Skip to content

    Jana Small Finan

    JSFBGood
    Financial Services·21 Jan 2025
    Management Summary

    Jana Small Finance Bank reported a strong Q3 FY25, marked by significant improvements in profitability and asset quality, with both PBT and PAT increasing. The bank successfully reduced its Net NPA to 0.91% and continued its strategic shift towards a secured loan book, which now accounts for 68% of its portfolio. Despite a decline in the unsecured book, management expressed confidence in stabilizing it and highlighted proactive provisioning efforts to meet universal bank application criteria, while also adjusting CASA pricing to optimize cost of funds.

    Highlights

    8
    • PBT post regulatory and accelerated provision increased to ₹105 crores in Q3 FY25 from ₹88 crores in Q2.

    • PAT grew to ₹111 crores in Q3 FY25 from ₹97 crores in Q2.

    • Adjusted PAT (excluding accelerated provision) for Q3 FY25 was ₹204 crores, with an adjusted ROA of 2.4% and ROE of 20.7%.

    • Net NPA declined to 0.91% in Q3 FY25 from 0.95% in Q2, with regulatory provision dropping to ₹81 crores from ₹149 crores.

    • Secured book grew 36% YoY, now constituting 68% of the total book, up from 60% in March 2024.

    • Unsecured book declined 7% YoY, while segments like Gold Loans grew 104.9% and Two-Wheeler loans grew 73.9% (9M FY25).

    • CASA ratio stood at 18.43% in Q3 FY25, following a strategic reduction in CASA pricing, and LCR remained strong at 279%.

    • Book value improved to ₹380 per share.

    Key financials

    Single quarter

    17 metrics
    1. 01PBT₹105 Cr+19.3%QoQ
    2. 02PAT₹111 Cr+14.4%QoQ
    3. 03Adjusted PAT₹204 Cr
    4. 04Net NPA91%-4.2%QoQ
    5. 05Regulatory Provision₹81 Cr-45.6%QoQ

    Segment breakdown

    Affordable Housing
    25% Growth11.9 lakhs Average Ticket Size
    Micro-LAP
    14.3% Growth6.4 lakhs Average Ticket Size
    MSME Loans
    17.4% Growth
    Two-Wheeler
    73.9% Growth
    Gold Loans
    104.9% Growth
    Unsecured Book
    -11% De-growth
    List

    Guidance & targets

    21
    CategoryTargetPriority
    Asset Quality
    Unsecured portfolio under guarantee programs
    25-30%
    High
    Asset Quality
    Net NPA
    below 1%
    High
    Asset Quality
    Gross NPA
    below 3%
    High
    Credit Growth
    Secured book growth
    35%
    High
    Credit Growth
    Unsecured book
    stable or positive growth
    Medium
    Credit Growth
    Asset growth
    20%
    High
    Deposit Growth
    Liability growth
    20%
    High
    Profitability
    ROA (steady-state model)
    1.8-2%
    Medium
    Profitability
    ROE (steady-state model)
    16-17%
    Medium
    Profitability
    PAT
    better than Q3
    Medium
    Deposit Franchise
    CASA Ratio (steady-state model)
    30%
    Medium
    Margins
    NIM compression (steady-state model)
    30 bps drop
    Medium
    Efficiency
    Cost-to-income ratio
    55%
    Medium
    Efficiency
    Cost-to-income ratio (longer term)
    52-53%
    Medium
    DTA
    DTA usage
    most of DTA except last 100 crores
    Medium
    Regulatory
    PSL requirement (universal bank)
    40% from 75%
    High
    Regulatory
    Universal Bank Application
    apply
    High
    Cost of Funds
    Cost of deposit drop
    minimum 25 bps
    High
    Credit Cost
    Credit cost
    1.6-1.7%
    High
    Provisioning
    Accelerated provision
    Rs. 60-70 crores
    High
    Provisioning
    Total accelerated provision carried into next year
    Rs. 275-300 crores
    High

    Risks & concerns

    6
    RiskSeverity

    Continued stress and hard work required in MFI collections

    Collection efficiency for unsecured book remains at 98.5-98.6%, not easily reaching 99%, indicating ongoing challenges and the need for sustained effort.Management acknowledged

    medium

    NIM compression due to changing book mix

    NIM is dropping because the unsecured book is declining, stressing the cost-income ratio, as the bank shifts towards a higher proportion of secured loans.Management acknowledged

    medium

    Elevated cost-to-income ratio

    The cost-to-income ratio is challenged due to higher collection costs and reduced incremental business in the MFI segment, with more collectors than new business.Management acknowledged

    medium

    Geographical pockets of stress in secured segments

    Specific states like Odisha and West Bengal are showing 'extra challenge' in Micro-LAP and Affordable Housing, though management states it's not alarming and they are addressing it.Management acknowledged

    low

    Decline in CASA ratio post pricing adjustment

    CASA ratio dropped to 18.43% after reducing pricing on expensive CASA, with management working to make CASA positive in Q4.Management acknowledged

    medium

    Areas of Evasion(1)

    • Direct revision of PAT growth guidance

    Q&A highlights

    3

    “I must tell you that reaching 99% by the 20th, 22nd of the month is still very hard. We kind of stay at 98.5, 98.6. That's a collection percentage of BO I am talking of. I am not adding anything else except what is demand in B0 and what is collected in B0. And we still keep fighting till the month end to reach the 98.5, 98.6. I don't think so that is changing in a hurry.”

    Reveals ongoing challenges in MFI collections despite management's 'peak challenges behind us' narrative, indicating continued hard work is needed to improve efficiency.

    asked by Manish from Nirmal Bang

    3 min read7 chapters

    Detailed Narrative

    01

    Strong Q3 Performance and Asset Quality Improvement

    Jana Small Finance Bank delivered a robust Q3 FY25, with PBT increasing to ₹105 crores from ₹88 crores in Q2, and PAT rising to ₹111 crores from ₹97 crores. The bank's asset quality showed significant improvement, with Net NPA declining to 0.91% in Q3 from 0.95% in Q2. This was supported by a reduction in regulatory provisions to ₹81 crores from ₹149 crores, indicating that 'peak challenges are behind us' as stated by management. Adjusted PAT, excluding accelerated provisions, would have been ₹204 crores, translating to an adjusted ROA of 2.4% and ROE of 20.7%.

    02

    Strategic Shift Towards Secured Lending and Segmental Growth

    The bank continued its strategic pivot towards secured lending, with the secured book now accounting for 68% of the total book, a significant increase from 60% in March 2024, and growing 36% year-on-year. Conversely, the unsecured book saw a 7% year-on-year decline. Key secured segments demonstrated strong growth over the nine-month period, including Gold Loans at 104.9%, Two-Wheeler loans at 73.9%, Affordable Housing at 25%, Micro-LAP at 14.3%, and MSME loans at 17.4%.

    03

    Proactive Provisioning and Credit Cost Management

    Total credit cost for Q3 FY25 was ₹174 crores, a decrease from ₹210 crores in Q2. This figure includes ₹93 crores of accelerated provisions, strategically taken to ensure Net NPA remains below 1% for the universal bank application requirements. The bank's Provision Coverage Ratio (PCR) stands at a healthy 66.94%. Management guided for the full-year FY25 credit cost to be in the range of 1.6-1.7%, with an additional ₹60-70 crores of accelerated provision expected in Q4, bringing the total carried into next year to ₹275-300 crores.

    04

    CASA Strategy and Cost of Funds Optimization

    Jana Small Finance Bank implemented a strategic reduction in CASA pricing on October 3rd, which led to a decline in the CASA ratio to 18.43% from a cost of CASA of 4.8% at September end, now 4.44%. This move was aimed at shedding expensive CASA, with management expecting the CASA position to become positive in Q4. The bank maintains a very healthy Liquidity Coverage Ratio (LCR) of 279%, indicating strong liquidity management.

    05

    Microfinance Business Outlook and Geographical Challenges

    Despite management's assertion that 'peak challenges are behind us' for the MFI business, collection efficiency remains a 'hard work' at 98.5-98.6%, not consistently reaching 99%. The unsecured book did not stabilize as hoped in Q3, leading to continued focus on collections. Specific geographical challenges were identified in Odisha and West Bengal, impacting Micro-LAP and Affordable Housing segments, though management stated these are being addressed and are not causing overall discomfort.

    06

    Universal Bank Ambition and Future Growth Guidance

    The bank plans to apply for a universal bank license in May 2025, a process requiring Net NPA below 1% and Gross NPA below 3% for two consecutive years. Management provided guidance for the next year, targeting 20% asset growth and 20% liability growth. In a steady-state model, they anticipate an ROA of 1.8-2%, ROE of 16-17%, and a CASA ratio of 30%, with an expected 30 bps NIM compression due to the changing book mix.

    07

    Credit Guarantee Programs and Risk Mitigation

    To further mitigate risk in the unsecured portfolio, the bank has initiated CGTMSE and CGFMU guarantee programs, which currently cover 13.3% of its unsecured book. The target is to expand this coverage to 25-30% by March 2025. CGFMU costs 1% of the disbursed amount for one year, while CGTMSE for micro enterprises costs 0.3%, providing a layer of protection against unforeseen event risks.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.