Listed small finance banks (SFBs) posted a decline in net profit by 0.6 per cent year-on-year (Y-o-Y) to Rs 1,300 crore during the first quarter of FY25 as provisions and contingencies more than doubled Y-o-Y to Rs 1,277 crore. Sequentially, the decline in net profit of SFBs was more pronounced with 14.6 per cent fall.

The asset quality of small banks deteriorated with a 47.4 per cent Y-o-Y rise in gross non-performing assets to about Rs 5,976 crore in Q1FY25, according to data compiled by BS Research Bureau for eight listed SFBs.

AM Karthik, senior vice president & co group head, financial sector ratings, ICRA, told Business Standard: “The collection activity, including that in micro loan portfolio, slowed down, which led to higher slippages. We will have to wait for a quarter to see if the rise in gross bad loan is transitory or structural.”

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SFBs’ net interest income (NII) grew by a healthy 27.7 per cent Y-o-Y to Rs 5,827 crore. Sequentially, NII grew by 13.5 per cent over Rs 5,135 crore in Q4FY24.

While the interest earned grew by 33 per cent Y-o-Y to Rs 10,709 crore in Q1FY25, the pace of growth was faster at 40 per cent Y-o-Y in interest payout at Rs 4,882 crore. Sequentially, interest earned grew by 13.2 per cent over Rs 9,460 crore and interest expenses rose by 12.9 per cent over Rs 4,324 crore.

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