Utkarsh SFB Q2 results: Higher provisions, loan stress hurt earnings; asset quality weakens

Utkarsh Small Finance Bank reported a sharp loss for the September quarter, hurt by weaker income, elevated provisions and rising stress in parts of its loan book, even as the lender signalled a strategic shift toward secured lending.

The bank posted a net loss of ₹348 crore for the quarter ended Sept 30, compared with a profit of ₹51 crore a year earlier.
Net interest income fell 37.2% to ₹350.5 crore, down from ₹558 crore last year, as the bank tightened underwriting norms and moderated disbursements in its unsecured micro-banking portfolio.

Asset quality weakened, with gross NPA rising to 12.42% from 11.42% in the previous quarter, while net NPA remained flat at 5%. The lender said it continued to strengthen collections, including expanding its recovery workforce and splitting larger micro-banking branches to improve oversight.

The bank’s press release said the September quarter marked a deliberate move from “quantity to quality,” with a significant increase in secured lending. Secured loans accounted for 47% of the portfolio as of September, up from 38% a year earlier, while the overall loan book contracted by 2.3% to ₹18,655 crore.

Deposits, however, grew 10% year-on-year to ₹21,447 crore, driven by strong retail term deposit growth of 28.8%. CASA deposits rose 17.4%, pushing the CASA ratio up to 20.9%.

The bank’s credit–deposit ratio improved to 78.8%, easing from 93% a year earlier, reflecting an effort to build a more stable liability base.

Utkarsh SFB also highlighted ongoing investments in technology under its “Utkarsh 2.0” transformation programme and a stronger capital position following a ₹950 crore rights issue in November to augment Tier-1 capital.

CEO Govind Singh said the quarter was about “building resilience,” citing yield optimisation in secured products such as housing and MSME loans and tighter credit norms in micro-banking to safeguard long-term asset quality.

The lender reported a pre-provision operating loss of ₹3 crore in Q2 versus a profit of ₹276 crore a year earlier. The bank remains cautious for FY26, calling it a year of recalibration, with expectations of rebuilding momentum in FY27 and FY28.Read about our editorial guidelines and ethics policy