Jana Small Finance Bank: Navigating Growth with Strategic De-risking in Q2 FY26

Jana Small Finance Bank has demonstrated a robust performance in the second quarter of fiscal year 2026, showcasing a strategic pivot towards a more secured and de-risked asset portfolio alongside impressive deposit growth. The bank's Gross Loan Portfolio (GLP) has successfully crossed the significant ₹30,000 crore milestone, reaching ₹31,655 crore, while total deposits surged to ₹32,532 crore. This quarter's results reflect a concerted effort by management to strengthen the balance sheet and enhance operational efficiencies, even amidst challenges in certain lending segments.

The bank's financial health is underscored by a Profit After Tax (PAT) of ₹75 crore for Q2 FY26, contributing to a half-year PAT of ₹177 crore. This was achieved despite accelerated provisioning of ₹222 crore for H1 FY26, which aimed to maintain asset quality metrics below regulatory thresholds. The Net Interest Income (NII) for Q2 FY26 stood at ₹618 crore, with an operating margin of ₹279 crore. These figures highlight the bank's ability to generate healthy profits while proactively managing potential risks.

Strategic Shift Towards Secured Lending and Guarantee Programs

A cornerstone of Jana Small Finance Bank's strategy is the aggressive shift towards a secured asset base and the implementation of guarantee programs for its unsecured portfolio. The secured book now constitutes 72.5% of the total advances, a significant increase from 64.6% in H1 FY25. This strategic reorientation aims to mitigate credit risk and ensure long-term stability. The bank has set an ambitious target to have 95% of its portfolio either secured or covered under a guarantee program by March 2027, with secured assets reaching 80% and unsecured assets under guarantee at approximately 15%.

This guarantee strategy, particularly through schemes like CGTMSE and CGFMU, is expected to yield substantial benefits. While the bank incurs a premium cost for these guarantees, the management anticipates a significant reduction in credit costs in the coming financial years. This is projected to improve the Return on Assets (RoA) by 50-70 basis points once claim recoveries begin in FY26-27. The bank's focus on maintaining strong credit quality remains paramount, with a commitment to tight credit norms even for guaranteed portfolios.

Robust Deposit Growth and Digital Transformation

Jana Small Finance Bank has demonstrated exceptional performance in deposit mobilization, a critical aspect of funding growth. Total deposits grew by an impressive 31% year-on-year and 11% quarter-on-quarter, reaching ₹32,532 crore. The Current Account Savings Account (CASA) segment also showed strong momentum, with a 20% year-on-year and 14% quarter-on-quarter growth, bringing CASA balances to ₹5,960 crore. Notably, the bank has managed to reduce its cost of deposits to 7.88% for Q2 FY26, indicating efficient liability management and a favorable funding mix.

Digital transformation continues to be a key enabler for the bank. Jana Small Finance Bank boasts a high digital uptake, with 98% of banking transactions being digital and 99% of loans processed digitally. The sales force extensively uses TAB/Mobile for operations, enhancing efficiency. The bank has installed over 21,414 QR Codes across merchants and reported an 80% year-on-year growth in UPI in-app transactions value and 27% year-on-year growth in NACH transactions. Furthermore, 76% of customers were carded during Q2 FY26, reflecting strong digital adoption among its customer base.

Outlook and Management Commentary

Looking ahead, Jana Small Finance Bank's management has provided clear guidance for FY26, projecting a GLP growth of ~20% and deposit growth of ~18-20%. While PAT growth is moderated to ~0-2% due to elevated MFI challenges, the bank aims for an RoA of 1.1%-1.5% and an RoE of 10%-15%. The recent completion of a ₹250 crore Tier 2 capital raise, which improved the Capital Adequacy Ratio (CAR) by approximately 1.25% to 20.7%, further strengthens its financial position.

The bank is actively launching new products, including Used Car Loans and an upcoming Credit Line on UPI, to diversify its offerings and deepen customer engagement. Management acknowledges the challenges in the MFI segment but remains committed to a strategic shift towards a more secured and guaranteed portfolio, which is expected to stabilize credit costs and improve profitability in the long run. Jana Small Finance Bank's Q2 FY26 performance demonstrates a disciplined approach to growth, focusing on asset quality, liability management, and digital innovation to build a sustainable and resilient financial institution.