SURYODAY - Suryoday Small Finance Bank Limited Share Price

Management Outlook:
Suryoday Small Finance Bank's management anticipates continued challenges in deposit growth and unsecured lending but remains optimistic about improving asset quality and digital deposit mobilization. Key outlook points include:

1. Deposit Growth: Focus on retail granular deposits (81% retail share) and digital channels (INR 2.5 Cr/day), targeting improved CASA (19.5% in Q3).
2. Advances: Secured segments (Wheels: +80% YoY; Mortgages: +43% YoY) to drive growth, with cautious disbursements in Inclusive Finance (IF).
3. Asset Quality: GNPA at 5.5% (adjusted for CGFMU claims: 2.6%); collections to improve to ~98.5% efficiency in Q4. Stress in Karnataka (7% portfolio) and UP being addressed.
4. Regulatory Impact: Guardrails 2.0 (3-lender cap, INR 2L limit) to moderate sector growth but enhance sustainability. CGFMU coverage (98% IF portfolio insured) to mitigate credit costs.
5. Innovation: Launched digital MSME product Dhanashree and Double Joy Deposits to diversify offerings.

Major Financial & Strategic Highlights:

• Advances: INR 9,563 Cr (+25.8% YoY); IF disbursements moderated due to market conditions.
• Deposits: INR 9,708 Cr (+49.7% YoY), driven by retail (81.2%).
• Profitability: PAT declined 41% YoY (INR 148.7 Cr) due to higher provisions; NII up 24.6% (INR 861.5 Cr).
• Asset Quality: GNPA (5.5%) and NNPA (3.1%); Stage 3 assets at 4.1%.
• Capital Adequacy: 26.9% (Tier-1: 25.3%), well above regulatory norms.
• FY25 Targets: 48% secured book (vs. 46% in Q3); credit costs ~1.5-1.6% for FY25.

Focus Areas: Strengthening collections (1-30 DPD bucket), expanding digital infrastructure, and balancing secured/unsecured portfolios (55% secured target by FY26).

Question 1: "Our thesis was that the individual book will do better than the JLG, but that doesn't seem to be happening. Could you just throw some color on that?"
Answer: The individual loan portfolio (Vikas loans) outperforms JLG loans despite challenges. Collection efforts for Vikas loans are now prioritized, with a dedicated team to address slippages. Deterioration in individual loan performance is linked to reduced one-on-one engagement, which is being rectified through focused collection strategies.

Question 2: "Our guidance for last quarter and our performance this quarter, there is a significant gap. So how is the DPD 30 book, PAR 30 to 90 shaping up this quarter? What can we expect for the next quarter?"
Answer: Q3 challenges arose from lower current-bucket collection efficiency (97.7%). Efforts target improving this to ~98.5% in Q4. Slippages into the 1"“30 DPD bucket (2.5% of portfolio) are being addressed with enhanced collection resources (400"“500 personnel). Asset quality stabilization is expected in Q4.

Question 3: "Is there any direct or indirect indication or pressure or nudge from RBI or the Ministry of Finance to reduce interest rates in group lending or individual lending?"
Answer: No direct pressure, but regulatory guidance emphasizes reasonable rates covering costs without overburdening borrowers. The bank reduced individual loan rates from 28% to 26% voluntarily and maintains current pricing despite sectoral cost increases.

Question 4: "In spite of higher slippages this time around, we still continue to have very high numbers in terms of Stage 2 assets. So any color on that?"
Answer: Focus areas include improving current-bucket collections (target: 98.5% in Q4) and the 1"“30 DPD bucket. Core markets (Maharashtra, Tamil Nadu) show recovery trends, but stress persists in Karnataka (7% portfolio) and Eastern UP. Guardrails 2.0 (3-lender cap) has been implemented to mitigate overleveraging.

Question 5: "What would be the LDR target by year-end and growth guidance for FY26?"
Answer: Deposit growth (10% QoQ, 50% YoY) is driven by digital channels (INR 2.5 Cr/day). LDR strategy prioritizes granular retail deposits (81.2% retail share). FY26 guidance will be shared during Q4 results.

Question 6: "What are the resolution rates in SMA 30 and SMA 60"“90 buckets?"
Answer: SMA 30 resolution rate is 35"“40%, while SMA 60"“90 is 45"“50%. Collections are prioritizing these buckets to limit slippages.

Question 7: "Can we assume Q3 is the bottom for performance, with improvement from Q4 onward?"
Answer: Q4 may see similar stress due to legacy slippages, but stabilization efforts (Guardrails 2.0, collections focus) aim for gradual improvement. Meaningful recovery is expected from Q1 FY26.

Question 8: "What is the secured/unsecured loan mix target?"
Answer: Secured loans (wheels, mortgages) form 46% of the portfolio, targeting 48% by FY25-end and 50"“55% by FY26. The unsecured portfolio is largely covered under CGFMU (95% coverage).

Question 9: "Why is credit cost lower in Q3 despite higher slippages?"
Answer: CGFMU-covered NPAs (INR 380 Cr) require only 27% provisions (vs. 50% earlier), leading to a one-time release of INR 102 Cr. Full-year credit cost guidance is ~1.5"“1.6% (INR 220"“250 Cr).

Question 10: "Why is the CGFMU-eligible GNPA lower than total IF GNPA?"
Answer: INR 60 Cr of IF GNPA relates to older ECLGS loans ineligible for CGFMU. Technical write-offs (INR 50 Cr under CGFMU) will be claimed separately.