SFBs Outperform AU Bank, Trade at Discount

Ujjivan Small Finance Bank, Equitas Small Finance Bank, and Jana Small Finance Bank delivered robust operational performances in the June 2026 quarter. These three small finance banks (SFBs) notably outperformed AU Small Finance Bank, which recently secured approval to become a universal bank.

Despite their strong showing, these SFBs trade at a substantial discount, ranging between 48% and 66%, when compared to AU Small Finance Bank’s valuation.

SFBs operate under a mandate to direct 75% of their credit towards priority sector loans, significantly higher than universal commercial banks. This strategic focus allows them to concentrate on high-margin offerings such as gold loans, SME loans, and micro-finance loans.

Consequently, these SFBs consistently achieve impressive Net Interest Margins (NIMs) between 6.5% and 8.5%. This contrasts sharply with AU Small Finance Bank’s 5.9% NIM, and far surpasses PSU banks at 2.5%-3.5% or top private sector banks at 3.4%-4.5%.

Q2 FY27 Performance Highlights

Ujjivan Small Finance Bank reported its loan book expanded by 28.9% year-on-year, reaching Rs 42,903 crore. This growth was fueled by a 54% surge in SME loans and a 249% rise in gold loans, pushing its NIM to 8.5%.

The bank’s net profit jumped by 206% year-on-year to Rs 316.5 crore, alongside a 24.6% increase in deposits. Asset quality improved, with net NPAs recorded at 0.34% for the quarter.

Equitas Small Finance Bank saw its loans grow by 26.7% year-on-year to Rs 47,641 crore, driven by 179% growth in gold loans and 70% in micro-finance loans. Its NIM stood at 7.24%, and core net interest income rose by 44.3%.

The bank achieved a net profit of Rs 183.6 crore, marking a significant turnaround from a net loss in the prior year, primarily due to a 73.9% decline in provisions. Net NPAs improved to 0.7%.

Jana Small Finance Bank’s advances increased by 24.7% year-on-year to Rs 34,699 crore, bolstered by a 112.5% growth in gold loans and 78.1% in vehicle loans. The bank posted a NIM of 7.5% and a 42.5% rise in Net Interest Income.

Net profit for Jana Small Finance Bank grew by 53.5% to Rs 155.2 crore, maintaining stable asset quality with net NPAs at 0.9%.

Valuation Disparity and Strategic Focus

In comparison, AU Small Finance Bank’s loan book grew by 26.6% year-on-year to Rs 1.38 lakh crore, with a NIM of 5.9%. Its net profit increased by 37.2% to Rs 796 crore.

While AU Small Finance Bank leads in Return on Equity (RoE) at 14.2%, compared to Ujjivan’s 10.8%, Equitas’s 1.68%, and Jana’s 7.6%, the valuation landscape presents a stark contrast.

Ujjivan Small Finance Bank trades at a price-to-book value of 2.1 times, while both Equitas and Jana Small Finance Bank trade at 1.4 times. This is significantly lower than AU Small Finance Bank’s 4.1 times price-to-book valuation.

The compelling valuations, coupled with strong growth potential, suggest these three small finance banks warrant closer investor attention in the current market.