SFBs' Q3 profits erode due to interest cost pressures, uptick in slippages

Bad loans grow sequentially and annually

The pressure on interest income and a sharp rise in provisions for stressed loans severely dented the bottom-line of the small finance banks (SFBs) in the third quarter of financial year 2025 (Q3Fy25).

 

According to Capitalline data, the net profit of seven SFBs declined by 44.6 per cent Year-on-Year (Y-o-Y) basis to Rs 670 crore in Q3Fy25 from Rs 1,210 crore a year ago. The net profits were also down 16.5 per cent sequentially from Rs 803 crore in the second quarter.

 

The provisions and contingencies, predominantly for stressed loans, grew by a whopping 149 per cent Y-o-Y to Rs 1,587 crore in Q3Fy25 from Rs 637 crore in Q3Fy24.

 

Manushree Saggar, Sector Head - Financial Sector Ratings, ICRA said the profitability has been hit on two counts. One, there is pressure on net interest income and margin. There is a limited potential for any improvement in the yield on advances and the competition for liabilities is increasing the cost of funds. The second is the increasing delinquencies is pushing the credit cost. The profitability is also expected to remain under pressure in the fourth quarter (ending March 2025), she added.

 

The net interest income (NII)-- interest earned minus interest costs-- expanded by 16.5 per cent Y-o-Y to Rs 5,183 crore in Q3Fy25 from Rs 4,449 crore in Q3Fy24. Sequentially, however, the NII shrunk by 1.4 per cent from Rs 5,256 crore in Q2Fy25. 

 

The interest earned grew by 23.0 per cent Y-o-Y to Rs 10,167 crore in Q3Fy25 and sequentially NII was up 2.0 per cent from Rs 9,972 crore in Q2Fy25. The pace of rise in interest cost was higher at 30.7 per cent Y-o-Y to Rs 4,984 crore in Q3Fy25 from Rs 3,814 crore in Q3Fy24 and sequentially, they were up 5.7 per cent to Rs 4,716 crore in Q2Fy25.

 

The other income covering fees, commissions and treasury operations grew by 18.4 per cent Y-o-Y to Rs 1,376 crore in Q3Fy25. However, sequentially they declined by 3.7 per cent from Rs 1,429 crore in Q2Fy25.

 

The provisions and contingencies grew by staggering 149 per cent Y-o-Y to Rs 1,587 crore in Q3Fy25 and sequentially, they grew by 7.7 per cent from Rs 1,474 crore in Q2Fy25.

 

The gross non-performing assets (NPAs), in absolute terms, grew by 63.6 per cent Y-o-Y to Rs 6,962 crore in Q3Fy25 from Rs 4,254 crore a year ago and sequentially, they were up by 13.1 per cent fromRs 6,157 crore in quarter ended September 2024.

 

The unsecured loan book continues to be a pain point with higher delinquencies. It covers microfinance loans and personal loans, Saggar said.

 

The net NPAs aka loans which are to be provided for, grew by 66.3 per cent Y-o-Y to Rs 2,564 crore in the third quarter of FY25 from Rs 1,542 crore a year ago. Sequentially, they were up 20.5 per cent from Rs 2,129 crore in Q2Fy25.