Utkarsh Small Finance Bank Ltd (UTKARSHBNK) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '27 earnings conference call of Utkarsh SFB hosted by ICICI Securities Limited. 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 would now hand the conference over to Mr. Renish from ICICI Securities. Thank you and over to you, sir.
Renish (ICICI Securities): Yeah. Thank you, Muskaan. Thank you. Good evening, everyone, and welcome to Utkarsh Small Finance Bank Q2 FY '27 earnings call. On behalf of ICICI Securities, I would like to thank Utkarsh SFB for giving us the opportunity to host this call. Today, we have with us the entire top management team of Utkarsh SFB represented by Mr. Govind Singh, Managing Director and CEO; Mr. Sarvjit Kumar Samaddar, Executive Director; Mr. Amit Acharya, Chief Risk Officer; Mr. Manmohan Shetty, Chief Financial Officer; Mr. Virender Sharma, Head, MicroBanking; Mr. Saurabh Ghosh, Head, Consumer Banking; and Mr. Abhey Katariya, Head, Operations. I will now hand over the call to Govindji for his opening remarks, and then we'll open the floor for Q&A. Over to you, sir.
Govind Singh (Utkarsh Small Finance Bank Ltd): Yeah. Thank you very much, Renish. Thanks a lot, as always, yeah. Yes, good evening, everyone, and thank you for joining us for our quarter two FY '27 earnings call. Let me begin by reflecting on the evolving environ- operating environment for Utkarsh Small Finance Bank. Our business momentum is recovering, fresh stress formation has reduced substantially, collection efficiency remains strong, credit costs have moderated, and funding costs are declining, and the contribution of diversified businesses is increasing. At the same time, our operating profitability is improving every succeeding succeeding quarter. These are important developments because they demonstrate that the improvement is not dependent on any single factor, but is being supported by multiple levers moving in the right direction. Albeit, our growth has been a little slow, but steady, and the same
Govind Singh (Utkarsh Small Finance Bank Ltd): ready to pick space now. Our pre provisioning operating profit increase to 85 crore in quarter two FY 27, compared with an operating loss of rupees 3 crore in quarter two FY 26, registering a sequential improvement of 34% over quarter one FY 27. For H1 FY 27, PPOP stood at 149 crore. Alongside this, credit cost have reduced sharply to 2.8% in H1 FY 27 from 9.1% in H1 FY 26. Consequently, the bank net loss declined by close to 80% YoY to 27 crore to 70 crore in in quarter two FY 27 and 104 crore for F H1 FY 27. While the reported loss in quarter two F quarter two was higher than quarter one, the previous quarter benefited from certain one of items like CGTMSE provisional reversal and ARC transaction. Adjusting for these non recurring items, the underlying net loss in quarter two was significantly lower sub se sequentially. The combination of improving operating earnings and a substantial moderation in credit cost is strengthening the underlying earnings profile of the bank. The improvement in portfolio performance further reinforced this trend. Collection efficiency in the X bucket of JLG segment remains strong at 99.6% during the quarter compared with 98.6% in quarter two of FY 26. The SMA pool within micro banking has contracted to 1.7% from 4.9% in September 2025. Fresh NPA slippages net of recovery and upgradation declined to 175 crore in quarter two FY 27 against 415 crore in in corresponding quarter last year. For H1 FY 27, this stood at 300 crore compared with 100 810 crore in H1 FY 26. Consequently, GNPA as a percentage of gross gross loan portfolio improved to 5.9% as on September 26, reflecting an improvement of almost 630 basis points year on year. These developments indicate that strengthened strengthened collection infrastructure, enhanced monitoring, and more disciplined credit practices are translating into lower incremental stress and better portfolio performance. Another important positive is the recovery in business activity. Total disbursement during H1 FY 27 grew by 52% year on year with JLG disbursement increasing by 2% and non-JLG disbursement registering growth of 94%. This this supported this supported gross loan portfolio growth by 7.5% year on year and 2.3% sub sequentially. The improvement reflects a gradual restoration of business momentum while maintaining a calibrated approach towards customer selection and underwriting. Our focus remains on growing the portfolio through quality incremental lending rather than pursuing volumes at expense of risk adjusted returns. On the liability side, the bank has made meaningful progress in strengthening its deposit franchise. Total deposits grew by 7% year on year, supported by 14% growth in CASA deposits and 12% growth in retail term deposit. The CASA plus retail term deposit ratio improved to 82% from 78% a year ago, while the CASA ratio in reached 21.4% as on September 2026. This improvement in funding composition is already reflecting our cost of fund, which declined by 50 basis points year-on-year to 7.4% in H1 FY 27. With the benefits of deposit repricing and the improving liability mix expected to flow through progressively through progressively, we see further support to funding cost and margin stability. Taken together, improving business and momentum, lower credit costs, and declining funding costs are providing a stronger foundation for sustained earnings improvement. Let me now touch upon the structural changes under underway in our business model. Portfolio diversification continues to be our our most important strategic priorities. JLG portfolio which constituted 88% of the gross loan portfolio in March 2020 and 90% including BC JLG exposure has now reduced to 24% and 26% including BS BC JLG exposure. In contrast, secured lending has increased to 52% of the gross loan portfolio from 47% a year ago. This transformation is reducing dependence on traditional group lending and creating a more balanced portfolio with multiple growth and earning drivers. Within micro banking, our micro micro banking business loan portfolio product continues to gain traction. The product enables us to graduate customers with demonstrated repayment
Govind Singh (Utkarsh Small Finance Bank Ltd): The micro-banking business loan portfolio registered a growth of 146% year-on-year and 15% sequentially during Q2 FY27 and now represents 35% of our micro-banking portfolio. With penetration currently around 20 20% of our customer base, there remains considerable opportunity to scale this business further. We believe MBBL will play an important role in strengthening customer relationship, improving product penetration, and diversification of the micro-banking franchise. Our other lending businesses are also contributing to the portfolio growth. The MSME portfolio expanded by around 8% year-on-year to 4,489 crore with micro loan contributing to deliver disbursement yield of 18%. The housing loan portfolio grew by 4% year-on-year to 984 crore, while the BBG, the Business Banking Group portfolio recorded strong growth of 30% year-on-year. In the commercial vehicle and and commercial construction equipment segment, we are maintaining a calibrated approach towards asset selection with used vehicles accounted for around 30% of disbursement. We are also expanding gold loan penetration through a digital loan origination system, which expect, which is expected to improve turnaround time, process controls, and operational efficiency. These businesses collectively provide opportunity to deepen our presence across customer segment, while creating a more diversified and stable earnings base. To further strengthen the quality of incremental microfinance lending, the bank registered under the CGFMU credit guarantee scheme for eligible JLG and and micro-banking business loans disbursement with effect from January 17, 2025. 48% of our micro microfinance book relating to disbursement up to Q4 FY26 is already covered under the scheme, increasing up to up to 80%, almost 80% upon including H1 FY27 disbursement. The CGFMU window is currently not open for fresh loan disc guarantees as the scheme is undergoing the government approval process for its next phase. We expect the window is is is is about to reopen soon and have already accrued the requisite 1% guarantee fee towards the eligible disbursement. This additional risk protection together with strengthening in underwriting and portfolio monitoring supports our effort to build a more resilient microfinance franchise. From a capital and liquidity perspective, bank continues to maintain comfortable buffers as on September 2026, surplus liquidity stood at around 2,540 crore, the LCR was set 177% and CD ratio stood at at 81%. Capital adequacy remained at 17%, comfortably above the regulatory requirements. The bank had planned to raise Rs. 500 crore through NCDs during the current financial year, of which 300 crore was raised in September 2026 to support growth initiatives and reinforce capital adequacy. Additionally, on August 13, 2026, the bank exercised the call option and redeemed its Rs. 195 crore tier-2 NCDs ahead of scheduled maturity after obtaining requisite regulatory approvals. These initiatives reflect our focus on maintaining adequate capital strengthen capital strengthen, while optimizing the overall funding structure. On the proposed amalgamation of the holding company, Utkarsh Core CoreInvest Limited with within to the bank, the NCLT during its hearing on October 22, 2026, took note of the NOCs and response and responses received from the concerned regulatory authorities. The matter is scheduled for its next hearing on November 19, 2026. The reverse merger is expected to be completed over the next few few months subject to NCLT proceedings. Operational efficiency and technology-led transformation remain important enablers of our strategy. We have strengthened the collections infrastructure, operationalized a specialized call center for overdue accounts and enhanced branch level monitoring and customer engagement. Training programs for new frontline employees have been reinforced with particular emphasis on centre meetings, customer onboarding, and consistent field-level execution. Our collection workforce supported JLG and MBBL business now exceeds 1,400 personnel. For the secured portfolio, our focus is on containing fresh slippages and improving recovery from the existing NPAs. We've strengthened collection teams, field coverage, and account-level monitoring, while also strategically litigation and recovery framework, also with also with focused efforts on repossession and settlements. These initiatives are helping in proving execution standards and strengthening recovery outcome across the portfolio. Through the Utkarsh 202 20 2.0 Technology Transformation Project, we are progressively integrating automation, data-driven decision-making, and stronger monitoring mechanism across the organization. Digital underwriting tools are helping identify and avoid over-leveraged borrowers, while 6-degree control parameters mapping is is enhancing
Govind Singh (Utkarsh Small Finance Bank Ltd): across the credit life cycle. The bank also launched its new core banking system during the quarter. In parallel, we are improving the quality of new account sourcing and leveraging liability-focused general banking branches to cross-sell asset products, thereby increasing product penetration and customer wallet share. Our cost optimization strategy is centered on improving productivity rather than expanding through additional branch and infrastructure. Employee headcount was rationalized by close to 1,100 year on year, while the existing branch network is being leveraged more effe- effectively. Workflow automation, digitization of customer journeys, reduction in manual intervention, and simplification of product and processes are expected to further improve turnaround time, service quality, and operational efficiency. Looking ahead, our focus will remain on sust- sustaining the improvement in collections, further reducing fresh stress formation, expanding secured lending, and accelerating growth across diversified asset classes. We will remain we will continue to strengthen our deposit franchise, optimizing funding costs, and improving operating productivity while maintaining disciplined underwriting and prudent risk management. Our medium-term aspirations still our medium-term aspirations remain focused on achieving our book loan book growth of around 25% to 30%, increasing secured lending to around 55% of the portfolio, maintaining NIM of around 18 8%, and delivering a ROE of 15% plus for FY28. We believe that the structural changes under undertaking across all our business coupled with improving operational operating indicators provide a strong foundation for achieving these objectives. To conclude, FY27 '27 represents a pivot pivotal milestone in the bank's journey to restore sustainable earnings and strengthen the financial foundation. Having closed FY26 '27 '26 with a substantial loss, the bank has since executed a focused business revival strategy and that has positioned the current financial year for a return to profitability. Our continued focus is on sustaining this positive movement momentum and building a stronger, more resilient, and well-diversified franchise that delivers consistent and long-term value to all the sto- stakeholders. With that, I would now like to hand over the call to call for Q&A session. Thank you very much.
Moderator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Raj, an individual investor. Please go ahead.
Raj: Hello, can you hear me?
Moderator: Yes, sir.
Raj: Yeah. Hello, everyone. So, I was seeing the results, and I could see that there are there is a considerable improvements on the NPA, deposits, and and on the core revenue. So, just two questions. One is on the provisions part. Like last quarter, it was saying that it was around 109, and in the current quarter like it was increased to 166. Even though there are improvement areas on reducing the secured like non-secured loans and multiple improvement areas, the provision part increased in the current quarter. So, which which directly reflecting on the on the final loss of around 70 crore. So, 70 crore. So, the first question is on the provision part, and second question is on the upcoming quarters can we expect profitability and reduction in the provision?
Sarvjit Kumar Samaddar (Utkarsh Small Finance Bank Ltd): Yeah. Good evening, Mr. Raj. Mr. Raj, I guess if you recollect the results of Q1, and we had started earlier from January '25, you know, covering our entire microbanking portfolio under the CGFMU guarantee scheme, and that obviously is a premium cost. What we did in Q1 that once you have a premium cost, do you have an ability to give a provision of only 28% of the provisioning that is required, and 72% provision credit you can take because the portfolio is guaranteed. Now, that provisioning that we did in
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