Detailed Narrative
Challenging Microfinance Environment & Asset Quality Stress
FY25 proved to be a challenging year for the microfinance sector, primarily due to higher borrower leverage and credit supply tightening. This environment led to a significant increase in the bank's Gross NPAs, which rose from 6.17% in December '24 to 9.43% by March '25. Consequently, the bank utilized INR190 crores in floating provisions to manage the stressed assets. Despite the overall stress, the SMA 0-90 book in the microbanking portfolio showed improvement, reducing from 10% in December '24 to 5% in March '25.
Robust Deposit Growth and Franchise Expansion
The bank demonstrated strong performance in its deposit franchise, with overall deposits growing by approximately 23% year-on-year to INR21,566 crores. This growth was significantly driven by retail term deposits, which increased by 33% YoY, and CASA deposits, which grew by 31% YoY. As a result, the CASA ratio improved to 21.8% by March '25 from 19.7% in December '24. The bank also expanded its physical presence, opening over 200 new branches in FY25, bringing its total banking outlets to over 1,000 across 27 states and UTs.
Diversified Loan Portfolio Growth and Secured Lending Focus
While the JLG portfolio experienced a decline of around 18% during FY25, the bank's non-JLG loan portfolio showed robust growth, increasing by 45% in FY25. Key segments contributing to this growth included MSME loans, which grew by 52% YoY to INR3,875 crores, housing loans, up 36% YoY to INR918 crores, and CE & CV loans, which increased by 26% YoY to INR1,188 crores. This strategic shift led to an increase in the share of secured loans in the overall portfolio from 34% in March '24 to 43% in March '25.
Profitability Impact and Future Outlook
The bank's profitability was significantly impacted in Q4 FY25, with the Profit After Tax (PAT) for FY25 standing at INR24 crores, a substantial decrease from INR498 crores in FY24. This was primarily attributed to high credit costs and interest income reversal stemming from stress in the JLG book. Management anticipates that profitability will remain under stress in H1 FY26 but expects a material improvement in the profitability profile post H1 FY26, as FY26 is projected to be a year focused on operational and financial optimization.
Regulatory Developments and Reverse Merger Update
The bank confirmed the full implementation of MFIN guardrail 2.0 from April 1, 2025, across the microfinance sector, which is expected to help control borrower leverage. Regarding the reverse merger, the bank has received the No Objection Certificate (NOC) from RBI and has responded to queries from SEBI. Management expressed hope for SEBI approval in May 2025, after which the NCLT process is estimated to take 7-9 months to complete.
Enhanced Collection and Underwriting Practices
In response to the asset quality challenges, the bank has significantly strengthened its collection team, adding over 800 dedicated personnel for DPD 60-plus accounts to improve collection efficiency. Efforts also include reducing case load per staff and enhancing critical processes such as center meeting discipline and technology usage. Underwriting norms have been tightened across both JLG and non-JLG segments to plug identified gaps and improve overall asset quality.