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    Capital Small

    CAPITALSFB
    Financial Services·5 May 2026
    Management Summary

    Capital Small Finance Bank delivered a robust Q4 FY26, marked by strong growth in deposits and advances, with both crossing key milestones. Asset quality showed improvement, and profitability metrics like NIM and PAT saw positive momentum. The bank remains well-capitalized and is focused on expanding its footprint and diversifying its loan book, despite some persistent challenges in the agriculture segment and a drop in yield on advances.

    Highlights

    5

    • Total deposits crossed ₹10,000 crores, reaching ₹10,018 crores, a 20% year-on-year growth, underscoring continued trust and strong retail deposit franchise.

    • Gross advances stood at ₹8,687 crores, registering 21% year-on-year growth, driven by MSME, mortgage, and agriculture segments.

    • Net Interest Margin (NIM) improved to 4.06% in Q4 FY26 from 4.01% in Q3 FY26, attributed to reducing cost of deposit on repricing at maturity.

    • Profit After Tax (PAT) for Q4 grew to ₹40 crores, up 17% year-on-year, with full-year PAT at ₹141 crores.

    • Asset quality improved with Gross NPA at 2.54% (down 14 bps QoQ) and Net NPA at 1.24% (down from 1.35% QoQ), supported by enhanced Provision Coverage Ratio (PCR) of 51.89%.

    Concerns

    3

    • Agriculture net NPAs remained 'sticky' at 2.76% in Q4 FY26, only marginally up from 2.75% in Q3 FY26, indicating persistent stress in this segment.

    • Yield on advances dropped to 10.8% from 11.1% in the prior quarter, primarily due to a 25 basis points rate cut in January and interest reversals from agri NPAs.

    • The NBFC-MFI segment is not a current focus for fresh lending, with management not being 'bullish' on it, though recoveries are being made from the existing book.

    Key financials

    Metrics

    14

    Periods

    2

    Headline

    8
    • Total Deposits
      ₹10,018 Cr
      YoY+20%
    • Gross Advances
      ₹8,687 Cr
      YoY+21%QoQ+6.4%
    • Gross NPA
      2.5%
      QoQ-0.1%
    • Net NPA
      1.2%
      QoQ-0.1%
    • Provision Coverage Ratio
      51.9%

    Q4

    6
    • Net Interest Income
      ₹122 Cr
      YoY+19%
    • Profit After Tax
      ₹40 Cr
      YoY+17%
    • Net Interest Margin
      4.1%
    • Return on Assets
      1.3%
    • Credit Cost
      26%

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Liquidity

    Liquidity disclosed

    The Capital Adequacy Ratio stood at 22.3% and average LCR for the quarter was a strong 211%, providing sufficient headroom to support future growth.

    Guidance & targets

    14
    CategoryTargetPriority
    Credit Growth
    Secured Loan Book Growth
    22% plus
    		High
    Credit Growth
    Advanced Book
    over ₹16,000 crores
    		High
    Branch Expansion
    Number of Branches
    235 branches
    		High
    Branch Expansion
    Number of Branches
    300 plus
    		High
    Profitability
    NIM
    Expansion expected
    		Medium
    Profitability
    ROTA
    1.35% to 1.4%
    		High
    Profitability
    ROTA
    1.6% plus
    		High
    Profitability
    ROE
    15% plus
    		High
    Cost Efficiency
    Cost-to-Income Ratio (as % of average assets)
    2.9% to 3%
    		High
    Credit Cost
    Credit Cost
    0.15% to 0.25%
    		High
    Credit Cost
    Credit Cost
    downward to 0.3%
    		High
    Other Income
    Other Income (as % of assets)
    0.85% to 0.95%
    		Medium
    Other Income
    Other Income (as % of assets)
    1.05% to 1.15%
    		Medium
    Product Expansion
    New Products in Banca Business
    one more product
    		Medium

    NIM Expansion from Deposit Repricing

    next 3 to 6 months
    Current4.06% in Q4 FY26
    TargetMore meaningful expansion

    Why it matters

    NIM expansion is a key driver for profitability and is expected from the repricing of high-cost deposits.

    We expect the benefit of repricing to accrue more meaningfully over the next 3 to 6 months.

    How to verify

    key_financials.metrics[label='Net Interest Margin (Q4)']

    Risks & concerns

    4
    RiskSeverity

    Global Macroeconomic Headwinds

    The global environment remains challenging with the Middle East conflict impacting energy markets, elevating commodity pricing and moderating global growth expectations, leading to volatility in inflation, currency movements and capital flows for emerging economies like India. — Management acknowledged

    medium

    Increased Competition for Deposits

    Credit growth has remained strong at about 16%, while deposit growth has been relatively moderate at 13% to 14%, leading to increased competition for deposits and some pressure on funding costs across the sector. — Management acknowledged

    medium

    Agriculture Portfolio Vulnerability

    Concerns raised by analysts regarding potential impact of geopolitical tensions, delayed rains, and weaker monsoon on the agri portfolio. Management cited diversified crops, high LTV, collateral, and regional focus as mitigants. — Analyst downplayed

    low

    Yield on Advances Compression

    Yield on advances dropped from 11.1% to 10.8% due to a 25 bps rate cut in January and interest reversals from agri NPAs. Management views this as a temporary impact. — Analyst acknowledged

    low

    Q&A highlights

    8

    “Provision in the Q4, if I talk about the provision number for the Q4 that includes all the provisions, including the taxation provisions. So when we are talking about 22 crores provision for the current year, this also includes the taxation provision. So the provisions for other than taxation are lesser. We enhanced the provision coverage this particular quarter. And our PCR, which was typically 50.45% a quarter back, we have improved it to 51.89% presently.”

    Clarifies that reported provisions include tax, and PCR has been proactively strengthened, indicating prudent risk management.

    asked by Sonal Minhas

    3 min read7 chapters

    Detailed Narrative

    01

    Q4 FY26 Performance Highlights

    Capital Small Finance Bank reported strong performance in Q4 FY26, with total deposits crossing ₹10,000 crores, growing 20% year-on-year. Gross advances reached ₹8,687 crores, up 21% year-on-year and 6.4% quarter-on-quarter. Profit After Tax (PAT) for the quarter was ₹40 crores, a 17% increase year-on-year, contributing to a full-year PAT of ₹141 crores. The bank's Net Interest Margin (NIM) improved to 4.06% in Q4 FY26 from 4.01% in Q3 FY26, and Return on Assets (RoA) also saw an uptick to 1.33% from 1.16% sequentially.

    02

    Asset Quality and Provisioning

    Asset quality showed significant improvement, with Gross NPA at 2.54%, down 14 basis points sequentially, and Net NPA at 1.24%, improving from 1.35% in the previous quarter. The Provision Coverage Ratio (PCR) was enhanced to 51.89% from 50.45% a quarter back. Early stress indicators, SMA-1 and SMA-2 accounts, also improved to 4.92% of advances from 6.46% previously, reflecting proactive collections and risk management efforts. Credit cost for the quarter stood at 0.26%.

    03

    Deposit Franchise and Funding Costs

    The bank's deposit base crossed ₹10,000 crores, demonstrating a strong retail-focused deposit franchise with 90% plus retail share. CASA remained broadly stable at 34.7%. The cost of deposits showed a declining trend, reaching 5.75% in Q4 FY26 from 5.86% in Q3 FY26, attributed to the initial impact of deposit repricing. The Credit-to-Deposit ratio remained healthy at an average of 82.3% and 86.7% at year-end, indicating efficient fund deployment.

    04

    Strategic Growth and Footprint Expansion

    Capital Small Finance Bank completed its first decade as a small finance bank, leveraging its deep presence in semi-urban and rural markets. The branch network expanded to 211 branches across 5 states and 2 union territories, with 77.3% being SURU branches. The bank plans to organically grow its secured loan book by 22% plus for FY27 and aims for an advanced book of over ₹16,000 crores by FY29, with a target of 235 branches by the end of FY27 and over 300 by FY29.

    05

    Outlook and Future Targets

    Management provided optimistic guidance, targeting ROTA of 1.35% to 1.4% in FY27 and over 1.6% by FY29, with an ROE expansion of 15% plus by FY29. NIM expansion is expected to continue, supported by deposit repricing, with 53% of term deposits due for repricing in the next two quarters. The cost-to-income ratio is targeted to improve to 2.9% to 3% (as a percentage of average assets) for FY27, and credit cost is aimed to be maintained between 0.15% to 0.25% for FY27, with a downward trajectory to 0.3% by FY29.

    06

    Agriculture Portfolio Resilience

    Despite concerns about geopolitical tensions and monsoon, management expressed confidence in its agriculture portfolio. They highlighted lending to farmers cultivating 2 MSP crops, good wheat procurement, and improved canal water access in Punjab. The portfolio is characterized by high LTV (downward of 50%) and collateralization (over 200%), with no write-offs from the agriculture portfolio in the last 26 years, indicating strong risk mitigation.

    07

    Other Income and Banca Business Expansion

    Non-interest income grew by 16% year-on-year to ₹99 crores for FY26, with Q4 contributing ₹26 crores. The bank aims to maintain other income at 0.85% to 0.95% of assets for FY27, with an upward bias, and plans to bridge the gap to peer levels of 1.05% to 1.15% over the next three years. They intend to add one new product to their Banca business in FY27 and another in the subsequent year, focusing on providing a complete range of financial products to customers.

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