Capital Small Finance Bank Limited (CAPITALSFB.NS) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Capital Small Finance Bank Limited Q3 and 9M FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Sarvjit Samra from Capital Small Finance Bank Limited for opening remarks. Thank you, and over to you.

Thank you, [ Riyan ]. 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. Munish Jain, Executive Director; Aseem Mahajan, Chief Financial Officer; Raghav Aggarwal, Chief Risk Officer; Sahil Vijay, Head of Treasury and Investor Relations; Bharti Babutta from our Investor Relations team; and our IR advisers, SGA. I will begin by sharing our perspective on the operating environment and macroeconomic backdrop during the quarter 3 financial year '26, after which we will discuss the bank's performance and outlook in greater detail. During quarter 3 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 3 financial year '26 remained benign with -- 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 remains subdued, helping preserve household purchasing power and support 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 side, 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 measured 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 a result, credit growth for most lenders continue to outpace deposit growth, reflecting sustained demand across key lending segments. For Capital Small Finance Bank, these conditions align well with our business model. Our 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 margins, supported by disciplined execution across our core business. Total deposits stood at INR 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 INR 8,164 crores, up 19.8% year-on-year, supported by robust disbursement across MSME, mortgage and agriculture segments. Quarterly disbursements rose to INR 919 crores, 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 secure 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.

Thank you, Mr. Samra, and a warm welcome to all. Let me begin by sharing the highlights for the quarter and 9 months ending December 2025. As of December 31, 2025, our gross advances stood at INR 8,164 crores, 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 our stated guidance of 20% plus advance growth for FY '26. The growth in advance continued to be driven predominantly by our secured lending products and around 99% of the loan book being secured with around 90% of our noncorporate portfolio is collateralized by immovable properties/bank FDRs. The average ticket size of our portfolio stood at INR 7.8 lakhs against INR 17.1 lakhs at the end of Q2 FY '26, reflecting our granular retail focused and risk-conscious approach. Our continued emphasis on well-collateralized asset reinforce the quality, resilience and risk-mitigated credit portfolio. During the quarter, fresh disbursements stood at INR 919 crores, registering a robust 25% year-on-year growth. For year-to-date, that is for 9 months up to December 31, 2025, total disbursement stood at INR 2,590 crores, reflecting 24% growth. The growth driver for the quarter is MSME/business segment, grew by 10% on quarter-on-quarter and 42% on a year-on-year basis and LAP, which grew 3% on quarter-on-quarter and 18% on a 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 perspective, business loan increased to 25%, up from 23% in Q2 FY '26. The agriculture segment moderated marginally to 28% from 30% in Q2 FY '26, while the mortgage and the corporate segment remained stable at 26% and 14%, respectively, during Q3 and Q2 FY '26. Within the mortgage, LAP accounts for 15% and housing loan accounts for another 11%. Overall, the portfolio remains well diversified across sectors that have demonstrated resilience across credit cycles, supporting stability and balanced growth. Geographically, growth outside our home state of Punjab continued to outpace the overall bank growth. Advances out of Punjab grew at more than twice the bank growth rate on a 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 December 31, 2025, compared to 21% at the end of Q3 FY '25 and 23% at the end of Q2 FY '26. During the quarter, yield on advances stabilized at 11%. The same was also 11% in Q2 FY '26. Asset quality showed marginal improvement during Q3 FY '26. Gross NPA and net NPA stood at 2.68% and 1.35%, respectively, improving sequentially by 2 basis points and 3 basis points from September 30, 2025 levels. The slippage ratio improved to 1.21% against 1.73% in Q2 FY '26, while write-off remained almost nil during the quarter. Credit cost for the quarter remained stable at 0.2%. The same was also 0.2% in Q2 FY '26, in line with our 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 INR 9,931 crores, registering a strong 18.5% 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 of retail-centric deposits and retail deposit constituting more than 90% of the total deposits, reflecting strong retail liability franchise. The CASA ratio improved and remained healthy at 35.9% against 33.9% in the last quarter. The average ticket size of the saving bank has increased to INR 52,000 against INR 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 FY '26. This reduction reflects the initial impact of the term deposit repricing. We expect the benefit of repricing to accrue more meaningfully over the next 6 months. Additionally, the saving bank rate was optimized to 3.1% in November 2025 and the benefit of it will also flow through in the subsequent periods. The average CD ratio stood at 80.4% in Q3 against 81.5% in Q2 FY '26, 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 advance portfolio with yield on advances stabilizing at 11% during Q3 FY '26 and Q2 FY '26, 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 quarter back, and the NIM for Q3 FY '26 remained stable and stood at 4% in Q3 and Q2 FY '26. Net interest income grew by 11% year-on-year to INR 119 crores. The same was INR 107 crores in Q3 FY '25 and noninterest income grew by 46% year-on-year to INR 27 crores against INR 18 crores in Q3 FY '25. Noninterest income remained strong at 0.9% calculated as a percentage of average total assets during Q3 FY '26. OpEx as a percentage to average assets stood at 3%. This is excluding the onetime charge against 3.1% in Q3 FY '25. OpEx growth during Q3/9 months FY '26 is consequent to onetime charge for past employee services valuing INR 5.13 crores consequent to New Labour Code implementation. We're referring it as exceptional item. The cost to income stood at 60.9% against 61.7% in Q2 FY '26 and 62.1% in Q3 FY '27 (sic) [ Q3 FY '25 ]. The same reflects our sustained focus on cost optimization, process effectiveness and operational discipline. The cost-to-income ratio with exceptional item is 64.4%. Pre-provision operating profit rose to INR 57 crores without the exceptional item against INR 48 crores (sic) [ INR 47 crores ] in Q3 FY '25, marking a 20% growth on a year-on-year basis and 21% on a sequential basis. The PPOP with exceptional item is INR 52 crores. Profit after tax stood at INR 38 crores without the exceptional item, up 12% year-on-year, supported by healthy operating performance and disciplined cost management. With exceptional item, the same being INR 34 crores. Return on assets remained stable at 1.3% without the exceptional item. During Q3 and Q2 FY '26, the same works out to be 1.2% with exceptional item. Our capital adequacy ratio remained 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 '25, 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 SURU 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 grads and signed off with a couple of our partner NBFCs, targeting high-yielding secured lending opportunities. To sum up, Q3 FY '26 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 FY '26 and further accelerated the growth rate to achieve an advanced book of over INR 16,000 crores by FY '29. 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 FY '29. 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 rate decline seems to be fully reflected on the advance portfolio and yield on advance got stabilized at 11%. The same was 11% for Q3 and Q2 FY '26. However, the benefit of deposit repricing has started showing initial signs and yet to be realized. Cost of deposit during the quarter has declined to 5.86% in Q3 FY '26 from 5.92% in Q2 FY '26. The reduction reflects the initial impact of the term deposit repricing. We expect the benefit of repricing to accrue more meaningful over the next 6 months. We intend to continue to improve operating efficiencies and cost-to-income ratio stood at 60.9% without 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 FY '29 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&A. Thank you.

[Operator Instructions] We take the first question from the line of Avnish Tiwari from Vaikarya Investment Management.

This NBFC -- book you have the corporate loans. It seems that this quarter, I'm seeing some growth as well in the third quarter over 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 NBFC MFI 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?

Yes. If you pick up the first part, that is from the NBFC non-MFI. During the quarter, we've 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 lending who are more in a secured lending franchise. Statistically, 72.1% of our NBFC clients are A rated and above. So we are a high-rated lender. So we are seeing a quality perspective from the outcome from the quality side, we are getting comfort from this particular portfolio and no early signs and rather 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 INR 48 crores, which is around 0.58% of the portfolio. Out of this, the net NPA, which is in a value basis left is only INR 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 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 coming 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 no material amount left within this portfolio as well as of the net NPA book.

Got it. And this credit supply, let's first cover the non-MFI piece. Are you seeing the other, let's say, banks or other larger institutions also being comfortable lending to the smaller NBFCs, non-MFI or you are the early ones who are taking that leap?

We are a lender not to a small or early age NBFC lender. We are a lender to a midsized 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 that NBFCs of a particular size. So we are preferring presently a good rated NBFCs only in our portfolio.

Got it. On this MFI account, how much was the original amount, [indiscernible] INR 100 crores. How much did you provide for and how much is left now?

So the original amount we have typically both the -- if you can just hold for a second, I think we recovered good amount. The pending net NPA is only INR 7 crores.

Right. And what was the original loan outstanding with that company?

I trust that should be something around INR 21 crores or INR 22-odd crores.

Got it. And how much provisions you have to take on this?

So we have provided for certain amount of provisions and certain recovery. And the pending value, which is left in the shape of the unaccounted for is around INR 7 crores to INR 7.5 crores.

Great. And last one question I can ask is this SMA-1 and SMA-2 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, SMA-1 and SMA-2, why is it increasing? Is there some lag before it improves or something else we should interpret?

So SMA 1 and 2 for this particular period ending is around 6.46%. This is basically a seasonality trend. If you look into the December last year, this number was green, 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 pulling in November end of December and the transition from that account to the MSME clients 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.

Great. Why your fiscal '26 quarters typically have a lower level of SMA 1 and 2 compared to fiscal '25 quarters?

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 SMA-1 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.

I meant to ask you is third quarter of '26 is lower than third quarter '25 SMA pools. Second quarter of '26 is lower than second quarter of fiscal '25. Is there some -- there's a positive development year-over-year -- 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?

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 that 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 not the scenario which we are seeing even for the June 2025 versus June 2024. Margin gap is almost the thing, and we are continuously improving rather.

We take the next question from the line of Parth Kotak from Plus91 Asset Management.

Sir, 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?

Let me just clarify Parth. Agriculture accounts for 28% of the portfolio. So our majority of the loans are not agriculture. We are 28% agriculture and 72% non-agriculture. That is one statement. That is one clarification I'd like to place on the record. Point number two, agriculture is secured by mortgage of the land. We are not making any agriculture loans without mortgage office physical land, that is the land and with the name being recorded in the revenue records. That's a mutation being handed in the revenue records. So we collateralized the agriculture lending 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 collateral 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 group lender -- borrower. That is whose financial need is anything between INR 5 lakh to INR 25 lakh and being our ATS also being INR 12 lakh in agriculture. So these are the few points I'd like to mention that the agriculture being 28%, and we are primarily now in non-agriculture lender with MSME book of around 25% mortgage, including housing on a LAP book of around 26%.

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 an understanding.

There is always a structure. There is always a process which is being followed. There is always a process being followed, and we are a lender now for more than 26 years in agriculture. Over the 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'm not saying it is a cakewalk to recover the land. It is not a cakewalk for any of the lending. But since you are collateralized and your name is mortgaged and your LTV is in your favor, is the initial LTV on the [indiscernible] rate is less than 50% with a market price around 30% to 35%. And with the repayment, this LTV is going to improve further. So with the LTV within your favor and you have a full legal rights available. So we -- in our 26-year history and with the lending 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 cushions we put in place, so we are able to demonstrate a consistency in the quality of the book within agriculture as well.

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?

But we are a multiproduct organization. We are having agriculture, we are having mortgage, we have within mortgage, we have housing loan, we have a LAP, 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 an 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 push is there. It is not that everywhere we want to go and lend agriculture. And within Punjab on some portion of Haryana. It is not agriculture is done from all the branches. Rural branches may be doing the agriculture, urban branches maybe having a 0% agriculture. So being a benefit of a multiproduct 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.

We take the next question from the line of Krish Mehta from Enam Holdings.

I just have 2 questions. The first is on the deposit front. We've shown very strong ability to kind of increase our CASA this quarter at 36%. So I wanted to understand more on the point you mentioned on the lag in 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?

Yes. Krish, I divide the question into 2 parts. Firstly, the bigger component, we strongly believe our liabilities are one of our biggest assets, so which we are demonstrating that increasing the deposit will continue to be retail centric at a consistently manner with a good growth rate. We're having a CAGR of 19% since inception in the current year also, we grew by 19% with continue to be a cost of deposit over the last couple of years, sub-6 level. Yes, we look forward for an optimization of the cost of deposit. Current quarter, we start seeing the early signs of correction that our 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 are the term deposits, which are our earlier term deposits, which repricing shall give us a benefit of interest rates. Out of this, 23% are getting due in Q4 FY '26 for repricing, 46% are getting due in Q1 FY '27 and 27% being in Q2 FY '27. So the deposits, which are presently our present term deposit book, 64%, which are old pre-interest rate hikes or with a higher pricing are there, which are getting due for repricing over the next 3 quarters in '23 -- 46% and 27%, respectively, on a data perspective, which as per the assessment, we shall be able to see the NIM expansion of around maybe 3 to 5 basis points in Q4 from the present level of around 10 basis points in Q1 and around 15 basis points in Q2 FY '27. I'm talking one, from the deposit repricing benefit. Second point, the -- presently, we just optimized on SB rate also from November. So that SB repricing and also going to accrue will helping us in improving our NIM. So with the repricing benefit, which we have just started, which we're 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 guiding path I can show you for the cost of deposit and consequent improvement in the NIM over the next 3 quarters.

That's very helpful. And the second question I had was on the loan book. We've shown an impressive yield on advances being maintained at 11% during this quarter with the interest rate decline. So how do you think about the competitive intensity in the geographies that we're operating in and our ability to kind of hold on to this 11% going forward?

Krish, the -- 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 you 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 our outreach programs with our customer connects and also the rightful pricing. As far as 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 yield on advances versus the cost of deposit, my target is to see how the NIM can look forward for upward trajectory. 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 of our deposits post that particular date.

We take the next question from the line of Shreepal Doshi from Equirus Securities.

My question was pertaining to the geographical expansion that we're doing. So while we are entering in states like Rajasthan, Himachal as well as J&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 J&K, 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 our learning perspective?

Firstly, the first question. If we look into the geographically, that is Delhi, 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 good traction from the mortgage -- sorry, MSME and business loan followed by the mortgage LAP. So as far as that is what we are seeing in all the 3 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 -- LAP within the mortgage book. That is the traction we are seeing in all the 3 things, which is a common between all the 3 things together. Now as far as the Rajasthan is concerned, Rajasthan is a market in which we just had over a 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 traction from the trading post community from the Rajasthan, and that is what we are targeting there. But it will be too premature to comment what profile we are saying yes or no. Just [audio gap] we are always conscious that rather than writing anything and everything which is coming on the table, we [audio gap] 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 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 LAP portfolio in Rajasthan is going to give us a very good outcomes.

Got it. Sir, just a feedback, if you could start giving state-wise loan mix, that should help. While I understand that these new states are having significantly lower share, but just helps from how we are seeing the growth coming in those states from product portfolio point of view as well.

Shreepal, we have started giving basis the feedback, the split between the Punjab and out of Punjab. As we move forward, we try to make it more extensive.

Got it. Got it, sir. Sir, the second question or rather more on guidance front is pertaining to how are we seeing, let's say, while you have indicated INR 16,000 crore advances book by FY '29. But what is the kind of, let's say, loan book mix that we are aiming at by FY '29 since that's the year that you are looking at? So what is the kind of, let's say, loan CAGR we aspire over the years to FY '29 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 time line in terms of quarter, if you can give us some indication there? That's -- these are the broader questions I had a second question.

Firstly, if I talk about the mix and the CAGR, current year, we've given a CAGR of 20% growth for the advance. Next year, we want to accelerate this growth rate. We've given a guidance of INR 16,000 crores, which translate into 23% to 24% CAGR. Next year number for the precise number for FY '27, we will announce in the first earnings call after getting the requisite internal approvals. This overall basis, we've given a guidance that we look forward for doubling down by 2029. As far as the mix is concerned, Shreepalji, we are quite confident, and we intend continue to be middle income group secured lending franchise. And these 3 products or within the 3, call it 4 products, agriculture, housing loan, LAP, business loan are going to be -- continue to be 80% types of the portfolio, 75% to 80% of the portfolio. Within these 3, depending upon the economic conditions like post GST 2.0, post direct tax benefit, so we're seeing a traction in the middle income group MSME, we try to capture that. Similarly, some opportunities coming and knocking for the mortgage portfolio at the right [indiscernible] profiling, we will be going to capture that. So within that, our 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 pack. Business loan book will continue to be growth at the elevated levels, which will be supporting our growth for the next 12 months. So we are keeping an eye on the present macro environment 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, principally, we want to maintain these 3 sectors put together to be 75% plus levels. Within this, for next 12 months, MSME is going to lead the back.

Got it. And sir, with respect to the ROA trajectory?

Yes. ROA 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 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 FY '27. We want to take it to the 1.4% level. And you will start seeing, I believe not the correct number, a 5 basis points improvement from Q1 and another 5 from Q2. So that is the -- 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 environment is in the hand of my monetary policy. So if I talk about the today's interest rate environment without any further cuts, so that is what we envisage. So we look forward as a first stage, improvement from 1.3% to 1.4% in the Q2/Q3 FY '27 is visible. It's quite visible. Then we'd like to improve it towards 1.6% level by FY '29.

We take the next question from the line of Gaurav Purohit from Systematix Group.

I have 2 questions. First one is on the partnership that you mentioned in your opening remarks. So can you please give us a flavor of 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 how you have selected the partners that you're working with? Second question is on the credit cost. The credit cost has slightly inched up in this quarter. Any specific reason for that or any particular segment that is [indiscernible] -- and what would be the normalized level in Q4? These are the 2 questions.

Thank you, Gaurav. Gaurav, if I take the first one, that's a partnership. This -- the partnership, the objective is to look forward for a 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 portfolio behavioral, how their portfolio was behaving over a longer period of time with the various events happening. So which is -- they are our portfolio companies within which we picked up some for our partnership-led lending also. So this partnership-led lending is with an FLDG framework that is with the credit risk with the partner to the -- as per the permissible under the law. So we are purely FLDG driven and their variable -- their incentives or their commission is linked with the quality of the portfolio. So we have a 2 line of defense. One, the -- is purely linked with the quality of the portfolio. Secondly, in addition to that, we are having 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 legally and within FLDG framework. This particular book, we intend -- I'm not saying that it's 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&L positive since it will be a high ROTA business with the credit cost with the partner. So this particular -- current quarter is 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 4, then we'd like to -- basis our feedback, basis our experience, we want to accelerate it to the more partners as we move forward from Q1 or Q2 next fiscal. So this is going to be a P&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 not a good decent growth in the advances. So with the growth in advances, the provision for the standard loans also come into the place. So which is also being there. So I strongly -- I believe...

Munishji, I'm comparing on advances, not on EBITDA.

So the similar number I'm telling to say. If you look into the advances, overall credit cost for this particular period is 0.2%. If you 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 bound between 0.15% to 0.25% as we move forward over the period to come.

Okay. Fair enough. One last question, if I can squeeze in.

Please go ahead, Gauravji.

So on the margin side, while I understand that you have drivers in the form of cost of deposits, agri mix is 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 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 agri book going up?

Agri book, agri 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 loan advances, we are yet to be absorbing one rate cut, which is 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 our majority of the repricing happened. Again, I'd just like to reiterate our repricing of the deposits, which is 63% high cost is slated to be done in 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 I'm not going to see much benefit. That will be a 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 -- as per my assessment, my calculation, we can see a 10 basis point uplift in the NIM.

Got it. And when do you think your LDR will start to move up meaningfully towards that 85% margin I think it has come down this quarter again.

When we are seeing the current quarter, current quarter, we've seen a good opportunity on the retail CASA franchise when we start increasing our SURU branch-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 CD ratio and like to take that deposit growth, which is of a good quality deposit growth. So overall, 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 be giving any quarter for this. On a yearly basis, you will see the LDR ratio improvement in the next fiscal on both on an average and outstanding basis, which will be pouring in towards the NIM and the ROTA also.

We take the next question from the line of Chinmay Nema from Prescient Capital.

Sir, could you share the gross NPA numbers on the agri book and the MFI book?

Agri and?

MFI.

MFI is presently just split down. And now today, our MFI book is just INR 48 crores. So there may be a gross portfolio out there. If you can just hold for a second, I'll just try to give you the gross NPA number for that. Agri, our gross NPA is around 4.7 types. And in MFI, it will be -- I'm not -- 28%.

And also, if you could give some color on the broader health of the agri book because if I look at growth of the book for the last 5, fifth quarter, it has been sub-5% and the trend in NPA has been upwards. So what are you seeing on that book, if you could share that?

Agriculture book is typically just we are not very, very aggressive on the agriculture for some time now, but we have started looking at this book in a more favorable way. Quarter 3, the growth was not there for 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 sub muted 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 higher. 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 a bit cautious in the lending earlier because of the flood-like condition in Punjab for a long period for the last year -- in the current year. So we were not that aggressive in agriculture lending, which we started, but we're just holding on the guards. Now 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 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.

Got it. And the quarterly provisions, are they also in proportion to the slippages? So 50% to 60% of provisions do they come from agri book? Would that be a fair assumption?

No, because there is no growth, similar growth in agri NPA. So it will be on the incremental NPA. We follow a simple provision coverage ratio policy of keeping it upward of 50%. Current quarter, we slightly improved our PCR ratio. The PCR is now 50.46% against -- which was a bit 49.5% around a quarter back. So we improved our PCR also. So we can't say that the increase in this is towards agriculture. So that is as part of our principal strategy of maintaining a PCR of upward of 50%.

Got it. And sir, on the MFI book, this INR 6 crores to INR 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?

I believe as per the situation existing as on date, out of this INR 7 crores, which is the present [indiscernible] provided for, we believe lion's share of it will be recovered. So bigger surprise on the provisioning is expected. I'm saying lion's share. But still, this is -- going forward, this is assessment. This is the situation as on date.

Understood. And sir, 30 bps improvement on the ROA that you've guided for in 2029, could you give some high-level color on what the bridge should look like? So this 30 bps structural improvement, where would this come from?

If you look into the ROTA from a -- I talk about the segment, which will contribute to this particular thing. So I believe the largest contributor here will be the NIM expansion. NIM is today at 4%. 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 2 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 the next 3 years. I strongly believe it will be very evenly split on a yearly basis also.

Understood. Okay. And lastly, I 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 agri book? Or would the agri book continue to grow at a more measured pace?

No, we will not be talking about the agri will be also doubling down. So I believe that presently the lead in the pack will be done by LAP book and MSME book. Agri will be growing, not at the doubling down the pace rate, but it will be growing, but not at the equal proportionate. Since our concentration in the other states are not agri, so the agri will not be growing at the great rate of the total advance book.

We take the next question from the line of Varun Dubey from Share India Securities.

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 deposit rate that the bank is offering? And in this quarter, how much of the reduction was the bank able to take? Because in your initial comments, you have also said about competition and 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 one-off because of the cost income ratio...

Varun, my apologies. Your voice is not audible. There seems to be some echo there. I'm not able to understand the question, please.

Can you hear me now, sir?

Yes, now better.

Okay. So just wanted to understand on the term deposit rates that the bank is offering. I mean you spoke about some competitive pressures building up because of the overall pricing in the environment, and that could impact the 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 you exclude the one-off, it has been around 60.9%. So to what level do you intend to take or exit the FY '26?

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 a downward level over the medium-term basis, over the 3-year basis. And over the 3-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 the medium term, it will be showing a declining trend and a consistent declining trend each of the year. Point number two, as far as the term deposit is concerned, [indiscernible] what we are presently offering and the legroom for further reduction. Second, what is the present portfolio versus the present offer rate. If I talk the second portfolio first and first, what is the present rate of we are offering, what is the -- and second, what is the contract we are having contracted with us, which are running contract. 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 term deposit, which is getting repriced over the next 3 quarters. And over higher -- 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 1-year contract on the term deposit and around 7.1% for our higher savings 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 1-year maturity. Now we have done it 7%. So we have already cut around by 60 basis points over last 9 months. 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.

Okay, sir. But how much was the reduction in Q3? And how much more reduction in the term deposit rate do you have in Q4 as well?

At this stage, answering this question is not very -- as you can say, possible for me. It all depends upon the market dynamics. In Q3, we made a reduction in the 1-year contract, I think, by 15 basis points or 20 basis points.

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.

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 SGR Investor Relations Advisers. Thank you once again, and have a good day ahead. Thank you.

Thank you. On behalf of Capital Small Finance Bank Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.

Thank you.