Utkarsh Small Finance Bank (Utkarsh SFB) has reported a net loss of ₹239 crore for the first quarter of FY26. This marks a sharp reversal compared to a profit of ₹137 crore in the same quarter last year. The decline was mainly due to stress in its microfinance (JLG) loan portfolio, impacted by the new lending guardrails.
The banking regulator had introduced Guardrail 2.0, which limited microfinance borrowers to a maximum of three lenders. This step, while important for long-term health of the sector, slowed down recoveries in the short term. As a result, the bank’s collection efficiency fell to around 82%, compared to over 96% earlier.
Despite these challenges, Utkarsh SFB’s non-JLG portfolio continued to perform well. Loans in secured categories such as MSME, housing, and vehicle finance grew strongly. The share of secured loans in the total loan book rose to 45% in June 2025, up from 35% a year earlier.
Total deposits of the bank stood at ₹21,489 crore as of June 2025, reflecting an 18% year-on-year growth. Retail term deposits grew by 34% and CASA deposits by 22%, helping the bank build a more stable funding base. However, deposits saw a small 0.4% decline compared to the previous quarter as the bank calibrated growth in line with lending activity.
The bank’s gross loan portfolio reached ₹19,224 crore, up 2.3% year-on-year. While the JLG book shrank by 7% during the quarter, Utkarsh is seeing better traction in micro-banking business loans (MBBL). This segment, which helps graduate reliable JLG borrowers to larger loans, grew by 29% year-on-year and now makes up 10% of the micro-banking loan book.
Management said they are taking steps to strengthen collections and improve asset quality. A larger collection team, call centers for overdue accounts, and stricter borrower screening are part of the recovery strategy. The bank has also secured coverage under the government’s Credit Guarantee Fund for Micro Units (CGFMU) to de-risk new microfinance disbursements.
Looking ahead, Utkarsh SFB expects growth to come mainly from non-microfinance businesses. The bank is aiming for over 30% growth in MSME, housing, and Micro LAP loans. It is also focusing on cross-selling products to existing customers through its network of 1,099 banking outlets across 27 states and union territories.
To support future expansion, the bank plans to raise around ₹750 crore in fresh equity capital in the coming months. It has also received approvals for a reverse merger of its holding company with the bank.
While FY26 started on a weak note, Utkarsh SFB’s management remains confident. “This year will be pivotal for operational and financial optimization, with focus on improving asset quality first and scaling up secured lending businesses,” said CEO Govind Singh during the earnings call.
