Capital Small Finance Bank: Navigating Growth with Prudence in Q3 FY26

Capital Small Finance Bank Limited has released its financial results for the third quarter and nine months ended December 31, 2025, showcasing a period of disciplined execution and steady business momentum. The bank, known for its focus on the middle-income segment, reported robust growth in advances and deposits, alongside stable asset quality, despite evolving market dynamics. This quarter's performance underscores the bank's resilience and strategic clarity in a competitive environment.

For Q3 FY26, the bank's gross advances surged to INR 8,164 crores, marking a significant 19.8% year-on-year growth and a 3.3% quarter-on-quarter increase. This growth is well aligned with the bank's stated guidance of over 20% advance growth for FY26. Total deposits also demonstrated strong traction, reaching INR 9,931 crores, an 18.5% year-on-year increase. Profit After Tax (PAT), excluding a one-time exceptional charge, stood at INR 38 crores, reflecting a 12% year-on-year growth. The bank's Net Interest Income (NII) grew by 11% year-on-year to INR 119 crores, complemented by a substantial 46% year-on-year growth in Non-Interest Income to INR 27 crores.

Diversified Portfolio and Asset Quality Resilience

The bank's growth is predominantly driven by its secured lending products, with approximately 99% of the loan book being collateralized by immovable properties or bank Fixed Deposits. This emphasis on secured lending underpins the quality and resilience of its credit portfolio. The average ticket size of the portfolio stood at INR 17.8 lakhs, reflecting a granular, retail-focused approach.

Fresh disbursements during the quarter were robust, totaling INR 919 crores, a 25% year-on-year increase, fueled by festive demand and strong rural cash flows. For the nine months ended December 31, 2025, total disbursements reached INR 2,590 crores, growing 24%.

The growth drivers for the quarter included the MSME/business segment, which grew 10% quarter-on-quarter and 42% year-on-year, and Loans Against Property (LAP), which saw a 3% quarter-on-quarter and 18% year-on-year increase. From a portfolio mix perspective, business loans increased to 25% (from 23% in Q2 FY26), while the agriculture segment moderated marginally to 28%. Mortgage and corporate segments remained stable at 26% and 14%, respectively.

Geographically, growth outside Punjab continued to outpace the overall bank growth, with the advanced portfolio from these regions constituting 24% as of December 31, 2025, up from 21% in Q3 FY25. The yield on advances remained stable at 11% during the quarter.

Asset quality showed marginal improvement, with Gross NPA at 2.68% and Net NPA at 1.35%, sequentially improving by 2 and 3 basis points, respectively. The slippage ratio improved to 1.21%, and credit cost remained stable at 0.2%. The bank reported negligible write-offs and zero NPA sell-offs, highlighting its prudent credit risk management.

Liability Management and Profitability Outlook

On the liability front, the bank's total deposit base crossed INR 9,931 crores, registering a strong 18.5% year-on-year and 7% quarter-on-quarter growth. The CASA ratio improved to 35.9% (from 33.9% in Q2 FY26), reflecting the growing strength of its retail franchise, where retail deposits constitute over 90% of the total deposits. The cost of deposits began to trend downward, declining to 5.86% from 5.92% in Q2 FY26, with further benefits expected from term deposit repricing in the coming quarters. The average CD ratio stood at 80.4%.

Profitability metrics remained strong. Pre-Provision Operating Profit (PPOP) rose to INR 57 crores (excluding exceptional items), marking a 20% year-on-year growth. The cost-to-income ratio stood at 60.9% (excluding exceptional items), reflecting sustained focus on cost optimization and operational discipline. Return on Assets (RoA) remained stable at 1.3% (excluding exceptional items).

The bank's capital adequacy ratio remained strong at 21.6%, with an average Liquidity Coverage Ratio (LCR) of 215.8%, providing ample headroom for future growth. As of December 2025, the branch network stood at 203 branches across 5 states and 2 union territories.

Strategic Vision and Future Outlook

Capital Small Finance Bank is committed to its Vision 2029, aiming for an advance book of over INR 16,000 crores and a branch network of over 300. The bank expects NIM expansion supported by continued moderation in deposit costs and an improving CD ratio. It also intends to improve operating efficiencies and achieve a RoA of 1.6% plus and RoE of 15% plus by FY29.

The bank's strategy continues to focus on secure, profitable growth, productivity improvement at the branch level, and measured geographic expansion into attractive semi-urban markets. The management remains deeply committed to creating long-term value for stakeholders through responsible banking, customer-centric innovations, and sustainable financial inclusion.

Segmental Loan Portfolio (Q3 FY26)

Capital Small Finance Bank's Q3 FY26 performance demonstrates its ability to maintain robust growth while upholding strong asset quality and efficient liability management. The strategic initiatives and clear vision for 2029 position the bank for continued expansion and enhanced profitability, reinforcing investor confidence in its long-term trajectory.