Jana Small Finance Bank reported a bottoming out of asset quality stress in Q3 FY26, marked by a significant drop in SMA trends, which peaked in Q1 FY26. Management expects credit costs to drop to 1.7% to 1.8% next year, fueling profitability to achieve an ROA of 1.5% to 1.6% and ROE of 14% to 15%. The bank also noted robust deposit growth and strategic expansion in the secured lending book.
Quarter Three Performance and Asset Quality Reversal
Jana Small Finance Bank provided a detailed outlook following its Q3 FY26 earnings call on February 06, 2026. Management expressed satisfaction that the anticipated bottoming out of asset quality issues, specifically regarding slippages and SMA trends, decisively occurred in Q3, a quarter later than initially hoped. The overall SMA book has reduced from a peak of 6.2% in June to 4.6%, with an expectation to reach 4% by year-end.
The bank provided high-level guidance, stating that SMA and slippages as of March ’26 are expected to be lower than those recorded in March ’24, coinciding with the start of the MFI flow.
Credit Cost and Profitability Guidance
Credit costs showed a progressive increase across the first half of the year, rising to INR 277 crores in Q3. Management anticipates a significant reduction in Q4, guiding for credit costs in the INR 170 crores to INR 190 crores range. For the full financial year, the credit cost ratio is estimated to be around 2.6% or 2.7%.
Looking ahead to the next fiscal year, the expected credit cost ratio is projected to normalize to the 1.7% to 1.8% range. This improved asset quality, coupled with anticipated NIMs crossing 7% (up 10 bps in Q3), sets the stage for improved returns:
- Projected ROA for next year: 1.5% to 1.6%.
- Projected ROE for next year: 14% to 15%.
Deposit Growth and Portfolio Mix
The deposit book demonstrated robust growth, expanding 30% year-on-year, bringing total deposits to INR 33,733 crores. The CASA ratio improved significantly, standing at 20% year-to-date (a 29% growth YoY). Consequently, the cost of funds has declined to 7.7%, with expectations of further reduction to 7.5% in Q4.
The asset strategy remains focused on the 80% secured / 20% unsecured mix, currently standing at 73% secured. Secured growth was led by affordable housing (INR 7,500 crores, 35.3% YoY), Micro (INR 6,201 crores), and vehicle loans (83% growth). Unsecured advances, which had been a drag, finally posted a positive year-on-year growth of 2% in Q3.
Strategic Initiatives and Governance
Management highlighted the strategic decision to place a significant portion of the unsecured MFI book under a guarantee program to mitigate event risk. By March ’26, 72% of the unsecured book is expected to be covered, leading to expected recoveries of approximately INR 120 crores in FY27 and INR 300 crores in FY28.
The bank is also re-submitting its Universal Bank application, though projections do not currently factor in its approval. Furthermore, board changes were announced due to tenure limits, with two veterans stepping down and new members, including Chartered Accountant Mr. Ajay Rotti, being inducted.
Q&A Insights
In response to analyst queries, management confirmed:
- The BC book collection efficiency crossed 99% in January, and the segment is expected to show positive growth starting in Q4.
- Affordable Housing is deliberately being prioritized over Micro LAP due to better product bundling capabilities and customer stickiness.
- The launch of the Credit Line on UPI (CREDLAM UPI) is expected to remain a small-ticket, short-term offering that will not materially alter the 80:20 portfolio mix.
- Gold loan book is projected to grow rapidly towards INR 4,000 crores, supported by a moderate average LTV of 52.3%.
Management concluded the call by reaffirming commitment to the strategic path, despite acknowledging being overly bullish on expectations in Q1 and Q2, and expressed confidence that Q3 marked the definitive turning point for recovery.
Source: BSE
