Nuvama Institutional Equities has recently spotlighted Jana Small Finance Bank, issuing a ‘Buy’ recommendation. This move comes with a bullish forecast, predicting a 43% increase in value, targeting a price of Rs 600, compared to its current market price of Rs 419. The brokerage is optimistic about the bank’s attractive valuations, enhanced asset quality, and stable return ratios.

Strong Shift Towards Secured Loans

One of the significant changes at Jana Small Finance Bank is its strategic pivot towards secured loans. As of the third quarter of FY25, the bank has managed to reduce its unsecured loan portfolio to 32%, down from 50% in FY22. The secured loan segment has experienced significant growth, climbing to 68% from just 50% two years ago. This emphasis on secured lending is reflected in the bank’s overall asset quality and CASA (Current Account Savings Account) mobilization, which, alongside a robust loan-to-deposit ratio, showcases a marked improvement in its deposit franchise—growing at an impressive 27% CAGR from FY22 to Q3 FY25.

• Highlights of Jana’s Loan Strategy:
  • Secured Loan Increase: From 50% to 68% of total loans.
  • Unsecured Loan Decrease: From 50% to 32%.
  • CAGR Growth in Deposits: 27% over the last three years.

Positive Outlook on Asset Quality

While Jana Small Finance Bank’s asset quality faced some challenges during the first half of the current fiscal year—primarily due to pressures in the microfinance sector—the bank’s performance remained relatively stable when compared to other Non-Banking Financial Companies (NBFCs). The increase in gross non-performing assets was modest, and management is confident that the stress levels have peaked, anticipating a rebound in asset quality by FY26.

Nuvama emphasizes the importance of vigilance regarding asset quality, especially in the microfinance segment, until a clear recovery trend emerges across the broader system.

Sustainable Profitability on the Horizon

Nuvama is convinced that Jana Small Finance Bank possesses the scale and strategy necessary for sustainable profitability. The bank’s focus on bolstering deposit mobilization, a shift towards secured lending, and effective operating leverage positions it well for future growth. Furthermore, the expectation of normalizing credit costs—coupled with improved asset quality—supports a promising outlook.

In summary, with its strategic focus on secured loans and improved asset management, Jana Small Finance Bank is positioned for significant growth, making it an appealing option for investors looking for opportunities in the small finance banking sector.