Jana Small Finance Bank Limited (JSFB) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Q1 FY '27 Earnings Call for Jana Small Finance Bank, hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference call over to Mr. Chintan Shah from ICICI Securities. Thank you, and over to you, sir.

Yes. So thank you, Idra. Good evening, everyone, and welcome to the Q1 F '27 Results Conference Call of Jana Small Finance Bank. So first of all, I would like to congratulate Jana for the very strong performance in Q1. So from the management side, we have Mr. Ajay Kanwal, our Managing Director and CEO; Mr. Krishnan Subramanian Raman, Executive Director; Mr. Abhilash Sandur, Chief Financial Officer; and other senior management team members. So now without further ado, I would now like to hand over the floor to Ajay, sir. Thank you, and over to you, sir.

Thank you, Chintan. Let's move, folks, to our investor deck. I will speak of the deck. I will start with Slide #3. And before I start, apologies, I think we are slightly late. But profit for the first quarter, which is PAT, is INR 155 crores. I think importantly, we have seen that our NIM has backed up now to 7.5%. It is made up of 2 real important contributions, the NIM increase. One is the cost of fund, which has been declining. So it's a 50 basis points decline year-on-year. And second is the reduced slippage on NPA, primarily on unsecured, which is why the interest [indiscernible] is reduced and NIMs are improving. And of course, we have also see in our second quarter now sequentially of unsecured growth. So we have got the NIMs back up to where it should have been had there been no microfinance stress. So 7.5% NIM is what we see. Though we -- if you look ahead in the year, we would imagine our cost of funds would be flattish. Things have become a bit harder in terms of pricing of deposits in the first quarter, and we expect that to stay there for some time. And in terms of our assets, we have seen most of the change, which is improvement in both NPA as well as growth in unsecured. Slippage is very important because it's not only lower year-on-year, it's also lower quarter-on-quarter. And especially people who have been on this call with Jana every quarter will remember that our first quarter last year was really a difficult one for us. So for us, there is an extra pleasure in seeing the first quarter come out well. Our net credit cost is flat to our quarter 4 at 0.45%. Our secured assets grew at 29%. Slight increase in SMA, which we have pointed out here, more to do with the way the first quarter works than anything challenging that we can see in our books. Deposits have grown strong year-on-year, though the first quarter has been flattish. And CASA growth has been great, 31% year-on-year, and first quarter has been very strong. So our deposit growth in CASA [indiscernible] but overall deposits flat. Folks who have been following us do know that we did raise some capital, out of which the first INR 103 crores were received by the bank. Once [ Citigroup ] is approved by the Reserve Bank of India, we will sort be receiving the next INR 80-odd crores, and the balance, 75% of the total INR 728 crores will come over the period of 18 months. So overall, a very important quarter for us. It kind of cemented quarter 4, because quarter 4 was a real [ MFI ] is behind us, we have a very strong secured book. And first time we saw the PAT really come through. This is second quarter following that, and it's a very important quarter from that perspective. And during the first quarter of the year where things get a bit difficult, that ending like this gives us great confidence. I will now move to Page #4. We've never addressed this holding company rating downgrade in the past in such an obvious matter, which I thought I'll use the opportunity to. So as you all must know or probably should know, because China Holding and JCL have been our promoters for the longest period, they are the ones who hold the approvals. Their job as the holding company really is to invest in the bank, and they right now hold 16.9% stake. Their peak was at 44%. So they've been -- last 4 years, they have been either mostly diluted because they've not been giving the bank capital. So bank has been raising capital since June '22, either through IPOs or other private investors, but not through its holding company, which is why the 44% has been coming down. And the last 4.99%, they've committed to sell [ TVS ] Motors. So again, that 21%, 22% odd is down to a 16.9%. We really don't have any other connection other than the holding are promoter name. There are no Board members which are common. There are no [indiscernible] et cetera. Our India ratings fell [indiscernible] since they had to downgrade the JHL and JCL rating, which fundamentally was a [ technical ] default to our minds because the NCLD holders wanted more time to sell the shares and they've asked for 6 more months. There are no retail investors, there's nobody going [indiscernible] over it. It's an issue of investors felt that our bank share price probably has more opportunity in the future, next 6 months than they saw it currently, which is why they want 6 more months they want the extension done. But because of extension, it was a change in the [indiscernible] conditions [indiscernible] issues, so it became a default moment. We have seen both our share rise and our business, and we find that our investors and clients have understood it. We are very thankful to both, and BAU for us. Following this action, which was on the 4th of June -- 4th of July, sorry, [indiscernible] took their action where they said they are not putting us on watch, they're not doing anything. They obviously had anticipated this, that some days some challenge could happen, but didn't find that that should impact the banks and will not put it under watch. So that's putting this promoter event behind us as a nonissue, but I've also explained it that there's really no challenge except people at the holding company level wanted more time to sell. I will then move on to our Page #6, and I will do that because I realize there's a lot of questions. On this what you'll find our credit cost at 0.45%, which is flattish to Q4. And as you know, 0.45% credit cost was the lowest point of last year, and Q4 is always the best quarter. So I think that is a flat to Q4, which is a great positivity. You can also see [indiscernible] during the year, where our additions to gross NPA below 91%, again, it's been on a decline, but this has been a very good number for us. And now our gross NPA now stands at 2.24%, our net NPA 0.5% is in the [indiscernible] and PCI rate at 62.4%. So credit wise, I think first quarter being strong gives us great confidence of what this year we can expect. Sometimes there are questions on branches, so let me share. We are planning to open 78 branches. Only 8 of them are new branches, 30 are split, which means a branch really has too many more customers and we really need to split the brand for better management. So we'll split 30 branches into 2 separate locations. This means only a premises cost and not a people cost largely. There are 40 relocations, which means the branches are not in good spots. We think if we change them to better spots, then we'll get more business. And so the 40 relocations, 30 split, 8 new branches are planned [indiscernible]. And that's the plan for this year. In terms of product launches, we are -- we have been testing the [indiscernible] now for a little over a quarter. We think we've got all the bases right now. We should go public with the [indiscernible] this quarter. We'll also be launching our loans against shares. Our [ NASRO ] [indiscernible] would be set up this month. We don't have an [ FCNRB ] offering right now. But if we are able to kind of put everything together and we're comfortable with it, we may do a small one in August, September. But right now, FCNRB, if that's a question in your mind, that is not something that we [indiscernible]. So that's about the branches, what we expect -- and rather what's the plan and what products we are planning. I would like you to move on to Page #9. We always share the page. You can see what's growing and what's not growing. The things which are really growing superbly well and giving us great confidence is our affordable housing book, our MSME book, our vehicle loan book, our Golden book, and for last quarter, certainly, the MFI book, which is unsecured [indiscernible]. All these businesses have immense strength [indiscernible] very well year-on-year and we certainly see them growing. By design, we have reduced our term loan to NPAs. It probably will keep this flattish as we go into the year because our own product lines are so strong that we will be able to do a 20%, 22% growth rate purely from our own businesses. So our NBFC might end up being flattish. That's our current thinking. The one business which wasn't designed to not grow in the first quarter, which is Micro LAP. We have been slowly trying to amend the model more towards direct sourcing. It causes a blip in the quarter. So that's something that we are working on, and we will bring it to the positive growth rate second quarter onwards. That gives you a sense of what it looks like on the asset business, what to expect. Since we have affordable housing, Micro, MSME, vehicle and Gold [indiscernible], we have 5 product lines in secured versus 1 unsecured product, which is basically MFI, nothing else, it is natural to expect that we'll have -- always have more secured loan growth than unsecured loans every passing year. So our journey from a 73.6% -- 72.7%, sorry, towards 80% will happen every passing year sure because we've got more secured product lines versus a single unsecured line. I want to talk about Page #10, and this is a very important page. Remember, '24, we decided that given some of -- or rather many of the elements in MFI could surprise us or be [indiscernible]. While we will take all precautions, we will also take an additional precaution of putting under [indiscernible]. I'm happy to report that 79.8%, which is nearly 80%, of unsecured is under guarantee program. I also want to highlight to you in the last 2 columns, our net NPA is at INR 214 crores. This is our net NPA at 30th June for unsecured. Out of this INR 214 crores net NPA, INR 196 crores is under the guarantee program. So we are largely -- we may have a year at which year will the money get -- come into the bank, that is all the question now, but we are largely now covered [indiscernible] net NPA, what to expect. Also, remember this, if unsecured business is under guarantee program and performs well and the rest is secured book, we are moving to a nearly a secured bank by itself. And that gives us a lot of positivity of what this future is because our missteps, whether it is MFI stress or [indiscernible] always be unsecured. If you are putting a floor to unsecured now, I think the future will be much more resilient and stronger and better. I'll now take you to Slide #13. Slide #13 is a favorite slide because it does what we are trying to do as a bank. And it's an anchor bank where we want customers to have multiple relationships across all our products. I think we have not rounded this up to 4, which we normally do. So 3.9 is an active product. It doesn't include property and life insurance. I can see some changes now where our Gold penetration is now up to 3%. I remember many years -- within the last year, we were struggling at 2%. We've slightly seen our 2-wheeler penetration reaching 1.1%, even though the business has grown, and we think this will now be a better growth engine. When I look at this chart, it also tells me that we need to launch a few more products to get the -- add relationships better. So credit line on UPI, when it goes live this quarter, I think we should expect the average relationships to improve from here. But clearly, something that has been working very well for us, and we remain focused on driving this harder. I will now move on to the liability page, which is Page #15. 97% of our retail and 83% of bulk deposit of 1 year and above. I think if you look at our CASA, CASA has grown very healthy in the first quarter at 7.1%. Our TD has gone minus 1.6%, mainly to less growth in bulk. We have not given our retail deposit growth...

[indiscernible]

Right. Sorry, will ask you to share.

So we have -- our retail term revenue growth year-on-year is [indiscernible]. And quarter-on-quarter, it's 2.6%. While we have reduced the bulk deposits, the growth has come in [indiscernible]. So I just wanted to add that.

Yes. No, thanks. So one is that we are seeing stable because of our focus even on bulk [indiscernible] the bulk is 1 year and above, our retail continues [indiscernible]. We have some work to do here because we would like to continue maintain our 23%, 24% year-on-year growth in the total liability franchise. So we'll have to work harder in quarter 2. I think April and May were a bit difficult quarters from a liquidity perspective. Prices went up on the deposit side, which we try to kind of hold against. But now we've kind of, in June, we've kind of increased our deposit rates. And that brings me to the cost of funds. If you see quarter 1, 2027, here at 7.4%. This represents a drop-off 60 bps from quarter 1 FY '26. I do expect that 7.4% will remain nearly 7.4%, plus or minus 5 bps at best, during this year. I think the opportunity to drop cost of funds is now over. And yes, we will be reporting a much healthier growth in our deposit business in the next quarter. I want to take you to Page #18, where we'll do a quick scan. I think the most important thing here is our ROAs at 1.4% and our ROE is at 13.6%, something that we have been wanting to bring back to normalization for the last 2 years. We struggled a bit, and now we are back to where it needs to be. And as you can see on space, 64.9% is retail deposits. It's the second column, and it was 60.2%. So it's really a good jump here of 4.9% on retail deposits. I will then move on to #20. I just wanted to glance at 2 things here. One is net interest margin, so it is at 7.5%, which moved up well. We expect it to be steady around there. And Page #21, I think the key highlight here is there is a drop in the borrowings. More to do with the overnight [indiscernible] long-term institutional finance from NABARD, SIDBI, NHB continue, and we signed the institutions for [indiscernible] us at all times, and that doesn't change at all. In the P&L statement, I really wanted to focus on expenses. We have grown hence quarter 4 to quarter 1 by just INR 10 crores. It's a very important focus for us. We expect to continue reporting very nominal growth in cost through this year by the virtue of a 20% asset growth, and a very nominal cost increase. I do want to [indiscernible] cost income back to much lower levels before the year is over. Finally, I just want to finish with Page #23 and reiterate our guidance of gross loan growth of 19% to 21%, a deposit growth of 23%, 25%, and a PAT of 80% plus for the year. Thank you so much, and I'm happy that we and the team here can answer your questions.

[Operator Instructions] First question is from the line of [ Jay Chohan ] from [ Trinetra Asset Managers ].

Sir, please provide more insight on the strategic [indiscernible] in the unsecured portfolio. And so do you expect the improvement in this quarter is sustainable? And should we expect this to continue moderating over the coming quarters?

So in terms of unsecured slippages, quarter-on-quarter, it has reduced by almost 20%. And so that is expected to continue on the lower, downward trajectory. So that is a question on slippage you had asked, which is almost from INR 155 crore, it has reduced to INR 125 crores, in terms of slippages.

On unsecured.

On unsecured.

Got it, sir. And I am just trying to understand the trend. What do you think about -- how do you expect this to continue over the coming quarters?

So I will answer. So listen, we are at a good point now where we're doing 99% plus minus 0.1% since December. We've seen a slight uptick in our SMA book, nothing significant. So I would expect at least quarter 2 slippage will be probably flattish to quarter 1. And then we may see small drops in quarter 3 and quarter 4.

Makes sense. And also could you share your outlook on [indiscernible]...

I just want to add one thing to my earlier thing so that for all the folks who want to put this in Excel spreadsheet, it will be important. So the other piece you should think about -- we should all know about is, in the first quarter, we all focus on collections, which is why our slippages will go, and SMA did not [indiscernible] in nature don't go up anything significantly. But we couldn't spend too much time in recoveries. So while we might see a flattish slippage in quarter 2, or even a marginal uptick, we should also see an uptick or a better recovery in that quarter 2. I think that will happen together. On your question on credit cost, it was at 0.45% for quarter 4. It remains at 0.45% in quarter 1. It gives us great confidence because typically first quarter is a bit more of a shocker than quarter 4, and quarter 4 is always the best quarter in terms of performance. So one can expect that the 0.45% cost will actually be maintained at the same levels in all the remaining quarters.

Got it, sir. Also you factor in the [indiscernible] requirements, right?

Absolutely. So on the provisioning side, listen, gross NPA has reduced quarter-on-quarter, year-on-year for sure. Net NPA on the GLP is at 0.85%. And yes, I mean, even if you look at our provisioning expectations, it's pretty much flattish to down-ish, because the big change has already happened, which is the unsecured book is not a problem, secured book was never a problem. So as long as we just keep our head down and execute, we'll absolutely be fine.

Got it, sir. And sir, are you observing any [indiscernible] in SME, Micro LAP and for affordable housing segments?

[indiscernible] Micro LAP, like I mentioned, we are trying to move more towards direct -- or rather percentage of direct contribution in the business needs to go up, which is why we had [indiscernible] growth. It had nothing to do with performance of the book. Afford is being absolutely fine. MSME is doing fine. We haven't seen any Iran impact. We haven't seen any [indiscernible] impact. Today is the 15th of July, so the [ NASH and SI ] and collections for the month, the majority percentage is already in. We can't see that visibility in July, touch wood. So I must say that right now, it's all going as on the health of the book. We continue to be very positive.

One last question. So we have seen a drop in Micro LAP and NBFC book. Do we expect this drop to continue?

See, NBFC will by design because we really thought that given our projections on 2-wheelers, Gold, MSE, affordable, we would achieve the 20%, 21% growth rate more comfortably. So NBFC would probably be the business that we slowed down on. So we probably will remain slow in that business through the year. Micro LAP was -- our design is not to remain slow. So we have some work to do to get this whole direct versus DSA percentage right. We think we have kind of sorted that out, and we will -- we are expecting July to kind of give us a different number than we have seen in the first quarter. But no, Micro LAP will be on the growth path, and we are focusing on it to go back to growth.

Next question is from the line of Dana from [indiscernible].

So I have a couple of questions from my side. So first one is the Gold loan portfolio has strong growth this quarter. And given the recent correction in the gold prices, how do you see the impact on portfolio growth and asset quality going forward?

This is Raman here. Let me answer this question. So the book grew about [ 13.5% ] quarter-on-quarter. So we are sitting at about INR 2,678 crores, we grew over 100% year-on-year. While gold low prices have witnessed some correction, I mean from a risk management standpoint, we are comfortable because, on an average, across the portfolio, our LTV is about 60% -- 64%, to be precise, which is well within the regulatory limits. Besides, what we also have is a pretty robust collateral monitoring mechanisms where we do daily price feeds and appropriate margin call mechanisms which are in place. So all of these, we believe, will mitigate the impact of any movement in gold prices. Therefore, we don't expect any material impact on asset quality. GNPA will remain around 4% and will be fully covered by the collateral realization. Besides, I think we continue to see a healthy demand for gold loans. So I mean, those are really the few things that I would comment on as far as the gold loans are concerned.

See the other place in gold loans, I'll add to Raman, we're at about 568, 570 branches now? Our 2 branches [indiscernible]. We will be increasing our branches another 50 to 75 in the next 2 quarters. So these branches are in locations where we know we can -- we have potential to do gold. And we're just phasing out our growth in different buckets. So we'll be adding a few more gold branches. We certainly are increasing gold headcount in terms of people. So our bias is to keep increasing gold. And we don't see a market issue. Customers do like this idea of getting a gold in quickly and able to get the gold back when they pay the money, as long as you can do that basic good service model in an institution, they can trust, I don't see any issue with gold loan growth.

Got it. A couple of more questions from my side. So in this quarter, also have seen growth in MFI segment. So what is the percentage of growth that we are targeting for FY '27 in MFI?

This quarter, we grew 2.8%, I think, quarter-on-quarter, and we grew 18% year-on-year compared to first quarter last year. So book is at about INR 10,240 crores. Book is stabilizing. We've seen 5 continuous quarters of decline in slippages. And we do believe that we are at a place where it is stable. For FY '27, we are targeting the portfolio not to be aggressively growing, to about 10% to 12%. That's really the targeted growth year-on-year.

Do you have more questions to ask?

No. I'll fall back in the queue.

Next question is from the line of Harshit from [ CBSF Management ].

So my first question is, I would like to understand how is the outcome of branding with [indiscernible] during this IPO season? And did we see any major uptick in the number of deposit lead or CASA growth in April?

Yes. So our CASA grew very strongly in the first quarter, 7% quarter-on-quarter. And I would attribute a lot of that to, A, of course, good work at the bank of doing the advertising. But also, to be very honest, we were a bit lucky that [ RCD ] won the championship. So we could advertise till the very last match and also use that winning moment to kind of get more customer clicks and views. So it worked out very well for us. And because it was just -- it was largely official banking partner with a lot of advertising rights, it wasn't expensive realistically also. So it ended up being one of our best programs. It's the first time we ever did one, but it gives us great confidence in probably doing more programs like this certainly with [ RCB ] in the future.