1 week ago
Small Finance Banks Show Strong Growth Despite Valuation Gap
Small finance banks lend mainly to small businesses and people with lower incomes.
They must direct much of their lending to priority-sector borrowers.
Three such banks—Ujjivan, Equitas and Jana—reported strong loan growth in the June 2026 quarter.
They also earned higher interest margins than many larger banks.
Ujjivan’s profits more than tripled, while Equitas moved from a loss to a profit.
Jana also reported a large increase in profit.
Their loans were helped by products such as gold loans, SME loans, vehicle loans and microfinance.
Investors currently value these banks more cheaply than AU Small Finance Bank based on price-to-book ratios.
However, their returns on shareholders’ money were uneven, so strong growth does not guarantee similar investment performance.
Ujjivan, Equitas and Jana Small Finance Banks reported double-digit loan growth in the June 2026 quarter.
Their net interest margins ranged from 7.24% to 8.5%, compared with 5.9% for AU Small Finance Bank.
Ujjivan’s net profit rose 206%, Equitas turned profitable, and Jana’s profit increased 53.5% year over year.
The three banks trade at 1.4–2.1 times price-to-book, versus 4.1 times for AU Small Finance Bank.
The banks’ growth was led by high-margin gold, SME, vehicle-finance and microfinance loans, though returns on equity varied widely.
- Who
- Ujjivan Small Finance Bank, Equitas Small Finance Bank, Jana Small Finance Bank and AU Small Finance Bank.
- What
- The article compares the operating performance, profitability, asset quality and valuations of three small finance banks with AU Small Finance Bank.
- Where
- The banks operate across multiple Indian states and union territories; the article identifies Ujjivan as Bangalore-based, Equitas as Chennai-based, and Jana as Bangalore-based.
- When
- The performance data concerns the June 2026 quarter; several share-price references are dated July and August 2026.
- Why
- The comparison examines whether the three smaller banks’ strong growth and higher margins justify their lower price-to-book valuations relative to AU Small Finance Bank.
Key facts
- Small-finance-bank lending requirement
- Almost half of loans or advances must be below Rs 25 lakh.
- Priority-sector requirement
- Small finance banks are required to direct 75% of credit to priority-sector loans, compared with 40% for universal commercial banks.
- Ujjivan performance
- Loan book grew 28.9% year over year to Rs 42,903 crore; NIM was 8.5%; net profit rose 206% to Rs 316.5 crore.
- Equitas performance
- Loans grew 26.7% to Rs 47,641 crore; NIM was 7.24%; net profit was Rs 183.6 crore versus a loss of Rs 223.76 crore a year earlier.
- Jana performance
- Advances grew 24.7% to Rs 34,699 crore; NIM was 7.5%; net profit rose 53.5% to Rs 155.2 crore.
- AU comparison
- AU Small Finance Bank’s loan book grew 26.6% to Rs 1.38 lakh crore, with a 5.9% NIM and 37.2% profit growth.
- Price-to-book valuations
- Ujjivan traded at 2.1 times book, while Equitas and Jana traded at 1.4 times; AU traded at 4.1 times.
Sources
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