Utkarsh shifts micro-banking mix as JLG lending slows further

Utkarsh Small Finance Bank slowed Joint Liability Group lending in Q2 FY27, reducing the portfolio to Rs 4,747 crore at September 2026, while Micro-Banking Business Loans reached Rs 2,586 crore and collection efficiency improved to 93% from 80% a year earlier. The shift followed collection and asset-quality concerns in JLG lending.

Why is Utkarsh slowing JLG lending?

Utkarsh slowed Joint Liability Group, or JLG, disbursements because of collection-efficiency weakness, asset-quality concerns and borrower-level over-leveraging concerns. JLG disbursements were Rs 818 crore in Q2 FY27, down from Rs 1,094 crore in Q1 FY27 and Rs 1,310 crore in Q4 FY26. Utkarsh said its focus shifted towards collections during Q2 FY27, and the JLG portfolio declined from Rs 5,063 crore at June 2026 to Rs 4,747 crore at September 2026.

The longer-term portfolio mix also shows reduced dependence on JLG loans. JLG represented 90% of the portfolio in March 2020 and 26% in September 2026, while non-JLG lending rose from 10% to 74% over the same period. The secured share of the overall portfolio increased from 8% to 52%, exceeding the 48% unsecured share at September 2026.

Utkarsh reported more than 13 lakh JLG customers in Q2 FY27, with an average disbursement ticket of about Rs 58,000 and an average portfolio ticket of about Rs 35,000. Bihar accounted for 44% of the JLG portfolio and Uttar Pradesh for 27%, or a combined 71%. The JLG franchise operates across 13 states and Union Territories and uses customised Unified Payments Interface, or UPI, Quick Response codes and Bharat Bill Payment System, or BBPS, channels for digital collections.

How fast is Utkarsh scaling Micro-Banking Business Loans?

Utkarsh reported 146% year-on-year growth in its Micro-Banking Business Loan, or MBBL, book and 114% year-on-year growth in Q2 FY27 MBBL disbursements. The combined micro-banking presentation shows MBBL outstanding rose from Rs 1,052 crore at September 2025 to Rs 2,586 crore at September 2026. MBBL represented 35% of the combined micro-banking book at September 2026, compared with 65% for JLG loans.

MBBL disbursements reached Rs 652 crore in Q2 FY27, versus Rs 305 crore in Q2 FY26 and Rs 508 crore in Q1 FY27. Its average disbursement ticket was about Rs 98,000, compared with about Rs 58,000 for JLG, while its average portfolio ticket was about Rs 75,000, compared with about Rs 35,000 for JLG. Utkarsh reported about 3.5 lakh MBBL customers and described MBBL penetration as about 20%.

The dedicated MBBL page reports a Q2 FY27 portfolio of Rs 2,574 crore, compared with Rs 2,586 crore on the combined micro-banking page. The combined page says it includes Rs 12 crore in PM SVANidhi, PM Vishwakarma and CM YUVA loans, accounting for the difference. MBBL collections are largely made through direct account debit, while Utkarsh lists UPI QR codes and BBPS among the collection channels for JLG lending.

Are Utkarsh's micro-banking collections recovering?

Utkarsh's micro-banking collection efficiency, excluding prepayments, rose to 93% in Q2 FY27 from 80% in Q2 FY26. It also improved from 91% in Q1 FY27, after reaching 87% in Q4 FY26 and 82% in Q3 FY26. X-Bucket collection efficiency was 99.53% in Q2 FY27.

Utkarsh said it expanded its collection force, allocated collection staff by overdue bucket and retained the collection force for legacy non-performing asset, or NPA, and write-off recoveries. It also said the post-guardrail book was showing superior performance, although the presentation did not provide a separate collection or delinquency figure for that book.

Early-stage stress fell substantially from September 2025 but increased slightly in the latest quarter. Total special mention account, or SMA, levels declined from 4.9% at September 2025 to 1.7% at September 2026, but rose from 1.2% at June 2026. At September 2026, SMA 0 was 0.8%, SMA 1 was 0.5% and SMA 2 was 0.4%.

What has changed in Utkarsh's micro-banking asset quality?

Utkarsh's micro-banking NPA ratio declined to 9.8% at September 2026 from 23.0% a year earlier and 10.1% at June 2026. Its provision coverage ratio, or PCR, was 66.5% at September 2026, up from 60.5% at June 2026 but below 68.6% at December 2025.

At the bank level, gross NPAs declined from Rs 2,276 crore at September 2025 to Rs 1,189 crore at September 2026, while net NPAs fell from Rs 848 crore to Rs 529 crore. Gross NPA additions were Rs 239 crore in Q2 FY27, compared with Rs 195 crore in Q1 FY27. Q2 FY27 reductions included Rs 65 crore of upgradations and recoveries, Rs 98 crore of write-offs and Rs 51 crore of asset reconstruction company sales.

The bank-level gross NPA balance rose from Rs 1,163 crore at June 2026 to Rs 1,189 crore at September 2026, despite the reduction measures. At September 2026, gross NPA and net NPA ratios were 5.9% and 2.7%, respectively, compared with 12.2% and 4.9% at September 2025. Bank-level SMA 1 and SMA 2 combined stood at 4.0% at September 2026, up from 3.6% at June 2026.

Conclusion

Utkarsh is changing the composition of its micro-banking business: the JLG portfolio declined by Rs 316 crore in Q2 FY27 as disbursements fell to Rs 818 crore, while the combined MBBL portfolio grew by Rs 327 crore. MBBL has larger reported ticket sizes and reached a 35% share of the combined micro-banking portfolio, but JLG remained the larger Rs 4,747 crore book with more than 13 lakh customers.

The disclosed indicators to watch are whether collection efficiency rises from 93% and total SMA falls from 1.7% after its Q2 FY27 increase from 1.2%. Utkarsh said it will retain its expanded collection force for legacy NPA and write-off recoveries. Management also cited about 20% MBBL penetration and the large JLG customer base as potential scope for MBBL growth, with 88% of micro-banking branches in rural and semi-urban locations.