SFBs' Q1 net profit slumps 76% to ₹309 crore as credit costs rise

Small Finance Banks reported a 76 per cent drop in Q1 net profit as provisions surged and net interest income weakened, while gross NPAs jumped nearly 70 per cent year on year

Rising stress in small-ticket loans and MSMEs hit the bottom line of Small Finance Banks (SFBs) in the first quarter ended June 2025 (Q1FY26). Their net profit fell 76.2 per cent year on year (Y-o-Y) to Rs 309 crore due to a sharp increase in provisions for stressed loans — or credit costs — and erosion in net interest income. They had posted a net profit of Rs 1,300 crore in Q1FY25.

 

Sequentially, net profit shrank 46.1 per cent from Rs 573 crore in the quarter ended March 2025 (Q4FY25), according to data compiled by the BS Research Bureau for eight listed SFBs.

 

Operating profit declined 8.5 per cent Y-o-Y to Rs 2,662 crore and slipped 0.4 per cent sequentially from Rs 2,674 crore in Q4FY25.

 

Provisions and contingencies, predominantly credit costs, ballooned 83.9 per cent Y-o-Y to Rs 2,282 crore. Sequentially, they rose 15.3 per cent from Rs 1,980 crore in Q4FY25. Net interest income (NII), the key earnings source for SFBs, fell 7.0 per cent Y-o-Y to Rs 5,418 crore in Q1FY26 and contracted 2.9 per cent sequentially from Rs 5,578 crore in Q4FY25, the analysis showed.

 

Bankers said NII came under pressure as SFBs passed on policy rate cuts to customers, especially for external-benchmark linked retail loans, while deposit repricing was still under way. The Reserve Bank of India cut the policy repo rate by 100 basis points between February and June 2025.

 

Other income, covering treasury gains, fees, and commissions, rose 47.5 per cent to Rs 2,082 crore in Q1FY26 from Rs 1,411 crore a year ago. Sequentially, it grew 3.7 per cent from Rs 2,007 crore in Q4FY25.

 

Asset quality weakened in the first quarter, with gross non-performing assets (NPAs) rising 69.5 per cent Y-o-Y from Rs 5,976 crore in June 2024 to Rs 10,128 crore in June 2025. Gross NPAs were up 11.9 per cent sequentially from Rs 9,054 crore in March 2025.

 

Utkarsh Small Finance Bank’s gross NPAs more than quadrupled from Rs 475.6 crore in June 2024 to Rs 2,196.2 crore in June 2025, compared to Rs 1,854 crore in March 2025. Suryoday SFB’s bad loans rose to Rs 917.5 crore in June 2025 from Rs 241 crore a year ago and Rs 733.8 crore in March 2025.

 

Net NPAs — bad loans that remain after provisions — doubled to Rs 4,055 crore in June 2025 from Rs 1,929 crore in June 2024. They also rose sequentially from Rs 3,546 crore in March 2025.

 

Despite the deterioration in asset quality, the Reserve Bank of India’s Financial Stability Report (June 2025) said sensitivity analysis of credit risk and credit concentration risk showed that each SFB would remain resilient under stress scenarios.