Strong Q1 marred by growth slowing, ROA guidance cut, margin pressure ahead

Delivered revenue ₹1,985.0 Cr, exact match

Delivered PAT ₹382.6 Cr; growth matches 25.1% YoY

25% QoQ growth confirmed. However, system MSME growing >20%, CUB MSME at ~15%; falls short of 2–3% above-system guidance at segment level

Q1 NIM 3.78%, forward guidance 3.65–3.70%; pressure building, slightly below Q1

Delivered 1.57% Q1; forward guidance 1.55–1.65% vs prior 1.65–1.67% FY27 target. ROA guidance cut ~10 bps

OPEX growth 15.5% delivered. CIR expected to rise to 47–48% due to July staff hikes; within guidance

Deposits 21% YoY, CASA 22% YoY; CD ratio 85%; supports guidance

Gross NPA 1.73% (from 2.99% YoY), Net NPA 0.61% (from 1.20% YoY); recovery ₹206 Cr vs slippages ₹195 Cr. Exceptional improvement

Prior: 1.65–1.67% FY27; Current: 1.55–1.65%. ~10 bps reduction due to branch costs, staff inflation, muted leverage.

System MSME >20% growth; CUB at ~15%. Utilization fell 3% (73% to 70%), repayments ₹900 Cr/month, pricing cautious. Missed segment-level outperformance.

Guided 3.65–3.70% forward vs Q1's 3.78%. Deposit costs rising 5–10 bps near-term due to term deposit competition.

Fee income down YoY; management attributes to seasonal/one-time factors but promises catch-up Q2–Q4 (not yet proven).

Agri 10–10.50%, Non-agri 11–11.50%; no rate cuts despite peer pressure; increased 20–25 bps over past year. Disciplined.

Q1 CIR 45.42%; forward 47–48% due to July staff hikes, branch costs. Aspiration to <45% long-term, but near-term pressure.

Yields stable; cost-of-funds management key lever. Maintain current pricing; deposit costs expected to rise 5–10 bps then normalize. Long-term NIM 3.70–3.75% range. Not aggressively repricing.

Not caution; business cycle. ₹900 Cr monthly repayment creates ₹2.7 Cr quarterly drag. Utilization dropped 73% to 70% (3% headwind). Combination of three factors. Still expect 2–3% above system.

SMA0+SMA1+SMA2 down to 2.85% from 7.12% in June '25 and 10.78% Sept '24. No stress visible; ECLGS helped working capital needs. SMA0, SMA1 also falling QoQ. Domestic consumption insulated.

Processing fee (disbursement-driven), suit recovery (write-offs), insurance income. Treasury income can scale to ₹390–400 Cr. Expect catch-up but no specific number.

Not competition (primary banker relationship). Business cycle dependent. Businessmen cautious in Q1; improving outlook now. Function of industry demand, supply, not competitor actions.

Agri gold is genuine need (harvest-to-mandi cycle); underselling 100 bps to help. Non-agri comfortable at 10.50–11%; only nudge 0.1–0.2% if peers move. Not chasing volume.

Staff hikes from July; realistic on numbers. Other income can move 243 to 300–320 Cr (treasury + ops). Exit ROA 1.60–1.65% visible. Want to be realistic, not aggressive.

Backed by MSME (55–60%), gold (31%), secured retail (10%) focus. Q1 credit growth 25% QoQ strong, but MSME segment lagging; forward guidance aspirational.

Deposit costs rising 5–10 bps near-term, expected to moderate. Yield on advances stable 9.79%. Margin likely to compress slightly then stabilize.

Term deposit rates under pressure due to demand; repricing benefit fading. Borrowing cost ₹94 Cr this quarter (up from ₹72.5 Cr Q4).

Major branch capex already deployed; ongoing operational costs 15–18% YoY increase (on-track).

MSME utilization down 3% to 70%; growth only 15% vs system >20%. Repayments ₹900 Cr/month create drag. If utilization falls further or customer demand softens, MSME growth could drop below 10% YoY.

NIM guidance 3.65–3.70% forward (vs delivered 3.78%); deposit costs rising 5–10 bps near-term due to term deposit competition. No room to reprice advances without losing volume (utilization already down).

Branch expansion costs (front-loaded), staff hikes from July (expected to inflate cost-to-income to 47–48%), and operating leverage capped. ROA recovery dependent on other-income scaling (fee catch-up, treasury gains) which is uncertain.

Fee income down YoY and QoQ; management blames seasonal and one-time factors, but promises catch-up Q2–Q4. Driven by processing fees (disbursement-dependent), suit recovery (write-off-dependent), insurance (push-averse). Upside uncertain.

Current quarter slippages ₹195 Cr, recoveries ₹206 Cr (net positive). Management targets ₹700–750 Cr slippages for FY27. Risk if economic cycle turns or MSME sector softens; repayments could dry up.