CAPITALSFB - Capital Small

📊 NSE: CAPITALSFB 🏢 Banks - Private Sector 📅 Last Updated: 12/13/2025 20:42

💰 Financial Performance

Revenue Growth by Segment

Gross advances grew 17% YoY to INR 7,184 Cr in FY25. MSME and business segments are primary drivers, growing 33% YoY and 11% QoQ as of Q2 FY26. Agriculture remains the largest segment at 32% of advances, while Mortgages/Housing loans account for 24.07% of AUM.

Geographic Revenue Split

High geographic concentration with Punjab accounting for 79% of the total loan portfolio and 92% of deposits as of December 2024. However, out-of-Punjab advances are growing at twice the bank's overall rate, constituting 23% of the portfolio by September 2025.

Profitability Margins

Net Interest Margin (NIM) improved to 4.2% in FY25 from 3.9% in FY24. Return on Assets (RoA) was 1.27% in FY25 and improved to 1.3% in Q2 FY26. Return on Equity (RoE) stood at 10.4% in FY25, down from 14.6% in FY24 due to the capital infusion from the IPO.

EBITDA Margin

Operating profit before provisions grew at a CAGR of 33% from FY19 (INR 34.28 Cr) to FY25 (INR 187.07 Cr). Cost-to-income ratio improved significantly from 70.75% in FY21 to 62.30% in FY25, reflecting enhanced operational efficiency.

Capital Expenditure

The bank raised INR 523 Cr through an IPO in February 2024 (INR 450 Cr fresh issue). Planned expansion includes increasing the branch network by 1.5x from 199 branches in Q2 FY26 to over 300 branches by FY29 to support a 2x growth in the total business book.

Credit Rating & Borrowing

CARE Ratings reaffirmed ratings based on a strong liability franchise and CAR of 25.82% (Dec 2024). Cost of deposits increased to 5.9% in FY25 from 5.6% in FY24 due to industry-wide interest rate hikes and a shift toward term deposits.

⚙️ Operational Drivers

Raw Materials

The primary 'raw material' is Cost of Funds, specifically Deposits (CASA and Term Deposits) representing 100% of the liability-side sourcing cost. CASA ratio stands at 36.9% as of March 2025.

Import Sources

Sourced domestically across 5 states and 2 union territories, with 92% of deposits originating from Punjab as of late 2024.

Key Suppliers

Not applicable as a financial institution; however, the bank relies on a granular retail deposit base rather than bulk institutional suppliers, with 74% of deposits coming from Semi-Urban and Rural (SURU) branches.

Capacity Expansion

Current branch network is 199 branches as of September 2025. The bank plans to expand to 300+ branches by FY29, representing a 50% increase in physical infrastructure to capture more market share.

Raw Material Costs

Cost of deposits is 5.9% of average deposit value. The bank manages this through a high CASA ratio (36.9%) and a focus on retail deposits to maintain one of the lowest cost of funds among Small Finance Banks.

Manufacturing Efficiency

Credit-to-Deposit (CD) ratio is being optimized in favor of asset creation. The bank maintains a high Liquidity Coverage Ratio (LCR) of 234% as of Q2 FY26, well above regulatory requirements.

Logistics & Distribution

Distribution is handled via 199 branches and digital channels. 77% of branches are located in SURU markets to target the underserved middle-income segment.

📈 Strategic Growth

Expected Growth Rate

15-18%

Growth Strategy

The bank aims to double its advance book to INR 16,000+ Cr by FY29 by expanding its branch network to 300+, diversifying geographically outside Punjab (where growth is already 2x the bank average), and focusing on secured lending (99% collateralized) in MSME and Mortgage segments.

Products & Services

Agriculture loans, MSME/Business loans, Mortgages (Housing and LAP), Vehicle loans, and retail banking services including Savings and Current accounts.

Brand Portfolio

Capital Small Finance Bank (Capital SFB).

New Products/Services

Increased focus on secured asset classes like Loans Against Property (LAP) and Housing Finance to diversify away from microfinance-related risks. New digital banking initiatives are expected to enhance fee income through cross-selling.

Market Expansion

Expansion into newer operating geographies outside Punjab, which currently constitutes 23% of the portfolio but is growing at twice the bank's baseline rate.

Market Share & Ranking

India's first Small Finance Bank (transitioned from Local Area Bank in 2016); holds a leading position in the SURU markets of Punjab.

Strategic Alliances

The bank is exploring strategic opportunities, including potential mergers or amalgamations, to reduce concentration risk and scale operations.

🌍 External Factors

Industry Trends

The SFB industry is shifting toward secured lending and universal bank transitions. Industry credit growth is forecasted at 14-16% for FY26, driven by financial inclusion and government initiatives like PMJDY.

Competitive Landscape

Competes with PSUs, Private SCBs, other SFBs, NBFCs, and Fintech firms, leading to pressure on market share and NIMs.

Competitive Moat

The moat is built on a 'strong liability franchise' with a high CASA ratio (36.9%) and a 99% secured loan book. This provides a lower cost of funds and more stable asset quality compared to microfinance-heavy SFB peers.

Macro Economic Sensitivity

Highly sensitive to India's GDP growth (7.8% in Q1 FY26) and rural consumption patterns, as 77% of branches are in rural/semi-urban areas.

Consumer Behavior

Shift in consumer preference toward higher-yielding term deposits is putting pressure on CASA ratios across the banking industry.

Geopolitical Risks

Minimal direct exposure, but sensitive to national monetary policy changes by the RBI that affect interest rate cycles.

⚖️ Regulatory & Governance

Industry Regulations

Subject to RBI SFB prudential norms, including a minimum CAR of 15% (Bank is at 24.2%) and Liquidity Coverage Ratio (LCR) requirements. Eligibility for universal banking requires a 5-year satisfactory track record.

Environmental Compliance

The bank follows a CSR policy with an allocation of INR 2.38 Cr in FY25 toward education, health, and social welfare.

Taxation Policy Impact

Standard corporate tax rates for banking institutions apply; Profit Before Tax was INR 175.13 Cr vs Profit After Tax of INR 131.65 Cr in FY25.

Legal Contingencies

Not disclosed in available documents; the bank emphasizes a strong governance framework and proactive risk assessment to minimize legal disputes.

⚠️ Risk Analysis

Key Uncertainties

Potential stress in the microfinance sector and rising interest rates could impact profitability by 5-10% if asset quality deteriorates or margins compress.