Suryoday Small Finance Bank Limited Q1 FY27 Earnings Call Summary

Event Participants

Executives

5
Baskar Babu Ramachandran, Himadri Das, Kanishka Chaudhary, Sasidhar Vavilala, Senthil Kumar

Analysts

14
Ankur Kumar, Ashlesh Sonje, Avnish Tiwari, Deepak Agarwal, Deepak Poddar, Harshit, Keshav Karwa, Rahul Kumar, Saumil Shah, Shailesh Kanani, Sonal Minhas, Sucrit D. Patil, Tanay Jain, Vibhor Talreja

Financials & KPIs

Geographic & Segment Commentary

• Inclusive Finance (Microbanking): Core portfolio transitioning from JLG to individual Vikas Loans, with individual loans at ~80% of monthly onboarding; JLG exposure to be further reduced over the next 1-1.5 years. Current bucket collection efficiency at 99.2% (99.4% for recent vintages); MFI slippages improved from ₹73 crores to ₹53 crores QoQ. CGFMU remains a key balance sheet support—₹387 crores claimed in Q1—though management treats it as a last resort, not an underwriting license.

• Secured Retail (CV & Mortgages): Book growing 30-35% YoY with healthy momentum; management targets growth higher than the inclusive finance book. CV PAR elevated at 11.5% vs 10.1% QoQ on fuel price increases and Middle East load availability, expected to normalize by Q3; 75-80% of the book is used CV with focus shifting to LCVs and small CVs. Mortgage presence in only 25% of branches, targeted to reach 40-45% by year-end.

• Digital Business: Digital deposits at ₹2,222 crores with ₹6 crores average daily accretion; Credit on UPI crossed 9 lakh customers; digital MSME loan disbursements of ₹59 crores in Q1. CLOU business has ~6 lakh active users (9-10 lakh approved) with ₹18 crores convenience fee income and 5-10% MoM customer growth; phygital customer base stands at ~1 million with good credit records.

• Deposits & Liabilities: Deposit base of ₹14,634 crores (29.4% YoY) with retail share at 87.3%; CASA at 21% growing >50% YoY. SA cost optimized to 5.5% from 5.7%, FD cost at ~8.1%; management guided cost of funds at ~7.5% for the rest of FY27 with stable NIM.

Company-Specific & Strategic Commentary

• Individual Lending Transition: Strategic shift from JLG to individual Vikas Loans is the core structural change—individual loans now ~80% of monthly onboarding, with JLG exposure to be further reduced over the next 1-1.5 years. NTB-VL (new-to-bank Vikas Loan) gaining momentum even in newly opened branches.

• CGFMU Protection: ₹387 crores of CGFMU claims received in Q1 FY27 with ₹134 crores receivable on NNPA; adjusted GNPA/NNPA at 2.9%/0.3%. Management explicitly stated insurance is a last resort, not a shield for relaxed underwriting; the business model must survive a 1-1.5 year down-cycle independently.

• Digital-First Strategy: Investments in technology infrastructure, VKYC capability, and data analytics enabling scalable distribution—CLOU customers growing 5-10% MoM with a target to double to ~12 lakh users in FY27. Partnership with Paytm expanding; additional partners being onboarded; phygital base of ~1 million creditworthy customers creates cross-sell opportunity.

• Underwriting Redesign: Since November 2024, customer profiling fundamentally redone—A-E segmentation based on unsecured loan basket, recency, heating factor, and honest repayment behavior; focus on A/B/C categories, tightening to A/B in tougher markets. VL book segmented into 6-7 cohorts targeting 40% Category A and 30% Category B; tested across three time-frame cohorts and holding well.

• Branch Expansion: ~50 branches to be added in Q2 and Q3 FY27, primarily for inclusive finance and CV; mortgage coverage expanding from 25% to 40-45% of branches by year-end.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Execution Priorities & Financial Risk Management

• Question: What are the top 2-3 execution priorities for the coming quarters, and the biggest risks in customer demand or competitive pressure? What financial risks are anticipated and what measures are being taken on margins, cash flow, and balance sheet strength? (Sucrit D. Patil)
• Answer:
  • Priorities: strengthen the inclusive finance portfolio via individual loans, grow secured assets (CV, mortgages) faster than the IF book, and scale digital channels—CLOU customers are growing 5-10% MoM (Baskar Babu Ramachandran)
  • The MFI cycle has turned, but the bank will not go aggressive—prudence on growth continues; competition will be intense and digital customer experience is the differentiator (Baskar Babu Ramachandran)
  • MFI slippages have moderated to below ₹20 crores per month; assets are now growing faster than deposits, so the focus is on building the deposit engine and tapping refinancing lines—the IBPC market has reopened at ~5% funding (Kanishka Chaudhary)

PSL Income, Credit Cost & Margin Guidance

• Question: Other income of ₹147 crores looks too high—what is the steady state for FY27? What is credit cost guidance? Is there cost of fund pressure and what does it mean for NIM? (Harshit; Deepak Poddar)
• Answer:
  • Q1 other income includes ₹46 crores PSL income from selling ₹1,600 crores of PSL certificates; expect ₹10-15 crores in Q2-Q3 and ₹15-20 crores in Q4 (Kanishka Chaudhary)
  • Credit cost at 0.8% for the quarter; FY27 guidance of 0.8-1.00% is maintained (Kanishka Chaudhary)
  • Cost of funds reduced ~₹0.08 QoQ and expected at ~7.5% for the rest of the year; FD rates remain firm, but SA rate optimization, selective bulk deposits, and 2-2.5 year granular FD tenor raising are offsets; NIM stable at Q1 levels; Q4 FY27 ROA exit of 1.6% guidance unchanged (Kanishka Chaudhary)

CLOU Business & Expense Uptick

• Question: Other expenses increased 20% QoQ—is there a one-off? What is the scale of the CLOU business? (Rahul Kumar; Ashlesh Sonje)
• Answer:
  • CLOU convenience fee income was ₹18 crores for the quarter with a corresponding ₹13 crores expense—the main driver of the expense uptick; technology infrastructure adds to it; expenses will scale proportionately with CLOU income (Kanishka Chaudhary)
  • ~6 lakh customers actively using CLOU, 9-10 lakh approved, 1.5-2 lakh onboarded monthly; average ticket <₹5,000; target is to double to ~12 lakh users during FY27; Paytm partnership expanding and more partners being onboarded (Baskar Babu Ramachandran)

Yield Normalization & Pricing

• Question: Yield on non-NPA advances moved from 17.2% to 16.1%—what changed? Where does the yield settle and is there pricing action? (Rahul Kumar; Avnish Tiwari)
• Answer:
  • Two drivers: IF mix reduced from 48% to 44% (~₹0.75 impact) and Q4 had better MFI recoveries than Q1; expect recoveries to return to previous levels (Kanishka Chaudhary)
  • Stabilized yield on advances of 17.2-17.5% even with secured mix at 45%; secured book yield is ~12% (Himadri Das)
  • No immediate pricing changes across products this quarter; MFI pricing under continuous evaluation given the shift to individual loans; VL yield is ~25-25.25% (Kanishka Chaudhary; Baskar Babu Ramachandran)

JLG to Individual Loan Transition

• Question: How is the JLG model shaping up—are you increasing or moving away from it? Is there still stress in the model? (Saumil Shah)
• Answer:
  • Consciously moving from JLG to individual loans over the last 2-3 years; individual loans now ~80% of monthly onboarding; target to reduce JLG exposure further over the next 1-1.5 years (Senthil Kumar)
  • Markets have improved over the last 6-8 months; no stress expected in at least the next 6 months (Senthil Kumar)

CGFMU Claims, Slippages & Collection Efficiency

• Questions: How much CGFMU claim has been received and what is expected? Slippages at ₹92 crores—is there a slowdown in recovery? What is the July collection efficiency trend and are there geographic stress pockets? (Saumil Shah; Sonal Minhas; Keshav Karwa; Ankur Kumar)
• Answer:
  • ₹387 crores received in Q1; one more claim of ₹15-20 crores for the oldest cohort; additional ₹135-150 crores eligible subsequently (Kanishka Chaudhary)
  • Bank-level slippages improved from ₹106 to ₹92 crores QoQ; MFI from ₹73 to ₹53 crores; a couple of mortgage slippages are well-collateralized with liquid assets and in legal resolution (Kanishka Chaudhary)
  • Collection efficiency largely stable over the last quarter; management comfortable at 99.3-99.5% and not expecting 99.9% on a real portfolio; no specific geographic stress (Baskar Babu Ramachandran; Senthil Kumar)

Underwriting Transformation vs Past Cycle

• Question: How is the current book different from the last cycle in underwriting and customer selection? (Shailesh Kanani)
• Answer:
  • Since November 2024, profiling has been fundamentally redone: unsecured loan basket, recency, heating factor, and honest repayment behavior; customers categorized A-E with focus on A/B/C, shifting to A/B when the market tightens (Sasidhar Vavilala)
  • Tested across three different time-frame cohorts and holding well; applies to microbanking customers including MSME and individual loans (Sasidhar Vavilala)

Secured Book Growth, CV Stress & Branch Expansion

• Questions: What drives secured book growth with minimal branch additions? Is there stress in the CV portfolio—used vs new CV trends? (Shailesh Kanani; Tanay Jain)
• Answer:
  • ~50 branches to be added in Q2 and Q3; mortgage business present in only 25% of branches, targeted to reach 40-45% by year-end; CV expanding to existing branches where not yet present; secured momentum to continue given the smallish base (Baskar Babu Ramachandran)
  • CV PAR at 11.5% due to fuel price increases and Middle East load availability; 75-80% of book is used CV; PAR typically normalizes by Q3; focus improving on LCVs and small CVs (Senthil Kumar)
  • CV book outperforming the market by 2-2.5x on credit quality across 1/2/3-year cohorts (Sasidhar Vavilala)

ROA/ROE Guidance & Earnings Stability

• Questions: What is steady-state ROE? Can 1.6% ROA be increased toward 1.8-1.9% by Q4? Any risk to the ~₹300 crores PAT guidance? Will FY28-29 be more stable given portfolio insurance? (Shailesh Kanani; Deepak Agarwal; Vibhor Talreja)
• Answer:
  • FY27 ROA guidance of 1.3-1.4% maintained; Q1 at 1.6% was aided by ₹40+ crores PSL income which won't recur in Q2-Q3 (Kanishka Chaudhary)
  • ROE to inch up by a meaningful and sustainable 0.5-1% year-on-year over the next couple of years; focus is on sustainable QoQ improvements, not linear quarterly progression (Baskar Babu Ramachandran)
  • No risk to guidance as of now; focused on ₹75 crores quarterly PAT; Q2 may be subdued without PSL income, but the IF paying book is growing ₹120-150 crores per quarter and will add (Baskar Babu Ramachandran)
  • 80% of focus is on individual loans; NTB-VL gaining momentum even in new branches; VL segmented into 6-7 cohorts with targets of 40% Category A and 30% Category B; management has visibility of consistent numbers for 4-6 quarters (Baskar Babu Ramachandran)

CASA Growth, Opex & Capital Planning

• Questions: Is CASA growth of >50% YoY sustainable? What are SA and FD costs? What is the opex budget for 30-35% growth? What are the capital plans? (Ashlesh Sonje; Avnish Tiwari)
• Answer:
  • Similar CASA growth expected; currently SA-focused, with current account propositions to be built over time; SA cost reduced from 5.7% to 5.5%, FD cost at ~8.1% (Kanishka Chaudhary)
  • Full-stack cost-to-income target of 67-70% for FY27, including technology investments, branch expansion, and branch-led personnel (Kanishka Chaudhary)
  • CAR at 20%; Tier 2 expiring next year—fresh Tier 2 raising expected to close this quarter; Tier 1 under evaluation with nothing finalized; ideal CAR range 20-22% (Kanishka Chaudhary)

Key Takeaway

Suryoday Small Finance Bank delivered a strong Q1 FY27 with gross advances up 32.5% YoY to ₹14,376 crores and deposits up 29.4% to ₹14,634 crores; Q1 ROA reached 1.6% aided by ₹46 crores of PSL income, and credit cost came in at 0.8%. Receipt of ₹387 crores in CGFMU claims drove adjusted GNPA/NNPA to 2.9%/0.3%. The pivot to individual Vikas Loans now constitutes ~80% of monthly onboarding, while digital pillars—Credit on UPI crossing 9 lakh customers, CLOU with ~6 lakh active users growing 5-10% MoM, and digital deposits of ₹2,222 crores—underpin franchise building. Management maintained FY27 guidance of 1.3-1.4% ROA with a 1.6% Q4 exit, 0.8-1.0% credit cost, ~7.5% cost of funds, and stable NIM. Watch items include PSL income normalizing to ₹15-20 crores quarterly, CV PAR at 11.5% expected to recover by Q3, and the challenge of sustaining 30% deposit growth while holding CASA at 21%.