Ujjivan Small Finance Bank: Building Momentum with Strong Q2 FY26 Performance

Ujjivan Small Finance Bank has delivered a robust performance in the second quarter of the financial year 2026, showcasing significant growth across key financial and operational metrics. The bank's strategic focus on diversifying its asset base, augmenting its deposit franchise, and enhancing asset quality has started yielding positive results, positioning it for sustained growth in the coming quarters. The management highlighted a well-calibrated growth strategy that absorbed excess liquidity, leading to an improved CD ratio and a strong financial footing.

For Q2 FY26, Ujjivan SFB reported a total income of INR 1,939 crore, marking a 6.5% year-on-year growth. The net profit for the period stood at INR 122 crore, reflecting an 18.4% quarter-on-quarter increase, despite a 47.6% year-on-year decline primarily due to higher provisions in the previous year. The pre-provision operating profit (PPoP) grew 9.7% quarter-on-quarter to INR 395 crore, reversing a three-quarter trend. Interest earned, the primary revenue driver, was INR 1,682 crore, up 4.3% year-on-year, while other income contributed INR 256 crore, growing 23.7% year-on-year.

Strategic Diversification and Asset Quality Improvements

The bank's strategic shift towards a more diversified and secured loan book is a key highlight. The gross loan book expanded by 14% year-on-year and 3.9% quarter-on-quarter to INR 34,588 crore. Notably, the secured book now constitutes 47% of the total loan book, a significant increase from 35% in Q2 FY25, driven by robust growth in affordable housing, micro mortgages, MSME, gold loans, vehicle finance, and agri loans. Disbursements reached an all-time high of INR 7,932 crore, growing 48% year-on-year and 21% quarter-on-quarter, indicating strong underlying demand and execution.

Asset quality has shown marked improvement, with slippages dropping to INR 278 crore, a sharp reduction from previous quarters. The SMA book, as of September '25, is below 2%, the lowest level since Q1 FY25, primarily due to reduced stress in the micro-banking segment. The bank maintained a Provision Coverage Ratio (PCR) of 73%, with INR 31 crore of accelerated provision in Q2 FY26. Management anticipates a meaningful decline in credit costs in the second half of the financial year, supported by proactive risk management and a tighter control over the lower ticket secured segment.

Strengthening the Liability Franchise and Digital Edge

Ujjivan SFB's efforts to strengthen its liability franchise are clearly visible. Total deposits grew to INR 39,211 crore, with CASA deposits reaching INR 10,783 crore, crossing the INR 10,000 crore mark for the first time. The CASA percentage reached 27.5%, up from 22.1% year-on-year. The cost of funds dropped to 7.3% from 7.6% in Q1 FY26, benefiting from proactive rate resets in both term deposits and savings accounts. The bank expects further cost of funds benefits in the coming quarters, contributing to NIM stabilization around 7.9% for FY26.

Digital initiatives continue to be a cornerstone of the bank's strategy. The bank is rolling out MF distribution, ASBA, and forex services to drive CASA mobilization. It has implemented digital underwriting for MSME loans, leveraging analytics for enhanced productivity, cross-selling, and early warning systems. The comprehensive suite of digital channels, including mobile and internet banking, WhatsApp banking, and a robust Loan Originating System (LOS), underscores Ujjivan's commitment to customer-centricity and operational efficiency. These technological advancements are crucial for scaling operations and maintaining asset quality.

Outlook and Future Trajectory

Ujjivan Small Finance Bank is focused on delivering its FY26 guidance, which includes ~20% advances growth, ~35% secured book growth, and maintaining a CD ratio of ~88%. The bank aims for a CASA percentage of ~27%, a cost to income ratio of ~67%, and a credit cost of 2.3-2.4% of GLB. With a targeted RoE of 10-12% and RoA of 1.2-1.4%, Ujjivan is poised for sustainable and profitable growth. The management's disciplined approach to asset diversification, liability management, and digital transformation reinforces investor confidence in its long-term vision.