UTKARSHBNK - UTKARSH SMALL FINANCE BANK LIMITED Share Price

In the earnings call held on May 11, 2026, Utkarsh Small Finance Bank's management provided an optimistic outlook for the institution, indicating a "consolidation year" ahead in FY '27. Management highlighted a goal of achieving a loan book growth rate of 25% to 30%, with secured lending expected to make up about 55% of the portfolio. They aim to maintain net interest margins (NIMs) above 8% and target a return on equity (ROE) of around 15% by FY '28. Management emphasized that while sectoral headwinds and regulatory changes might impact near-term performance, the strategic direction taken would strengthen the bank over the medium term.

Key forward-looking points included:

• Loan book growth of 25%-30% in the coming years.
• Secured lending anticipated to be around 55% of the portfolio.
• Aiming for NIMs above 8%.
• Target ROE of approximately 15% in FY '28.
• Fresh NPA slippages dropped to roughly INR 170 crores in Q4 FY '26, a significant decrease from approximately INR 710 crores in Q4 FY '25.
• Gross NPA ratio improved by around 330 basis points quarter-on-quarter to 7.7% as of March 2026.
• Primary focus on operational efficiency, diversified lending, and improved collection strategies to bolster future performance.
• Continued emphasis on maintaining a granular and low-cost deposit base, with CASA deposits increasing by 11% year-on-year, leading to a CASA plus retail term deposit ratio of 83%.

These metrics demonstrate management's commitment to building a more resilient and stable financial institution, capable of navigating challenges while focusing on sustainable growth trajectories.

1. Question: What is the PCR for secured and unsecured loans individually?
   Answer: Our overall PCR stands at 59.3%. On our secured loans, it's 39.0%, and for our unsecured loans, it's at 65.4%. This includes all unsecured loans, including MFI.

2. Question: What is the PCR specifically for JLG and MBBL?
   Answer: The PCR for JLG is 66.3%, and similarly for MBBL, it is also 66.3% since we follow the same provisioning standards for both.

3. Question: How prepared are we for the ECL transition in FY '28?
   Answer: SFBs are currently exempt from Ind AS requirements. While we do have pro forma models, we aren't mandated to follow ECL yet, which gives us time to prepare for future compliance.

4. Question: What is the current GNPA for the MSME portfolio?
   Answer: As of March '26, the GNPA for our retail MSME portfolio stands at 3.4%. Our funding practices mitigate risk exposure, and we haven't seen abnormalities despite geopolitical tensions.

5. Question: Can you break down the MSME portfolio further?
   Answer: Currently, our MSME portfolio comprises secured business loans, unsecured business loans, and LAP. Detailed breakdowns are available and would help us understand growth directions better.

6. Question: What is driving the recent increase in JLG disbursements, and how is the new portfolio performing?
   Answer: Following stabilizing collections post-guardrails implementation, we saw improved disbursements again. We are only at 70% of optimum capacity and adhering closely to newly set guidelines to enhance performance.

7. Question: What is the expected steady-state credit cost for FY '27 and FY '28?
   Answer: We anticipate a steady-state credit cost of 3% to 3.5% for FY '27 and 2% to 2.5% for FY '28. Our conservative estimates are based on improved collection efficiency and reduced slippages.

8. Question: How much did CGFMU cover last year, and when can we expect claims?
   Answer: The CGFMU claims maturity doesn't apply yet, as they take about 1.5 years to settle, and we haven't accounted for any claims. We're focused on protecting future portfolio quality without counting on potential gains.

9. Question: What is the expected timeline to realize secured asset control in case of default?
   Answer: Generally, it takes around 6 to 8 months to initiate action under SARFAESI for asset disposal, with an LTV below 65% allowing for risk control in our secured lending.

10. Question: What are our capital raise plans?

Answer: We currently have no imminent plans for raising capital from the market and will focus on alternative means like tier-2 capital to maintain our 17.7% capital adequacy ratio.

1. Question: Do you still expect to achieve a 15% ROE by FY '28?

Answer: Yes, we are confident in achieving above a 15% ROE as our new portfolio quality improves and legacy issues are resolved. Most provisioning currently stems from legacy assets, not the new ones.

1. Question: When can we expect to get the net NPA ratio below 1%?

Answer: We aim to reach a net NPA ratio below 1% by FY '28 through recovery efforts and ongoing provisioning for NPAs, following gradual reductions in NPA levels.

1. Question: What's driving the high non-MFI slippage rates?

Answer: Wheels have been a major contributor to NPA issues, but we are actively moving towards more used vehicle financing, which has shown better performance recently. We expect improvements in the coming quarters.

1. Question: How does the cost of collection relate to our NPA recovery efforts?

Answer: Our collection efforts are expected to yield significantly better returns. Currently, we're seeing a recovery rate of about 12%-14% from written-off debts, which should improve with our expanded collection workforce.

1. Question: What are the expectations for operating expenses against potential loan growth?

Answer: We project that operating expenses can remain manageable, allowing for a 25%-30% growth in loans without a corresponding increase in costs. This allows for improved margins moving forward.