Jana Small Finan

Jana Small Finance Bank reported a mixed H1 FY25, with deposits growing 31% YoY and 10% in the first half, driven by 12% CASA growth. Advances increased 17% YoY and 7% in H1. A key strategic achievement was the continued pivot towards secured lending, with the secured book growing 16% in H1 and now constituting 65% of total advances, up from 60% in March. Profit After Tax (PAT) for H1 FY25 stood at INR 267 crore, reflecting a tough half but consistent execution of the bank's long-term strategy.

The bank's asset quality metrics showed a Gross NPA of 2.86% and a Net NPA of 0.95%. To maintain Net NPA below 1%, an additional provision of INR 115 crore was made in H1 FY25 (INR 61 crore in Q2). The Provision Coverage Ratio (PCR) was 67.2%, with the secured PCR specifically elevated to 29.7% from 18% in March, demonstrating a conservative approach to provisioning. Management indicated that the credit cost on the unsecured side has likely peaked.

The unsecured microfinance business faced stress, leading to a 7% de-growth in H1 FY25 and a Gross NPA of 4.97%. A significant contributor to this stress was the Business Correspondent (BC) network, particularly 3 out of 17 BCs, where issues like the use of CSP points and rapid growth led to a BC book Gross NPA of 9.7%. In response, the bank has tightened credit norms, reducing total unsecured customer exposure to INR 1.25 lakhs and implementing stricter guardrails on BC growth, while shifting collection resources to early buckets.

The bank's secured portfolio demonstrated robust growth and strong asset quality. The Affordable Housing and Micro LAP businesses collectively crossed INR 10,000 crore, with healthy LTVs of 50% and 36% respectively. MSME loans grew 16.5% YoY and 12.9% in H1, while the Gold Loan business saw exceptional growth of 80% YoY and 67% in H1. This diversification and strong performance in secured segments underpin the bank's strategy to become a broad financial services provider.

Net Interest Margin (NIM) remained stable at 7.7% despite the de-growth in the high-yielding MFI book. The cost of funds for Q2 and H1 FY25 was 8.1%, which management acknowledged as higher than peers but justified by a conscious strategy to maintain a high Liquidity Coverage Ratio (LCR) of 261%. The sequential decline in Pre-Provision Operating Profit (PPOP) was attributed to a drop in PSL income (INR 40 crore in Q1 vs INR 10 crore in Q2) and reduced fee income from lower unsecured disbursements, estimated at INR 100-120 crore revenue loss.

Management expressed confidence in a stronger H2 FY25, anticipating lower credit costs, higher disbursals, and improved fee and interest income, as the peak of unsecured stress is believed to be over. The bank aims for 20% AUM growth in H2 and is targeting PAT growth closer to 30% for the second half, a revision from the earlier 30-40% range. For the next fiscal year, Jana Small Finance Bank is committed to maintaining Net NPA below 1% and Gross NPA below 3% as it prepares for conversion to a universal bank.