Utkarsh Small Finance Bank Q2 operating profit reaches Rs 85 crore

Utkarsh Small Finance Bank Limited returned to an operating profit of Rs 85 crore in Q2 FY27 ended September 30, 2026, from an operating loss of Rs 3 crore a year earlier, as net interest income rose 24% to Rs 435 crore. However, provisions of Rs 166 crore resulted in a Rs 70 crore loss after tax.

Why did Utkarsh Small Finance Bank’s operating profit recover in Q2 FY27?

Utkarsh Small Finance Bank’s operating profit recovered because net interest income, or NII, increased by Rs 85 crore year on year to Rs 435 crore in Q2 FY27. Total interest earned rose 8% to Rs 909 crore, while interest expense declined 3% to Rs 474 crore, lifting operating income 18% to Rs 528 crore.

The quarterly recovery also extended from Q1 FY27, when operating profit was Rs 64 crore. Operating expenses fell 7% sequentially to Rs 443 crore in Q2 FY27, with personnel cost down 16% to Rs 202 crore, although other operating expenses rose 2% to Rs 241 crore.

For H1 FY27, Utkarsh Small Finance Bank reported operating profit of Rs 149 crore, up 68% from Rs 88 crore in H1 FY26. H1 NII grew 14% to Rs 857 crore, but the bank still recorded a Rs 104 crore loss after tax following Rs 275 crore of provisions.

How did Utkarsh Small Finance Bank’s margins and costs change?

Utkarsh Small Finance Bank’s net interest margin rose to 6.3% in Q2 FY27 from 5.1% in Q2 FY26 and 6.1% in Q1 FY27. Yield on advances increased to 15.9% from 15.0% a year earlier, while the cost of funds declined to 7.5% from 8.0%, despite increasing by 0.1 percentage point from Q1 FY27.

The cost-to-income ratio declined to 83.9% in Q2 FY27 from 100.7% in Q2 FY26 and 88.2% in Q1 FY27. Operating expenses as a percentage of advances fell to 8.9% from 9.4% a year earlier, while operating expenses as a percentage of total assets reduced to 6.2% from 6.5%.

On a half-year basis, Utkarsh Small Finance Bank’s net interest margin was 6.2% in H1 FY27, compared with 5.5% in H1 FY26. Its H1 cost-to-income ratio declined to 86.1% from 91.1%, and operating profit as a percentage of average total assets increased to 1.0% from 0.6%; the presentation says these ratios use monthly average balances.

Why did Utkarsh Small Finance Bank remain loss-making in Q2 FY27?

Utkarsh Small Finance Bank remained loss-making because its Rs 166 crore provision charge exceeded the Rs 85 crore operating profit in Q2 FY27. The result was a Rs 81 crore loss before tax and a Rs 70 crore loss after tax, compared with a Rs 34 crore loss after tax in Q1 FY27.

The provision charge was 64% below Rs 462 crore in Q2 FY26, but it was Rs 57 crore higher than the Rs 109 crore reported in Q1 FY27. Credit cost was 3.3% in Q2 FY27, down from 9.7% a year earlier but up from 2.3% in the preceding quarter.

For H1 FY27, provisions fell 68% to Rs 275 crore from Rs 872 crore in H1 FY26, narrowing the loss after tax to Rs 104 crore from Rs 588 crore. Utkarsh Small Finance Bank said results were affected by market disruptions in the MFI segment, while the presentation does not provide a Q2 FY27 segment-wise split of provisions.

What did other income contribute to Utkarsh Small Finance Bank’s Q2 result?

Utkarsh Small Finance Bank’s other income fell to Rs 93 crore in Q2 FY27 from Rs 119 crore in Q1 FY27, contributing to a 2% sequential decline in operating income to Rs 528 crore. This occurred even as NII increased 3% quarter on quarter to Rs 435 crore.

PSLC income declined to Rs 11 crore in Q2 FY27 from Rs 35 crore in Q1 FY27, while loan processing fees increased to Rs 36 crore from Rs 35 crore. General banking and other income fell to Rs 30 crore from Rs 34 crore, and gain on sale of securities or non-performing asset sales was Rs 6 crore versus Rs 5 crore.

Other income was also 4% below Rs 97 crore in Q2 FY26, while non-interest income as a share of interest income was 10.2%, compared with 11.6% a year earlier and 13.4% in Q1 FY27. Return on average assets was negative 1.0% in Q2 FY27, versus negative 0.5% in Q1 FY27, whereas operating profit as a percentage of average total assets rose to 1.2% from 0.9%.

How did Utkarsh Small Finance Bank’s balance sheet change by September 2026?

Utkarsh Small Finance Bank’s net advances rose 14% year on year to Rs 19,302 crore as of September 30, 2026, and increased 4% from Rs 18,478 crore on June 30, 2026. Deposits increased 7% year on year to Rs 23,869 crore and rose 3% from Rs 23,107 crore in the preceding quarter.

The credit-deposit ratio reached 81% at September 2026, compared with 80% at June 2026 and 75% at September 2025. Retail term deposits grew 12% year on year to Rs 14,172 crore, while current and savings account deposits accounted for 21% of deposits; the Q2 FY27 cost of term deposits was 8.1% and the cost of current and savings deposits was 4.5%.

Capital and reserves were Rs 2,676 crore at September 30, 2026, up 12% year on year but down 3% from Rs 2,745 crore at June 30, 2026. The capital adequacy ratio was 17.05%, compared with 17.44% three months earlier, while Tier-I capital adequacy declined to 12.78% from 15.13%.

Conclusion

Utkarsh Small Finance Bank’s Q2 FY27 result separates a recovery in core operating earnings from the continuing effect of credit charges. NII reached Rs 435 crore, margin rose to 6.3%, and operating profit reached Rs 85 crore, but provisions of Rs 166 crore produced a Rs 70 crore quarterly loss after tax.

The next reported quarter will show whether credit cost, which rose to 3.3% from 2.3% in Q1 FY27, declines again amid the disclosed MFI market disruptions. Investors can also track whether the 81% credit-deposit ratio, 6.3% net interest margin and 17.05% capital adequacy ratio change as advances and deposits continue to grow.