Small finance banks (SFBs) reported a healthy set of June quarter earnings, with strong loan growth and lower credit costs driving a broad-based recovery in profitability. Asset quality also improved as stress in the microfinance portfolio eased.
The improvement in earnings was broad-based. According to data from Capitaline, AU Small Finance Bank remained the largest profit contributor, reporting a 37% year-on-year (YoY) rise in net profit to Rs 796 crore. Ujjivan Small Finance Bank posted the strongest growth, with profit more than tripling to Rs 317 crore, while Suryoday SFB’s net profit more than doubled to Rs 75 crore. Equitas Small Finance Bank returned to profit after reporting a loss a year earlier, while Jana SFB and Capital Small Finance Bank also posted double-digit growth in net profit.
“AU SFB has successfully regained its pre-merger business momentum, with growth exceeding 20% in FY26 and RoA reaching 1.8% in Q4FY26,” ICICI Securities said in a report. “Increasing visibility regarding its transition to a universal banking licence serves as a significant long-term valuation catalyst,” it added.
Net interest income (NII) remained robust, reflecting healthy business momentum despite pressure on net interest margins (NIMs). While AU Small Finance Bank, Jana Small Finance Bank and Capital Small Finance Bank either maintained or improved their NIMs, Equitas and Suryoday reported sequential compression.
Expanding Loan Books
Loan growth remained above 20% across all major lenders, led by Suryoday SFB at 32.6%, Ujjivan SFB at 29.2% and Equitas SFB at 26.7%, as lenders continued to expand their secured loan portfolios. Deposit growth ranged from 10% to nearly 30%, although analysts said sustaining liability growth would remain critical as competition for retail deposits intensifies.
A key highlight of the quarter was the continued improvement in asset quality. Gross and net non-performing asset (NPA) ratios declined across all six listed SFBs, aided by improving collection efficiencies and easing stress in the microfinance segment. AU Small Finance Bank had the lowest gross NPA ratio at 2.10% as of June 30, while Suryoday SFB had the highest at 6.60%.
Improving asset quality also translated into lower credit costs across most lenders, supporting profitability as provisioning requirements moderated with easing stress in microfinance portfolios.
Universal Banking Licence Transition
The transition to universal banking remained a key theme in management commentary during analyst calls, although lenders are at different stages of the process. Ujjivan Small Finance Bank said its application for a universal banking licence remains under consideration by the Reserve Bank of India and that it remains hopeful of receiving approval.
Equitas SFB, meanwhile, said during its post-earnings analyst call that it would conduct a full-year assessment to ensure compliance with all RBI guidelines before applying for a universal banking licence.