Utkarsh Small Finance Bank (USFB) is undergoing a significant strategic shift as it continues to scale down its exposure to high-risk Joint Liability Group (JLG) loans, while strengthening its base of retail deposits. The move reflects the bank’s focus on improving asset quality, diversifying its loan book, and ensuring sustainable long-term growth.
JLG Loan Exposure Declines Sharply
The bank’s latest financial disclosures show a consistent reduction in its microfinance or JLG portfolio. As of June 30, 2025 (Q1 FY26), the JLG loan book stood at around ₹8,578 crore — marking a sharp 23.1% year-on-year (YoY) decline and a 6.8% drop quarter-on-quarter (QoQ). This follows a similar downtrend observed in FY25, when the bank began scaling back exposure to this segment amid regulatory tightening and a cautious risk approach.
Industry experts note that this reduction aligns with the Reserve Bank of India’s “guard-rail” norms, which have imposed stricter rules for microfinance lending. These changes, coupled with higher credit risks in the JLG space, have prompted Utkarsh SFB to rebalance its portfolio toward safer, secured segments.
Non-JLG and Secured Loans Drive Growth
As JLG exposure declines, Utkarsh SFB has been rapidly expanding its non-JLG and secured lending portfolio — including home loans, MSME loans, and vehicle financing. The non-JLG book grew nearly 39% YoY in Q1 FY26 to ₹10,647 crore, showing the bank’s growing emphasis on more collateral-backed products.
By March 2025, the share of secured loans in the overall portfolio had risen from 34% in FY24 to 43%, indicating a decisive shift in asset composition. This move not only helps diversify risk but also positions the bank for steadier earnings growth amid a volatile lending environment.
Retail Deposits See Strong Momentum
On the liability side, Utkarsh SFB continues to strengthen its deposit base, driven by robust retail participation. Total deposits rose 23.4% YoY to ₹21,566 crore as of March 2025. Retail term deposits surged 33.5% YoY, reaching ₹10,635 crore, while the bank’s CASA (Current Account and Savings Account) deposits grew by 31% YoY to ₹4,699 crore.
This steady growth in granular, low-cost deposits has helped the bank improve funding stability. The share of CASA plus retail term deposits in total deposits has risen, reducing reliance on bulk deposits and institutional funding.
Why the Shift Matters
Utkarsh SFB’s transformation is rooted in a desire to build a more balanced and resilient balance sheet. By cutting back on JLG loans — a segment known for higher credit risk and volatility — the bank is mitigating exposure to potential asset quality shocks. Simultaneously, its focus on secured lending and granular deposits enhances financial stability, improves liquidity, and supports long-term profitability.
However, challenges remain. The bank must maintain healthy yields as it grows its secured loan book, which typically carries lower interest rates than JLG loans. Additionally, the recent uptick in gross NPAs (around 9.4% in FY25) indicates that asset quality pressures still need close monitoring.
Outlook
Utkarsh Small Finance Bank’s ongoing recalibration reflects a broader trend among small finance banks in India — a shift away from microfinance-heavy portfolios toward more diversified, secured, and sustainable business models. With retail deposits growing steadily and secured lending gaining momentum, the bank appears well-positioned for steady, lower-risk growth in the years ahead.