SFBs records broad-based gains, despite MFI headwinds

Small Finance Banks (SFBs) reported a strong, broad‑based expansion in both advances and deposits, indicating the sector’s resilience despite pressures in the microfinance segment.

On the lending side, Suryoday SFB led the pack reporting a 23.5% year-on-year (Y-o-Y) growth in gross advances, followed closely by Ujjivan SFB at 21.6% and Capital SFB at 19.8%. AU SFB, the largest in the category, maintained its growth momentum with a 19.3% rise, taking its loan book to nearly Rs 1.3 lakh crore for the Q3 ended December 2025. ESAF and Equitas posted steady double‑digit growth of 13.1% and 15.9%, respectively, reflecting a stabilising credit environment.

Deposit Mobilisation

Deposit mobilisation also remained healthy, with Suryoday again emerging as the fastest‑growing franchise, clocking 32.5% Y-o-Y growth. AU SFB delivered a robust 23.3% rise in deposits, reinforcing its strong liability franchise. Ujjivan reported a sharp 22.4% increase, while Capital SFB grew 18.5%. ESAF and Equitas saw more moderate expansion at 7.1% and 7.2%, with Equitas being the only bank to report a marginal QoQ decline.

“The loan book growth for Small Finance Banks (SFBs) is projected to be in the range of 18-20% for FY2026, slightly lower than the previous year due to asset‑quality challenges in microfinance,” said AM Karthik, Senior Vice President & Co-Group Head, Financial Sector Ratings, ICRA.

AM Karthik on rebound

However, he expects a rebound to 22–25% in FY2027, driven by a decisive shift toward secured lending. While this shift may compress margins and RoA in the near term, it is set to reshape the risk profile and long‑term stability of the sector. “As secured loans expanded rapidly, the low seasoning will be a key factor to monitor from a loan quality perspective in the near to medium term,” adds Karthik.