It is a segment of the banking industry, which is growing without much attention / fanfare and also showed strong operational performance in the June 2026 quarter.
Yes, we are referring to small finance banks (SFBs), which are required to ensure that almost half of their loans / advances are below Rs 25 lakh, and are also directed to small, local businesses and low-income households.
Also, it is understood that SFB have to ensure 75% of their credit is for priority sector loans as compared to 40% for universal commercial banks, like PSUs and private banks.
It’s no surprise that SFBs have a strong focus on high-margin loans like gold loans, SME loans and micro-finance loans in the regions / states they operate in.
And this strategy of SFBs has enabled them to earn net interest margins (NIMs) that are indeed impressive – they vary from 6.5% to 8.5%, and superior to Jaipur-based AU Small Finance Bank, which recently got RBI approval to transition into a universal bank, and had NIMs of 5.9%.
PSU banks have NIMs between 2.5% to 3.5%. Even the best performing private sector banks have NIMs of 3.4% to 4.5%.
Of course, it needs to be highlighted that the loan books of SFB are much smaller than PSU / private banks.
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To help readers get a greater insight on SFBs, we looked at those with a market capitalization between Rs 6,000 cr and Rs 15,000 crore.
And we found three SFBs that trade at a discount of between 48%-66% to AU Small Finance Bank (view table below).
52-Week Highs in a Soft-Rate Regime: Why Dalal Street Is Backing SFBs
Investors have recognized the strong operational growth parameters of SFBs, in terms of strong loan growth and higher NIMs in the June 2026 quarter. Also, the ‘soft’ interest rate environment of RBI that has been followed for several quarters has had no impact on NIMs of SFBs, given their focus on high-margin loans in the regions / states they operate in.
For instance, Ujjivan Small Finance Bank ended broadly flat on Friday at Rs 72, and not too far from its 52-week high of Rs 73.9 that was reached on 20 August, 2026.
Meanwhile, Equitas Small Finance Bank ended 0.5% lower on Friday at Rs 76.6, and it had reached its 52-week high of Rs 83.8 on 15 July, 2026.
And Jana Small Finance Bank ended 3.4% higher on Friday at Rs 581.5, and not too far from its 52-week high of Rs 606.5 that was reached on 21 August, 2026.
Navigating the Q1 Credit Slump: How High-Margin Books Drove Double-Digit Growth
Here are our findings of three SFBs in terms of key operational parameters; credit and deposit growth, NIMs and asset quality, amongst others.
The June quarter is typically a ‘slack’ season for credit, with individuals, small and large companies still evaluating their financial objectives for the new financial year. Also, it is a quarter where a large number of families are on holiday and demand for credit is typically slack. It is commendable the strong double-digit loan growth recorded by the three SFBs.
Ujjivan SFB: 8.5% NIMs and a 54% Surge in SME Lending
SFBs have a strong focus on ‘small’ loans to local businesses / residents and it has powered their growth even during the traditional ‘slack’ demand for credit in the June 2026 quarter. And strong NIMs coupled with a fall in provisions have enabled SFBs to report strong growth in net profit in the quarter under review.
Bangalore-based Ujjivan Small Finance Bank grew its loan book by 28.9% y-o-y to Rs 42,903 crore, and it was led by a 54% growth in SME loans along with 249% y-o-y rise in gold loans.
The top 3 states for its loan disbursements were Karnataka, Tamil Nadu and West Bengal. Ujjivan Small Finance Bank has 814 branches in 26 states and union territories as compared to 752 a year earlier.
Ujjivan Small Finance Bank has impressive net interest margins (NIMs) of 8.5% as compared to 7.7% a year earlier. Strong growth in loans and NIMs helped Ujjivan Small Finance Bank’s core net interest income (NII) rise 50.2% y-o-y to Rs 954.5 crore.
Deposit Mobilization: Bulk Term Inflows Anchor Q1 Balance Sheets
Of equal importance, Ujjivan Small Finance Bank’s deposits grew 24.6% y-o-y to Rs 48,129 crore and it was the highest growth in 10 quarters, the bank has highlighted. Growth in deposits was thanks to bulk term deposits (mainly fixed deposits) that expanded nearly 39.9% y-o-y to Rs 14,488 crore while retail deposits grew 17% y-o-y to Rs 32,716 crore.
Deposits form the basis of extending credit for a bank, short and long-term to clients.
Operational performance of small finance banks v/s AU Small Finance Bank (June 2026 quarter)
| Bank | NIM (in %) | Net profit growth y-o-y (in %) |
| Ujjivan Small Finance Bank | 8.5% | 206% |
| Equitas Small Finance Bank | 7.24% | n/a |
| Jana Small Finance Bank | 7.5% | 53.5% |
| AU Small Finance Bank | 5.9% | 37.2% |
Asset Quality Stability: Slippages Moderate Across Regional Belts
Meanwhile, asset quality of the bank has been good – its % of net NPAs to net advances was 0.34% as compared to 0.7% a year earlier. And its provisions also declined nearly 43% y-o-y to Rs 127.3 crore.
A strong operational performance helped Ujjivan Small Finance Bank’s net profit jump nearly 206% y-o-y to Rs 316.5 crore.
Equitas SFB: Provisioning Drop of 74% Drives Turnaround to Rs 184 Cr Profit
Chennai-based Equitas Small Finance Bank grew its loans by 26.7% y-o-y to Rs 47,641 crore and the bank grew its gold loans by 179% y-o-y while loans to NBFCs grew by 216% y-o-y and micro-finance loans grew by 70% y-o-y.
The top 3 states for its loan disbursements were Tamil Nadu & Pondicherry, Maharashtra and Karnataka. The bank has 1,063 branches across 16 states and 2 union territories.
Equitas Small Finance Bank also has impressive NIMs of 7.24% as compared to 6.37% a year earlier.
Deposits too, grew 10.4% y-o-y to Rs 48,976 crore, and the bank has highlighted 17% y-o-y growth in term deposits.
Strong growth in loans and NIMs enabled the bank’s core NII to grow nearly 44.3% y-o-y to Rs 824 crore.
Asset quality of the bank was also strong – its % of net NPA to net advances was 0.7% as compared to 0.98% a year earlier.
Equitas Small Finance Bank’s provisions for NPA also declined 73.9% y-o-y to Rs 160.6 crore. As a result, Equitas Small Finance Bank reported a net profit of Rs 183.6 crore as compared to a net loss of Rs 223.76 crore a year earlier.
Jana SFB: Gold and Vehicle Financing Fuel a 53.5% Earnings Jump
The Bangalore-based Jana Small Finance Bank grew its advances by 24.7% y-o-y to Rs 34,699 crore and that was owing to a 112.5% y-o-y growth in gold loans along with 78.1% y-o-y growth in vehicle loans.
The top 3 states for its loan disbursements were Tamil Nadu, Maharashtra and Odisha. The bank has 826 branches across 23 states and 2 union territories.
Its NIM was 7.5% as compared to 6.6% a year earlier. Strong growth in loans helped Jana Small Finance Bank’s NII rise nearly 42.5% y-o-y to Rs 647 crore. Asset quality of the bank was also broadly stable – its % of net NPAs to net advances was 0.9% as compared to 0.94% a year earlier.
Strong operational performance helped Jana Small Finance Bank’s net profit rise 53.5% to Rs 155.2 crore.
For perspective, Jaipur-based AU Small Finance Bank, which recently got RBI approval to transition into a universal bank, grew its loan book by 26.6% y-o-y to Rs 1.38 lakh crore. AU Small Finance Bank has highlighted its commercial banking loans grew 33.8% y-o-y. Its NIM was 5.9% as compared to 5.4% a year earlier.
Asset quality of the bank was also fairly good – its % of net NPAs to net advances was 0.76% as compared to 0.88% a year earlier. And a strong operational performance coupled with a 30.4% y-o-y decline in provisions helped AU Small Finance Bank’s net profit rise 37.2% y-o-y to Rs 796 crore.
The ROE Divergence: AU Bank Leads Capital Efficiency at 14.2%
Ujjivan Small Finance Bank has a Return on Equity (RoE) of 10.8%, according to Screener.in, 1.68% for Equitas Small Finance Bank, and 7.6% for Jana Small Finance Bank.
AU Small Finance Bank has a RoE of 14.2%.
3 SFBs versus AU Small Finance Bank
| Bank | Return on Equity (RoE) (in %) |
| Ujjivan Small Finance Bank | 10.8% |
| Equitas Small Finance Bank | 1.68% |
| Jana Small Finance Bank | 7.6% |
| AU Small Finance Bank | 14.2% |
Price-to-Book Disconnect: Are 1.4x P/B Valuations Mispriced Against AU’s 4.1x?
Ujjivan Small Finance Bank trades on the preferred valuation matrix, price to book value of 2.1 times.
Meanwhile, Equitas Small Finance Bank and Jana Small Finance Bank both trade on the valuation matrix at 1.4 times.
And AU Small Finance Bank trades at 4.1 times.
The Strategic Outlook: Catalysts and Margin Risks for FY27
| Bank | Price-to-book-value |
| Ujjivan Small Finance Bank | 2.1 times |
| Equitas Small Finance Bank | 1.4 times |
| Jana Small Finance Bank | 1.4 times |
| AU Small Finance Bank | 4.1 times |
The three SFBs – Ujjivan Small Finance Bank, Equitas Small Finance Bank and Jana Small Finance Bank are expected to show strong growth going forward, in terms of loan growth and NIMs. Also, they trade at a discount of between 48% – 66% to AU Small Finance Bank. Investors could add these three SFBs to their watch list of stocks for 2026, and see if their performance matches expectations.
Disclaimer:
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
Disclosure: The writer and his family have no shareholding in any of the stocks mentioned in the article.
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.