UTKARSHBNK - UTKARSH SMALL FINANCE BANK LIMITED Share Price

In the Q1 FY '26 earnings call, management provided an outlook characterized by cautious optimism, citing ongoing challenges primarily related to the JLG (Joint Liability Group) portfolio, which faced headwinds from the implementation of MFIN Guardrail 2.0 and elevated delinquencies.

Key forward-looking points include:

1. JLG Strategy: The JLG loan portfolio declined by 7% during the quarter, reflecting a focus on stabilizing collections rather than pushing for disbursements. Management anticipates that JLG disbursements will normalize in the coming few months.

2. Non-JLG Growth: The non-JLG portfolio showed robust growth at 39% year-on-year and 2% quarter-on-quarter. Management projects a growth rate of over 30% for non-JLG, primarily driven by MSME loans, which increased 46% year-on-year to Rs. 4,001 crores.

3. Collection Efficiency Recovery: Collection efficiency dropped from 96.2% to 82%. Management expects collection efficiency to progressively improve, targeting stability in the next 3-4 months, aligning with the anticipated normalization of the JLG portfolio.

4. Provisioning and Credit Costs: Current provisions are at Rs. 411 crores, with a plan to reduce credit costs beginning in Q3 FY '26 as operational interventions take effect. Management projects a recovery in normalcy might occur by this timeframe.

5. Capitalization Plans: The bank's capital adequacy ratio stands at 19.6%, and management is planning an equity fundraise of Rs. 750 crores within the next few months.

6. Long-term RoE Goals: Over a medium-term horizon, management aims for a return on equity (RoE) of 15%+ and a net interest margin (NIM) of about 8.5%, bolstered by a growing share of secured loans, currently at 45%.

In summary, while challenges persist, particularly with the JLG segment, management expresses a commitment to operational improvement, capital growth, and diversification of their loan portfolio, fostering a more stable outlook moving forward.

Q&A Section Summary of Earnings Transcript (August 4, 2025)

1. Question: "Management provided optimistic guidance for Q1 FY '26 recovery, but the results showed further deterioration. What went wrong with the projection and how reliable are your current recovery timeline?"

   • Answer: "We saw higher impacts from MFIN Guardrail 2.0 than anticipated, particularly in our JLG portfolio. The unexpected slippages and elevated credit costs were industry-wide phenomena. We don't foresee further regulatory issues, and I believe recoveries will begin to improve shortly."

2. Question: "Collection efficiency has collapsed from 96.2% to 82%. What specific operational changes are being implemented to restore this discipline and improve collection?"

   • Answer: "We've intensified efforts through our large collection team and by enhancing tracking. Our focus has shifted to collections, limiting disbursements temporarily to recover these efficiencies. We anticipate these measures will yield positive results soon."

3. Question: "Now we have seen the impact, how should one look at credit cost going forward?"

   • Answer: "We expect Q2 credit costs to remain similar to Q1, but a decline should occur by Q3. Our aim is to stabilize collections to nearly 99.5%, at which point we can expect a return to normalcy."

4. Question: "Can you give guidance on the growth of the non-JLG portfolio?"

   • Answer: "We anticipate a growth of over 30% in the non-JLG segment this fiscal year. However, JLG growth remains uncertain due to prior contraction."

5. Question: "Is the collection efficiency in July any better, and how do you assess growth this year?"

   • Answer: "The collection efficiency has held steady, not significantly improving or deteriorating. Growth expectations for JLG are subdued owing to these collection challenges."

6. Question: "What is your PCR for the MFI portfolio, and do you expect further provisioning?"

   • Answer: "Our PCR stands at 62% for JLG loans. Given the situation, additional provisioning may be necessary in upcoming quarters as slippages unfold."

7. Question: "How do you see FY '27 in terms of profitability?"

   • Answer: "While FY '26 is uncertain largely due to JLG issues, we anticipate achieving 15% ROE and significant growth in subsequent years based on our diversified asset strategy."

8. Question: "Are recoveries expected in Q2 or Q3?"

   • Answer: "We expect recoveries to gradually begin in Q2, though credit costs will remain elevated until we see a tangible normalization in collections."

This captures the essence of the major inquiries and responses provided, adhering closely to the original figures and sentiments conveyed during the earnings call.