UTKARSHBNK - Utkarsh Small F.

📊 NSE: UTKARSHBNK 🏢 Banks - Private Sector 📅 Last Updated: 12/14/2025 14:48

💰 Financial Performance

Revenue Growth by Segment

The MSME loan book grew 33% YoY to INR 4,164 Cr. Housing loans increased 21% YoY to INR 947 Cr. Commercial Vehicle (CV) and Construction Equipment (CE) financing rose 6% YoY to INR 1,144 Cr. The Business Banking Group (BBG) portfolio grew 32% YoY. Conversely, the overall gross loan book contracted 2.3% YoY due to a sharp decline in the Joint Liability Group (JLG) microfinance portfolio.

Geographic Revenue Split

The microfinance portfolio is highly concentrated in two states: Bihar at 45% and Uttar Pradesh at 28% as of June 30, 2025, totaling 73% of the segment. The bank is actively expanding retail lending in new geographies to diversify this concentration.

Profitability Margins

The bank reported a net loss of INR 239 Cr in Q1 FY2026, a significant decline from a PAT of INR 24 Cr in FY2025 and INR 498 Cr in FY2024. Net Interest Margins (NIM) are under pressure due to a shift toward lower-yielding non-microfinance products and elevated operating expenses. Return on Equity (RoE) target for the next 2-3 years is ~15%.

EBITDA Margin

Operating Profit (PPoP) stood at INR 92 Cr in Q1 FY2026 but turned to a loss of INR 3 Cr in Q2 FY2026. This decline is driven by a compression in lending spreads as the yield on advances dropped from 18.8% in Q2 FY2025 to 15.0% in Q2 FY2026, while the cost of funds remained high at 8.3%.

Capital Expenditure

The bank is in the process of raising equity capital up to INR 750 Cr in the near term to maintain a prudent capitalization profile and absorb stress from deteriorating asset quality. Historical capital plus reserves stood at INR 2,975 Cr as of March 31, 2025.

Credit Rating & Borrowing

ICRA downgraded the long-term rating to [ICRA]A (Negative) from [ICRA]A+ due to deteriorating asset quality. The short-term rating for Certificates of Deposit was reaffirmed at [ICRA]A1+. The cost of funds stood at 8.3% as of Q2 FY2026, up from 8.2% YoY.

⚙️ Operational Drivers

Raw Materials

For banking operations, 'raw materials' are deposits and borrowings. Deposits reached INR 21,566 Cr (March 2025), with a cost of funds of 8.3%. Retail deposits (RTD) grew 33.5% YoY.

Import Sources

Not applicable for banking operations; funding is sourced domestically from retail and institutional depositors across 27 States and Union Territories.

Key Suppliers

Not applicable; the bank sources funds from over 4.9 million customers and institutional lenders.

Capacity Expansion

Current network includes 1,092 banking outlets. Approximately 37% of General Banking (GB) branches are less than 2 years old and are considered underutilized, representing significant latent capacity for deposit mobilization.

Raw Material Costs

Interest expense on deposits and borrowings is the primary cost. Deposits grew 23.4% YoY to INR 21,566 Cr. The bank is focusing on granular retail deposits to build a stable and lower-cost funding source.

Manufacturing Efficiency

Operational efficiency is measured by the Cost-to-Income ratio, which increased to 61.6% as of March 31, 2025, compared to 56.4% in the previous year, reflecting heavy investments in infrastructure and technology.

Logistics & Distribution

Distribution is managed through 1,092 outlets. The bank is splitting larger micro-banking branches to improve oversight and field-level discipline.

📈 Strategic Growth

Expected Growth Rate

25-30%

Growth Strategy

The bank aims to achieve this CAGR by pivoting toward secured lending (target >50% of book), graduating ~12 Lac eligible JLG customers to Micro Business Banking Loans (MBBL), and scaling 'Star Products' like Micro LAP which offers 18% yields. It is also implementing the 'Utkarsh 2.0' technology project to improve sourcing and monitoring efficiency.

Products & Services

Joint Liability Group (JLG) loans, Micro Business Banking Loans (MBBL), Micro Loan Against Property (LAP), MSME Retail Assets, Housing Loans, Commercial Vehicle (CV) and Construction Equipment (CE) financing, and various Savings/Current account options.

Brand Portfolio

Utkarsh Small Finance Bank

New Products/Services

Micro LAP and MBBL are the primary new growth drivers. Micro LAP yields are ~18%, significantly higher than standard MSME yields of 13.4%.

Market Expansion

The bank is targeting the top 100 locations for General Banking branch expansion to facilitate deposit mobilization and is expanding retail lending into new geographies to reduce UP/Bihar concentration.

Market Share & Ranking

The bank is described as having one of the largest banking networks among Small Finance Banks (SFBs) in India.

Strategic Alliances

The bank utilizes Business Correspondents (BC) for JLG lending, which currently accounts for a small portion of the gross loan book.

🌍 External Factors

Industry Trends

The MFI industry is currently facing 'tightened guardrails' and regulatory transitions, leading to a temporary slowdown in disbursements and higher credit costs. The industry is shifting toward secured retail assets to mitigate unsecured lending risks.

Competitive Landscape

Competes with other SFBs and NBFC-MFIs. As a bank, Utkarsh has a competitive advantage in funding access compared to smaller NBFC players during periods of market stress.

Competitive Moat

The bank's moat is built on its deep microfinance expertise and rural reach established since 2009. This legacy provides a 'first-mover advantage' and strong brand recall in underpenetrated regions, though this is currently tested by high credit costs.

Macro Economic Sensitivity

Highly sensitive to rural economic health and inflation in North India, particularly Bihar and UP, which affects the repayment capacity of JLG borrowers.

Consumer Behavior

There is a visible trend of microfinance customers 'graduating' from group-based JLG loans to individual business loans (MBBL).

Geopolitical Risks

Minimal direct impact, but regional political instability in key operating states could disrupt collection activities.

⚖️ Regulatory & Governance

Industry Regulations

Subject to RBI regulations for Small Finance Banks, including a 15% CRAR requirement and specific MFI sector 'guardrails' regarding borrower indebtedness and selection criteria.

⚠️ Risk Analysis

Key Uncertainties

The primary uncertainty is the 'seasoning' of the newer non-microfinance portfolio (MSME, Housing, CV/CE), which has scaled rapidly in 2-3 years and may see rising GNPA (already increased from 1.2% to 3.1% in one year).