Capital Small Finance Bank Limited (NSE: CAPITALSFB) reported its unaudited financial results for the quarter ended December 31, 2025, characterized by steady balance sheet expansion and stable asset quality metrics. The bank, which operates as India’s first Small Finance Bank, continues to focus its operations on secured lending within the middle-income segment.
Latest Quarterly Performance
For the third quarter of fiscal year 2026 (Q3 FY26), Capital Small Finance Bank recorded a Gross Total Income of ₹298.39 crore, representing an 18% increase compared to ₹253.13 crore in the same period last year. Net Interest Income (NII) grew 11.4% year-over-year to ₹119 crore, while Non-Interest Income saw a significant rise of 46.1% to ₹27 crore.
The bank’s Pre-Provision Operating Profit (PPOP) stood at ₹57 crore when excluding a one-time exceptional charge. Reported Profit After Tax (PAT) was ₹34.41 crore, reflecting a marginal 1% increase year-over-year due to a one-time exceptional charge of ₹5.13 crore related to past employee services following the implementation of the New Labor Code. Excluding this one-off impact, normalized PAT grew by 12.6% year-over-year.
Disbursements for the quarter rose 24.7% to ₹919 crore, driven primarily by demand in the MSME and Loan Against Property (LAP) segments. The bank’s Net Interest Margin (NIM) remained stable sequentially at 4.0%, though it declined from 4.3% in the prior-year quarter.
Year-over-Year & Full-Year Growth Context
The Bank’s gross advances reached ₹8,164 crore, a 19.8% increase over December 31, 2024. Total deposits grew 18.5% year-over-year to ₹9,931 crore. For the first nine months of FY26 (9M FY26), the bank reported a PAT of ₹101.31 crore, an increase from ₹97.41 crore in the corresponding period of the previous year.
Asset quality remained a highlight, with the Gross Non-Performing Asset (GNPA) ratio improving to 2.68% from 2.70% in the previous quarter. The Net NPA (NNPA) ratio stood at 1.35%, down from 1.38% sequentially. The bank maintains one of the lowest write-off rates in the industry and has reported zero NPA sell-offs.
Investment Thesis (Bull vs. Bear)
Bull Case:
• Strong Secured Portfolio: Approximately 99% of the bank’s loan book is secured, with zero direct exposure to microfinance.
• Retail Liability Franchise: The bank has a highly granular deposit base, with retail deposits making up over 90% of total deposits and a CASA ratio that improved to 35.9% this quarter.
• Stable Asset Quality: Credit costs have remained stable at 0.20%, supported by robust underwriting and a focus on primary banking relationships which provide better visibility into borrower cash flows.
Bear Case:
• Margin Compression: Net Interest Margins have tightened to 4.0% from 4.3% year-over-year, indicating pressure on yields or rising cost of funds over the long term.
• Efficiency Concerns: The cost-to-income ratio remains elevated at 60.9% (normalized) and 64.4% (reported), suggesting significant operational overhead.
• Geographic Concentration: While expanding into neighboring states, the bank remains heavily concentrated in Punjab, where 165 of its 203 branches are located.
Valuation
As of December 31, 2025, the Book Value per share is ₹315, up from ₹288 a year ago. The Basic Earnings Per Share (EPS) for 9M FY26 is ₹22.38. With a Tier-I Capital Adequacy Ratio of 18.61% and a total CRAR of 21.60%, the bank remains well-capitalized to support its target of doubling its advance book by 2029.