Ujjivan Small Finance Bank raises FY27 ROA guidance to 1.8%-2.0% on lower credit costs
Ujjivan Small Finance Bank delivered strong Q1FY27 results with net profit jumping 207% to ₹317 crore, fueled by record Net Interest Income and improved asset quality. The bank revised its FY27 RoA guidance up to 1.8%-2.0% and credit costs down to 0.9%-1.0%, reflecting stabilized microfinance collections and robust growth in secured loan segments like gold and vehicle finance.
*this image is generated using AI for illustrative purposes only.
Ujjivan Small Finance Bank revised its full-year Return on Assets (RoA) guidance upward to 1.8%–2.0% for FY27, citing improved asset quality and lower-than-expected credit costs. The bank reported a net profit of ₹317 crore for Q1FY27, a 207% year-on-year jump from ₹103 crore, driven by record Net Interest Income (NII) of ₹1,186 crore and stabilized microfinance collections. Management also lowered its credit cost guidance to 0.9%–1.0% of average total assets, reflecting robust bucket X collection efficiency of 99.68% and reduced slippages in the microfinance portfolio.
The Board approved the unaudited financial results on July 23, 2026, disclosing the earnings call transcript pursuant to Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Global brokerage HSBC maintained its Buy rating on the stock, raising the target price to ₹83 based on the earnings beat and upgraded EPS estimates for FY27–29.
Key Financial Metrics
| Metric: | Q1FY27 (Unaudited) | Q4FY26 (Audited) |
|---|---|---|
| Net Profit (₹ Cr) | 317 | 282 |
| Total Income (₹ Cr) | 2,282 | 2,186 |
| Net Interest Income (₹ Cr) | 1,186 | - |
| Provisions & Contingencies (₹ Cr) | 127 | 144 |
| Gross NPA (%) | 2.17% | 2.27% |
| Net NPA (%) | 0.34% | 0.43% |
| Capital Adequacy Ratio (%) | 20.36% | 21.14% |
| Basic EPS (₹) | 1.63 | 1.45 |
Asset Quality and Portfolio Diversification
Asset quality parameters showed further stabilization during the quarter. Gross Non-Performing Assets (NPAs) declined to 2.17% from 2.27% in Q4FY26, while Net NPAs improved to 0.34% from 0.43%. The provision coverage ratio strengthened to 85% as of June 30, 2026. The bank’s gross loan book expanded by 28.9% YoY to ₹42,903 crore, with secured loans now constituting 50.4% of the portfolio at ₹21,638 crore.
New business lines gained significant traction. Gold loans grew 248.6% YoY to ₹1,020 crore, supported by the activation of 106 new branches in the quarter. Vehicle loans reached ₹1,036 crore, up 85.1% YoY. Affordable housing and micro mortgages recorded strong growth, with the gross loan book increasing 40.8% YoY to ₹11,210 crore. The MSME portfolio also registered 54% YoY growth to ₹3,470 crore, though management noted a conscious strategy to increase ticket sizes, which has slightly moderated yields to approximately 10.5%.
Liability Franchise and Cost of Funds
Deposits grew 24.6% YoY to ₹48,129 crore, with Current Account Savings Account (CASA) deposits surging 37.8% YoY to ₹12,930 crore. This growth contributed to a reduction in the Cost of Funds to 6.86%, down 71 basis points YoY. Despite tight market liquidity, the bank maintained an Average Liquidity Coverage Ratio (LCR) of 132%. Management indicated that while marginal increases in deposit rates may occur, they do not foresee significant pressure on funding costs, leveraging instruments like IBPC refinance and securitization to optimize margins.
What the Numbers Show
The revision in guidance highlights a structural shift in Ujjivan’s profitability drivers. While revenue growth remains robust, the primary catalyst for the upgraded RoA is the compression in credit costs, particularly within the legacy microfinance book where collection efficiency has stabilized near 99.7%. Simultaneously, the rapid expansion of higher-yield secured segments like gold and vehicle loans is diversifying income sources. However, investors should note that operating expenses are expected to rise in subsequent quarters due to planned capacity building investments of approximately ₹250 crore, which were deferred in Q1. This suggests that the exceptional Q1 profit margin may normalize as these expenditures are recognized later in FY27.
Historical Stock Returns for Ujjivan Small Finance Bank
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| -0.36% | +3.00% | +10.85% | +16.94% | +73.29% | +184.85% |
How will the planned ₹250 crore in deferred capacity-building investments impact Ujjivan's operating margins and RoA trajectory in Q2 and Q3 of FY27?
Given the conscious strategy to increase ticket sizes in the MSME portfolio, what is management's outlook on yield compression risks versus volume growth sustainability over the next 12 months?
With secured loans now constituting over 50% of the portfolio, how might rising competition in gold and vehicle lending segments affect Ujjivan's pricing power and customer acquisition costs?
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