Utkarsh Small F.

Utkarsh Small Finance Bank reported a period of renewed growth and cautious optimism in Q4 FY26, following a year focused on stability and quality. Disbursements saw significant improvement, with JLG growing 58% quarter-on-quarter and 2% year-on-year, while non-JLG disbursements increased 41% quarter-on-quarter and 51% year-on-year. Collection efficiency in the JLG segment strengthened to 99.7% in March 2026 from 98.5% in April 2025. Fresh NPA slippages (net of recoveries) reduced sharply to ~INR170 crores in Q4 FY26 from ~INR710 crores in Q4 FY25, and the GNPA ratio improved by ~330 basis points quarter-on-quarter to 7.7% as of March 2026.

A central theme for FY26 was the structural de-risking of unsecured exposure and a pivot towards secured, higher-yield portfolios. The bank consciously moderated its JLG exposure to ~28% of the Gross Loan book as of March 2026, down from ~88% in March 2020. Consequently, secured lending now comprises 51% of the Gross Loan book, up from 43% a year ago. The MBBL portfolio demonstrated exceptional traction, growing 122% year-on-year and 40% quarter-on-quarter, now representing 27% of the micro-banking loan book. The MSME loan book expanded 15% year-on-year to INR4,456 crores, and housing loans grew 8% year-on-year to INR990 crores.

The bank focused on building a granular, low-cost deposit base, with CASA deposits increasing 11% year-on-year and 13% quarter-on-quarter, improving the CASA ratio to 24% as of March 2026. Retail term deposits also grew 20% year-on-year. These improvements, coupled with calibrated repricing in response to RBI repo rate cuts, led to a reduction in the overall cost of funds by over 45 basis points year-on-year and over 20 basis points quarter-on-quarter, reaching 7.9% in Q4 FY26. The CD ratio declined to 83% as of March 2026, and the bank maintained surplus liquidity of ~INR3,800 crores with an LCR of 175%.

Despite a net loss of INR188 crores for Q4 FY26, primarily driven by provisioning for legacy stress, the bank's capital position remains healthy with a capital adequacy ratio of 17.7% as of March 31, 2026. A Rights issue of INR950 crores was successfully completed in November 2025, further strengthening the capital cushion. For the coming years, the bank targets loan book growth of 25% to 30%, with secured lending comprising ~55% of the portfolio, maintaining NIMs above 8%, and delivering an RoE of ~15% by FY28. Management confirmed they expect to exit FY28 above 15% RoE.

The bank proactively addressed legacy stress through an ARC Sale of stressed JLG portfolio and tightened underwriting standards. The overall Provision Coverage Ratio (PCR) stands at 59.3%, with 65.4% for the unsecured book (including MFI and MSME unsecured) and 39.0% for the secured book. For JLG and MBBL, the PCR is approximately 66.3%. Management guided for a steady-state credit cost of 3% to 3.5% for FY27, reducing to 2% to 2.5% in FY28, and aims to bring the Net NPA ratio below 1% by FY28. The 'Wheels' segment was identified as a key contributor to non-MFI slippages, which were around 4%, but collection efficiency has improved since November.

Operational discipline was a central pillar of the bank's FY26 response. The collections workforce for JLG and MBBL was expanded to over 1,200 by March 2026, and a specialized call center for overdue accounts was operationalized. The 'Utkarsh 2.0' technology transformation project is delivering tangible benefits in automation and risk control, with new CBS expected to be launched in Q2/Q3 FY27. These investments are aimed at improving efficiency, enhancing risk monitoring, and supporting future growth.