Jana Small Finance Bank remains optimistic about the outlook for its microfinance (MFI) portfolio. Ajay Kanwal, MD & CEO of the bank, noted that while MFI stress persists in some geographical pockets, notably in Karnataka, recovery is underway.
Kanwal added that collection efficiency in the MFI segment currently stands at 98.6%, signalling increased stability. “People responsible for giving most sales are feeling comfortable doing sales, which is why my book is growing. That is the most positive sign,” he said, expressing confidence that the fiscal year 2025-26 (FY26) would be better for the MFI segment than the fiscal year 2024-25 (FY25).
“Hard work continues, at least for the first half. But the good news is, in quarter four, our microfinance book has grown by 0.2%,” he said.
The bank posted a net profit of ₹123.4 crore for the January–March 2025 quarter, compared to ₹321.6 crore in the same period last year.
Jana Small Finance Bank, with a market capitalisation of ₹5,247.57 crore, has seen its shares decline by over 16% in the past year.
Here’s the edited excerpts of the interview:
Q: If you could give us some indication of how you expect the fiscal year 2025-26 (FY26) to pan out in terms of growth, in terms of margins, and even the asset quality, what do you anticipate?
A: I would like to start with a request that you please take away the deferred tax asset (DTA) out of the year-on-year (YoY) performance, because the DTA doesn’t tell you what the institution is performing. So, it tends to mislead folks, which is what you are showing on the screen, which is a fall of 61%, and DTA goes with what we have been carrying from the past.
I will give you a simple number. Between the two quarters, DTA in quarter four last year was ₹155 crore, so it was adding to the profits by ₹155 crore. DTA this year is just ₹4 crore for the quarter. So, the ₹151 crore difference in DTA between quarter four last year and quarter four this year. If you just add that back, the profit is positive. So that is the first most important thing.
The second most important thing – everybody who’s following is that we have made provisions. The reason we have made provisions is purely because we would like to keep our net non-performing assets (NPA) below 1% and gross NPA below 3%, which allows us to apply for the universal bank. The criteria for a universal bank application is two years in a row, we have to be below 3% and 1%. And to meet that criteria, we had to accelerate some of our provisioning, which is also what we have done both in quarter four and for the year.
Q: What do you expect in terms of growth and even in terms of net interest margins (NIMs), because we have seen a sequential decline and a YoY decline there?
A: Growth this year was 19% on the asset side. We have guided that we will do 20% on the asset side next year. But this year, our growth in secured assets was 40% YoY. We had a decline in the unsecured book, which was largely MFIs, by minus 11%.
We will do similar this year. We don’t expect a decline in unsecured assets anymore because the worst is over. But we do expect a very healthy 30% plus growth in secured, so we will grow assets by 20%.
On the deposit side, this year we have grown 29% – current account saving account (CASA) at 18%, retail at 19%, and the rest is bulk growth. So we have had a very strong deposit growth this year. Our surplus cash is about ₹2,800 crore on our books as of March 31. So yes, we should see very strong asset and deposit growth this year.
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Focus areas will be secured assets, CASA, and retail deposits.
On net interest margin, we have declined to 7.7%, and like I mentioned, we have had a negative growth on our unsecured book, which is largely MFI, which has caused the decline. So if the MFI book doesn’t decline this year – which it should not, or grows even slightly positive, NIM will improve.
The cost of the deposit will get better this year. There was stress in MFI last year, so interest in suspense should be less this year. So, if you take a combination of all three, our NIMs should get better this year.
Also, I must add, every passing year, our secured book is growing. So the number is: March 2024, we were 60% secured. By March 2025, we are 70% secured. So yes, as we grow more and more secured, NIMs will start compressing. But the compression this year is largely due to negative MFI growth, a lot of which should pull back during this year.
Q: So, 80% secured by the fiscal year 2025-26?
A: Almost, I wish. But the balance sheet now is roughly about ₹30,000 crore, and every percentage point is difficult to move. Last year was a bit more sweeter because of the minus 11% growth on microfinance, which is not what we normally do. We normally grow by 1% or 2%.
It will not become 80% so fast, because the size is much bigger with the balance sheet. So expecting between 73% and 75% — that should be the range where we will finish secured.
Q: So the worst of the MFI stress is over, is what you are saying. So would that stay in the fiscal year 2025-26 – saying that the worst is over – or would you start seeing things turn for the better in this segment that has seen a lot of stress over the last 12 to 15 months?
A: So, for the better, I would probably put it inthe second half next year, purely because we had some blips coming across the industry from Karnataka. So we have a few geographical pockets, which weren’t a problem in the past, but now seem to be indicating some challenge.
So I would think that, listen, hard work continues, at least for the first half. The good news is, in quarter four, our microfinance book has grown by 0.2%.
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Now, I will tell you what growth means for us. It doesn’t mean the book is growing and the profit – that is all secondary. Primary is my collection people who are responsible for giving the most sales, feel comfortable doing sales, which is why my book is growing. That means the last-mile Jana employee, who is in touch with clients, is now comfortable growing. That is the most positive sign you should see, and which is why we are very enthused that, yes, microfinance will have a much better year than last year.
But would I take my eye off the ball? Am I very comfortable? Am I doing 99%? No, we are still at 98.5–98.6%. I just need the last bit to come in, then I will be a lot more comfortable.
Q: What about asset quality? You managed to bring down your gross NPA in the March quarter to 2.71%. Does the downward trend continue?
A: So, our asset quality is primarily driven by – we were lower last year – it became a bit more deteriorated, primarily due to microfinance. So as microfinance changes, we will obviously get better this year.
Second, I must tell you, is that the secured assets are very predictable and very clear in how they operate and what to expect. So I would suspect that, yes, our gross NPA and net NPA should be on a better trend this year too.
Q: Any number in mind? Do you think it can head down to 2.5%?
A: We will try as hard as we can. I don’t want to commit a number because I am a bit more like – let’s watch MFI for the first half. But I am sure we will catch up again, and then I will tell you more of it.
Watch the interview in the accompanying video
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