Jalandhar-based Capital Small Finance Bank plans to reduce its net non-performing asset ratio (NPA) to below 1% by September 2025, in line with its objective of converting to a universal bank.
“We will try to improve our net NPA number by a few basis points each quarter. Our ultimate objective is to improve it by 40 basis points,” Munish Jain, executive director said, adding that this improvement in the net NPA ratio will be the outcome of an improvement in asset recoveries as well as an increase in the topline.
The Reserve Bank of India’s April notification mandates that small finance banks (SFBs) have a net NPA ratio of less than or equal to 1% for two straight financial years in order to qualify for a universal banking license. Similarly, SFBs must have a gross NPA ratio of less than or equal to 3% for two straight fiscals.
While the gross NPA ratio of Capital Small Finance Bank stood at 2.8% as on March 31, its net NPA ratio stood at 1.4%.
“Barring the net NPA, we tick all the boxes as far as the RBI’s guidelines are concerned. We are aligned towards bringing the net NPA down to below 1%,” Sarvjit Singh Samra, managing director and CEO, said. “Once we are able to bring the net NPA ratio down, we will take a final call on this (becoming a universal bank),” he added.
The bank’s net profit rose 19% year-on-year (y-o-y) to Rs 112 crore in 2023-24 (April-March) due to a growth in its gross advances. Gross advances rose 12% y-o-y to Rs 6,160 crore as on March 31.
Nearly 100% of the bank’s loan book is secured, while the average ticket size of the bank’s portfolio is Rs 14.2 lakh.
On the other hand, deposits rose 14% y-o-y to Rs 7,478 crore as on March 31. Retail deposits constitute 93% of the deposit base. The share of low-cost current account savings account(CASA) deposits stood at 38%. The net interest margin was 3.9% in 2023-24.
The bank’s loan book is expected to grow by 22-24% in the current financial year aided by a growth in mortgage, MSME and then agriculture.
The bank expects its net interest margin to improve by 15-25 basis points in the current financial year owing to an improvement in credit-to-deposit ratio and the benefit of loan repricing.