CARE Ratings stated that the rating assigned to Utkarsh Small Finance Bank (USFBL) continues to derive strength from its comfortable capitalisation levels through regular equity infusions with the latest round of equity infusion coming through initial public offer (IPO) of Rs 500 crore in July 2023 supported by accretion of profits and sustainable growth in scale of operations with comfortable asset quality.

The rating also factors in the stable profitability as the bank reported a profit after tax (PAT) of Rs 498 crore in FY24 (refers to April 01 to March 31) against Rs 405 crore in FY23 resulting in return on total asset (ROTA) of 2.32% in FY24 against 2.38% in FY23.

However, the rating continues to be constrained by geographic concentration in advances wherein top two states contribute 54% and product concentration with high exposure to micro-banking segment, exposing it to inherent risk of the microfinance sector.

Over the years, the bank has diversified its non-microbanking retail portfolio, leading to a steady improvement in its proportion of the overall loan portfolio.

While the bank has been able to grow its deposit base in recent years, the current account savings account (CASA) ratio continues to be relatively low with a CASA of 19.01% as on 30 June 2024.

Utkarsh Small Finance Bank is engaged in providing banking and financial services with a focus on providing financial services to the underserved and unserved sections. The bank's microfinance lending activities are primarily focused in rural and semi-urban locations of the country while its other services are spread across the country.

The bank's standalone net profit jumped 27.81% to Rs 137.39 crore in Q1 FY25 as against Rs 107.49 crore recorded in Q1 FY24.Total income stood at Rs 1,070.56 crore in Q1 FY25, registering a growth of 31.78% from Rs 812.39 crore reported in the corresponding quarter previous year.

The scrip had gained 2.03% to end at Rs 42.28 on the BSE during yesterday's Mahurat trading session.