Event Participants
Executives
4 Baskar Babu Ramachandran, K. Senthil Kumar, Kanishka Chaudhary, Sasidhar Vavilala
Analysts
13 Ashlesh Sonje, Avnish Tiwari, Deepak Agarwal, Deepak Poddar, Harshit Khadka, Keshav Karwa, Rahul Kumar, Saumil Shah, Shailesh Kanani, Sonal Minhas, Sucrit Patil, Tanay Jain, Unknown Analyst
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Total Deposits | ₹14,634 crores | +29.4% YoY; retail deposit share at 87.3%; digital channel sourcing ₹2,222 crores with ₹6 crores average daily accretion |
| CASA Ratio | 21% | Granular CASA focus; savings account cost optimized from 5.7% to 5.5%; ~50% YoY CASA growth expected to sustain |
| Gross Advances | ₹14,376 crores | +32.5% YoY; inclusive finance mix trimmed to 44% (from 48%) as secured retail (CV, mortgages) scales faster |
| GNPA | 6.5% (₹931 crores) | Adjusted for ₹134 crores CGFMU receivable, GNPA at 2.9% |
| NNPA | 1.2% (₹170 crores) | Adjusted for CGFMU receivable, NNPA at 0.3% |
| CGFMU Claims Received | ₹386 crores (Q1) | Largest eligible cohort claimed in Q1; ~₹15-20 crores more this year; ₹135-150 crores eligible in subsequent years |
| Collection Efficiency (Current Bucket) | 99.2% | Recent portfolio at 99.4%; stabilizing at 99.3-99.5%; Q1/Q2 seasonally softer than Q4 |
| Slippages (Bank-level) | ₹92 crores (quarter) | Improved from ₹106 crores QoQ; MFI slippages down to ₹53 crores from ₹73 crores; monthly MFI run-rate <₹20 crores |
| Credit Cost | 0.8% | FY27 guidance maintained; provisioning bolstered by CGFMU claims |
| Other Income | ₹147 crores | Includes ₹46 crores PSL income (₹1,600 crores PSL certificates sold); PSL expected at ₹15-20 crores/quarter going forward |
| ROA | 1.6% | Q1 FY27; FY27 guidance of 1.3-1.4% maintained; Q1 boosted by one-off PSL gains |
| Yield on Advances | 16.1% | Down from 17.2% in Q4 on IF mix shift (-4%) and lower MFI recoveries; expected to normalize to ~17% |
| Cost of Funds | ~7.5% (guided) | Reduced ~₹0.08 QoQ; FD rates sticky at 8.1%; IBPC funding accessed at <5% |
| CRAR | 20% | Fresh Tier 2 raising underway; target 20-22% |
Geographic & Segment Commentary
Inclusive Finance (Microfinance): Individual loans (Vikas Loan) now comprise ~80% of monthly onboarding, with the strategic shift away from the JLG/GST model accelerating; JLG exposure to be reduced over the next 1-1.5 years. VL yields at ~25-25.25%; current bucket collection efficiency at 99.2% (99.4% for recent portfolio). MFI slippages improved to ₹53 crores from ₹73 crores QoQ; paying book grew ~₹500 crores in the quarter. New-to-bank VL (NTBVL) is the primary acquisition channel in new branches.
Secured Retail Assets (CV & Mortgages): Growing 30-35% YoY, outpacing inclusive finance. Vehicle finance PAR elevated at 11.5% (from 10.1% QoQ) due to fuel price increases and Middle East crisis impacting load availability; 75-80% of CV book is used vehicles; book diversified across Southwest and North markets. Mortgage business present in only ~25% of branches, with intent to reach 40-45% by year-end through micro-mortgage expansion.
Digital & CLOU (Credit Line on UPI): Franchise scaled to ~6 lakh active users (9-10 lakh approved) with 1.5-2 lakh monthly onboarding; average ticket <₹5,000; target of 12 lakh users by FY27 year-end. Convenience fee income of ₹18 crores in Q1 with ₹13 crores associated expenses. Digital MSME loan disbursals at ₹59 crores; total digital customer base ~1 million with good credit records.
Deposits & Liabilities: Retail deposits at 87.3% of base; CASA at 21% with savings rate optimization to 5.5%; fixed deposit costs sticky at 8.1%; IBPC market reopened for the bank with funding at <5% following MFI book improvement.
Company-Specific & Strategic Commentary
CGFMU Credit Insurance Strategy: Received ₹386 crores of CGFMU claims in Q1, with adjusted GNPA/NNPA at 2.9%/0.3% versus reported 6.5%/1.2%. Management emphasized insurance is "the last resort," not a shield for aggressive lending; business model must be able to sustain a 1-1.5 year down cycle organically.
Digital Transformation & Customer Acquisition: Credit line on UPI scaling 5-10% month-on-month with Paytm partnership; additional partners being onboarded. VKYC capability identified as a critical enabler; digital deposit franchise at ₹2,222 crores. Digital customer base of ~1 million provides a prequalified pool for cross-selling secured and other products.
Underwriting & Risk Framework Overhaul: Since November 2024, introduced A-E customer segmentation focused on unsecured loan baskets, recency of borrowings, and heating factors; underwriting now concentrates on A/B/C categories with dynamic calibration by market conditions. Framework tested across three cohort timeframes; CV credit quality outperforming market by 2-2.5x on comparable cohorts.
Branch Network Expansion & Product Distribution: ~50 branches to be added in the current quarter and next, primarily for inclusive finance and CV; significant same-location product penetration opportunity remains (mortgages in only 25% of branches). MFI mix to be maintained at 48-52% of advances.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Credit Cost (FY27) | Maintained | Q1 actual at 0.8%; MFI slippages at <₹20 crores/month support trajectory |
| ROA (FY27) | 1.3-1.4% | Q1 at 1.6% was boosted by ₹46 crores PSL income; Q2/Q3 to moderate; ~1.6% ROA by Q4 maintained |
| Cost of Funds (FY27) | ~7.5% | FD rates sticky; SA rate optimized to 5.5%; selective bulk deposits; IBPC access at <5% |
| NIM (FY27) | Stable at Q1 levels | Yield expected to recover to ~17% as MFI NPL recoveries normalize |
| Yield on Advances | ~17% (stabilized) | Q1 at 16.1%; recovery driven by normalization of IF recoveries |
| CASA Growth | ~50% YoY | Continued focus on savings accounts; current account proposition to be developed |
| Cost-to-Income (FY27) | 67-70% | Full-stack cost including technology investments and branch expansion |
| Branch Additions | ~50 branches (Q2 and Q3) | Focus on inclusive finance and CV; mortgage footprint to 40-45% of branches by year-end |
| Inclusive Finance Mix | 48-52% | Maintain current mix; individual loans ~80% of monthly onboarding |
| CRAR | 20-22% | Fresh Tier 2 expected this quarter; Tier 1 raise under evaluation |
| ROE Trajectory | +0.5-1% improvement YoY | Sustainable year-on-year improvement over next 2 years |
Risks & Constraints
| Risk | Context |
|---|---|
| MFI Cycle Reversal | Management explicitly cautious: "do not take this as a reveal of the cycle and go aggressive." Collection efficiency stabilizing at 99.3-99.5% (below 99.9% peaks); weeding out of weak borrowers still underway; competition expected to intensify as the cycle turns. |
| Deposit Growth Sustainability | CEO flagged maintaining ~30% deposit growth (including 20% CASA growth) as challenging; FD rates have not come down; cost of funds guided at 7.5% for the year with deposit franchise building requiring sustained focus. |
| CV Portfolio Stress | Vehicle finance PAR rose to 11.5% from 10.1% QoQ on fuel price inflation and Middle East crisis reducing load availability; monsoon season typically softens PAR in Q2; normalization expected by Q3; book is 75-80% used CV. |
| PSL Income Normalization | Q1 other income included ₹46 crores PSL income (₹1,600 crores certificates sold); run-rate drops to ₹15-20 crores/quarter, a ~₹25-30 crores quarterly headwind to fee income in Q2/Q3. |
| CGFMU Dependency | ₹386 crores claims received in Q1 with only ₹15-20 crores remaining this year; ₹135-150 crores eligible in later years. CEO emphasized insurance is "last resort," not a license for relaxed norms; premium may exceed claims in coming years. |
| Q1/Q2 Seasonality | Collection efficiency typically softer in Q1/Q2 versus Q4; management guiding to stability at 99.3-99.5% rather than return to 99.9% levels. |
Q&A Highlights
Execution Priorities & Risk Management
- Question: Top 2-3 execution priorities and biggest demand/competitive risks? (Sucrit Patil)
- Answer: Priority on strengthening inclusive finance portfolio with individual loans, growing secured retail (CV, mortgages) faster than IF, and scaling digital channels — CLOU customers growing 5-10% month-on-month. Risk is being aggressive after cycle turn; will remain prudent and use digital customer experience to counter competition. CFO added: monthly MFI slippages now <₹20 crores; IBPC funding accessed at <5% as MFI book quality improves. (Baskar Babu Ramachandran, Kanishka Chaudhary)
Other Income, PSL Run-rate & Margins
- Question: Other income of ₹147 crores looks high — steady state? And credit cost guidance? (Harshit Khadka, Deepak Poddar)
- Answer: Q1 other income includes ₹46 crores PSL income (₹1,600 crores PSL certificates sold); PSL to moderate to ~₹15 crores in Q2/Q3 and ~₹20 crores in Q4. Net of PSL, other income was ~₹57 crores. Credit cost Q1 at 0.8% with FY27 guidance maintained. Cost of funds reduced ~₹0.08 QoQ; guided at ~7.5% for rest of year; NIM stable at Q1 levels; no change to earlier ~1.6% ROA Q4 guidance. (Kanishka Chaudhary)
CLOU Business Economics & Scale
- Question: What drove the 20% QoQ increase in other expenses? What is the CLOU customer potential? (Rahul Kumar, Ashlesh Sonje)
- Answer: CLOU convenience fee income of ₹18 crores with ₹13 crores corresponding expenses drove most of the expense uptick; technology infra costs also contributed. CLOU has ~6 lakh active users (9-10 lakh approved), onboarding 1.5-2 lakh monthly, average ticket <₹5,000; product extinguishes monthly. Target is doubling users to ~12 lakh by FY27 year-end. Paytm partnership scaling; new partners being onboarded. (Kanishka Chaudhary, Baskar Babu Ramachandran)
JLG to Individual Loan Transition
- Question: How is the JLG model shaping up — improving behavior and future mix? (Saumil Shah)
- Answer: Consciously moving from JLG to individual loans over the last 2-3 years; individual loans now ~80% of monthly onboarding, with JLG exposure to be reduced further over next 1-1.5 years. Markets have improved over the last 6-8 months; no stress expected in the foreseeable future. Remaining CGFMU claims for the year are small — ~₹15-20 crores — as the large chunk was claimed in Q1 (₹387 crores). (K. Senthil Kumar, Kanishka Chaudhary)
Slippages & Asset Quality
- Question: Slippages of ₹92 crores and net provisions — any slowdown in recovery trends? (Sonal Minhas)
- Answer: Bank-level slippages improved from ₹106 crores to ₹92 crores QoQ; MFI slippages from ₹73 crores to ₹53 crores. A couple of mortgage slippages emerged, being resolved via legal process; well collateralized with identified, liquid collateral. Resolution expected by coming quarter. (Kanishka Chaudhary)
Collection Efficiency & MFI Stability
- Question: July collection efficiency trend and geographic stress? (Keshav Karwa)
- Answer: Collection efficiency largely stable over the last quarter despite some inflation uptick; no stress seen going forward. Management not expecting a return to 99.9%; comfortable at 99.3-99.5% given Q1/Q2 seasonality. (K. Senthil Kumar, Baskar Babu Ramachandran)
Steady-State ROE & Underwriting Overhaul
- Question: What steady-state ROE can the bank deliver? How is the current book different from the past cycle? (Shailesh Kanani)
- Answer: FY27 guidance of 1.3-1.4% (ROA) maintained; CEO referenced 13-14% ROE trajectory with a clear endeavor of 0.5-1% sustainable annual ROE improvement over the next couple of years. Since November 2024, underwriting shifted to A-E customer segmentation with focus on A/B/C categories, incorporating unsecured loan basket, recency, and heating factors; tested across three cohort timeframes and holding well. (Kanishka Chaudhary, Baskar Babu Ramachandran, Sasidhar Vavilala)
Secured Book: Growth Drivers & CV Asset Quality
- Question: What drives secured book growth without branch additions? And what explains the vehicle finance PAR at 11.5%? (Shailesh Kanani, Tanay Jain)
- Answer: ~50 branches being added in current and next quarter; mortgage business present in only ~25% of branches, targeting 40-45%; CV products expanding into existing uncovered branches. CV PAR elevation driven by fuel prices and Middle East crisis impacting load availability; monsoon seasonality in Q2; expected normalization by Q3; no geographic concentration. Bank outperforming industry CV credit quality by 2-2.5x on 1/2/3-year cohorts. (Baskar Babu Ramachandran, Kanishka Chaudhary, Sasidhar Vavilala)
CGFMU Claims Trajectory & FY27 PAT Confidence
- Question: What CGFMU claims have been received and what's expected? Any risk to ~₹300 crores+ PAT guidance? (Unknown Analyst, Vibhor Talreja)
- Answer: ₹387 crores received in Q1; one more claim of ₹15-20 crores for the oldest cohort; additional ₹135-150 crores eligible in subsequent years. No risk seen to PAT guidance; focus on ~₹75 crores quarterly PAT with Q2 slightly subdued on PSL normalization, offset by IF paying book growth of ₹120-150 crores/quarter and CLOU income growth. Deposit growth (30% incl. 20% CASA) flagged as the key challenge. (Kanishka Chaudhary, Baskar Babu Ramachandran)
Long-term Earnings Stability & Industry-wide CGFMU Adoption
- Question: Will FY28-29 earnings be materially more stable given the insured MFI book? And does industry-wide CGFMU adoption risk claim payouts in the next crisis? (Deepak Agarwal)
- Answer: 80% of focus is on individual loans; NTBVL momentum strong in new branches; VL customers categorized into 6-7 segments targeting 40% category A and 30% category B; 75-80% of customers remained good even through the cycle, so eliminating the bad 20% is the core focus — visibility of consistent performance for 4-6 quarters. On CGFMU: insurance is not a shield but a last resort; the business model must sustain a 1-1.5 year down cycle on its own; premiums may exceed claims in coming years; NCGTC is well funded. (Baskar Babu Ramachandran)
Key Takeaway
Suryoday Small Finance Bank delivered Q1 FY27 gross advances growth of 32.5% YoY to ₹14,376 crores and deposit growth of 29.4% to ₹14,634 crores, with retail deposits at 87.3%. The receipt of ₹386 crores CGFMU claims in the quarter drove adjusted GNPA/NNPA to 2.9%/0.3% versus reported 6.5%/1.2%, with credit cost at 0.8% and bank-level slippages improving to ₹92 crores from ₹106 crores QoQ. Q1 ROA of 1.6% included ₹46 crores one-off PSL income; management maintained FY27 ROA guidance of 1.3-1.4% with PSL normalizing to ₹15-20 crores/quarter. Strategically, individual loans now comprise 80% of monthly MFI onboarding, the credit-line-on-UPI franchise reached 6 lakh users with a 12 lakh year-end target, and ~50 branches are being added this quarter. Management remains cautiously optimistic on the MFI cycle revival, guiding cost of funds at ~7.5%, stable NIMs, and 0.5-1% annual ROE improvement. Key watch items: elevated CV PAR (11.5%), deposit growth sustainability, and PSL income normalization.