at 1.35% (down 3bps QoQ). The slippage ratio improved significantly to 1.21% from 1.73% in Q2 FY26, and credit cost remained stable at 0.2%. Management noted a seasonal uptick in SMA-1 and SMA-2 pools to 6.46% due to agricultural cash flow patterns, but expects normalization below 5% by March 31, 2026. The NBFC MFI segment, which faced challenges in Q1, is seeing recovery, with pending net NPA at ₹7-7.5 crores from an original outstanding of ₹21-22 crores.

    03

    Deposit Franchise and Cost of Funds

    The bank's retail-centric deposit franchise remains a strength, with retail deposits constituting over 90% of the total. The cost of deposit declined to 5.86% in Q3 FY26 from 5.92% in Q2 FY26, reflecting the initial impact of term deposit repricing. Management anticipates more meaningful benefits over the next 6 months, with 23% of term deposits due for repricing in Q4 FY26, 46% in Q1 FY27, and 27% in Q2 FY27. This repricing is expected to drive NIM expansion of 3-5bps in Q4, 10bps in Q1 FY27, and 15bps in Q2 FY27.

    04

    Strategic Growth and Expansion Plans

    Capital Small Finance Bank plans to organically grow its secured loan book by 20%+ for FY26, aiming for an advanced book of over ₹16,000 crores by FY29. Branch network expansion is targeted to exceed 300 branches by FY29. The bank has initiated partnership-led lending with an FLDG framework, targeting high-yielding secured opportunities in geographies with thin branch presence, such as Rajasthan. This initiative is expected to be P&L positive and a growth booster, with the first distributions occurring this quarter.

    05

    Profitability and Margin Outlook

    Net Interest Income grew 11% YoY to ₹119 crores, and non-interest income saw a 46% YoY increase to ₹27 crores. NIM remained stable at 4% this quarter. Profit after tax (excluding an exceptional one-time📎 charge of ₹5.13 crores) stood at ₹38 crores, up 12% YoY, with RoA at 1.3%. The cost-to-income ratio (excluding exceptional items📎) improved to 60.9% from 61.7% QoQ. Management targets a ROTA of 1.6%+ and ROE of 15%+ by FY29, driven primarily by NIM expansion and continued operating efficiency improvements.

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