Jana Small Finance Bank Limited has received a reaffirmation of its CARE A rating with stable outlook from CARE EDGE Ratings on February 17, 2026. The rating applies to the bank's ₹75.00 crore Lower Tier II subordinate debt, reflecting the institution's adequate capitalisation despite ongoing challenges in asset quality and profitability.

Rating Details and Strategic Positioning

The rating reaffirmation acknowledges the bank's strategic transformation from unsecured microfinance lending to secured retail and micro, small and medium enterprise (MSME) segments. This shift has resulted in significant portfolio diversification, with microfinance loans declining to 27% of the advances book as of December 31, 2025, from 40% as of March 31, 2024.

Financial Performance and Profitability Challenges

The bank's financial performance has been significantly impacted by stress in the microfinance segment, leading to elevated credit costs and compressed profitability metrics. Return on total assets (ROTA) declined substantially across recent periods.

The deterioration in profitability stems from elevated slippages of 8.09% in FY25 and 7.65% (annualised) in 9MFY26, primarily concentrated in the microfinance portfolio. Despite these challenges, the bank maintained gross non-performing assets below 3% through strategic write-offs and accelerated provisioning.

Capitalisation and Growth Trajectory

Jana Small Finance Bank maintains adequate capitalisation levels that continue to support business expansion. The bank raised ₹462 crore through its initial public offering in February 2024, contributing to total equity infusions of ₹1,137 crore in FY24. Additionally, the institution raised Tier II capital of ₹250 crore in Q3FY26.

The bank demonstrated strong advance growth in the post-COVID period, with loan growth moderating to 19% in FY25 and 13% year-to-date in 9MFY26, primarily due to deliberate reduction in unsecured microfinance portfolio amid industry-wide stress.

Deposit Growth and Liability Profile

The bank's liability structure has undergone substantial improvement, with deposits growing 30% year-on-year to ₹33,733 crore as of December 31, 2025. The credit-to-deposit ratio improved to 93% from 103% in the previous year, indicating reduced dependence on borrowings.

However, the current account savings account (CASA) ratio remains relatively modest at 20%, with continued dependence on bulk deposits presenting funding cost challenges.

Operational Diversification and Future Outlook

The bank operates through 816 branches across 23 states and two Union territories, with no single state contributing over 14% of advances as of December 31, 2025. The secured loan portfolio comprises affordable housing loans (23%), micro loan against property including micro housing (19%), MSME loans (14%), and other diversified products.

The stable outlook reflects expectations that Jana Small Finance Bank will maintain profitable scale-up in advances and deposits while keeping asset quality under control and maintaining adequate capitalisation. The bank had applied for voluntary transition to Universal Bank status but the application was returned by RBI as eligibility criteria were not fully met.

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Jana Small Finance Bank Limited reported a sharp decline in profitability for the quarter ended December 31, 2025, as increased provisioning expenses significantly impacted bottom-line performance despite robust revenue growth. Following the results announcement, the bank conducted its earnings conference call on February 06, 2026, providing detailed insights into future expectations and strategic direction.

Financial Performance Overview

The bank's financial results for Q3FY26 revealed mixed performance indicators across key metrics:

For the nine months ended December 31, 2025, total income increased to ₹469.73 crores from ₹405.25 crores, representing growth of 15.91%. However, net profit declined substantially to ₹18.66 crores from ₹37.79 crores in the corresponding period of the previous year.

Management Guidance and Future Outlook

During the earnings conference call, Managing Director and CEO Ajay Kanwal provided comprehensive guidance for the upcoming quarters. The management expects Q4FY26 PAT to range between ₹140 crores to ₹160 crores, marking a significant recovery from Q3's performance.

The bank's Gross NPA is expected to remain flat at ₹830-850 crores in Q4, while the SMA book is projected to improve to 4.0% by year-end from the current 4.6%.

Asset Quality Improvement Trends

The bank demonstrated improved asset quality metrics during the quarter, with management highlighting a decisive bottoming out of slippages and SMA trends:

Slippages declined to ₹440 crores in Q3FY26 from ₹591 crores in Q2FY26, with unsecured slippages at ₹242 crores and secured slippages at ₹196 crores.

Strategic Initiatives and Guarantee Program

The bank has strategically placed 62% of its unsecured outstanding under guarantee programs, expected to reach 72% by March 2026. This initiative cost approximately ₹51 crores during the year, with ₹12 crores of eligible claims expected in Q4. Management projects recovery benefits of ₹120 crores in FY27 and ₹300 crores in FY28 from this program.

Deposit Growth and Funding Profile

Deposit performance remained robust with CASA growing 41.4% year-on-year to ₹6,742 crores, while term deposits increased 27.9% to ₹26,991 crores. The CASA ratio improved to 20%, and the cost of funds declined to 7.7%, with further reduction to 7.5% expected in Q4.

Business Segment Performance

The bank achieved its highest disbursals in 18 months across both secured and unsecured segments. The secured portfolio, led by affordable housing (₹7,500 crores), micro loans (₹6,201 crores), and MSME (₹4,830 crores), continues to drive growth. Gold loans showed exceptional growth of 194% to ₹1,752 crores, while vehicle loans grew 83% to ₹1,554 crores.

Unsecured advances registered positive year-on-year growth of 2% for the first time in recent quarters, with quarter-on-quarter growth of 4.1%. The BC book has stabilized with collections approaching 99% and is expected to show positive growth in Q4.

Universal Bank Application Update

The RBI returned the bank's Universal Bank application in Q3FY26. Management confirmed they are updating the application to address identified shortages and will resubmit at an appropriate time. The Universal Bank approval is not factored into current P&L projections, with management viewing it as an additional positive when achieved.