# 1. Financial Performance ## A. Key Figures * **Profit after Tax:** **₹103 Cr** (quarterly) * Return on Assets: 0.8% * Return on Equity: 6.7% * **Cost to Income Ratio:** **67%** (current and expected) * **Opex Change:** **–3%** Q-o-Q * **NIM Change:** **–56 bps** sequentially ## B. Revenue & Profit * **Mixed Income Trends:** Interest income grew modestly on asset book expansion, while other income showed strong annual growth but declined recently due to lower PSLC and recovery income, partially offset by higher treasury gains from **regulator-led OMO, switch, and buyback transactions**. * **Accounting Impact in Microfinance:** A 17-day interest reversal occurred due to advance repayments, requiring rebating of interest under microfinance norms, creating a one-off headwind. ## C. Net Interest Margin * **NIM Under Pressure:** Sequential decline of 56 bps driven by adverse asset mix shift, excess liquidity, and a one-off interest refund in micro banking—indicating near-term margin headwinds despite strategic repositioning. * **Secured Lending Shift:** Intentional pivot toward secured loan products is expected to moderate NIM further, reflecting risk discipline over yield optimization. ## D. Cost to Income * **Cost Discipline Amid Investment Phase:** Opex reduced 3% on lower variable pay and IT savings, yet cost-to-income remains elevated at 67% due to sustained investments in **micro mortgage, gold, vehicle, MSME, and agri banking**. * **Prolonged Investment Cycle:** Additional outlays in liability management, technology, manpower, and CASA improvement will keep cost ratios high despite **20%+ asset growth**, delaying operating leverage inflection. --- # 2. Loan Book & Disbursements ## A. Key Figures * **Group Loans:** ₹12,961 Cr (-18% YoY) · Q1 Disbursements ₹2,844 Cr (+2% QoQ) * **Individual Loans:** ₹5,332 Cr (+7% YoY), Disbursements +16% YoY * **Affordable Housing & Micro Mortgage:** ~₹8,000 Cr (+53% YoY) * **MSME Loan Book:** ₹2,253 Cr (+59% YoY), >24% in working capital & supply chain finance * **Vehicle Finance:** ₹560 Cr (+156% YoY, +20% QoQ) * **Agri Banking:** ₹403 Cr (+288% YoY, +25% QoQ) * **Gold Loans:** ₹293 Cr (~+550% YoY), 280 branches * **New Secured Disbursements (Other):** ₹628 Cr Q1 FY26 vs. ₹198 Cr Q1 FY25 ## B. Group Loan Trends * **Disbursement Resilience:** Q1 disbursements rose QoQ despite YoY group loan contraction, signaling early signs of revival amid improved demand. * **Portfolio Progression:** Large-scale graduation of **34,000 group borrowers** to individual and secured products reflects successful customer lifecycle management. * **Yield Pressure:** Overall yield down 30 bps due to mix shift, with micro banking yields moderating 20 bps; secured yields held flat. * **Housing Execution Edge:** Sanction-to-disbursement ratio at **~90%** in housing, well above industry norms, underpinned by expanded presence in **550+ branches** and competitive pricing. ## C. Individual Loan Growth * **Higher-Quality Expansion:** Individual loan growth outpaces group book with better asset quality, fueled by strong transition of customers from group lending. * **Micro Mortgages Accelerate:** Segment contributes ₹900 Cr, growing **227% YoY**, targeting sub-₹10 lakh borrowers and deepening housing penetration. * **Cost Efficiency Outlook:** Retail loan sourcing cost at **09%** in Q1, with management guiding for further decline. ## D. Secured Loan Surge * **Secured Lending Momentum:** Disbursements in secured products surged **86% YoY**, led by triple-digit growth in affordable housing, MSME, and newer verticals. * **Diversified Secured Growth:** Vehicle, gold, and agri loans now represent **11% of Q1 disbursements**, with rapid scaling across high-yield niches. ## E. Regional Exposure * **Regional Stabilization:** East and North regions showing faster recovery supported by branch density; targeted growth ahead, while South awaits stabilization. * **Karnataka Resilience:** Despite **~10% portfolio impact** in select districts due to ordinance, Bengaluru and urban centers remain stable with strong recovery trends in IL segment. * **West Bengal Exposure Minimal:** JLG exposure at **1%**, with total state exposure below 15% cap, mitigating concentration risk. --- # 3. Asset Quality & Provisioning ## A. Key Figures * **Credit Costs:** ₹225 Cr Q1 (down from ₹265 Cr) * PAR (Karnataka IL): 7.4% (up from 6.8%) * **ARC Sale (Q4):** ₹300 Cr (78% GL, 22% IL) * **PCR (Provision Coverage Ratio):** ~70% MFI · Projected 75–77% for year * X-Bucket Collection Efficiency: 99.34% as of June '25 · Expected >99.5% by Q3 FY26 ## B. GNPA & PAR Trends * **Improving Asset Quality:** PAR and slippages peaked in 9 of 10 states in Q4, with Karnataka expected to peak in Q1, signaling near-term trough and recovery momentum. * **Regional Divergence:** Tamil Nadu GL under stress due to overborrowing and high leverage, while IL remains resilient with GNPA below 2% and PAR ~4%. * **Portfolio Maturation Impact:** Micro mortgage book at 80% penetration of 15 MOB; slight PAR uptick expected as 24-month book matures. * **Ujjivan Plus 3 Runoff:** Segment down to **4%** of borrower base (from 14%) and expected to become **insignificant within one quarter**, reducing collection drag. ## C. Slippage Analysis * **Slippage Composition:** ~80% of total slippages from microfinance, with group loans (GL) contributing the majority; housing, MSME, and vehicle verticals account for minor shares. * **Underwriting Discipline:** Individual lending (IL) benefits from **15 years of refined underwriting**, stricter policies, and lower post-disbursement indebtedness risk, resulting in better delinquency performance than GL. * **Collection Infrastructure Buildout:** Increased collection staff and improved efficiency expected to reduce future slippages, supported by SMA book decline from 68% to 29%. ## D. Provision Coverage * **Provisioning Strategy:** Accelerated provisioning and retained floating buffers (₹181 Cr total, ₹21 Cr unutilized) position PCR to rise toward **75–77%** despite recent dip from GNPA outpacing provisions. * **Secured vs. Unsecured Dynamics:** Secured book shows low GNPA and PCR; unsecured portfolio maintains **80% PCR coverage**, limiting incremental provision need upon write-offs. * **CGFMU Utilization:** Ongoing dynamic participation with **₹649 Cr insurance coverage**, enhancing portfolio protection without fixed forward coverage targets. ## E. Collection Efficiency * **Recovery Momentum:** X-Bucket collection efficiency improved to **4%** (last 2 months), up from depressed Q4 levels, with normalization above **5% expected by Q3 FY26**. * **Karnataka Recovery:** Industry-wide stress eased since January; no recurrence of Q4 collection headwinds, supporting improved efficiency and lower future PAR. * **Collection Lag Effect:** NPA and write-off collections improved QoQ, though micro banking recoveries require **3–5 meetings over several months**, implying delayed realization of recent improvements. --- # 4. Funding & Liquidity ## A. Key Figures * **Total Deposits:** **₹38,619 Cr** (+19% YoY) * **CASA:** **₹9,381 Cr** (+13% YoY) * **Retail TD + CASA:** **₹27,884 Cr** (+16% YoY), **72%** of total deposits * Cost of Funds: 7.6% in Q1, expected to decline by 20 bps in Q2 and 20 bps per quarter thereafter * **Excess Liquidity:** **₹1,100 Cr** (corrected from prior misstatement) ## B. Cost of Funds * **Downward Pressure on Funding Costs:** Cost of funds set to trend lower over FY26, driven by **65 bps reduction in peak FD rates** and **SA rate recalibration of up to 100 bps**, with a 21 bps drop already realized in Q1. * **Liquidity Normalization:** RBI’s policy easing and liquidity infusion support credit demand in rate-sensitive segments, while internal liquidity buffers are being absorbed to stabilize funding conditions. * **Deposit Repricing Momentum:** Repricing of high-cost deposits underway, with bulk term deposits now sourced at **69%** of prior peak rates, signaling sustained margin relief ahead. ## C. Deposit Growth * **Resilient Retail Franchise:** Strong 19% YoY deposit growth anchored by retail franchise, with retail TD + CASA maintaining **72% share**, reflecting durable customer stickiness and low-cost funding resilience. ## D. Liquidity Buffer * **Liquidity Reclassification:** Excess liquidity corrected to **₹1,100 Cr** from previously reported ₹11,000 Cr, eliminating prior overstatement and clarifying near-term liquidity positioning. --- # 5. Branch & Distribution ## A. Key Figures * **Branch Expansion:** **25** branches planned for this year · **~400** branches targeted over next 4 years * **Off-Roll Team Size:** **1,800** peak post-COVID · reduced to **1,200** currently ## B. Branch Expansion * **Strategic Growth Push:** Expansion supports deeper customer engagement and loan graduation strategy, with 25 new branches planned this year and a multi-year target of ~400. ## C. Collection Manpower * **Enhanced Collections Focus:** Collection staffing increased over recent quarters to boost SMA/NPA recovery rates, especially in higher DPD buckets. ## D. Off-Roll Team * **Right-Sizing Underway:** Off-roll collection team downsized from peak levels as portfolio stress eases, with further adjustments expected as collection efficiency normalizes. * **Path to Normalization:** Team size to be progressively aligned with portfolio performance, targeting stabilization by **FY '27**. --- # 6. Credit & Regulatory Risks ## A. Regulatory Shifts & Portfolio Policy * **Enhanced Flexibility:** Reduction in PSL requirements from 75% to 60% improves capital allocation and strengthens the bank’s cost and risk profile. * **Disciplined Geographic Risk Management:** Maintains strict cap of **15% microfinance exposure per state**, mitigating concentration risk despite regional stress in South India. ## B. MFIN Guardrails Implementation * **Operational Shift:** Full adoption of MFIN Guardrail 0 from 1st April 2025 applies to group loans only, marking a formal change in compliance framework. * **Voluntary Discipline on IL:** Individual loans exempt from Guardrail 0, but company applies internal structured rules, particularly on yield management during borrower graduation. ## C. Competitive Landscape * **Elevated Competition Risk:** Lower qualifying threshold for NBFC MFIs (75% to 60%) may increase competitive intensity in the individual loan segment. --- # 7. Guidance & Outlook ## A. Key Figures * **Advances Growth Guidance:** **~20%** for the year * Normalized Credit Cost: 2%–2.25% unsecured · 0.7%–0.8% secured · ~1.5%–1.7% company-level (50-50 portfolio split) ## B. Advances Growth * **Robust Lending Expansion:** Management guides for strong double-digit advances growth, reflecting confidence in credit demand and portfolio scaling. ## C. Credit Cost Path * **Phased Normalization:** Credit costs to remain elevated in first half before declining sharply in H2, converging toward long-term sustainable levels. * **Portfolio Risk Profile:** Secured book to carry higher steady-state credit costs than unsecured, with company-level average anchored by balanced portfolio mix. ## D. NIM Trajectory * **Near-Term Rebound:** NIM expected to recover meaningfully by Q2 as temporary headwinds from excess liquidity and one-off refunds fully lapse. * **Yield Pressure Ahead:** Gradual decline in advance yields anticipated due to mix shift toward secured loans, partially offset by stabilization from microfinance growth in Q3 onward.