Capital Small Finance Bank Ltd (NSE: CAPITALSFB) Q3 2026 Earnings Call dated Jan. 30, 2026
Corporate Participants:
Sarvjit Singh Samra — Managing Director & Chief Executive Officer
Munish Jain — Executive Director
Analysts:
Avnish Tiwari — Analyst
Parth Kotak — Analyst
Krish Mehta — Analyst
Shreepal Doshi — Analyst
Gaurav Purohit — Analyst
Chinmay Nema — Analyst
Varun Dubey — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the Capital Small Finance Bank Limited Q3 and 9M FY26 earnings conference call. As a reminder, all participant lines will remain in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal the operator by pressing Star then zero on your touch tone telephone. Please note that this conference is being recorded.
I will now hand the conference over to Mr. Salvajit Samara from Capital Small Finance Bank Limited for opening remarks. Thank you. And over to you.
Sarvjit Singh Samra — Managing Director & Chief Executive Officer
Thank you, Ryan. Good afternoon everybody and thank you for joining Capital Small Finance Bank Limited’s earnings call. Our financial results and the investor presentation have been filed with the stock exchanges and are available in the public domain. We trust you have had an opportunity to review them. Joining me today are Mr. Munich and executive Director Aseem Hajan, Chief Financial Officer Raghda Bhagarwal, Chief Risk Officer Sahil Vijay, Head of Treasury and Investor Relations Bharti Babuta Pharma Investor Relations Team and our IER Advisor sga. I will begin by sharing our perspective on the operating environment and macroeconomic backdrop during the quarter three financial year 26, after which we will discuss the bank’s performance and outlook in greater detail.
During quarter three financial year 26, India’s economic conditions continue to demonstrate stability and momentum. With real gdp growth at 7%. Economic activity during the quarter was aided by reforms and consistent domestic consumption, a gradual recovery in rural demand. High frequency indicators across manufacturing and services reflected steady trends, reinforcing the underlying strength of the economy. Inflation during the quarter 3F26 remained benign, well within the Reserve bank of India’s comfort range. Headline CPI moderated significantly during the quarter, supported by easing food prices, the impact of GST rate rationalization and relatively stable input costs. While inflation edged up modestly towards the end of the quarter, overall price pressure remained subdued, helping preserve household purchasing power and sport consumption demand.
This benign inflation environment also contributed to stable business sentiment, particularly across semi urban and rural markets which form a key part of our operating footprint. On the policy front, the Reserve bank of India reduced the repo rate to 5.25%, reinforcing its intent to support growth while maintaining Macro Stability While lending rates have largely adjusted on the asset size, the transmission on deposit is evolving more gradually reflecting the lag inherent in liability repricing. Amid intense competition for deposits, banks across the sectors continue to prioritize deposit growth to fund credit expansion resulting in persistent pricing pressure particularly on term deposits.
In this environment, institutions like us with a well diversified retail deposit base and strong customer relationships are better positioned to manage funding costs in a mild way manner. The System at the system level, liquidity conditions were broadly balanced during the quarter supported by the Reserve bank of India’s liquidity operations banking system, liquidity buffers and LCRs remained comfortably above regulatory requirements. The banking sector witnessed healthy growth in advances in the third quarter of financial year 26 compared to the same period last year supported by improving economic activity and full impact of GST rate rationalization. During the quarter, credit demand was led by skewed retail, MSME and agriculture segments aided by festive season spending and post harvest cash flows in the rural markets.
As result, credit growth for most lenders continue to outspace deposit growth reflecting sustained demand across key lending sector segments. For capital small finance bank, these conditions align well with our business model. A strong presence in semi urban and rural markets, a predominantly skewed and retail focused loan book and granular relationship led deposit franchise position us favorably to participate in the ongoing economic recovery while maintaining disciplined growth and robust risk management. Coming to our quarter 3 financial year 26 performance, the quarter saw steady deposit mobilization, balanced credit growth and stable margin supported by disciplined execution. Across our core business, total deposits stood at 9,931 crores growing 18.5% year on year with CASA at 35.9% underlining the strength of our retail deposit franchise.
GROSS Advances grew to 8,164 crore up 19.8% year on year supported by robust disbursement across MSME mortgage and agriculture segments. Quarterly disbursements rose to 919crore up 25% year on year aided by festive demand and strong rural cash flows. Asset quality remains stable with gross NPAs at 2.68% and net NPAs at 1.35% supported by prudent credit practices. Our strategy continues to focus on secured profitable growth, productivity improvement at the branch level and measured geographic expansion with focus on attractive semi urban markets.
With that I would now like to hand it over to Mr. Munish Jain who will take you through our quarterly financial and operational highlights in detail. Thank you
Munish Jain — Executive Director
thank you Mr. Shamra and warm welcome to all. Let me begin by sharing the Highlights for the quarter and nine month ending December 2025 as of December 31st, 2025 our gross advances stood at 8164 crore reflecting strong and consistent credit expansion. This translates into a year on year growth of 19.8% and quarter on quarter growth of 3.3% fully aligned with overstated guidance of 20% plus advance growth for FY26. The growth in advance continued to be driven predominantly by oversecured lending products and around 99% of the loan book being secured with around 90% of our non corporate portfolio is collateralized by immovable property bank FDRs.
The average ticket size of our portfolio stood at 17.8 lakhs against 17.1 lakhs at the end of Q2 FY26 reflecting our granular, retail focused and risk conscious approach. Our continued emphasis on well collateralized asset reinforced the quality, resilience and risk mitigated credit portfolio. During the quarter fresh disbursement stood at 919 crore registering a robust 25% year on year growth for year to date I.e. for nine months up to 12-31-2025 total disbursement stood at 2,590 crore reflecting 24% growth. The growth driver for the quarter is MSME. Business segment grew by 10% on quarter on quarter and 42% on year on year basis and LAP which grew 3% on quarter on quarter and 18% on year on year basis.
This sustained momentum underscores the continued strength in demand across our key lending segments and the effectiveness of our focused business approach. From a portfolio mix of perspective. Business loan increased to 25% up from 23% in Q2FY26. The agriculture segment moderate marginally to 28% from 30% in Q2FY26 while the mortgage and the corporate segment remain stable at 26% and 14% respectively. During Q3 and Q2FY26 within the mortgage lap accounts for 15% and housing loan accounts for another 11%. Overall the portfolio remained well diversified across sectors that have demonstrated resilience across credit cycles supporting stability and balanced growth.
Geographically growth outside over whom state of Punjab continue to outpace the overall bank growth. Advances out of Punjab grew at more than twice the bank growth rate on year on year basis demonstrating the deepening strength and increasing traction across our newer operating geographies. Out of Punjab advanced portfolio constituting 24% as on 12-31-2025 compared to 21% at the end of Q3FY25 and 23% at the end of Q2FY26. During the quarter yield on advances stabilized at 11%. The same was also 11% in Q2FY26. Asset quality showed marginal improvement during Q3FY26. Gross NPA and net NPA stood at 2.68% and 1.35% respectively, improving sequentially by two basic points and three basic points.
From September 30, 2025 levels. The slippage ratio improved to 1.21% against 1.73% in Q2FY26 while write off remain almost nil during the quarter, credit cost for the quarter remained stable at 0.2. The same was also 0.2 in Q2 FY26 in line with over historical levels. This highlights our prudent credit risk management, effective recovery efforts, consistent portfolio performance and reaffirming the quality and resilience of our portfolio. On the liability side, our total deposit base crossed 9,931 crores registering a strong 18.5% year over year, year on year and 7% quarter on quarter growth reflecting the growing strength of our retail franchise.
The growth continued to be granular core and off retail centric deposits and retail deposit constituting more than 90% of the total deposits reflecting strong retail liability franchise. The CASA ratio improved and remain healthy at 35.9% against 33.9% in the last quarter. The average ticket size of the saving bank has increased to 52,000 against 46,000 a year back indicating higher customer engagements and account depth. The cost of deposit has begun to trend downward declining to 5.86% against 5.92% in Q2 FY26. This reduction reflects the initial impact of the term deposit repricing. We expect the benefit of repricing to accrue more meaningfully over the next six months.
Additionally, the shaving bank rate was optimized to 3.1% if November 2025 and the benefit of which will also flow through in the subsequent periods. The average CD ratio stood at 80.4 in Q3 against 81.5 in Q2FY26 with outstanding CD ratio being 82.2% reflecting efficient fund deployment, balanced growth across advances and deposits moving to profitability during the quarter. The impact of earlier interest rate reduction seems to be fully reflected in the advanced portfolio with yield loan advances stabilizing at 11% during Q3FY26 and Q2FY26. While the benefit of deposit repricing is still in the early ages and yet to be completely realized.
The cost of deposit during the quarter has marginally declined to 5.86% against 5.92 a quarterback and the NIM for Q3FY26 remained stable and stood at 4% and in Q3 and Q2FY26 net interest income grew by 11% year on year to 119 crore. The same was 107 crore in Q3FY25 and non interest income grew by 46% year on year to 27 crore against 18 crore in Q3FY25 non interest income remained strong at 0.9% calculated as percentage of average total assets during Q3FY26 opex as percentage to average assets stood at 3%. This excluding the one time charge against 3.1 in Q3FY25 opex growth during Q3.9 month FY26 is consequent to one time charge for past employee services valuing 5.13 crore consequent to new labor code implementation.
We referring it as Exceptional item. The cost to income stood at 60.9% against 61.7% in Q2FY26 and 62.1 in Q3FY27. The same reflects over sustained focus on cost optimization, process effectiveness and operational discipline. The cost income ratio with exceptional item is 64.4%. Pre provision operating profit rose to 57 crore without the exceptional item against 48 crore in Q3FY25 marking a 20% growth on year on year basis and 21% on sequential basis. The PPOP with exceptional item is 52 crore. Profit after tax stood at 38 crore without the exceptional item up 12% year on year supported by healthy operating performance and disciplined cost management with Exceptional item the same being 34 crore rupees.
Return on asset remains stable at 1.3 without the exceptional item. During Q3 and Q2FY26 the same works out to be 1.2% with exceptional item over capital. Adequacy ratio remains strong at 21.6% with average LCR for the quarter stood at 215.8% reaffirming our strong liquidity position and providing ample headroom for future growth. As of December 25th our branch network stood at 203 branches spread over 5 states and 2 union territories further strengthening our presence particularly in rural and semi urban market which continue to be our key growth driver. The Shuru branches accounts for 76% of the total branch network and contributing 75% to the deposit base during the quarter we had initiated partnership led lending with FLDG Framework and appropriate risk grants and signed off with couple of our partner NBFCs targeting high yielding secured lending opportunities.
To sum up, Q3FY26 reflects a period of disciplined execution, steady business momentum and resilience amid temporary margin pressures positioning the bank well for stronger performance in the period ahead. As we look forward, we plan to organically grow our secured loan book at the rate of 20% plus for FY26 and and further accelerated the growth rate to achieve an advanced book of over 16,000 crore by FY29. We aim to expand our footprints by deepening presence in contiguous states and intensifying penetration within the existing market. With a target of 300 plus branches by FY29 we expect NIM expansion supported by continued moderation in the deposit cost from repricing and improving CD ratio during the quarter.
The impact of the earlier REIT decline seems to be fully reflected on the advance portfolio and ZEE loan advance got stabilized at 11%. The same was 11% for Q3 and Q2 FY26. However, the benefit of deposit repricing has started showing initial sign and yet to be realized. Cost of deposit during the quarter has declined to 5.86% in Q3FY26 from 5.92% in Q2FY26. The reduction reflects the initial impact. Of. The term deposit repricing. We expect the benefit of repricing to accrue more meaningful over the next six months. We intend to continue to improve operating efficiencies and cost to income ratio stood at 60.9% without the exceptional item against 61.7 and we expect continued improvement thereof to achieve Rota expansion in the coming year with a target to make it 1.6% plus by FY29 with ROE expansion of 15% plus. We remain deeply committed to creating long term value for our stakeholders while contributing meaningfully to Indian growth story through responsible banking, customer centric innovations and sustainable financial inclusion.
With this I would now request the operator to open the floor for Q and A. Thank you.
Questions and Answers:
operator
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press STAR and one on the Touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Avnish Tiwari from Vicaria Investment Management. Please go ahead.
Avnish Tiwari
Hey this NVFC book you have the corporate loans. It seems that this quarter I’m seeing some growth as well in the third quarter or second quarter for non MFI business. So maybe what are you observing there in terms of your quality of the demand? Are you comfortable there? And second the NVFC NFI account which sort of gave you some credit cost in Q1 is there any development in terms of recovery from there or any either positive or negative development on that account?
Munish Jain
Yeah, if we pick up the first part that is from the NBFC non MFI during the quarter we just seen a small traction and just to clarify we are presently targeting a high rate well leveraged or I mean to say highly capitalized and low leveraged NBFC for our landing who are more in a secure landing franchise. Statistically 72.1% of our NBFC clients are A rated and above. So we are a high rated lander. So we are seeing a quality perspective from the outcome from the quality side we are getting comfortable from this particular portfolio and no early signs and are there no signs of any asset quality constraint coming from NBFC non MFI segment? And if we talk about NBFC MFI segment the segment Is now remain only 48 crore which is around 0.58% of the portfolio.
Out of this the net NPA which is in a value basis left is only 7 crores. The existing portfolio which was being in the falls to the given challenges in the Q1 the recovery has started. We are able to commit a understanding with the clients and as per the understanding we have recovered a decent amount in the Q3 and we are expecting the recovery as we move Forward in the Q4 and the pumping period also. So that particular pain which we have seen in Q1 we strongly believe is over and we are looking forward for the moving ahead of this and coming out of this very very shortly almost we are out of it with the not material amount left within this portfolio as well as of the net NPA book.
Avnish Tiwari
Got it. And this credit supply. Let’s first cover the non mfips. Are you seeing the other banks or other larger institutions also being comfortable lending to these smaller NBFCs non NFI or you are the early ones who are taking that leap.
Munish Jain
We are a lender not to a small or early age NBFC lender. We are a lender to a mid sized and a mid aged NBFC so we are not a starter lender. To any of the NBFC so we are being lender to those set of NBFC in which there are a lot of other lenders available and for a and that NBFC is of a particular size so we are preferring presently a good rater NBFCs only in our portfolio.
Avnish Tiwari
Got it. On this NFI account how much was the original amount? How much did you provide for and how much is left now
Munish Jain
if the. Original amount we have typically the both the if you can just hold for a second I think the we we recovered good amount the pending net NPA is only 7 crores.
Avnish Tiwari
Right? What was the original loan outstanding with that company?
Munish Jain
I I trust that should be something around 21 or 22 odd crores.
Avnish Tiwari
Got it. And how much provisions you had to take on this?
Munish Jain
So we have provided for certain amount of provisions and certain recovery and the pending value which is left in the SH the uncounted for is around 7. To 7 and a half crore.
Avnish Tiwari
The last one question I can ask you this SMA1 and SMA2 pool if you look at it has increased quarter over quarter Even compared to Q1 it is at a higher level. Although your slippages are down, your trends are positive. So here how are you interpreting this? Can you help us understand this pool SMA1 and SMA2 why is it increasing? Is there some lag before it improves or something else we should interpret.
Munish Jain
So SMA 1 and 2 for this particular period and ending is around 6.46%. This is basically a seasonality trend. If you look into the December last year this number was again 6.05. Reason being Punjab, Haryana and this north India is predominantly the economic flow. Cash flow is coming from the agriculture and there is always this being a harvesting period when the agriculture produce money start pouring in November and December and the transition from that account to the MSME client’s account or to the other self employed people there is some lag of some period so which typically translate into some temporary SMA boost increase at the end of this quarter which is always the case it is not the first time it happened but there is no early signs available and as per the internal assessment we are quite confident of bringing it back again sub 5% level by March 31, 2026.
Avnish Tiwari
Great. Why your fiscal 26 quarters typically have a lower level of SMI 1 and 2 compared to fiscal 25 quarter every quarter.
Munish Jain
Smas are always you will see slightly elevated in June quarter and December quarter. Reason being in that particular period transition of the agri Cash flow to the full economy is not completed. So that is getting completed in with some lag. That is typically July, August and January. February. So that’s why there is a temporary increase in SMA1 levels in that particular period, June and December, which gets solved very quickly and we come back again to the rightful levels. Whenever you see the September and March.
Avnish Tiwari
There I am I meant to ask you that third quarter 26 is lower than third quarter 25 SMA pools. Second quarter of 26 is lower than second quarter of fiscal 25. Is there a some there’s a positive development year over year. Is there Although there was a stress in the system. So is there a reason for this to be lower? Can you explain that year over year basis?
Munish Jain
If we look into the number, the number is almost identical just there may be some marginal difference. That is 6.46 versus 6.05. So the gap is very very marginal. So even if you look into any of such number the number the gap is very, very, very marginal. So that’s that. That’s not the scenario which we are seeing even for the June. June 2025 versus June 2024.
Avnish Tiwari
Right. Okay, great.
Munish Jain
Almost a thing and we are continuously improving other.
Avnish Tiwari
Okay, great. Thank you.
Munish Jain
Yeah, thank you. Thank you Avinas.
operator
Thank you. We take the next question from the line of. From Plus 91 Asset Management. Please go ahead.
Parth Kotak
Hi sir, thanks for taking my question. So just one conceptual understanding. A majority of our loan aum is to agricultural loans. So how do we secure these loans considering majority of our loan book is secured loans.
Munish Jain
Let me just clarify part agriculture accounts for 28% of the portfolio. So majority of the loans are not agriculture. We are 28% agriculture and 72% non agriculture. That is a one statement. That is a one clarification I like to place on the record. Point number two. Agriculture is secured by mortgage of the land. We are not making any agriculture launch without mortgage of its physical land, that is the land. And with the name being recorded in the revenue records, that is a mutation being entered in the revenue records. So we collateralized the agriculture landing with the real asset that is the land.
So that is what we typically do with the LTV of downward of 50%. That is we look forward for twice the value of the land and that too valued at the collector rate, not at the market price. So that is the safety questions we have done as a collateralization for the agriculture and we are lender to the agriculture. Who is a middle income borrower. That is whose financial need is anything between 5 lakh rupees to 25 lakh rupees. And being our ATS also being 12 lakh rupees in agriculture. So these are the few points I like to mention that the agriculture being 28% and we are primarily now in non agriculture lander with MSME book of around 25% mortgage including housing on a lab book of around 26%.
Parth Kotak
Perfect. Sir, just I think you would be better aware than I am. But taking charge of an agricultural land is not an issue if the loan goes bad, right? I mean from. From understanding.
Munish Jain
There is always a process which is being followed. There is always a process being followed. And we are in lander now for more than 26 years in agriculture. Over last 26 years we have never had any material write off in agriculture portfolio. And the present book which is showing is purely recovery effort based. Yes, I am not saying it is cakewalk to recover the land. It is not a cakewalk for any of the landing. But since you are collateralized and your name is mortgaged and your LTV is in your favor is the initial LTV on the collector it is less than 50 with a market price around 30 to 35.
And with the repayment this LTV going to improve further. So with the LTV with your favor and because you have a full legal rights available. So we in our 26 year history with the landing for the purpose with the right underwriting practices to the farmer who is a middle income group farmer, not a below poverty line. That is a politically sensitive segment, neither to the large farmer. So with the identified size, with the identified niche and with the safety questions we put in place. So we are able to demonstrate a consistency in the quality of the book within agriculture as well.
Parth Kotak
Thank you sir. Thanks for the detailed answer. Just one last question in the same stream of question is the new geographies that we are expanding. Would it be correct to understand that these would be primarily non agricultural loans or we would be doing agricultural loans also in the new geographies.
Munish Jain
But we are a multi product organization. We have having agriculture, we are having mortgage, we have the mortgage, we are housing loan, we have a lab, we have msme, we have a consumption. So depending upon the geography, whatever is the potential available in that geography, we are pushing that like Delhi is MSME market. Haryana being a MSME mortgage market, Punjab being an agriculture market, Rajasthan being a mortgage as well as MSME market. So depending upon the potentiality of that geography that product pushes there. It is not that everywhere we want to go and lend agriculture and within Punjab and some portion of Haryana.
It is not agriculture is done from all the branches. Rural branches may be doing the agriculture. Urban branches may be having a 0% agriculture. So being a benefit of a multi product organization. So whatever is the potential available or the opportunity available in that marketplace is what we try to capture and take it in our portfolio.
Parth Kotak
Sure sir, that’s very helpful. Thanks. Thanks for the detailed answer. Once again
Munish Jain
thank you part.
operator
Thank you. We take the next question from the line of Krish Mehta from Enam Holdings. Please go ahead.
Krish Mehta
Thank you for taking my question sir. I just had two questions. The first is on the deposit front. We’ve shown very strong ability to kind of increase our CASA this quarter, you know at 36%. So I wanted to understand more on the point you mentioned on the lag and repricing on the deposit book. If you could provide some sense on the bridge to where you see like a cost of deposit settling eventually and where you can maintain the CASA level.
Munish Jain
Yeah Chris, I divide the question into two parts. Firstly the bigger component we strongly believe over liabilities are one of our biggest assets so which we are demonstrating that increasing the deposit will continue to be retail frantic at a consistent key to manner with a good growth rate. We having a target of 19% since we inception in the current year also we grew by 19 with a continue to be a cost of deposit over last Couple of years sub 6 level. Yes, we look forward for optimization of the cost of deposit current quarter we start seeing the early signs of correction that over cost of deposit has reduced from 5.92% to 5.86%.
Now if I talk statistically our total term deposit consists of presently 64% of our present term Deposits of are the term deposit which are over earlier term deposits which repricing shall give us a benefit of interest rates. Out of this 23% are getting due in Q4FY 26 for repricing 46% are getting due in Q1FY 27 and 27 being in Q2FY 27. So the deposit which are presently our present term deposit books 64% which are over all pre intrastate hikes or with a higher pricing are there which are getting due for repricing over the next three quarters in 23, 46 and 27% respectively.
On a data perspective which as per the assessment we should be able to see the NIM expansion of around maybe 3 to 5 basic points in Q4 from the present level of around 10 basic points in Q1 and around 15 basic points in Q2FY27 I am talking bond from the deposit repricing benefit. Second point. Presently we just optimized on SB rate also from November so that SB rate pricing and also going to accrue will helping us in improving our name. So with the repricing benefit which we have just started which we always saying in our last calls, also the bigger benefit we will see in Q1 and Q1 is constituting 46% repricing as we are seeing on statistically.
So with that thing in sight. So that is the gliding path I can show you for the cost of deposit and consequent improvement in the NIM over the next three quarters.
Krish Mehta
Thank you. So that’s very helpful. And the second question I had was the loan book. We’ve shown an impressive yield on advances being maintained at 11% even this quarter with the interest rate decline. So how do you think about the comparative intensity in the geographies that we’re operating in and our ability to kind of hold on to this 11% going forward.
Munish Jain
So as far as the competitiveness is concerned, so we are well competitive and keeping an eye on the competition and the present run rate. If we talk about the msme, MSME is the flavor for the quarter, we are able to grow it on a year on year 42% which is quite decent from any standpoint and also we are able to improve LAP which is a high yielding product by 18%. So competitive landscape we are well placed to take the competition with over outreach programs, with over customer connects and also the rightful pricing as far as of carrying forward this 11% it all depends upon how the monetary policy will take the shape.
But we have one advantage I’m seeing. Even if whatever the view the monetary policy take since our repricing is coming of the deposit post that period that is February. So any repricing there will be auto correction in the deposit rate. So automatically renewal will also done at a further reduced price. So Z loan advances versus cost of deposit. My target is to see how the NIM can look forward for upward Treasury. So I believe Q4 we will see some NIM improvement. Very very I will say directional. It will not be a big in count. A directional NIM improvement we will witness in Q4 with a good NIM improvement visible in Q1 followed by a decent NIM improvement in Q2.
So whatever the way the monetary policy moves now, balance sheet seems to be in the right position to capture that. If even if some surprise comes on the rate cuts in the February Monetary policy review since the repricing is getting due off our deposits post that particular date.
Krish Mehta
Thank you so much and good luck.
Munish Jain
Yeah, thank you Chris.
operator
Thank you. We take the next question from the line of Sri Pal Doshi from Aquarius Securities. Please go ahead.
Shreepal Doshi
Hi sir. Thank you for giving me the opportunity. My question was pertaining to the geographical extension that we’re doing. So while we are entering in states like Rajasthan, Himachal as well as J and K what segments are here which are seeing higher growth in terms of the product portfolio that we have. So I understand that of course in Rajasthan it would be more of MSME and trading but in states like jnk, ncr, Himachal which products are doing well? And also if you could throw some light on particularly in Rajasthan, how are you seeing the rejection rates or which customer profiles are we not targeting and which customer profiles we are targeting from from our learning perspectives.
Munish Jain
Firstly, I keep at the first question. If we look into the geographically that is Dali ncr, we look forward. We are looking a better traction coming from the business book that’s MSME followed by the mortgage and similar is the situation for Rajasthan. Rajasthan also we are seeing a bit traction from the mortgage, sorry MSME in business loan followed by that model app. So as far as that is what we are seeing in all the three states you mentioned Jammu, Rajasthan as well as the Delhi. So we are seeing a higher traction in MSME and followed by the mortgage within the lab lab within the mortgage book that is attraction.
We are seeing in all the three things which is a common between all the three things together. Now as far as the Rajasthan is concerned, Rajasthan is a market in which we just had over branch in the headquarter of the Rajasthan in the last year and we are starting penetrating about that particular center. It will be too early to me to comment upon the customer segment. We are in advanced stage of customer sensitization but presently we are seeing a reasonable distraction from the trading port community from the Rajasthan and that is what we are targeting.
There is but it will be too premature to comment what profile we are saying. Yes or no? Yes. We are always conscious that rather than writing anything and everything which is coming on the table, we all understand that geography well, which we internally call it a sensitization area. Sensitization period. So we are in the last stages of the sensitization period in the Rajasthan which will take some more time to give me the precise answer. Yes, we are quite ambitious for Rajasthan and I believe Rajasthan specifically Business loan, Middle income group, business loan and Lab portfolio in Rajasthan is going to give us a very good outcomes.
Shreepal Doshi
Got it. So just a feedback if you could start giving statewide loan mix that should help. While I understand that these new states are having significantly lower share but just helps from from you know how we are seeing the growth coming in those states from product portfolio point of view as well.
Munish Jain
We have started giving basis of feedback the split between the Punjab and out of Punjab. As you move forward we try to make it more extensive.
Shreepal Doshi
Got it? Got it sir. So the second question or rather more on guidance front is pertaining to how are we seeing let’s say while you have indicated 16,000 crore advances booked by FY29 but what is the kind of let’s say loan book mix that we are aiming at by FY29 since that’s the year that you are looking at. So what is the kind of let’s say loan kegr. We aspire over the years to FY29 as well as the loan book mix. And pertaining to roa we’ve been highlighting that we would want to reach anywhere between 1.5 to 1.6% ROA.
So when is that timeline in terms of quarter? If you can give us some indication there. That’s the broader questions that I had as a second question.
Munish Jain
Firstly if I talk about the mix and the cagrun we given a CAGR of 20% growth for the advance next year. We want to accelerate this growth rate. We given a guidance of 16,000 which translate into 23 to 24% CAGRADE next year. Number for the precise number for FY27 we will announce in the first earning call. So after getting the requisite internal approvals this overall basis we given a guidance that we look forward for doubling down by 2029. As far as the mix is concerned Shripalji, we are quite confident and we intend continue to be middle income group, secured landing franchise and these three products or within the three, I call it four products, Agriculture, housing loan, lab, business loan are going to be continue to be 80% types of the portfolio 75 to 80% of the portfolio within these three depending upon the economic conditions like post GST 4.0 post direct tax benefit.
So we seeing a traction in the middle income group MSME we try to capture that similarly if some opportunities coming and knocking for the mortgage portfolio at the right router profiling we will be going to capture that. So within that overall principally we will continue to be secured middle income group based lender. Looking at the situation as on date for next 12 months I believe business Loan is going to lead the package business loan will continue to be growth at the elevated levels which will be supporting over growth for the next 12 months. So we are keeping an eye on the present macro environments and the operating environment.
So depending upon the opportunities we don’t want to miss any opportunity coming on the site and like to capture it. So overall the principally we want to maintain these three sectors put together to be 75% plus levels within this for next 12 month. MSME is going to lead the back.
Shreepal Doshi
Got it. And so with respect to the ROE trajectory.
Munish Jain
Yes ROE trajectory this current quarter if I exclude the exceptional item we are typically around 1.3 with exceptional 1.2. So for the debate I’m taking 1.3 because that is a one of the item. So from Q1 next year we will intend to see. Firstly we want to take this towards 1.4 in the next fiscal, that is the FY next fiscal, that is FY27 we want to take it to the 1.4% level and you will start seeing I believe not the correct number five basic points improvement from Q1 and another five from Q2. So that is what we strongly believe.
So it is not that strongly crystallized. This is what I strongly believe keeping in with the present environment since the interest rate environments is in the hand of my monetary policy. So if I talk about the today’s intrastate environment without any further cuts. So that is what we envision. So we look Forward as a first stage improvement from 1.3 to 1.4 in the Q2 Q3 FY27 is visible, is quite visible. Then we like to improve it towards 1.6 level by FY29.
Shreepal Doshi
Got it sir, got it. That is helpful. Thank you so much sir for answering my questions and good luck.
Munish Jain
Thank you Shepal.
operator
Thank you. We take the next question from the law line of Gaurav Purohit from Systematics group. Please go ahead.
Gaurav Purohit
Hi sir, thank you for taking my question. I have two questions. First one is on the partnership that you mentioned in your opening remarks. So can you please give us a flavor of you know how the economics would work in this partnership and will it be margin accretive to you or will it be neutral? Is it just to push growth? So that is one and maybe some color on, you know how you have selected the partner that you’re working with. Second question is on the credit cost. The credit cost has slightly any specific reason for that or any particular segment that discussed the incremental income and what would be the normalized level in Q4.
These are the two questions. Thank you.
Munish Jain
Thank you. Gaurav. Gaurav. If I pick the first one, that’s a partnership. This view the partnership the objective is to look forward for a sector secured lending opportunities in the geography where we don’t have a very very thick branch presence say Rajasthan. And we want to capitalize that opportunity through the partnership led model. And these are the partners who are banking with us for a while now. Like to whom we have landed in book. So we have got a sufficient time period to organize their profile portfolio behavioral how their portfolio was behaving over a longer period of times with the various events happening.
So which is they are over portfolio companies within which we picked up some for our partnership led lending also. So this partnership led lending is within FLDG framework that with the credit risk with the partner as per the principle under the law. So we are a purely FLDG driven and there is a variable. Their incentives or their commission is linked with the quality of the portfolio. So we have a two line of defense. One is purely linked with the quality of the portfolio. Secondly, in addition to that we are having an fldg. So we are making ourselves self well guarded both in selection and their portfolio performance over a long period.
Very deep portfolio as our portfolio company. And then also guarding legal and within FLDG framework. This particular book we intend. I’m not saying that is going to be very very significant in our distribution. But yes, they will be making some impact in our distribution. And it will be P and L positive. Since it will be a high rota business with the credit cost with the partner. So this particular band we dug current quarter. This the first quarter in which we start distribution. We signed off with a couple of our partner NBFCs. Now we are in the process of watching it more closely at the ground for the quarter four.
Then we’d like to as a basis over feedback, basis over experience. We want to accelerate it to the mole partners as we move forward from Q1 or Q2 next fiscal. So this is going to be a P and L positive booster and also a growth booster in the geographies in which we have not a very very thick branch presence. That is the point number one and point number two regarding the credit cost. Just to clarify Gauravji, Our credit cost for the quarter being 0.2. It was also 0.2 last year. If you compare with optically with the last year Q3 you can see it was 0.1.
That is the reason because at that time There was a deal when not a good decent growth in the advances. So with the growth in once is the provision for the standard loans also come into the place so which is also being there. So I strongly I believe
Gaurav Purohit
Muniji I. Am comparing on advances not on average.
Munish Jain
So I’m the timing that the similar number I’m trying to sing. If you look into the advances overall credit cost for this particular period is 0.2%. If we look into the any of the period even if you look into the last quarter Q2 it was 0.2 in the Q3 last year it is 0.1 and we always intend to keep it range bound between 0.15 to 0.25 and we are confident to keeping it range boundaries between 0.15 to 0.25 or as we move forward over the period to come.
Gaurav Purohit
Okay, fair enough. One last question if I can squeeze. In.
Munish Jain
Please go ahead Gauravji.
Gaurav Purohit
So on the margin side while I understand that you have driver in the form of cost of deposit agree mixer also expected to go up right in Q4. So how much of the benefit do you see from the yield side I understand that there is competitive pressure and also you know RBI can take further rate action but with the information you have currently how much benefit you expect on the yield side primarily from the.
Munish Jain
Agribook going up Agribook just it agree book. Statistically yes will be improving in Q4 so there will be some benefit of that coming flowing in. But I believe the leader in this pack will be the deposit cost so there will be some benefit we can get it from the agriculture book growth but the leader of this pack is that since in the zlon advances we are yet to be absorbing one rate cut which done in December so we are also to absorb that in quarter Q4. So with that thing in sight Q4 I still believe we will be seeing some positive change in Nim but not a very very significant that will be a directional change but we will start seeing a good NIM change in Q1 but we will be optimizing in Q2 on the NIM in which over majority of the repricing happen again I just like to reiterate over repricing of the deposit which is 63% higher cost is selected to be done in Q1 Q4 Q1 and Q3 Q2 which is 23%, 46% and 27% respectively.
So and in Q4 the majority of this is happening in the month of March so that I am not going to See much benefit that would be very very limited benefit. So Q4 we will be seeing a directional change in the NIM not a very very large directional change but Q1 we will see I as per my assessment my calculation we can see a 10 basic point upliftment in the name.
Gaurav Purohit
Got it. And when do you think your LDR will start to move up meaningfully toward that 85% mark? I think it has come down this. Quarter again
Munish Jain
when we are seeing the current quarter current quarter we seen a good opportunity on the retail CASA franchise when we start increasing over shuru balance based transaction and the customer engagement practices to get ourselves more penetrated. So which give us a better deposit growth and deposit growth which is what we always look forward for a retail centric and a price efficient. So at that point of time we were not worried about just the Shiri retail and like to take that deposit growth which is of a good quality deposit growth. So over I believe we will be seeing some meaningful upward direction towards 85% or 87% in a medium term basis next year.
You will see on a yearly basis I will not giving any quarter for this on a yearly basis you will see the LDR ratio improvement in the next fiscal on both on average and outstanding basis which will be pouring in towards the NIM and the ROTA also.
Gaurav Purohit
Okay, fair enough. Thank you for patiently answering all my questions and best of luck.
Munish Jain
Thank you.
operator
Thank you. We take the next question from the line of Chinman Nema from Prescient Capital. Please go ahead.
Chinmay Nema
Hi sir, hope I’m audible.
Munish Jain
Yeah you are audible.
Chinmay Nema
So could you share the gross NPA numbers on the agribook and the MFI book?
Munish Jain
Agree and MFI is presently just flipped down and now today over MFI book is just 48 crore so there may be a gross portfolio outed there. If you can just hold for a second. I just try to give you the gross NPA number for that. Agree over gross NPAs around 4.7 types and in MFI the it will be I’m not 23 28%.
Chinmay Nema
Get that. And also if you would give some color on the broader health of the agri book because if I look at growth of the book for the last 56 quarter it has been up 5% and the trend in NNPA has been upward. So what are you seeing on that book? If you could share that
Munish Jain
agriculture book is typically just we are not very very aggressive on the agriculture for some time now but we have started looking the book in a more favorable way. Quarter 3 the growth was not there for a genuine reasons because the flows of the funds are coming in agriculture. So despite the disbursement have been done in this book but there has been a natural decline because of the recovery basis the cash flow in that particular portfolio going forward. Agricultural book if you look into the slippage. If I talk about the gross slippage.
Our gross slippage in the agriculture book is always 50% of our overall gross slippages. So we are always having a subdued or submuted gross slippages ratio but we typically follow a strategy of recovery and not writing it off. So the agriculture loan book so we typically. And since the growth is not coming in agriculture book so optically you will see some gross increase in the gross NPA. But even if you look into the comparison period now so there is not any significant increase in the value of the NPA. But since the agriculture outstanding has declined this number look optically high.
So and the yields on this particular portfolio is also better than my overall yield. Overall yield being 11 and yield on the agriculture being 12.62. So we are in control of the things and this particular book the slippages are well in control and with the momentum in the agriculture we are just very bit conscious in the landing earlier because of the flood like condition in Punjab for a long period for that the last year in the current year. So we were not that aggressive in the agriculture landing which we started but we just holding on the guards now teaching situation is normalizing so we.
I’m not saying very aggressive on agriculture but yes we want to increase this book. This book is not showing any sign of weaknesses or weaknesses or on the quality side on the contrary gross basis rota driven this portfolio is giving a better rota business but just we want to make an optimum outcome of the same.
Chinmay Nema
Got it. And the quarterly provisions are they also in proportion to the slippages? So 50 to 60% of provisions do they come from agribu? Would that be a fair assumption?
Munish Jain
No, because there is a no growth similar growth in agree NPA so it will be in the incremental NPA we follow a simple provision coverage ratio policy of keeping it upward of 50. Current quarter we slightly improved over PCR ratio. The PCR is now 50.46 against which was a bit 49.5 around a quarterback. So we improved our PCR also. So we can’t say that the increase in this is too agriculture. So that is as per our principal strategy of maintaining a PCR of upward of 50%.
Chinmay Nema
Got it. And sir on the MFI book this 6 to 7 crores of outstanding. Do you see how should one think about recoverability on this sum? Do you see it flowing to provisions in the coming quarters?
Munish Jain
I believe as per the situation existing as on date out of this 7 crore which is a present Anika provided for we believe loins share of it will be recovered. So surprise on the provisioning is expected. I am saying loins share but still this is going forward. This is assessment. This is the situation as on date.
Chinmay Nema
Understood. And sir. Sir 30 whips improvement on the ROA that you’ve guided for in in 2029. Could you give some high level color on what the bridge should look like? So this 35 structural improvement where would this come from?
Munish Jain
If you look into the rota from a I talk about the segment which will contribute to this particular bank. So I believe the largest contributor here will be the NIM expansion. NIM is today’s four. We want to take it upward of 4.2 to 4.3 levels. So that will be the largest beneficiary which will be coming to the thing. And the biggest thing which is available for us is the cost of deposit and the CD ratio expansion which is going to be the driver for the NIM expansion. Second we will be seeing some optimization of the OPEX.
OPEX being at 60.9% cost to income ratio basis and 3% on the ratio to the assets. So these two bridges I believe are the largest contributor for our rota tree expansion. And on a time horizon basis we are looking forward for a 30 basis point increase over next three years. I strongly believe it will be very evenly split on yearly basis also.
Chinmay Nema
Understood. Okay. And lastly just wanted to check the 2x growth guidance that you’ve given for the entire book. In the medium term does that also. Hold for the agribook or would the agribook continue to grow at a more measured pace?
Munish Jain
No, we will not be talking about the agribus will be also doubling down. So I believe the presently the lead in the pack will be done by lab book and MSME book agree will be growing not at the doubling down the pay state but it will be growing but not at the equal proportionality since over concentration in other states are not agree. So the agree will not be growing at the great rate of the total advanced book.
Chinmay Nema
Understood sir that is very helpful. Thank you.
Munish Jain
Thank you. Thank you Chinmay.
operator
Thank you. We take the next question from the line of Varun Dubey from Share India Securities. Please go ahead.
Varun Dubey
And congratulations on your. Strong Set of numbers. Although majority of my questions have been. Answered but just wanted to understand a few things. First among them is what is the term reported sale that the bank is offering and you know, in this quarter how much of the reduction was the. Bank able to take? Because in your initial comment you have also said about competition and you know, some kind of temporary margin pressure that could be witnessed. So if you can throw some light on that. And my second question would be on the cost to income ratio because in this quarter there was a burn off because of.
Munish Jain
My apologies Varun. My apologies. Your voice is not audible. There seems to be some echo there. I’m not able to understand the question. Please.
Varun Dubey
Hello, can you hear me now sir?
Munish Jain
Now better.
Varun Dubey
Okay, so just wanted to understand upon the term deposit rate that the bank is offering. I mean you spoke about some competitive pressures, you know, building up because of the overall pricing in the environment and that could impact the you know, margin pressure temporarily. So what is the term deposit rate that the bank is offering and how much reduction was the bank able to take in this quarter? And also about the cost to income ratio because this quarter if we exclude the one off it has been around 60.9%. So to what level do you you know intended to take or exit the FY26.
Munish Jain
As far as if I take the point number two first cost income ratio is 60.9, which I believe for the current quarter is quite optimal and I believe in the Q4 it will be range around the similar levels. Yes, we want to take cost income ratio towards the downward level over the medium term basis over the three year basis and over the three year basis it will be showing the downward trajectory as it has been shown in the current fiscal. So that is what I see if in a medium term it will be showing a declining trend and a consistent declining trend and each of the year point number two, as far as the term deposit is concerned there are two slices of this question.
One, what we are presently offering and the leg room for further reduction. Second, what is the present portfolio versus the present offer date? If I talk the second portfolio first and first if I what is the present rate of we offering? What is the and second what is the contract we are having contract contracted with us which are running Contract is statistically as I said earlier and just for the sake of repetition I’m repeating 63% of the same is on a price which is much more than the price which is present of a term deposit which is getting reprised over the next three quarters and over high that that is going to give us a benefit on the cost of deposit as well as the NIM second point.
We are presently offering around 7% for a one year contract on the term deposit and around 7.1% for our highest. It being that particular thing current period we have optimized it if the current year is concerned. We started the current year when we were offering around 7.6 in a one year maturity. Now we have done it seven. So we have already cut around by 60 basic points over last nine month. So we are keeping an eye open on what is happening on the monetary policy front. So basis the monetary policy outcomes we will be reacting towards that.
But despite that particular fact, there are the opportunities available for the NIM enhancement and the NIM and ROTA enhancement through cost of deposit optimization basis contractual maturities on repricing. So that is the big lever available. In addition to this, the other lever will get unfold as we move forward.
Varun Dubey
Okay, sir, but how much was the reduction in Q3 and how much more reduction in, you know, the term deposit do you emphasize in Q4 as well?
Munish Jain
This stage after answering this question is not very honest or you can say possible. For me, it all depends upon the market dynamics. In Q3 we made a reduction in the one year contract. I think by 15 basic points or 20 basic points.
Varun Dubey
Okay, so that answers my question, sir. Thank you very much sir and once again congratulations on your good set of numbers.
Munish Jain
Thank you. Thank you, Varun.
operator
Thank you. Ladies and gentlemen. Due to time constraint, we take that as a last question and we conclude the question and answer session. I now hand the conference over to the management for their closing comments.
Sarvjit Singh Samra
I would like to thank everyone for being part of this call. I hope we have answered your questions. If you need more information, please feel free to connect to our Investor Relations team or sg, our investor Relations advisors. Thank you once again and have a good day. Thank you.
operator
Thank you on behalf of Capital Small Finance Bank Ltd. That concludes this conference call. Thank you for joining us and you may now disconnect your lines.
Munish Jain
Thank you.