Capital Small Finance Bank Ltd (CAPITALSFB) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to Capital Small Finance Bank Limited Q2 and H1 FY27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sarvjit Singh Samra, MD and CEO Capital Small Finance Bank. Thank you and over to you, Mr. Samra.
Sarvjit Singh Samra (Capital Small Finance Bank Ltd): Thank you, Renju. Good morning, everyone and thank you for joining us on Capital Small Finance Bank's earnings call for the second quarter and first half of financial year '27. I hope you and your families are keeping well. Our financial results and the investor presentation are already on the
Sarvjit Singh Samra (Capital Small Finance Bank Ltd): exchanges and on our website. Let me quickly introduce the team with me on the call today. I have with me Mr. Munish Jain, our Executive Director; Aseem Mahajan, our Chief Financial Officer; Raghav Aggarwal, Chief Credit Officer for Branch Banking; Sahil Vijay, our Chief Treasury Officer and Investor Relations Lead; Bharti Bhambota, from our investors Investor Relations team; and our IR Advisors, SGA. I will begin with an overview of the operating environment and macroeconomic developments during the quarter two and the first half of the financial year '27, followed by a detailed discussion on bank's performance and outlook. Let me begin, as usually I do, with a few words on the environment we are operating in because the sector is entering a phase wherein the quality of growth, the strength of your deposit franchise and how well you navigate a shifting rate cycle really start to matter. And the first half of the year has been a healthy one for the system. Credit growth stayed strong on the back of retail and MSME demand, and deposit mobilization has picked up well. As end of the September, banking industry credit grew at around 19.4% year-on-year against deposit growth of about 17.8%. The other big development was, of course, monetary policy. In its October review, the Reserve Bank raised the repo rate by 25 basis points to 5.5 0% and moved its stance to calibrated tightening. This was on the back of some emerging inflationary pressures, higher energy and food prices, alongside an economy that is still growing well. The signal from the Central Bank is fairly clear: for now rate cuts are of the table and the path ahead will depend upon how inflation and growth play out. For us as bankers, this this shifts the focus. Until recently, the question was how quickly rates would come down; now it's about managing a rate environment that may stay higher for longer. The cost of deposits, how our liability book reprices and our ability to protect lending spreads will be the things that drive profitability from here. And through all of it, disciplined underwriting, comfortable liquidity, and picking the right loans will be what lets us keep growing without letting asset quality slip. These are not new disciplines for us. They are how we have always run the bank. And in an environment like this, granular retail deposits and real customer relations matter more than ever. For bank like ours, rooted in semi-urban and rural markets, the ability to raise deposits through a branch network we have built over decades and to go deeper with customers we already know is genuine and durable advantage. So, when I look at where we stand, I'm confident our model is well-suited to this environment. A deep presence in core markets, an almost entirely secured loan book, and a relationship-led way of banking give us solid base to keep growing while staying measured on risk. Our priorities, quite simple, remain the same: grow the franchise, strengthen the deposit base, and protect the quality of the balance sheet. With that backdrop, let me take you through how the bank performed in the second quarter of the and the first half of financial year '27. I will touch on the headline numbers and then hand over to Munish for further details. Our gross advances stood at ₹9,755 crore as of September 30, '26, up 23.4% year-on-year and 7.5% over the previous quarter. Disbursements for the quarter were ₹1,095 crore, up 36% year-on-year. On the liability side, total deposits grew to ₹10,831 crore, up 16.2% year-on-year and 2.2% over the previous quarter. CASA stood at ₹3,734 crore, or 34.5% of total deposits, compared with 33.9 a year ago. Gross NPA declined
Sarvjit Singh Samra (Capital Small Finance Bank Ltd): to 2.3% at the end of September '26, compared with 2.47 in June '26 and 2.70 percent a year ago. Our average credit-to-deposit ratio stood at 85.4% during the quarter compared with 81.5% in the corresponding period last year. Looking ahead, our priorities are clear, keep the momentum going in our core lending segments, make the deposit franchise deeper and more stable, improve productivity and stay firmly focused on asset quality. In a shifting rate environment, we believe disciplined, consistent execution will count far more than simply chasing scale. On that note, let me hand over to Munish, who'll take you through our financial and operating performance in more details. Over to you, Munish.
Munish Jain (Capital Small Finance Bank Ltd): Thank you, Mr. Samra. And good morning and warm welcome to you all on the call. Let me walk you through the key business and financial highlights for the quarter and the half year ending September 30th, 2026, and then spend a little time on the progress we are making on our strategic priorities and Vision 2029 road map. Business performance and advance profile. Starting with advances, as of September 30th, our gross advances stood at 9,755 crores, that is a growth of 23% year-on-year and 7.5% over the previous quarter, an acceleration from where we were in Q1 and a reflection of steady execution, healthy demand across our core segments. Disbursements stayed strong throughout the quarter and stood at 1,095 crores, up 36% year-on-year. That tells the demand is holding up well across our segments, and that our distribution and underwriting engine is working efficiently. Our book remains firmly secured, and around 97% is secured. Over 76.7% of the portfolio, and 89% of excluding the non-corporate book, is backed by immovable property or own FDRs. This is very much by design and is single biggest reason our asset quality hold up the way it does. The book is also granular with the average ticket size of about 19.53 lakhs against 17.1 lakhs in Q2 FY '26 and well diversified. As of September 30th, our portfolio continued to remain well diversified and business loan segment is presently the largest segment, which increased to 28% of the book against 23% a year back, which was 27% at the end of the last quarter. Mortgage were about 24% of the advances, a little lower than 26% a year back and 25% a quarter back. Agriculture 26% against 27% a quarter back. And corporate exposure stayed deliberately constant at around 14%, where we lend only to well-rated borrowers. On asset quality and risk management. Let me turn to the asset quality, and which I know always a big focus area for us. Gross NPA came in at 2.36%, an improvement of 11 basis points over the previous quarter and 34 basis points over a year ago. Net NPA improved to 1.12% from 1.14% last quarter and 1.38% a year back. I would highlight that this improvement has come in a quarter that has its own share of weather-related stress in our core geography, which to us is the clearest validation of our secured, carefully underwritten approach. Credit cost for the quarter was 0.18%, broadly in line. Just as importantly, our early warning indicators are moving the right way. SMA-1 and SMA-2 accounts for around 3.31% of the advances, down from 4.78% a quarter back and 4.42% a year back. That reflects proactive collection and much closer monitoring of the book. And as we grow, protecting asset quality stays right at the top of our list. We will keep lending the way we always have, secured, granular with careful customer selection and strong collection. And we are increasingly using data and technology to sharpen our early warning systems. All of this keep us firm on track towards our goal of taking net NPA below 1% without letting growth come at the cost of the balance sheet. Deposit and liability
Munish Jain (Capital Small Finance Bank Ltd): franchise. Coming to the liability side. Our total deposit crossed ₹10,831 crores, up a healthy 16% year-on-year, and 2.2% on quarter-on-quarter basis, which to us is really a measure of the trust our customers continue to place in us and the strength of our retail franchise. Our average credit to deposit ratio for the half year was 85.4%, up from 81.5% a year ago, which shows we are deploying our funds efficiently. CASA stood at 34.5%. It is a touch lower than what we had last quarter, and that is seasonal and in line with what the whole industry is seeing in a high term deposit rate environment. But it remains higher than a year ago, that is 33.9% a year back, and is continue to anchor the stability of our funding. The cost of deposits stood at 5.68% against 5.92% a year back now. Going forward, building our granular retail app deposit base stays one of our key priority, especially as we enter newer market. We will keep deepening customer relationships, pushing CASA, and fine tuning our funding mix. Together with disciplined liability management, we believe this is what we protect our margins and profitability as the balance sheet grows. Let me come to the profitability. Pre-provisions operating profit, PPOP, was ₹68 crores, up 31% year-on-year, and profit after tax is at ₹92 crores, is at ₹46 crores, up about 31%. That is a healthy outcome driven by steady operations and continued cost discipline. Our net interest margin held steady at 4.24% against 4.04% a year back. In a quarter where the rate environment actually turned, improving margins speaks to the resilience of our core earnings, and we benefited from the repricing of the term deposit we had flagged in the last calls. Our net interest income grew by 24% on year-on-year basis, and stood at ₹139 crores against ₹112 crores in Q2 FY26. Non-interest income grew 25% to ₹30 crores against ₹24 crores in Q2 FY26. On efficiency, our cost to income ratio is 59.8%, an improvement from 61.7% last year, even as we continue to invest in branches, technology, and people. In other words, the operating leverage benefit is expected to begin soon. Return on assets stood at 1.39% against 1.26% a year back and 1.3% a quarter back. While return on equity at 12.23% against 10.22% a year back and 11.2% a quarter back. supported by consistent profitability and prudent balance sheet management. Improving our profitability and return ratio is a central part of our road map as our newer branches seasons, relationships deepens, and our business scales. We expect operating leverage and productivity gains to contribute more and more to the earnings. Let me spend a moment on geographical diversification which continue to build nicely. As of September, our network stood at 222 branches across five states and two union territory, strengthening our footprints in rural and semi-urban markets that remain central to our long-term growth. It is worth mentioning that deposit share in the home state has increased to 1.3% of the industry as of as on June 30, 2026 against 1.17% as on March 31, 2025. Markets outside Punjab are becoming a real growth engine for us. Advances there grew by over 39% year-on-year this quarter, comfortably ahead of our overall loan growth of 23%. That tells us our model travels well beyond our home market. These markets now make up to 26% of our advances and 8% of our deposits, which tells customers in these new geographies are increasingly choosing to bank with us. We are having 47 branches outside Punjab that is 21% of our network, and they're contributing 26% of our advances. Encouragingly, business per branch in these markets, that is the out of Punjab market, are continuing to show upward trajectory with business per branch has started hitting 80 crore plus for branches with a longevity of 5 year and above, against 72 crores at the end of Q4 FY26. Our expansion stays deliberate
Munish Jain (Capital Small Finance Bank Ltd): we go into markets where we can genuinely replicate our relationship-led model without diluting underwriting standards, and we are equally focused on getting more out of our existing branches and deepening every customer relationship we have. We have 77% branches in SURU, which contributes 75% to the deposits. And interestingly, 23% of our urban and metro branches contributing 46% to the advances. A quick word on capital and liquidity, both of which remain strong. Our capital adequacy ratio closed at 20.8% with tier 1 capital at 18.5, giving us ample headroom, legroom to fund our growth with no immediate need to raise the fresh capital. Our average liquidity coverage ratio stays strong at around 216%, which give us sufficient legroom for the growth. We will continue to keep comfortable capital and liquidity buffer as we grow, so that every bit of balance sheet expansion rests on a resilient footing. Before I close, let me briefly reiterate where we are headed under our Vision 2029 roadmap. We continue to target a loan book of over ₹16,000 crore plus and a network of more than 300 branches by FY '29. The way we get there is clear: go deeper, getting more stronger in our existing market, target expansions beyond Punjab, make branches more productive, and keep investing on processes and systems. There are really three things that drive this journey. First, accelerating growth with lifting the contribution from our newer markets. Second, improving operating leverage as our branches mature, our business gains scale. And third, one we never compromise on, keeping the balance sheet clean through secured granular lending and disciplined underwriting. Importantly, this is not about scale for its own sake. It is about making sure growth turns into sustainable, profitable, and better return ratios. And we believe our relationship-led model, strong retail deposit franchise, improving diversification, and disciplined approach to risk give us a solid foundation to deliver exactly that. With this, we would be happy to take your questions, and I request the operator to open the floor. Thank you, and wishing you all happy and prosperous festivity.
Moderator: Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Chintan Parmar with Aurum Edge. Please go ahead.
Chintan Parmar (Aurum Edge): Good morning. Congratulations to the team on very good set of numbers. Can you hear me? Am I audible, please?
Munish Jain (Capital Small Finance Bank Ltd): Yeah, you are completely audible, Mr. Parmar.
Chintan Parmar (Aurum Edge): Okay, thank you. So, my question is specifically on, you know, basically the agriculture sector. This year the monsoons have not been very good. Now, do we see any impact on that? Our collection efficiency has been very, very good till date. But do we see, you know, it going down a bit because of these factors, if you can throw some colour, what are the, because like impact probably should come now?
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