Utkarsh Small Finance Bank shares are in focus following the lender's business update for the third quarter, which revealed mixed performance across key metrics. The bank's loan portfolio contracted while deposits showed growth, alongside improved operational efficiency indicators.

Loan Portfolio Performance

The bank's gross loan portfolio experienced a decline of 3.90% year-on-year, reaching ₹18,306.00 crores compared to ₹19,057.00 crores in the corresponding quarter of the previous year. On a quarter-on-quarter basis, the portfolio decreased by 1.90% from ₹18,655.00 crores in September. The figures include inter-bank participation certificates issued by the bank.

The decline in the overall loan portfolio was primarily attributed to a significant reduction in the Joint Liability Group (JLG) loan portfolio, which contracted by 34.10% year-on-year to ₹6,419.00 crores. Conversely, the non-JLG loan portfolio demonstrated robust growth of 27.60% year-on-year, reaching ₹11,888.00 crores.

Deposits Growth and Composition

The bank's deposit mobilization showed positive momentum with total deposits increasing by 4.50% year-on-year to ₹21,087.00 crores from ₹20,172.00 crores in the year-ago period. However, deposits declined marginally by 1.70% on a quarter-on-quarter basis from ₹21,447.00 crores in September.

CASA deposits registered strong growth of 16.10% year-on-year to ₹4,611.00 crores, while retail term deposits surged by 23.80% to ₹12,586.00 crores. In contrast, bulk term deposits declined significantly by 35.60% to ₹3,890.00 crores.

Operational Efficiency and Asset Quality

The bank's collection efficiency for its micro banking loan portfolio improved to 99.10% from 98.60% sequentially. For Utkarsh and other microfinance lenders, the "X" bucket refers to highly delinquent category of loans, usually significantly overdue, such as 90-days-plus or 120-days-past due, and represents the riskiest part of their asset quality or loan book.

The bank maintained a robust Liquidity Coverage Ratio of 200.00%, demonstrating strong liquidity management. The deposit composition improved with the CASA ratio reaching 21.90%, while the combined CASA and retail term deposits ratio stood at 81.60%, indicating a favorable shift in the deposit mix.

Stock Performance Analysis

Shares of Utkarsh Small Finance Bank ended the previous session 1.40% lower at ₹15.11 apiece. The stock has experienced significant decline, falling 45.90% in the past year. The shares are trading 39.56% below their IPO price of ₹25.00 and are 48.40% down from their 52-week high of ₹29.33 per share.

Regulatory Compliance

Utkarsh Small Finance Bank has made this disclosure in compliance with SEBI Listing Regulations and the Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information. The bank emphasized that the information is provisional and subject to review by Joint Statutory Auditors and approval by the Audit Committee and Board of Directors.

Utkarsh Small Finance Bank has announced a credit rating update from CARE Ratings Limited regarding its Tier II Bonds, with the rating agency maintaining the CARE A rating while revising the outlook from Stable to Negative. The development was communicated to stock exchanges on January 05, 2026, as part of regulatory disclosure requirements under SEBI Listing Regulations.

Rating Details and Financial Impact

The credit rating action covers Tier II Bonds worth ₹200.00 crores, representing a significant portion of the bank's capital structure. CARE Ratings Limited reaffirmed the existing CARE A rating, indicating the agency's continued confidence in the bank's creditworthiness, while the outlook revision signals potential challenges ahead.

Microfinance Segment Challenges

The outlook revision to Negative stems from continued stress in the microfinance segment, which is impacting the bank's operational performance. CARE Ratings cited specific concerns about asset quality deterioration and profitability pressures as key factors influencing this decision.

The microfinance segment stress is affecting two critical areas of the bank's operations:

• Asset Quality: Deteriorating loan portfolio performance in the microfinance business
• Profitability: Reduced earnings potential due to increased provisioning and collection challenges

Regulatory Compliance and Disclosure

Utkarsh Small Finance Bank fulfilled its regulatory obligations by promptly disclosing the rating action to both BSE Limited and National Stock Exchange of India Limited. The communication was signed by Company Secretary & Compliance Officer Muthiah Ganapathy and made available on the bank's official website.

The detailed rationale behind CARE Ratings' decision can be accessed through the rating agency's official website, providing stakeholders with comprehensive information about the assessment criteria and risk factors considered in the rating review.

Market Implications

The Negative outlook revision, while maintaining the CARE A rating, indicates that CARE Ratings will closely monitor the bank's performance in addressing microfinance segment challenges. This development may influence investor sentiment and the bank's future funding costs, particularly for similar debt instruments.