Detailed Narrative
Robust Loan Book and Disbursement Growth
Ujjivan Small Finance Bank reported a gross loan book of ₹33,287 crores in Q1 FY26, marking an 11% year-on-year and 4% quarter-on-quarter growth. Total disbursements for the quarter were strong at ₹6,539 crores, a 24% increase year-on-year. The bank's strategy to diversify its portfolio is evident in the rising share of its secured portfolio, which grew from 31% to 46% year-on-year, enhancing overall portfolio quality.
Asset Quality Trends and Collection Efficiency
The bank's micro banking book showed a strong X-Bucket collection efficiency of 99.34% for June '25, with expectations to reach 99.5%+ by Q3 FY26. While slippages in micro banking peaked in Q4 FY25 across several states and in Karnataka during Q1 FY26, management anticipates an improving trend. The SMA book has steadily declined from 2.68% to 2.29%, indicating lower future slippages. The bank also made accelerated provisions of ₹23 crores in Q1 and holds ₹21 crores in unutilized floating provisions.
Secured Portfolio Expansion and Diversification
The secured book demonstrated significant growth, with disbursements increasing by 86% year-on-year in Q1. This was primarily driven by a 100% year-on-year growth in affordable housing and micro mortgages, and a 212% year-on-year growth in the MSME segment. The housing portfolio, including affordable housing and micro mortgages, reached approximately ₹8,000 crores, growing 53% year-on-year. Newer offerings like gold, vehicle, and agri loans contributed 11% of Q1 disbursements, totaling ₹628 crores, up from ₹198 crores in Q1 FY25.
Liabilities Management and Cost of Funds
Total deposits grew 19% year-on-year to ₹38,619 crores, with CASA deposits increasing by 13% year-on-year to ₹9,381 crores. Retail TD plus CASA deposits stood at ₹27,884 crores, representing 72% of total deposits. The cost of funds was 7.6% in Q1 and is expected to reduce in upcoming quarters due to recent repricing actions, including a 65 bps reduction in peak FD rates and recalibration of SA rates by up to 100 bps. Management expects a 20 bps moderation in cost of funds in Q2.
Profitability and Operational Efficiency
Interest income grew 3% quarter-on-quarter, while other income increased 26% year-on-year but declined 8% quarter-on-quarter due to lower PSLC income and retail insurance. The cost-to-income ratio for the quarter was 67%. Profit after tax stood at ₹103 crores, with RoA at 0.8% and RoE at 6.7%. Credit cost improved to ₹225 crores from ₹265 crores in the previous quarter. The bank is in an investment phase, contributing to the elevated cost-to-income ratio.
NIM Dynamics and Outlook
NIM experienced a sequential decline of 56 basis points in Q1. This was attributed to a 25 bps impact from asset mix changes, 17 bps from excess liquidity absorption, and a 14 bps one-off📎 payment for prepaid installment refunds in micro banking. Excluding the one-off📎 items, NIM would have been around 8%. Management expects NIM to be closer to 7.9% in Q2 and Q3, stabilizing at 7.8% by Q4, driven by reducing cost of funds and absorption of excess liquidity.
Strategic Growth and Regulatory Adaptation
The bank has fully adopted the MFIN guardrails 2.0 effective April 1, 2025, and is focusing on deeper customer engagement and graduation to individual loans. Regulatory changes reducing PSL requirements for SFBs from 75% to 60% are expected to provide enhanced flexibility in portfolio mix and improve capital allocation. The bank plans to open 25 new branches this year and 400 over the next four years, indicating a focus on network expansion.