Capital Small Finance Bank Ltd Management Discussions

Indian Economy

Indias economy is expected to grow by 6.5% in FY25, as per the National Statistics Offices (NSO) second advance estimates released on February 28, 2025. This projection reflects solid domestic fundamentals and effective policy actions that steered the nation through global geopolitical & trade tensions and tariff conflicts.

Indias economic stability remains rooted in strong domestic consumption, with rural demand playing a vital role in shielding the economy from global pressures. Growth in rural areas stands firm, backed by healthy agricultural output and proactive government initiatives that help sustain consumption levels. However, to maintain overall momentum, it is crucial to revitalise demand across both rural and urban markets, particularly amid concerns around job market stagnation and protectionist headwinds.

Structural reforms have accelerated digital adoption, while ongoing investments in infrastructure continue to bolster macroeconomic fundamentals. India benefits from several favourable factors, including a demographic advantage with a growing middle-income group segment, rising per capita income, a strong manufacturing push, declining oil prices, and

a current account deficit widely regarded as sustainable by most analysts?all of which provide additional macroeconomic support. The country now stands at a pivotal moment, poised for global leadership and sustained economic growth. To seize this generational opportunity, an increase in investment is essential. Moreover, the Reserve Bank of Indias Repo Rate Cuts in monetary policy bodes well for a faster pace of economic expansion.

The Union Budget 2025-26 lays a solid foundation for accelerated, inclusive, and sustainable growth, with a strong emphasis on capital investment, social sector expenditure, and tax reforms, while targeting a fiscal deficit of 4.4% of GDP. Key initiatives include increased support for agriculture and Micro, Small, and Medium Enterprises (MSMEs), substantial allocations for infrastructure development, and tax relief measures aimed at enhancing the spending power of the middle class. Notably, the personal income tax exemption limit has been raised to 12 lakh, thereby increasing disposable income for the average citizen. This move is expected to stimulate consumption and grassroots-level investment, reinforcing economic momentum. By empowering households with greater financial flexibility and ensuring citizen welfare, the budget not only restores private sector confidence but also aims to invigorate demand and foster broad-based, long-term economic stability and prosperity across sectors.

(Source: https://pib.gov.in/PressReleasePage.aspxRs.PRID=2098352)

A significant part of this objective lies in the agriculture sector, which is poised for a rebound, with growth projected at 3.8% in FY25, a marked improvement from the modest 1.4% increase in

FY24. This recovery is underpinned by a favourable monsoon, sustained rural consumption, and targeted government interventions like the Kisan Credit Card scheme and the e-National Agriculture Market (eNAM).

In line with these efforts, the Union Budget for 202526 allocated 1.52 trillion to the sector, focussing on expanding credit access, building digital agricultural marketplaces, and advancing sustainability initiatives. The governments strategy centres on enhancing productivity, promoting farmer welfare, and strengthening allied segments like horticulture and livestock. This growth marks a phase of healthy growth, laying a firm groundwork for future developments.

(Source: https://www.indiabudget.gov.in/economicsurvey/doc/ echapter.pdf)

Indias export sector has posted substantial growth in FY25, achieving a major milestone with combined goods and services exports exceeding US$ 820 bn. This represents a near 6% rise over FY24s US$ 778 bn, underlining the countrys growing influence in global trade despite economic headwinds.

As of March 31, 2025, Indias foreign exchange reserves totalled US$ 676.3 bn, up from US$ 648.6 bn a year earlier. These reserves continue to provide ample import cover, reinforcing Indias external buffer. The increase was largely driven by proactive interventions by the RBI and favourable valuation adjustments in foreign assets. Despite global challenges, the Indian rupee remained relatively stable throughout FY25. For FY25, the rupee depreciated by around 2.4% against the US dollar, outperforming many other emerging market currencies. This stability was aided by Indias strong foreign exchange reserves, which acted as a crucial buffer against external pressures.

(Source: https://www.thehindu.com/business/Economy/indias- forex-reserves-rise-to-6763-billion/article69430292.ece

https://www.business-standard.com/finance/news/indian-rupee-logs-best-month-in-over-6-years-ends-fy25-down-2-5-125032800756_1.html)

To boost domestic growth, the Monetary Policy Committee (MPC) unanimously decided in its February 2025 meeting to cut the policy repo rate by 25 basis points, bringing it to 6.25%, effective immediately. This started the easing cycle that began in February 2025, when the RBI implemented its first rate cut in nearly five years, ending a long pause since May 2020. The decision followed a notable decline in consumer price inflation, mainly due to falling food and fuel prices. This easing provided the RBI with the flexibility to reduce interest rates and support economic growth, while maintaining price stability. Further, the RBIs decision to cut the repo rate by 25 bps to 6.00% on April 09, 2025 signalled a clear pivot towards a more growth- supportive monetary policy framework.

The MPC has emphasised its flexibility in navigating the current global uncertainties, while staying focussed on maintaining stability in Indias domestic financial markets. The recent downward revision of inflation and growth projections signals the MPCs confidence in the inflation path, even as support for economic momentum remains critical. Though the exact fallout of trade tensions is uncertain, monetary policy is playing a crucial role in stimulating the economy, stepping up to support growth.

(Source: https://www.financialexpress.com/policy/economy-rbi- mpc-meeting-2025-live-updates-governor-sanjay-malhotra- monetary-policy-announcement-repo-rate-loan-interest-rate- cpi-data-3803643/)

Outlook

India is set to achieve a real GDP growth rate of 6.5% between FY26 and FY28. This momentum stems from stronger manufacturing and export competitiveness, rising services exports, and rapid digital transformation, all boosting productivity and operational efficiency. However, several global and domestic challenges may pose risks to sustaining this momentum.

Key concerns include slower global growth driven by weak performance in the US and China, a delay in Indias private corporate capex cycle amid concerns of China offloading surplus manufacturing capacity. Added pressure on the Chinese Renminbi could further impact Indias goods trade balance.

Despite these external headwinds, shifting global policies and supply chain realignments are opening new doors. The rising preference for a China + 1 approach among global businesses strengthens Indias appeal as an alternative in global manufacturing and supply chains. This transition, if utilised effectively, could unlock significant gains in investment, exports, and employment. Furthermore, it would reinforce the nations position as a key driver of global growth over the coming decade.

(Source: https://www.ubs.com/global/en/investment-bank/ insights-and-data/2024/indias-outlook-2025-2026-story.html)

Banking Sector

Indias banking sector stands out as robust, well- capitalised, and effectively regulated, as noted by the RBI. The sector has undergone remarkable transformation, driven by innovative models such as payment banks and small finance banks.

This evolution has been further supported by the governments push for greater financial inclusion, exemplified by initiatives like the Pradhan Mantri Jan Dhan Yojana and the establishment of India Post Payments Bank.

The significant drop in Gross Non-Performing Assets (GNPAs) for Indian public sector banks, from a peak of 14.98% in 2018 to around 2.6% by December 2024, signals a multi-faceted turnaround. A pivotal driver of this change was the RBIs Asset Quality Review, which enforced greater transparency in NPA recognition.

Complementing this, the governments comprehensive 4Rs strategy, Recognition, Resolution, Recapitalisation, and Reforms, provided a solid foundation for systemic improvement. Additionally, enhanced operational efficiencies, stronger capital buffers, and a series of targeted reforms have significantly uplifted asset quality and overall sectoral endurance. While the broader credit market showed positive momentum, certain segments faced ongoing pressure, especially unsecured lending and microfinance. In the microfinance sector, asset quality witnessed notable stress during FY25, driven primarily by prolonged heatwaves that disrupted livelihoods and weakened borrowers ability to repay, but green shots are clearly visible with early estimates depicting sector is coming out of the woods.

Analysts expect the gap between deposit and credit growth to continue, with normalisation likely only by FY27. To manage this imbalance and protect financial stability, the RBI has introduced measures like increasing risk weights on non-banking financial companies (NBFCs) and consumer credit.

Another key trend shaping the future of Indias banking sector is the increasing adoption of digital technologies. Banks are integrating artificial intelligence (ai), machine learning (ml), and big data analytics to improve customer experiences, streamline operations, and cut costs. These tools enable more personalised offerings and enhanced operational efficiencies. These shifts are extending financial access across urban and rural India, accelerating credit growth, and fostering greater financial inclusion.

Banks are also investing heavily in cybersecurity to protect customer data and ensure secure transactions. Collaborations between traditional banks and fintech companies are driving the development of innovative financial products like UPI, and the upcoming Central Bank Digital Currency (CBDC). These innovations will further widen the reach of digital payments in India. Collectively, these trends are transforming the banking sector, creating new opportunities for growth and inclusion.

Outlook

Indias banking sector holds a robust outlook, backed by a supportive environment and proactive government measures like increased capital expenditure, direct tax reforms with welcome individual income tax cuts, and monetary easing aimed at boosting consumption and growth. Corporate balance sheets have strengthened. Furthermore, a likely pickup in private capital expenditure is expected to raise credit demand and strengthen asset quality in corporate lending.

Retail loan growth continues to remain strong, alongside improvements in risk management and regulatory reforms that improve sectoral endurance.

The capitalisation of banks remains strong, supported by internal capital generation that matches asset growth. Funding and liquidity are expected to stay stable in 2025, as loan growth

The Reserve Bank of Indias final guidelines on the Liquidity Coverage Ratio (lCR) has brought relief by easing earlier concerns. The central bank has mandated only a 2.5% additional run-off factor for retail deposits accessed through internet and mobile banking, significantly lower than the 5% proposed in the draft. This reduction means banks are required to set aside less liquidity, thereby mitigating the adverse impact on credit growth and profitability. Consequently, this change could boost credit growth by an estimated 1-1.5%.

Supported by strong retail demand and continued government backing, the banking sector is expected to maintain its growth momentum. Within this landscape, private banks are likely to outperform their public sector counterparts, thanks to their healthier balance sheets and stronger deposit mobilisation.

(Source: https://www.livemint.com/industry/rbi-liquidity-coverage- quidelines-liquid-assets-retail-deposits-banks-lcr-11745248067021. html)

The Deposit Dilemma

In recent years, there has been a notable shift in the way households save, with deposits making up a smaller proportion of overall savings. This decline is attributed to rising inflation and advancements in banking technology, which has made it easier for people to explore alternative investment options. Meanwhile, the demand for credit has remained steady growing at double digit, outstripping deposit growth since 2022. To address this imbalance, banks have introduced new deposit products and increased interest rates to attract more deposits. Although the gap between credit and deposit growth is narrowing, this is largely due to a slowdown in credit growth, which is expected to continue due to various factors, including rising stress in unsecured loans. Deposits are expected to rise 1010.5% in fiscal 2025 and 11.5-12% in subsequent fiscal primarily driven by strong demand for term deposits as investors try to lock-in higher interest rates.

Banking credit growth to moderate in fiscal 2025 with sluggish deposit growth:

• Indias gross banking credit grew at 16.3% during FY24 and is expected to normalise by 10.5-11.5% in fiscal 2025 and 11.5-12.5% in FY26.

? Asset quality improved further with GNPA declining to 2.8% as March 2024 and further improving to 2.6% as of September 2024.

? Deposit growth remains subdued being primarily driven by a surge in term deposits as investors seek to capitalise on high interest rates. Depositors are opting for term deposits to lock in these rates, contributing to the sluggish Current Account and Saving Account (CASA) deposit growth leading to margin compression for banks.

The dwindling deposit growth is putting pressure on banks to raise fixed deposit rates to attract new and retain existing depositors; however, with increased investment avenues and evolving socioeconomic dimensions of society, banks will have to make deposit product innovations to mobilise deposits commensurate with loan growth.

Small Finance Banks (SFBs)

Indias financial ecosystem has transformed significantly over the past decade, with SFBs emerging as key enablers of financial inclusion. Their establishment stemmed from persistent gaps in basic banking and credit access for underserved segments like small businesses, marginal farmers, micro industries, and the unorganised sector. SFBs were created to address these needs by providing savings and credit products specifically designed for these groups, with a strong focus on rural and semiurban areas.

SFBs operate under a robust regulatory framework set by the RBI. The framework aims to drive financial inclusion and ensure focussed lending to priority sectors. As per RBI norms, SFBs must direct at least 75% of their Adjusted Net Bank Credit (ANBC) towards priority sectors like agriculture, micro and small enterprises, and low-income households. Additionally, 50% of their loan portfolio must include advances up to 25 lakhs, fostering the growth of micro-loans with adjusted risk weights.

To support their evolution within the broader banking ecosystem, the Reserve Bank of India (rbi) has introduced clear eligibility criteria for SFBs aspiring to transition into universal banks. These include maintaining a satisfactory operational track record of at least five years and adhering to prescribed prudential norms. In line with the goal of regulatory consistency, the framework governing SFBs has been brought into alignment with the wider banking sector, incorporating requirements such as the Liquidity Coverage Ratio (lCR) and calibrated risk weights. This regulatory push, coupled with strong fundamentals, positions SFBs for healthy credit growth in FY25. Their continued emphasis on secured asset classes?such as loans against property, housing loans, and vehicle finance-remains a key driver of expansion.

Rising delinquencies, for a few lenders particularly in the microfinance segment, led to an increase in the GNPA ratio which rose to 2.8% by September 2024. This trend has also prompted greater risk aversion in lending practices. Parallelly, for some non-banking turned banks, funding challenges have intensified, with heightened competition for deposits, increasing funding costs and compressing margins.

Elevated operating expenses from recent branch expansions and higher employee costs, though beginning to stabilise, continue to impact profitability. Despite challenges faced by a few lenders, SFBs are responding with caution, slowing credit expansion and prioritising asset quality, contributing to the expected dip in growth in FY25. Secured lenders are emerging as clear winners, with added push for those with established, cost-efficient retail franchise models.

(Source: https://www.thehindubusinessline.com/money-and-banking/small-finance-banks-credit-growth-to-slow-in-fy25-profitability-to-face-challenges/article69098594.ece)

Geographical Expansion

The significant expansion of the SFB branch network has played a pivotal role in growth.

From March 2019 to March 2024, the number of branches more than doubled, reaching nearly 7,400. This growth has been particularly pronounced in the eastern region, where branch presence increased from 11% in March 2019 to 15% of the total network in March 2024.

Notably, over half of the existing branches now serve rural and semi-urban areas, tapping into substantial market potential and driving financial inclusion. This geographic spread improves accessibility and enables SFBs to reach underserved customers, fuelling longterm growth and sustainability.

(Source: https://www.crisilratings.com/en/home/newsroom/press-releases/2024/08/small-finance-banks-to-grow-advances-25-27-percent-this-fiscal.html)

New Asset Classes

The estimated credit growth for Small Finance Banks (SFBs) can be categorised into two segments - traditional and new, with the latter being the key driver of momentum. These emerging asset classes vary by each SFBs focus. Most include mortgage loans, MSME funding, vehicle loans, and unsecured personal credit. By diversifying into these fast-growing areas, SFBs tap into fresh demand, strengthen revenue streams, and accelerate growth. This shift towards new lending avenues fuels their expansion and positions them for long-term success in a competitive financial environment.

Regulatory Support

The supportive regulatory environment, led by the RBI, has played a key role in driving the growth of SFBs. Initiatives like Priority Sector Lending (PSL) targets and the introduction of the Unified Lending Interface (ULl) platform have reinforced the mandate of SFBs to serve the underserved.

Digital Transformation

The adoption of technology has proven to be a transformative catalyst for SFBs, boosting operational efficiency, data security, and customer experience. Mobile banking and digital payments have widened access, allowing customers in even the remotest areas access financial services anytime, anywhere.

In rural India, 82.1% of individuals aged 15-24 years now have internet access, reflecting a shift towards a more digitally connected generation. This transformation increases customer convenience and aligns with the national objective of fostering a digitally empowered economy, supporting SFBs in their role as key contributors to financial inclusion and growth.

(Source: https://pib.gov.in/PressNoteDetails. aspxRs.Noteld=153358&Moduleld=3&reg=3&lang=l#:~:text=ln%20 rural%20area%2C%20among%20those,the%20gap%20is%20 steadily%20narrowing.)

Government Initiatives

Government initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY) and credit-linked subsidy programmes serve as powerful growth drivers for SFBs. These initiatives boost financial inclusion by helping SFBs reach unbanked and underserved segments, while easing financial barriers through direct subsidy support. By capitalising on these programmes, SFBs can scale faster, deliver better service, and ensure their sustainability in a competitive banking ecosystem.

Outlook

The outlook for FY26 for SFBs is more positive, with credit growth forecasted to recover to 14-16%.

This improvement is expected to come from a strategic shift towards secured lending segments. This diversification will fuel credit growth and help stabilise asset quality, which came under pressure in FY25, particularly in the microfinance portfolio.

(Source: https://www.thehindubusinessline.com/money-and- banking/small-finance- banks-credit-growth-to-slow-in-fy25- profitability-to-face-challenges/article69098594.ece)

Capital Small Finance Bank

Capital Small Finance Bank Limited (also referred to as Capital SFB, The Bank or We) has evolved into a prominent player in Indias banking sector. We began as a Local Area Bank (LAB) and became the countrys first SFB on April 24,

2016. Initially serving five districts in Punjab as the largest LAB for over 16 years, the Bank began its journey with just 47 branches. Today, we operate 195 branches across Punjab, Haryana, Rajasthan, Delhi, and Himachal Pradesh, and the Union Territories (UTs) of Chandigarh and Jammu & Kashmir, cementing our footprint in Northern India.

For over two decades, the Bank has been dedicated to serving the middle-income group, with a strategic focus on rural and semi-urban areas where demand for banking services has been rapidly growing. We aim to close the gap in formal banking, reaching areas where financial access has long been limited. Our target segment, with an average annual income ranging from 4 lakhs to 50 lakhs, fuels our growth.

Capital SFB provides a full suite of asset and liability products. We deliver integrated financial solutions, helping customers secure homes, grow businesses, support agricultural endeavours, and procure ancillary banking services.

As of March 31, 2025, the average ticket sizes for our agricultural loans, MSME, trading and other business loans, and mortgage lending products are as follows:

The Banks emphasis has always been on building strong, long-term relationships with customers by offering a full spectrum of banking products under one roof. Its distinct two-step expansion strategy begins by setting up loan-focussed branches in key locations. Then, it moves into nearby regions with a wider range of services. This approach helps the Bank meet every financial need while earning customer trust and loyalty and become primary banker of its clientele.

This year marks a significant occasion for Capital SFB, as it celebrates 25 years of its existence. What began as a local area bank is now a listed entity with outreach spanning North India, a robust retail franchise, a well-carved niche, and is geared to optimise opportunities for sustainable, fast-track growth with superior asset quality, consistent performance, and trust. The Banks journey is a story of endurance, commitment, and growth. A relationship-first model, strong leadership, and a dedicated team have shaped the Banks solid reputation.

Looking ahead, we remain focussed on our aim to empower the middle-income segment. By continuing to innovate, expand our digital and physical presence, and deliver customer-centric solutions, we are well-positioned to meet the evolving needs of our customers and capitalise on the significant opportunities in the northern region of India.

Business Overview

Advance Portfolio/Loan Book

We have consistently demonstrated steady growth, maintaining a strong track record of healthy disbursements and the overall expansion of our advances book. Nearly all our loans remain secured, emphasising our strategic focus on building a granular and secure retail asset portfolio. Additionally, most of our advances are concentrated in key sectors such as agriculture, MSMEs, trading, and mortgage lending, which are integral to our customer base.

The Bank has maintained a highly prudent approach to secured lending. This disciplined strategy, underpinned by strong underwriting standards and rigorous cash flow monitoring, has contributed to low levels of non-performing assets

(NPAs) and negligible loan write-offs since our inception. We saw an increase in our disbursements, rising from 2,068.12 crores in FY24 to 2,846.20 crores in FY25. As of March 31, 2025, an impressive 99.8% of our loan book was secured, with 79.0% of loans backed by immovable properties and fixed deposits, further highlighting our risk-mitigation strategy.

We follow a disciplined risk management framework built on a balanced portfolio approach. This helps diversify project risks effectively. Our lending strategy focusses on optimising funding decisions based on risk-adjusted returns, ensuring each project contributes to both profitability and asset quality.

Agriculture

Agriculture in India is more than just a sector. It plays a central role in both economic and social fabric. The sector supports rural economy and also contributes to urban growth through its supply chains. In addition to its critical role in food security, agriculture provides essential raw materials that power industries like pharmaceuticals, textiles, biotechnology, and renewable energy, making it foundational to their growth and innovation.

With the advent of technology and sustainable farming practices, agriculture is undergoing a transformation that emphasises innovation, efficiency, and environmental stewardship. This evolving scenario places agriculture as a key sector in Indias move towards building a more solid and diversified economy.

At Capital SFB, agricultural financing has always been fundamental to our business, reflecting our deep-rooted commitment to supporting the backbone of Indias economy, its farmers.

A significant portion of our lending portfolio is dedicated to agriculture, as we recognise the sectors vital role in driving rural development.

Over the years, we have tailored our financial products to meet the unique needs of the agricultural communities, particularly targeting midsized farmers who typically own five acres of land or more. This targeted approach enables us to effectively address the unique credit and equipment financing needs of farmers, supporting both short-term crop-related requirements and long-term investments in agricultural machinery and infrastructure.

Our agricultural loan offerings primarily encompass two key categories: the Kisan Credit Card (KCC) and Agri-Term Loans. These provide farmers with the financial flexibility they need to manage their agricultural activities, including crop production and infrastructure development. By offering competitive rates and easy repayment terms, we ensure our agricultural customers have the necessary support to thrive.

What sets us apart is our deep understanding of agriculture and the real-world challenges farmers face. We have created products and systems that are specifically suited to the needs of this sector, making us a trusted partner for farmers. To mitigate risks, especially price fluctuations, our crop loans come with minimum guaranteed prices, which provide a safety net for farmers and ensure stable cash flows, even during exceptional production.

Financial Highlights FY25

MSMEs, Trading and Other Business Loans

MSMEs form a vital pillar of the Indian economy, contributing significantly to employment, GDP and industrial growth. Accounting for nearly 30% of Indias GDP, the sector provides employment to over 110 mn people, second only to agriculture. MSMEs also play a key role in fostering innovation, promoting inclusive growth, and supporting regional development by creating jobs in rural and semiurban areas. They contribute to the diversification of industrial output and enhance Indias competitiveness in global markets. Furthermore, MSMEs help in the development of ancillary industries, contribute to export growth, and provide a foundation for larger industries to thrive.

We are dedicated to addressing the varied financing needs of our clients, whether they are looking for short-term liquidity or long-term financial support. Our loan offerings are specifically designed for small and medium-sized enterprises (SMEs), small traders, and businesses within the service sector.

While we prioritise working capital financing, we understand that businesses require more than just day-to-day funding. Therefore, we also offer a range of other financial solutions, including machinery loans and project financing, to aid business growth and expansion. These tailored products help entrepreneurs invest in the right resources and infrastructure to realise their business ambition.

The Banks core focus is on serving mid-income individuals, particularly emphasising small-ticket assets to maintain a granular and secure loan book. We understand this segments aspirations and design solutions to meet their financial goals. In addition to providing loans for small assets, we also support homeownership dreams by offering loans for the purchase, construction, expansion, and renovation of residential properties. By empowering individuals to invest in homes, our approach contributes to stimulating the demand side of the economy.

Furthermore, we offer loans against properties, enabling property owners to unlock the potential of their assets. These loans can be utilised for financing viable economic activities or fulfilling personal financial needs, providing flexibility and financial freedom to our customers. Through these offerings, Capital SFB continues to play a central role in enhancing financial accessibility for middle-income individuals and driving economic growth.

Financial Highlights FY25

In addition to the three core pillars of our loan portfolio?MSME, Agriculture, and Mortgage?we offer a comprehensive suite of loan products that form the remainder of our loan book. These include corporate loans, personal loans, gold loans, and other credit offerings, serving as secondary and tertiary engagement hooks for our existing customer base. This diversified approach enables us to meet a wide range of financial needs, deepen customer relationships, and enhance overall portfolio resilience.

Funding Mix

Our success stems from a strong, granular base of retail deposits. Since our inception as an SFB in 2016, we have strategically focussed on expanding our retail deposits, which have proven to be a reliable and cost-effective source of funding. These deposits are more stable than wholesale deposits and tend to remain with the Bank over extended periods, fostering long-term growth. By capitalising on the strength of our brand and our deep connection with customers, we have been able to rapidly grow our deposit portfolio.

In FY25, the Banks deposit portfolio comprised 2,782.68 crores in savings accounts, 291.80 crores in current accounts, and 5,248.12 crores in term deposits, reflecting our robust deposit growth. In addition to our domestic customer base, we cater to the needs of Non-Resident Indians (NRIs) by offering specialised NRE and NRO accounts.

We adopt a retail-centric approach to deposit mobilisation, emphasising the growth of a stable CASA base and maintaining a strong term deposit rollover ratio of approximately 90%. This dedicated approach helps insulate Capital SFB from shortterm interest rate fluctuations, while ensuring a low, competitive cost of funds and stable deposit base. We also strengthen long-term customer relationships, support cross-selling opportunities, and secure a reliable funding foundation for sustainable growth, thereby delivering lasting value to both the Bank and our customers.

As of March 31, 2025, the Bank saw a growth in total deposits rising from 7,477.74 crores to 8,322.60 crores. The Bank continued with calibrated deposit growth owing to lower CD ratio and surplus liquidity available. Retail deposits made up 92.5% of the total deposit base that spanned 8,02,069 accounts with high CASA ratio of 36.9% and consistent CASA between 37%-42% since FY19. Despite industry-wide pressure on CASA due to the shift towards higher- yielding term deposits, the Banks strong CASA share reflects its robust retail liability franchise.

We are set to transform banking services in rural and semi-urban markets through a dynamic phygital distribution model, seamlessly integrating the accessibility of physical branches with the convenience of digital platforms. Alongside driving expansion, our approach helps us serve as a true financial partner, offering tailored solutions that address the specific needs of diverse local communities.

By investing in both technology and human touchpoints, Capital SFB ensures that every customer, from farmers to micro-entrepreneurs and small business owners, receives personalised, efficient, and trustworthy services. Our emphasis on relationship-driven engagement fosters long-term customer loyalty and strengthens community trust.

We also focus on addressing the banking requirements of central and state government departments, agencies, cooperative banks, and public trusts. A key milestone in this regard is our recognition as one of the only two SFBs empanelled by the Punjab Government for managing their deposit placements. This highlights our rising credibility and strength in the sector.

As depicted in the table above, the funding mix is positively skewed towards deposits, contributing lions share of the funding mix with 82.3% share (retail deposits constituting 92.5%). This also depicts the huge leg room available with the bank to romp up resources via increasing share of bulk deposits and other components of funding mix (including borrowings and availing refinance facilities) to provide for credit offtake at cost-effective terms as and when required

Types of Deposits

	FY25		FY24
Deposits	crores	% of Total Deposits	Tcrores	% of Total Deposits
CASA	3,074.48	36.9	2,863.75	38.3
Term Deposits	5,248.12	63.1	4,613.98	61.7
Total Deposits	8,322.60	100.00	7,477.74	100.00
Bulk Deposit	622.43	7.5	525.33	7.01
Retail Deposits	7,700.17	92.5	6,952.41	93.0

 

Slab	No. of Saving Accounts	%
Slab 1: 0 > to < 1 lakh	6,29,940	93.5
Slab 2: > 1 lakh to < 5 lakhs	31,399	4.7
Slab 3: > 5 lakhs to < 10 lakhs	7,409	1.1
Slab 4: > 10 lakhs to < 25 lakhs	3,995	0.5
Slab 5: > 25 lakhs to < 50 lakhs	840	0.1
Slab 6: > 50 lakhs	309	0.1
Total	6,73,892	100.00

Third-Party and Other Products

Our ambition is to be the leading provider of comprehensive financial services, offering a broad range of third-party products to meet the diverse needs of our customers, beyond our core banking services. Our offerings include insurance, locker facilities, and foreign exchange services like remittances, ensuring we address the full range of financial requirements.

We actively cross-sell insurance products to our borrowers, offering them the security and peace of mind that comes with protecting their families against unforeseen events. This initiative is made possible through our strong collaborations with renowned insurance providers. Our collaborations with ICICI Prudential Life Insurance, HDFC Life Insurance, Max Life Insurance and Edelweiss Life Insurance enable us to offer a wide range of life insurance products. Furthermore, through partnerships with Bajaj Allianz General Insurance and ICICI Lombard General Insurance, we provide general and health insurance options, covering life, term, motor, property, personal accident, health, and travel insurance.

In addition, Capital SFB offers a variety of foreign exchange services as an AD-II banker. We facilitate both inward and outward remittances services, having secured partnerships with several AD-1 Banks

and other reputable financial institutions. We also offer money remittance services through global leaders like Western Union, MoneyGram, and Ria Money Transfer.

We further enhance customer experience by offering 3-in-1 demat-cum-trading accounts in collaboration with leading brokers. This allows our customers to seamlessly manage their investments, trading, and demat accounts in one place, providing them with a complete financial platform. For those seeking a safe place to store their valuables, we offer safe deposit lockers, giving our customers a secure space to store their valuables for a nominal fee.

SCOT Analysis ?

Strengths

Diverse Product Portfolio

Capital SFB offers a comprehensive range of financial products, including agriculture loans, MSME, trading loans, and mortgages, effectively addressing the diverse needs of its customer base.

Customer-Centric Approach

With a focus on understanding the unique needs of middle-income customers, the Bank provides tailored services, building strong relationships through personalised engagement.

Technological Integration

We have harnessed the power of technology to enhance digital transactions, streamline operations, and elevate the overall customer experience. This is evident in our achievement of over 18.9 mn digital transactions in FY25.

Security-Backed Loan Portfolio

The Banks loan book is primarily secured, with 99.8 % of loans being secured, and 79.0% secured by immovable properties. This structure helps mitigate risk exposure, ensuring financial stability.

Consistent Growth

Demonstrating robust performance, we have achieved a CAGR of 20.3% in net interest income and 37.6% in profits between FY19 and FY25, indicating our ability to sustain growth.

Focus on Financial Inclusion

As a key player in advancing financial inclusion, we are dedicated to serving underserved regions and demographics, thereby contributing to broader economic development.

Challenges

Competition

The Bank competes in a crowded market alongside PSUs, other small finance banks, SCBs, NBFCs as well as emerging fintech firms, intensifying pressure on market share and profitability.

Interest Rate Volatility

The Banks performance is sensitive to fluctuations in interest rates, which could affect profitability, particularly in a changing macroeconomic environment.

Maintaining Asset Quality

Maintaining and improving asset quality is vital to maintaining Capital SFBs financial strength and aspirations of universal banking license, as any lapse could adversely impact its overall stability and performance.

Collateral against Loans

The value of the collateral securing our loans plays a pivotal role in safeguarding the Banks financial stability. Any decline in this value could expose Capital SFB to potential losses.

Opportunities

Untapped Markets

We hold significant growth potential by expanding into underserved regions in North India. This would diversify our geographic footprint and provide huge business opportunities.

Digital Innovation

Continued investments in digital banking solutions like mobile apps and online banking presents an opportunity to enhance customer experience, attract tech-savvy users, and stay competitive in a growing digital environment.

Product Development

By introducing additional products such as insurance and investment options, we can further diversify the Banks revenue streams, creating new avenues for growth and market expansion.

Customer Relationships

Focussing on relationship management and personalised services can help us build deeper customer loyalty, increase satisfaction, and drive long-term business growth.

Threats

Regulatory Scrutiny

Non-compliance with RBI regulations or changes in the regulatory framework could lead to increased scrutiny, operational disruptions, or financial penalties, affecting the Banks reputation and operational efficiency.

Financial Highlights

Statement of Profit and Loss

Particulars (in Rs. crores)	FY22	FY23	FY24	FY25	CAGR (%) (FY19-FY25)
Net Interest Income	255.28	321.98	345.15	410.19	20.3
Other Income	54.19	49.47	68.08	86.02	18.2
Gross Total Income	309.47	371.46	413.23	496.21	19.9
Operating Expenses	196.25	222.75	258.33	309.13	15.2
Profit for the Period	62.57	93.60	111.53	131.65	37.6
Earnings per Equity Share
Basic (Rs.)	18.41	27.35	30.65	29.18	27.4
Diluted (Rs.)	18.22	27.21	30.45	29.09	27.4

 

Statement of Balance Sheet
Particulars (in Rs. crores)	FY22	FY23	FY24	FY25	CAGR (%) (FY19-FY25)
Capital and Liabilities
Net Worth	515.78	610.61	1,197.42	1,340.14	32.3
Deposits	6,046.36	6,560.62	7,477.74	8,322.60	14.6
Borrowings	498.43	721.38	472.25	320.58
Other Liabilities and Provisions	93.35	98.16	147.78	124.20
Total	7,153.92	7,990.77	9,295.28	10,107.51	15.2
Assets
Cash and Balances with Reserve Bank of India	363.99	462.65	568.98	649.84
Balances with Banks and Money at Call and Short Notice	655.06	418.21	752.18	349.88
Investments	1,357.06	1,488.58	1,705.71	1,819.45	13.3
Advances	4,634.80	5,428.69	6,047.69	7,090.39	18.2
Fixed Assets	83.59	82.59	83.73	87.75
Other Assets	59.42	110.05	109.99	110.20
Total	7,153.92	7,990.77	9,295.28	10,107.51	15.2

Key Ratios (in %)

Particulars (in Rs. crores)	FY25	FY24
Net Interest Margin1	4.2	3.9
Gross NPAs	2.6	2.8
Net NPAs	1.3	1.4
Return on Assets2	1.4	1.3
Return on Equity	10.4	14.6
Return on Average Advances	2.1	2.0
Cost of Deposits	5.9	5.6
CRAR	25.4	27.4

1 Net Interest Margin has been computed based on the Net Interest Income (Interest Income - Interest Expense) and the average of total assets, as reported to the RBI in Form X under Section 27 of the Banking Regulation Act, 1949, for the year.

2 Return on Assets is calculated with reference to the monthly average working funds, which consist of the total assets excluding any accumulated losses.

Information Technology (IT)

At Capital SFB, technology is not just a support system, it is the central element of our customercentric approach, operational excellence, innovation, and overall growth. We view IT as a strategic enabler, empowering us to scale efficiently while improving the quality and accessibility of our services. Over the years, we have developed a solid digital foundation, partnering with top software and service providers to automate and streamline critical banking functions, including loan management, all underpinned by a powerful core banking system.

We are deeply committed to promoting financial inclusion by harnessing advanced technology to reach even the most underserved and remote areas. We recognise that access to digital banking is just the beginning, which is why we actively run financial literacy programmes and hands-on training sessions. These efforts help our customers better understand the benefits and practical use of internet banking, mobile banking, digital payments, and secure transaction tools, overcoming communication or technological barriers.

We also believe in providing personalised support. Our staff and local agents work closely with customers, guiding them through the digital process and addressing concerns about security and usability.

To build trust and familiarity, we host community engagement events such as live demonstrations and workshops, where we can interact directly with customers.

Additionally, we partner with fintech firms and local authorities to enhance digital infrastructure and introduce technologies tailored to the needs of rural communities. This comprehensive approach ensures that digital adoption is not only achievable but sustainable, empowering our customers to access banking services anytime, anywhere, and participate fully in the digital economy.

Capital SFB offers two mobile applications, Capital Bank Mobile+ and Capital Bank Mobile Connect, designed to meet banking needs with user-friendly interfaces and real-time services. We have also launched an upgraded internet banking platform, enhancing security, and providing a richer digital experience.

With the growing demand for digital transactions and evolving customer needs, we have integrated advanced security measures, including robust encryption and authentication, ensuring safe and reliable access. This platform provides 24/7 access to an array of banking services, offering convenience and peace of mind. Our aim is to provide a world-class banking experience that supports financial inclusion and meets the needs of both urban and rural customers.

Through continuous innovation and a commitment to seamless service, we are reshaping digital banking to make it more intuitive, inclusive and secure for our customers. At Capital SFB, we are not just adopting technology, we are using it to redefine the way banking is experienced.

Treasury Operations

Our integrated Treasury function has evolved into a vital component of our overall financial strategy. It plays a crucial role in optimising our balance sheet, enhancing operational resilience, and ensuring sustainable growth. The function oversees liquidity management, funding, and investments, while rigorously adhering to regulatory frameworks, especially those prescribed by the RBI.

The Treasury department actively manages key areas such as fundraising, asset-liability alignment, liquidity, and interest rate risk-each essential for optimising our overall cost of funds. It invests in a diversified mix of instruments, following a Board-approved Investment Portfolio Policy and Standard Operating Procedures (SOPs). These guidelines promote disciplined execution, transparency, and full compliance with RBI regulations.

Our treasury operations are structured into three core functional layers: Front Office, Mid Office, and Back Office. This layered setup ensures seamless execution, effective monitoring, and comprehensive risk management. Collectively, these layers facilitate end-to-end efficiency in managing cash flows, payment settlements, and inter-branch fund transfers. Acting as a strategic linkage between the head office and branch network, Treasury guarantees optimal liquidity flow and financial consistency across the Bank.

Central to our treasury philosophy are three foundational principles: safety, liquidity, and superior risk-adjusted returns (alpha generation). This guiding ethos influences all our investment choices, supporting a robust, high-quality portfolio. The outcome is a reliable liquidity cushion, prudent risk exposure, and enhanced earnings driven by well- calibrated returns.

Treasurys contribution to bottom-line growth combines strategic foresight with consistent execution. By efficiently managing the Banks average cost of funds and capitalising on yield opportunities within acceptable risk parameters, Treasury bolsters profitability. Our diverse and high- performing investment portfolio continues to deliver healthy returns, reinforcing our long-term capital efficiency and financial strength.

Risk Management

A strong risk management framework forms the foundation of a stable and resilient bank. At Capital SFB, we understand that besides regulatory compliance, risk management is also about building trust, ensuring financial security, and enabling sustainable growth. Through proactive risk assessment and strong governance, we create a secure banking environment that safeguards both our customers and the institution.

Business Risk

We recognise the business risks associated with a high concentration in microfinance lending and the rising stress on asset quality, which can affect our profitability and overall stability. To mitigate these risks, we are proactively diversifying our loan portfolio into more secured asset classes such as loans against property, housing finance, and vehicle loans. We are also exploring strategic opportunities, including potential mergers or amalgamations, to reduce concentration risk and strengthen our capital base. These measures are part of our commitment to building a more resilient and sustainable growth trajectory.

Credit Risk

We follow a responsible lending approach, anchored in thorough creditworthiness and repayment assessments. Each loan passes through a stringent evaluation process. By implementing a well-defined credit policy, we ensure that financial assistance is extended prudently, reducing default risks while facilitating financial inclusion.

Operational Risk

To mitigate operational risks, we prioritise process efficiency and strong internal controls. Our employees are trained to adhere to standardised protocols, reducing the likelihood of errors and fraud. Additionally, our advanced IT infrastructure acts as a safeguard against cyber threats, ensuring data security and system resilience.

Technology Risk

We are mindful of the significant technology risks that come with rapid digital transformation - ranging from cyber threats and data breaches to evolving compliance challenges. To address these, we are investing in advanced Al-driven risk assessment systems, strengthening our cybersecurity infrastructure, and deploying real-time compliance tools. These initiatives are designed to ensure secure, resilient operations while maintaining strict regulatory adherence in an increasingly dynamic and digital banking environment.

Market Risk

We track market risk closely, including shifts in interest rates, currency movements, and liquidity pressure. Our dedicated risk management team uses advanced analytical tools to assess market dynamics and implement contingency plans, ensuring stability amid uncertain economic conditions.

Regulatory Risk

Adherence to regulatory frameworks is embedded in our corporate ethos. Our compliance team continuously reviews policies and procedures to align with evolving laws and industry standards, reinforcing our commitment to ethical banking and transparency.

Reputation Risk

We go beyond financial and regulatory risks and actively protect our reputation by prioritising customer satisfaction. A structured grievance redressal mechanism and strong service commitment help us resolve concerns swiftly and effectively. Moreover, the Risk Management Committee, under the Boards guidance, ensures strategic oversight by evaluating and strengthening our risk strategy.

Compliance

Our operations are guided by a comprehensive framework of internal policies and external regulatory mandates that shape our approach across diverse business functions. We diligently adhere to RBI directives and meet corporate governance, KYC, AML, and IT compliance standards. These regulations, tailored to specific operational contexts, serve as the foundation for our commitment to transparency, accountability, and ethical business conduct. By integrating best industry practices with evolving market standards, we ensure a compliance-driven culture that safeguards trust and drives long-term sustainability.

Our compliance function is structured to be independent, vigilant, and aligned with the highest governance standards. It covers a wide range of statutory and regulatory provisions, including the Banking Regulation Act, Companies Act, RBI Act, FEMA, and PMLA. It also adheres to directives from IBA, FEDAI, and FIMMDA.

Beyond external legal obligations, we maintain a strict internal governance framework built on our fair practices code and internal policies. Guided by principles of integrity, objectivity, and discretion, we embed compliance into every facet of our operations, ensuring a culture where regulatory adherence is not just a requirement, but a shared responsibility across the Bank.

Human Resources

At Capital SFB, we see a motivated workforce as the root of outstanding customer service. Our people bring sharp expertise and stay in step with industry shifts to offer smart, reliable solutions. To strengthen this asset, we continuously invest in their growth and create an environment that fosters collaboration, innovation, and well-being.

We are committed to promoting a healthy work- life balance by offering flexible work schedules, ample leave benefits, and a supportive workplace culture. Our emphasis on local hiring allows us to

Corporate Social Responsibility (CSR)

We believe that our responsibility goes beyond banking. It extends to the communities we serve. To honour this commitment, we established Capital Foundation, a not-for-profit nodal body dedicated to driving our community development efforts and fulfilling our CSR commitments with purpose and integrity.

Through Capital Foundation, we are committed to promoting inclusive socioeconomic development. We do this by undertaking participatory and need-based initiatives that empower the underprivileged and marginalised sections of society. Our aim is to help individuals become self-reliant, enabling them to shape a better and more sustainable future for themselves and their families.

We strive to create a positive and lasting impact across various areas that matter most. These include education, health, livelihood, and social welfare. Every initiative we undertake follows a strong governance framework that upholds transparency, accountability, and alignment with our core values.

In line with the Companies Act, 2013 and the Companies (Corporate Social Responsibility) Rules, 2014, as notified by the Government of India, Capital SFB has adopted a well-defined CSR policy. Our CSR Committee identifies focus areas, recommends initiatives, and monitors execution through regular reviews to ensure effectiveness.

Sarv Shiksha Abhiyan

We believe education forms the foundation for a brighter future. Through the Sarv Shiksha Abhiyan, we promote learning by organising talent hunts, offering scholarships, and distributing books, bags, stationery, uniform, shoes to deserving students.

Our efforts extend beyond the classroom; we invest in improving infrastructure and support facilities, especially in rural and semi-urban areas. Furthermore, we advocate vocational training and life skills for diverse groups, including children, women, the elderly, and differently abled individuals, nurturing a culture of continuous learning.

Commitment to Environmental Stewardship

We are deeply committed to protecting our planet and maintaining ecological harmony. Our initiatives include the development of green belts, regular tree plantation drives, promotion and distribution of eco-friendly, bio-degradable jute bags for pollution free environment and activities that promote environmental awareness. These measures are part of our broader aim of ensuring a greener, healthier future.

Helping Hands for Water, Food, and Health (WFH)

Our WFH initiative meets vital needs that support a dignified life. We are focussing on installing water coolers and purifiers, tube wells, and hand pumps to ensure access to clean and safe drinking water. We also distribute winter wear, including warm clothes & blankets to homeless and destitute/needy section of society. We are also continuously organising preventive health camps, providing medical aid for the underprivileged, and conducting food distribution drives. These efforts reflect our commitment to health and nutrition equity.

Tomorrow Ready Relief Project

Preparedness enables effective response in times of crisis. Under the Tomorrow Ready Relief Project, we are actively supporting disaster management efforts, by providing relief, rehabilitation, and reconstruction assistance - helping communities recover and rebuild with resilience.

Inclusions and Empowerment

We are working consistently to uplift the quality of life for senior citizens and women from economically and socially disadvantaged backgrounds. Through our programmes, we are promoting digital and financial literacy, and creating pathways for skill development and livelihood generation, and advancing gender equality to reduce social disparities.

Gear Up India (Aka Rural Sports Development)

We back sports with a deep belief in its power to inspire and bring people together. Through Gear Up India, we are helping Olympic athletes, funding rural sports programmes, supporting emerging leagues, honing player skills, and investing in training and infrastructure. These initiatives are aimed at building a strong sporting culture and empowering the next generation of athletes.

Healthcare/Donation under COVID-19

We promote healthcare by supporting the treatment of poor and needy individuals in society. We also organise preventive healthcare camps and provide medical facilities, treatments (both preventive and curative), and vaccines to underserved sections of the population, including socially and economically disadvantaged groups, senior citizens, and women and girls. Additionally, we organise eye check-up camps to reach those in need, arrange surgeries, and provide spectacles as required.

Marketing

Our marketing objective is to enhance our brand recognition and establish ourselves as the go-to banking partner in both the regions we currently serve and future markets. We are committed to fostering strong relationships and deepening community engagement, building trust and reliability at every touchpoint.

This approach aligns seamlessly with our customercentric approach and business model, utilising a mix of digital and traditional channels to maximise reach. With a strong presence in rural and semiurban areas, we use digital platforms like social media, websites, and online campaigns to engage our audience. We complement this with traditional media such as outdoor displays, newspapers, and radio to build deeper connections.

To boost visibility and engagement, we focus on launching targeted campaigns that highlight our products, services, and brand values. Our marketing initiatives focus on three core areas:

Cautionary Statement

As per applicable laws and regulations, this report contains some forward-looking statements. However, it should be noted that the actual results may differ from those expressed or implied due to various factors such as economic conditions, government policies, and other related factors.