Capital Small Finance Bank: Steady Growth and Strategic Expansion in H1 FY26

Capital Small Finance Bank Limited has announced its un-audited financial results for the quarter and half-year ended September 30, 2025 (Q2 & H1 FY26), showcasing a period of robust growth, stable asset quality, and strategic expansion. The bank, which prides itself on a legacy of over two decades, continues to focus on the middle-income segment, delivering consistent performance despite a dynamic economic environment.

For H1 FY26, the bank reported a gross advances growth of 18% year-on-year, reaching INR 7,907 crore. This growth was well-diversified across key segments, including agriculture, mortgages, and MSME, with a significant 99.2% of the loan book being secured. The average ticket size for the portfolio stood at INR 17.1 lakhs, reflecting a continued emphasis on granular and well-secured lending. Deposits also saw strong momentum, growing 20% year-on-year to INR 9,317 crore, underscoring the strength of its retail deposit franchise and a healthy CASA ratio of 33.9%. Profit after tax for H1 FY26 increased by 6% year-on-year to INR 67 crore, with the Return on Assets (RoA) sequentially improving to 1.3% in Q2 FY26 from 1.2% in Q1 FY26.

Asset Quality and Risk Management

One of the standout aspects of Capital Small Finance Bank's performance is its industry-leading asset quality. Despite challenging operating conditions, including flood situations in northern parts of the country, the bank's asset quality remained stable. Gross Non-Performing Assets (GNPA) stood at 2.70% and Net Non-Performing Assets (NNPA) at 1.38% as of September 30, 2025. The bank reported negligible write-offs during the quarter, a testament to its strong underwriting capabilities and proactive collection and recovery efforts. The management highlighted its 'Primary Banker' approach, which provides better visibility of borrower cash flows, contributing to low credit costs. The SMA 1 and 2 figures also showed improvement, indicating effective credit risk management.

Strategic Initiatives and Future Outlook

The bank has outlined an ambitious 'Vision 2029' to double its advance book to over INR 16,000 crore and expand its branch network by 1.5x to over 300 branches. This expansion will include deepening its presence in contiguous states like Uttar Pradesh and Gujarat, with a target of 30%+ branches outside Punjab. A key strategic initiative is the adoption of a partnership-led lending model with selected NBFC partners, focusing on high-yielding secured lending opportunities in new geographies like Rajasthan and Madhya Pradesh, while maintaining strict underwriting control and FLDG cover for risk mitigation.

Management expects Net Interest Margin (NIM) to expand in H2 FY26, improving to around 4.1% by Q4 FY25 levels and further to 4.2%-4.3% in the coming years, driven by the decline in deposit costs and an accelerating credit-to-deposit ratio. The bank is also focused on improving operational efficiency, with the cost-to-income ratio at 61.7% in Q2 FY26, and aims for a RoA of 1.6%++ and RoE of 15.0%++ by FY29. The Capital Adequacy Ratio (CRAR) remains strong at 24.2%, providing ample headroom for future growth.

Conclusion

Capital Small Finance Bank's H1 FY26 performance reflects a period of disciplined execution and strategic clarity. The bank's focus on a secured, diversified loan book, a strong retail liability franchise, and robust risk management practices has enabled it to deliver consistent profitability and maintain healthy asset quality. With clear growth targets for advances, branch network expansion, and profitability metrics, the bank is well-positioned to capitalize on India's economic growth, particularly in semi-urban and rural areas. The management's proactive approach to market dynamics and strategic initiatives like partnership-led lending underscore its commitment to sustained value creation for stakeholders, moving 'From Strong to Stronger'.