Capital Small Finance Bank is India’s first small finance bank - a 26-year-old institution that began as a local area bank serving three Punjab districts and converted to an SFB in 2016, one of the few to do so from outside the microfinance world. It takes deposits from middle-income households in semi-urban and rural pockets and lends almost exclusively against property or other hard collateral to the farmers, traders and small businesses that larger banks often overlook. Everything it does flows from a single idea: be the primary banker to a customer, holding both their savings and their loan, so the relationship - and the visibility into their cash flows - deepens with every transaction. # Business segments Two engines that feed each other - a granular retail deposit franchise that gathers low-cost savings from middle-income households, and a secured lending book that puts those deposits to work in the same communities. ## 1. Secured lending: putting local deposits to work in the same neighbourhoods **Nearly every rupee lent is backed by property or fixed deposits, and the average loan is small enough that no single borrower can sink the bank.** - **Collateral on almost everything** - about 98% of the loan book is secured, and roughly 89% of non-corporate loans are backed by immovable property or bank fixed deposits, which is why the bank has near-zero write-offs and has never sold a bad loan since inception. - **Small tickets, wide spread** - the average loan is just ₹14.2 lakhs, and two-thirds of the portfolio sits with borrowers who owe less than ₹25 lakhs, so risk is scattered across thousands of customers rather than concentrated in a few large accounts. - **Four lending buckets, one local focus** - agricultural loans (28% of the book) fund crop cultivation, tractors and irrigation; MSME and trading loans (14%) finance working capital for local manufacturers and commission agents; mortgage loans (25% combined housing and loan-against-property) cover home construction and business needs; and corporate loans (25%) go to larger entities including NBFCs, with an average ticket of ₹2.75 crores. - **Credit decisions made close to the ground** - a committee reviews every exposure above ₹125 lakhs, a dedicated team monitors those accounts, and the “principle of four eyes” ensures no single officer approves a loan alone, all built on a credit matrix refined over two decades. - **Partnerships extend reach without diluting discipline** - in geographies where the branch network is thin, the bank now originates loans through partners under a First Loss Default Guarantee (FLDG) arrangement, where the partner finds and services the customer but the bank controls underwriting and takes a fixed percentage as a loss buffer. ## 2. Retail deposit franchise: the funding engine that makes the lending possible **Over 90% of deposits come from individuals, not institutions, and nearly nine in ten maturing term deposits are rolled back in - a sticky, low-cost base that few small finance banks can match.** - **Deposits are the balance sheet** - deposits make up 82.5% of total liabilities, with borrowings at just 4.1%, meaning the bank funds its loans almost entirely from customer savings rather than wholesale markets. - **CASA that stays put** - the current and savings account ratio is a stable 34.7%, and the savings account rate is a modest 3.10%, which together keep the cost of deposits at 5.85% - among the lowest in the SFB segment. - **Granular and unconcentrated** - the average deposit ticket is just ₹1.21 lakhs, and the top 20 depositors account for only 9.34% of total deposits, so the bank is not hostage to a handful of large accounts. - **Term deposits that renew themselves** - the rollover ratio on term deposits has been consistently around 90% or higher, a sign that customers treat the bank as their primary savings destination rather than a rate-shopping stop. - **A repricing tailwind** - more than half of existing term deposits are high-priced and due for repricing in the next two quarters, which should ease the cost of funds further as those deposits reset to current rates. ## 3. Fee-based services: earning from the relationship beyond the loan **Once a customer opens a deposit or takes a loan, the bank layers on insurance, foreign exchange, government banking and investment services that generate non-interest income without adding credit risk.** - **Insurance sold, not manufactured** - the bank holds a corporate agent licence valid from April 01, 2025 to March 31, 2028 and distributes life, health, motor and property policies from insurers including ICICI Prudential, HDFC Life and Bajaj Allianz, earning ₹39.86 crores in commission in FY26. - **A seat at the government table** - the bank is one of only two SFBs empanelled by the Punjab Government to manage its deposit placements, and it runs a dedicated institutional banking group to serve state departments, cooperative banks and public trusts. - **Foreign exchange and investments under one roof** - an Authorised Dealer Category II licence lets the bank handle non-trade remittances, while 3-in-1 demat and trading accounts bundle banking, broking and custody for customers who want to invest. # Branch-led phygital delivery **The bank builds relationships through 211 physical branches - three-quarters of them in semi-urban and rural areas - and layers digital tools on top, not as a replacement but as an extension.** - **Branches where others don’t go** - 77.3% of branches are in semi-urban and rural locations, and more than a quarter sit in unbanked rural centres, placing the bank physically close to customers that commercial banks and NBFCs typically underserve. - **Contiguous expansion, not a scattergun** - the bank enters a new geography by offering loans first, builds a cluster of branches in nearby territories, and only then pushes deposits and cross-selling once customer relationships are established. # Group structure and partners **A standalone listed bank with no subsidiaries, a board dominated by independent directors, and a strategic shareholding by HDFC Bank group entities.** - The bank is a single legal entity with no subsidiaries, joint ventures or material stakes in other businesses. - The board is 60% independent and includes a former SIDBI deputy managing director, a former RBI chief general manager and a retired IAS officer; SIDBI also has a nominee director on the board. - In January 2025, the RBI approved HDFC Bank and its group entities - including HDFC Mutual Fund, HDFC Life and HDFC ERGO - to acquire up to 9.50% of the bank’s share capital, valid for one year.