Event Participants
Executives
2
Munish Jain (Whole Time Director & COO), Sarvjit Singh Samra (MD, CEO & Executive Director)
Analysts
8
Aditya Khandelwal (Securities Investment Management Pvt Ltd), Aditya Mundra (Mytemple Capital Advisors Llp), Divyansh Gupta (Latent PMS), Nilanjan Karfa (TCG AMC), Parth Gutka (360 ONE Capital Market Private Limited, Research Division), Pritesh Bumb (DAM Capital Advisors Limited, Research Division), Sagar Shah (Spark Capital Advisors (India) Private Limited), Siddharth Chandrashekar (Individual Investor)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Total Deposits | ₹10,596 crores | 16% YoY, 6% QoQ; retail share >90% with 90%+ rollover ratio |
| CASA Ratio | 36.7% | Improved from 34.7% in March 2026; underscores retail franchise strength |
| Cost of Deposits | 5.6% | Down 20 bps QoQ from 5.8%; benefit of deposit repricing on maturities |
| Gross Advances | ₹9,074 crores | 22% YoY, 4.5% QoQ; led by MSME/business loans, 97.4% secured portfolio |
| Disbursements | ₹1,009 crores | 17% YoY growth; diversified across business loans (35%), mortgage (21%), agri (15%), NBFC/corporate (20%) |
| Average CD Ratio | 83% | vs 80.9% in Q1 FY26; management targeting mid-to-high 80s |
| Average Ticket Size | ₹19.04 lakhs | vs ₹16.6 lakhs in Q1 FY26; granular, collateralized book with 88.82% of non-corporate book backed by immovable property/bank FDR |
| Yield on Advances | 10.9% | vs 11.1% a year ago; already optimized per management |
| GNPA | 2.47% | Improved 28 bps YoY and 7 bps QoQ |
| NNPA | 1.14% | Improved from 1.24% QoQ and 1.39% YoY; medium-term target below 1% |
| PCR | 54.5% | Up from 51.9% in Q4 FY26 and 50.17% in Q1 FY26; expected stable going forward |
| SMA 1+2 | 4.78% | Down from 5.47% a year ago; SMA-2 increased to 3.11% from 2.71% QoQ |
| Credit Cost | 0.31% | Largely in line with last year |
| NII | ₹134 crores | 22% YoY vs ₹110 crores in Q1 FY26 |
| Non-Interest Income | 0.82% of avg total assets | 13% YoY growth |
| Pre-Provision Operating Profit | ₹64.7 crores | 23.1% YoY vs ₹52.5 crores in Q1 FY26 |
| PAT | ₹41.3 crores | 29% YoY vs ₹32 crores in Q1 FY26 |
| ROA | 1.3% | vs 1.18% in Q1 FY26 |
| NIM | 4.21% | vs 4.06% QoQ and 4.06% YoY; supported by lower deposit cost and rising CD ratio |
| Operating Margin | 2.04% | vs 1.94% a year ago |
| Cost-to-Income | 59.5% | vs 60.6% in Q1 FY26 |
| CRAR | 21.6% | Ample headroom to support future growth |
| LCR | 184.18% | Conservative liquidity positioning |
| Book Value / EPS (Annualized) | ₹327 / ₹36.4 | Book value trajectory improving |
| Branch Network | 116 branches | Across 5 states and 2 union territories; 74% in semi-urban/rural markets |
Geographic & Segment Commentary
Business Loans / MSME: Largest segment at 27% of book (vs 22% a year back); grew 49% YoY and 11% QoQ with average ticket of ₹28 lakhs, fully collateralized by immovable property. Working capital facilities (CC/OD/WCTM) constitute 80%+ of the portfolio. Yield stable at 10.5% despite deposit cost decline. MSME GNPA reduced to ₹54.54 crores from ₹65.41 crores in March 2023 on an absolute basis.
Mortgage: Stable at 25% of book (vs 26% a year back). Housing loans returned to growth (+3% QoQ, +10% YoY) as PSU competition eased, with yield maintained at 9.87% (vs 9.85% Q4 FY26). LAP growing faster at +5% QoQ, +18% YoY with portfolio yield of 12.27%. Average housing ticket of ₹20-25 lakhs targeting middle-income segment (annual income ₹6-40 lakhs).
Agriculture: 27% of book (vs 30% a year back). Yield consistently in the 12-12.5% range over the last 7-9 quarters, reflecting industry-standard pricing for climatic risk. Targets middle-income farmers with borrowing needs of ₹5-35 lakhs (avg ticket ₹30 lakhs), collateralized at 50% LTV, requiring 2-3 crops per year with minimum 1-2 MSP crops.
Corporate / NBFC: Stable at 14% of book; accounted for 20% of incremental disbursements. Calibrated approach to well-rated corporate borrowers consistent with disciplined growth framework.
Geographic Expansion: Non-Punjab advances at 25% of book (vs 24% a quarter back, 21% a year back), growing 30%+ YoY. Non-Punjab deposits improved to 10% (from 8% in March 2026). Branch-led carpeting model with specialized MSME teams applied consistently across Punjab, Haryana and newer geographies.
Company-Specific & Strategic Commentary
Vision 2029 Roadmap: FY29 targets of ₹16,000+ crores loan book, ROA of 1.6%+, ROE of 15%+, and NNPA below 1%. FY27 targets: 22% loan growth, ROA of 1.35-1.4%, NIM stability at ~4.2%.
Deposit Franchise Strength: 90%+ retail deposit share with 75%+ sourced from semi-urban/rural markets; deposits constitute 95% of outside liabilities. Q1/Q3 deposit growth outperforms advances due to agri-crop money flows in Punjab/Haryana; FY26 grew both deposits and advances 21% each.
CD Ratio Expansion Opportunity: Average CD ratio of 83% is the lowest in the SFB space. Targeting mid-to-high 80s by reallocating from investments/interbank placements (7-7.5% carry) to advances (10.5-11% carry) — a key NIM expansion driver for FY28-29.
MSME-Focused Operating Model: Specialized MSME teams at branch/customer levels, improved turnaround times, and customer referral activation driving 49% YoY MSME growth over six consecutive quarters of acceleration. MSME relationships function as multi-product hooks (salary accounts, family savings, protection plans), improving cross-sell and cost-to-income.
Universal Bank Aspiration: Management confirmed strong aspiration for universal commercial bank license; NNPA reduction is the remaining regulatory box to tick. Board will decide timing based on internal business metrics; current SFB avatar continues to offer significant growth headroom.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Loan Growth | 22% in FY27; ₹16,000+ crores by FY29 | Management reiterated confidence based on MSME momentum and branch-led expansion model |
| NIM | ~4.2% stable for FY27 | ₹1,597 crores of term deposits maturing in Q2 offer 10-12 bps repricing benefit, but expected to be offset by higher incremental deposit costs; expansion in FY28-29 via CD ratio |
| ROA | 1.35-1.4% in FY27; 1.6%+ by FY29 | PPOP margin already expanded to 2.04%; operating leverage to drive further gains |
| ROE | 15%+ by FY29 | Supported by NIM expansion and OpEx efficiency gains |
| Net NPA | Below 1% medium-term | PCR increases largely done (54.5%); expect stable PCR going forward |
| Average CD Ratio | Mid-to-high 80s | From 83% currently; reallocating portfolio from 7-7.5% yielding investments to 10.5-11% advances |
| OpEx Ratio | Moderate improvement in FY27; larger gains FY28-29 | Q1 includes annual salary increments; scale benefits expected through the year |
Risks & Constraints
| Risk | Context |
|---|---|
| SMA-2 Deterioration | SMA-2 rose to 3.11% from 2.71% QoQ despite combined SMA 1+2 improving to 4.78%. Management attributes to Q1 seasonal lag in farm income transmission to business borrowers; expects normalization, but flagged as being worked on actively. |
| Limited NIM Expansion Headroom | Deposit repricing benefits are largely exhausted — cost of deposits at 5.6% with only 10-12 bps benefit from Q2 maturities, which management expects to be fully offset by higher incremental deposit costs. NIM guided to stable, not expanding, in FY27. |
| PSU Competition in Housing | Competition from PSU banks in the ₹20-25 lakh housing ticket segment has moderated but not fully resolved. Management expects gradual housing growth, not a sharp acceleration. |
| Agri Portfolio Concentration Risk | Agriculture is 27% of book with inherently higher yields (12-12.5%) reflecting climatic/weather risk. Management mitigates through middle-income farmer targeting, 50% LTV collateralization, and MSP crop diversification requirements. |
| Deposit Cost Pressure | Industry-wide competition on deposits persists; incremental deposit costs are expected to offset maturing book repricing benefits, capping near-term margin gains. |
Q&A Highlights
MSME Growth Drivers & Punjab/Haryana Split
- Question: What's the MSME split between Punjab and Haryana, and what's driving the strong growth? (Pritesh Bumb, DAM Capital / Aditya Mundra, Mytemple Capital)
- Answer: MSME grew 49% YoY and 11% QoQ, with growth split evenly between Punjab and Haryana. Non-Punjab advances now 25% of book vs 21% a year back. Growth is driven by internal initiatives — specialized MSME teams, improved turnaround times, servicing standards, customer referrals, and branch carpeting — not an industry-wide phenomenon. (Munish Jain)
NIM Stability & Deposit Repricing Headroom
- Question: How much deposit repricing headroom is left, and what keeps NIM stable at 4.2% given system-wide cost pressures? (Pritesh Bumb, DAM Capital / Aditya Mundra, Mytemple Capital)
- Answer: Majority of repricing done in Q4 FY26/Q1 FY27. ~₹1,597 crores of term deposits mature in Q2 FY27 offering 10-12 bps benefit, but this will be offset by higher incremental deposit costs. Yield on advances already optimized at 10.9% (from 11.1%); 50% of book is floating rate, and MCLR was hiked 10 bps in Q1. NIM expansion will come from average CD ratio improvement to mid-high 80s in FY28-29. (Munish Jain)
PCR Strategy & NNPA Trajectory
- Question: Why has the bank been increasing PCR, and is this a strategic shift? (Pritesh Bumb, DAM Capital)
- Answer: PCR increased to 54.5% to accelerate progress toward the medium-term sub-1% NNPA target. Majority of the provisioning action is complete; expect stable PCR going forward with NNPA at 1.14% (from 1.39% YoY). (Munish Jain)
ROA Expansion Path
- Question: What is the ROA target given higher provisions are restricting reported ROA? (Pritesh Bumb, DAM Capital)
- Answer: FY27 ROA target of 1.35-1.4% (from 1.3% in Q1); FY29 target of 1.6%+. PPOP margin already expanded from 1.94% to 2.04% YoY; fully committed to ROA expansion through NIM stability and operating leverage. (Munish Jain)
Portfolio Mix & Future Yield Levers
- Question: What portfolio mix is targeted by FY28-29 to enable higher NIMs, and will consumption/auto/gold loan share increase in newer states? (Sagar Shah, Spark Capital)
- Answer: Target portfolio remains business loans + mortgage + agriculture at 75-82% of book. Consumption loans are top-up products (stable ~7%, of which 2-3% is loan against deposits/securities) and remain constant across geographies. LAP growing 5% QoQ, 18% YoY at 12.27% yield; business loan yield stable at 10.5%. Spread between yield and deposit cost targeted at 5.1-5.3% for the coming year. (Munish Jain)
Agriculture Loan Yield Rationale
- Question: Why do agri loans carry the highest yield, and what risk is embedded? (Nilanjan Karfa, TCG AMC)
- Answer: Agri yields of 12-12.5% reflect industry-standard pricing for climatic risk. The bank targets middle-income farmers (needs of ₹5-35 lakhs, avg ticket ₹30 lakhs) with 50% LTV collateralization, minimum 2-3 crops per year, and 1-2 MSP crops to mitigate risk; charges 25-35 bps over PSB rates for service. Historical 10-12 year slippage and credit cost trends demonstrate portfolio resilience. (Munish Jain, Sarvjit Samra)
MSME Asset Quality — Denominator Effect or Real Improvement?
- Question: Is MSME NNPA improvement a base/denominator effect of high AUM growth, and do customers qualify for ECLGS? (Divyansh Gupta, Latent PMS)
- Answer: MSME GNPA reduced from ₹65.41 crores (March 2023) to ₹54.54 crores (June 2026) on an absolute value basis — real recoveries and controlled accretions, not base effect. Customers are ECLGS-eligible; 20% government guarantee support is passed through on deserving cases. (Munish Jain)
Housing Loan Competition & Return to Growth
- Question: Has PSU bank competition in housing loans eased on rates, ticket size, or geography? (Parth Gutka, 360 ONE Capital)
- Answer: FY26's sharp repo rate decline was not transmitted to deposit costs, restricting ABR-linked housing lending. With 90%+ of deposits repriced by Q2 FY27, a level playing field is restored. PSU competition intensity in semi-urban/rural has reduced; housing grew 3% QoQ with yield maintained at 9.87%. Large private banks target tickets above ₹1 crore, while the bank's sweet spot remains ₹10-50 lakhs. (Munish Jain)
Deposit Seasonality & Funding Strategy
- Question: Why is deposit growth flat in Q2/Q4 but strong in Q1/Q3, and will this change to support FY29 loan growth? (Siddharth Chandrashekar, Individual Investor)
- Answer: 75%+ of deposits come from semi-urban/rural markets; Punjab/Haryana are agri-heavy with crop money flowing in Q1/Q3. Deposits outpace advances in Q1/Q3 and vice versa in Q2/Q4 by design; FY26 grew both deposits and advances 21% each. CD ratio of 83% is lowest in the SFB space; deposits are a strength, not a constraint, with 95% of outside liabilities from deposits and alternative funding options available at competitive pricing. (Munish Jain)
OpEx & Operating Leverage Outlook
- Question: Will OpEx remain at 2.95-3% given expansion strategy? (Aditya Khandelwal, Securities Investment Management)
- Answer: Q1 naturally includes annual salary increments, making it the highest OpEx quarter. Expect moderate improvement through FY27 as business growth absorbs the increment; FY28-29 will see bigger operational leverage gains contributing to ROA expansion. (Munish Jain)
Universal Bank Aspiration
- Question: Are you applying for a universal bank license given RBI eligibility progress? (Siddharth Chandrashekar, Individual Investor)
- Answer: Strong aspiration for universal commercial bank conversion; working to tick all regulatory boxes — NNPA is the remaining box being addressed via PCR increases. The Board will decide timing based on internal business metrics; growing in the current SFB avatar remains strongly viable. (Munish Jain)
Key Takeaway
Capital Small Finance Bank delivered Q1 FY27 PAT of ₹41.3 crores (+29% YoY), with NIM expanding to 4.21% as deposit repricing benefits flowed through — cost of deposits declined 20 bps QoQ to 5.6%. Advances grew 22% YoY to ₹9,074 crores, led by MSME/business loans (+49% YoY) and non-Punjab geographies (+30% YoY), while deposits rose 16% to ₹10,596 crores with CASA at 36.7%. Asset quality improved: GNPA at 2.47%, NNPA at 1.14%, and PCR at 54.5%. Management guided FY27 to 22% loan growth, ROA of 1.35-1.4% and NIM stability at ~4.2%, with Vision 2029 targeting ₹16,000+ crores loan book, 1.6%+ ROA and 15%+ ROE. Near-term NIM expansion is limited as repricing benefits are largely exhausted; CD ratio expansion to mid-high 80s and operating leverage are the key FY28-29 levers. Watch-points include the SMA-2 uptick to 3.11% and the timing of the universal bank application, pending NNPA reduction below 1%.