Key Takeaways
- NIM recovery underway, 3%+ targeted: NIM improved to 2.92% from 2.72% QoQ, driven by CASA growth and bulk deposit reduction; management expects a return to 3%+ by year-end.
- Asset quality stable but one large account weighs: GNPA improved 1 bps QoQ despite a single large borrower slipping; recovery is expected given prime-location security, but the account swallowed other recovery gains.
- RAM segment turns the corner: Retail, Agri and MSME advances moved from negative to positive growth, supported by rate revisions, regional empowerment, and dedicated retail centres across all 15 regions.
- Profitability ratios dipped, recovery promised: ROA fell to 0.92% from 1.03% QoQ; management commits to 1%+ by March-end and a 1.1%–1.3% trajectory over the next two years.
- What to watch next quarter: Whether the large NPA account is recovered before 31 March, whether the RAM segment's green trend holds, and whether NIM actually crosses 3% as guided.
Margin & Profitability
- NIM jump: Improved 20 bps QoQ to 2.92%, helped by a 7 bps reduction in cost of deposits (to 5.43%) and an improving CASA mix as the Bank reduced reliance on high-cost bulk deposits.
- Yield on advances fell: Dropped to 8.71% from 8.98% QoQ as repo rate cuts flowed through external benchmark-linked loans, partially offset by a shift in product mix toward higher-yielding segments.
- Cost of funds trajectory: Sequential improvement to 5.46% from 5.58% QoQ; management expects further decline as repo rate cut benefits materialize and bulk deposit dependence keeps falling.
- Cost-to-income improving: Driven by rent renegotiations, vendor commercial revisions, and operating expense control; management targets a 55%–56% range in coming quarters.
- ROA and ROE dipped: ROA fell to 0.92% (from 1.03% QoQ) and ROE to 9.06% (from 10.14% QoQ); the Bank expects higher accretion from the RAM segment and the shift from bulk to retail deposits to lift both ratios.
- Spread ambition: Management sees 3%+ spread as immediate, with further improvement depending on growth and challenges.
Bhat: "I am hopeful that it will be 3% plus during the quarter. It will happen because there is an improvement which you have seen. Added to that, it is this EBLR effect where the assets are getting repriced faster, liability side remains fixed." [12–13]
Asset Quality & Recoveries
- GNPA and NNPA improved sequentially: Gross NPA down 1 bps, net NPA down 4 bps QoQ, supported by intensified slippage control and recovery efficiency through regional collection centres.
- One large account masked broader progress: GNPA rose YoY from 3.11% to 3.32% because of a single large borrower; management is confident of recovery as the account is fully backed by good security in a prime location.
- MSME stress reduced materially: MSME stress fell from ~10.2% to 7.6% through continuous follow-up, working capital renewals, and dedicated teams; contractors (2.1%), manufacturing (2.3%), and services (3.2%) are the affected sectors, with cash-flow issues the primary challenge.
- Restructured portfolio shrinking: Standard restructured advances fell 7.6% QoQ; 55% of the portfolio (₹477.37 crores) requires 30% recovery for upgradation, and the Bank is focusing on recovering these accounts.
- PCR improved: PCR excluding technical write-offs rose to 61.23% from 60.22% in September, continuing a steady climb from 58% in Q4 of last year.
- Technical write-off recovery target: Management is optimistic of ₹75–80 crores in Q4, with ₹100 crores seen as a very good outcome.
Bhat: "We will be bouncing back and at the earliest possible time. I cannot commit to you right now. Once this Q4 is over, I will have a proper strategy how to do it."
Business Growth & RAM Turnaround
- RAM segment turned positive: After being in negative territory up to March and September, Retail, Agri and MSME advances are now showing green; management says the green trend will continue.
- Growth traction from October: Revised interest rates on housing and MSME loans, Retail Loan Processing Service Centres (RLPSCs) in all 15 centres, and additional delegated powers to regional heads started driving growth from October onward.
- CD ratio improving: After strategies took effect post-October, the CD ratio began moving up; management targets 76%–80% and wants growth on both sides with a focus on CASA.
- Focus segments: Retail, mid-corporates, MSME, housing, and gold loan are the growth drivers; mid-corporates offer diversified risk, slightly better yield, and available collateral, while corporates with lower yield and higher risk are being taken carefully.
- Gold loan growing daily: Disbursements of ₹1,500–₹1,800 crores expected from gold loan alone.
- Disbursement pipeline: ₹2,500–₹3,000 crores expected from sanctioned facilities, plus ~₹3,000 crores from other segments.
- Tobacco corporation tie-up: A major breakthrough tie-up has happened; the Bank is now focusing advances there.
- Concurrent auditors deployed: Placed in all 15 centres and head office to improve follow-up action as retail grows.
Funding & Liability Strategy
- CASA focus: Focused strategies are in place to further accelerate CASA growth over the course of the year, supporting both NIM and cost of funds.
- Bulk deposit reduction: Reducing reliance on high-cost bulk deposits is a stated priority; the shift to retail deposits is expected to improve both cost of funds and ROA.
- Deposit repricing clarification: Management clarified that deposits are fixed-rate, not floating, so repo rate cuts do not directly reprice liabilities downward via EBLR; the benefit flows through reduced bulk deposit dependence and CASA growth instead.
- New deposit product planned: A 'Soulabhya Deposit' variant with partial withdrawal facility is among several launches planned for coming quarters.
New Initiatives & Product Pipeline
- Product launches in the pipeline: Dedicated SHG lending product, Soulabhya Deposit variant, and enhancements to Flexi Deposit Scheme, Supply Chain Finance, and Trust Finance offerings are planned.
- MSME ecosystem tie-up: Underway, including onboarding business facilitators and Loan Service Providers (LSPs) for electric-vehicle financing.
- Agri Infrastructure Fund: The Bank is exploring opportunities under the scheme for post-harvest management infrastructure and community farming assets.
- Agri subsector target: Efforts are being made to achieve the target under the small and marginal farmers subsector.
Management & Stability
- Second full quarter under new MD & CEO: The Bank has built on momentum, navigated the transition phase, strengthened operational stability, and laid groundwork for sustainable growth.
- Second line in place: Management asserted that changes in key positions during the year were all replaced with equal talent, and results have started coming in.
- Strategy revision by March-end: Management stated that by end of March the picture will be very clear, and based on that, all strategies will be further refined.
Bhat: "There is no threat. I guarantee. Absolutely, there is no problem. There is sufficient backup. It is going on well."
Guidance & Commitments
| Commitment | Specifics | Timeline |
|---|---|---|
| NIM | Return to 3%+ | By Q4 FY26 (March-end) |
| ROA | 1%+ | By March-end FY26 |
| ROA trajectory | 1.1% to 1.2% in FY27; 1.2% to 1.3% in FY28 | Next two years |
| Cost-to-income ratio | 55%–56% range | Coming quarters |
| Advances | ₹85,000 crores | By end of FY26 |
| CD ratio | 76%–80% | By Q4 FY26 |
| MSME stress | Reduce to 5% or below | By end of Q4 FY26 |
| Technical write-off recovery | ₹75–80 crores (₹100 crores would be very good) | Q4 FY26 |
| Spread | 3%+ immediate; further improvement thereafter | Immediate and ongoing |
| Long-term business growth | Overall ~15%; advances 15%–20%; liabilities 10%–15% | Medium to long term |
Key Metrics
| Metric | Q3 FY26 |
|---|---|
| Net profit | ₹290.79 cr, -9% QoQ from ₹319.12 cr; +2.5% YoY from ₹283.60 cr |
| Net interest income | ₹792.06 cr, +8.8% QoQ from ₹728.12 cr |
| Net interest margin | 2.92%, +20 bps QoQ from 2.72%; -10 bps YoY from 3.02% |
| Yield on advances | 8.71%, -27 bps QoQ from 8.98%; -66 bps YoY from 9.37% |
| Cost of funds | 5.46%, -12 bps QoQ from 5.58%; -23 bps YoY from 5.69% |
| Cost of deposits | 5.43%, -7 bps QoQ from 5.50% |
| Cost-to-income ratio | 58.72%, -21 bps QoQ from 58.93%; target 55% in coming quarters |
| Return on assets | 0.92%, -11 bps QoQ from 1.03%; FY26 exit guided at ~1.1% or higher |
| Return on equity | 9.06%, -108 bps QoQ from 10.14% |
| Gross advances | ₹77,283.85 cr, +5% QoQ from ₹73,644.15 cr |
| Aggregate deposits | ₹1,04,111.52 cr, +1.3% QoQ from ₹1,02,817.19 cr |
| CASA ratio | 31.53%, +52 bps QoQ from 31.01%; absolute CASA grew 3% QoQ |
| CD ratio | 74.23%, +260 bps QoQ from 71.63%; FY26 exit target 76%–80% |
| Gross NPA | 3.32% (₹2,565.31 cr), -1 bp QoQ from 3.33%; +21 bps YoY from 3.11% |
| Net NPA | 1.31% (₹994.70 cr), -4 bps QoQ from 1.35%; -8 bps YoY from 1.39% |
| Provision coverage ratio (excl. technical write-off) | 61.23%, +101 bps QoQ from 60.22%; +520 bps YoY from 56.03% |
| Gross slippages | 0.47%, +12 bps QoQ from 0.35%; +7 bps YoY from 0.40% |
| Credit cost | 0.11%, +8 bps QoQ from 0.03%; -1 bp YoY from 0.12% |
| Standard restructured advances | ₹867.95 cr, -7.6% QoQ from ₹939.35 cr; -22.1% YoY from ₹1,113.65 cr |
| Bulk deposits as % of total deposits | 4.8%, -50 bps QoQ from 5.3% |
| Liquidity coverage ratio | 186.84%, -132 bps QoQ from 188.16%; regulatory minimum 100% |
| Recoveries (excl. upgraded accounts) | ₹114.18 cr, -40.9% QoQ from ₹193.25 cr; +13.6% YoY from ₹100.52 cr |
| Technical write-off recoveries | ₹43 cr added to income in Q3; Q4 target ₹75–80 cr |
| MSME stress (GNPA) | 7.6%, reduced from ~10.2% earlier; target below 5% by Q4 FY26 |
| Advances linked to EBLR | ~80% of gross advances |
| Retail term deposits (<₹3 cr) | ₹66,252.24 cr, +1.1% QoQ; +6% YoY |
| IBPC portfolio | ₹1,639 cr, -11.9% QoQ from ₹1,860 cr; ₹221 cr replaced in Q3 |
| RAM segment growth | +2% QoQ; mid-corporate advances +7% QoQ |
| Long-term business growth target | ~15% overall; advances 15–20%, liabilities 10–15% |
| ROA medium-term trajectory | 1%+ by Mar '26; 1.1–1.2% FY27; 1.2–1.3% FY28 |