Capital Small Finance Bank Ltd

Our journey is anchored in purposeful growth, steady progress, and a constant readiness for what lies ahead.

"We don't chase growth. We build it ? with intention, discipline, and lasting purpose."

- Sarvjit Singh Samra

Dear Stakeholders,

This year marks a significant milestone for Capital SFB as we embark on the ninth year of our present avatar, carrying forward a proud legacy built over 25 years of dedicated service.

It is a moment of reflection, not only on the path we have travelled, but on the values, vision, and business model that we have nurtured and remained committed to throughout our journey. From our earlier days as India's largest local area bank to our transformation into a differentiated and respected SFB, our journey has been guided by governing principles of advancing with consistency, building with purpose, and evolving with integrity.

'Growth-Steady Future-Ready', encapsulates the equilibrium we strive to maintain. For us, growth goes beyond balance sheet metrics. It is reflected in the sustainability of our decisions, the continued relevance of our offerings, and the trust we consistently build. Our legacy has never been defined by expansion alone, but by building with compassion, scaling with purpose, and staying resilient through cycles.

The Broader Economic Backdrop and Why It Matters

FY25 unfolded against a backdrop of volatility, marked by elevated inflation initially in developed economies, encompassing higher and volatile interest rate movements and ongoing geopolitical disruptions and the US tariff saga. Yet, amid this uncertainty, India demonstrated remarkable macroeconomic resilience, solidifying its position as one of the fastest-growing major economies. Domestic demand remained robust, government- led capital expenditure sustained momentum, and inflation showed signs of easing.

Amid the evolving macroeconomic landscape, the RBI implemented two consecutive repo rate cuts, driven primarily by sustained moderation in headline inflation, particularly food prices. This brought the benchmark rate down to 6.00% by April 2025. The back-to-back rate cuts signalled growing confidence in India's monetary stability and opened space for calibrated credit expansion. GDP projections for FY26 were revised to 6.5%, which was slightly lower than previous estimates, but still among the highest globally.

This policy action has direct implications for SFBs, Capital SFB in particular. In this environment, our granular, retail-led liability franchise offers a distinct advantage. With 92.5% of our deposits sourced from retail customers and a healthy CASA ratio of ~37%, our cost of funds remains structurally competitive. The easing of policy rates enhances our ability to mobilise adequate deposits to maintain healthy margins without engaging in aggressive deposit pricing. This financial flexibility enables us to grow our loan book with discipline, thereby prioritising quality over yield compromises.

Additionally, credit demand across our core focus segments, agriculture, MSMEs, and mortgages, has shown encouraging momentum, especially in regions where formal credit penetration remains limited. These areas, which have always been the backbone of our portfolio, are closely aligned with India's broader growth story. For us, this evolving landscape has created opportunities to deepen our relevance and extend our footprint, while maintaining the prudence and structural integrity of our balance sheet.

Steadiness in Structure, Strength in Strategy

Over the years, we have remained grounded in the principles that define our lending approach. In FY25, we registered a 17% year- on-year (YoY) growth in gross advances, closing the year at ' 7,184 crores with disbursements of ' 2,846 crores, registering a 38% YoY growth. Our asset book continues to be 99.8% secured, and portfolio diversification remains intact, with 32% in agriculture, 27% in mortgages, and 21% in MSMEs, with the remainder of the loan book making up the rest of the 20%. This portfolio reflects not only our prudent approach but also our strategic alignment with sectors that are deeply embedded in regional economic ecosystems.

We sustained strong control over asset quality, with Gross and Net NPAs at 2.58% and 1.30%, respectively, and minimal writeoffs as of March 31, 2025. Our credit-deposit ratio improved to 81.4%, supported by calibrated disbursements and enhanced customer-level productivity. Risk discipline remained firmly intact, reflected in consistently high collection efficiencies across our loan book. Simultaneously, our capital to risk-weighted assets ratio (CRAR) stood at a healthy 25.4%, providing ample headroom to support future growth without compromising capital adequacy or breaching regulatory thresholds.

During the same period, we continued to demonstrate long-term resilience on the deposit side. In an increasingly competitive environment, particularly for mid-sized banks, our deposit growth has been relationship-led rather than rate-driven. Our deposit base expanded to ' 8,323 crores, consistently maintaining a high CASA ratio above 37% and 92.5% retail deposit with funding mix positively skewed towards deposits, constituting 82.3%, high rollover ratio of more than 90% for FY25, underpinned by strong retail franchise, customer loyalty,

high retention rates, and a deep understanding of depositor behaviour.

Our liability strategy will continue to evolve with a clear focus on continuing with high CASA, deepening retail penetration, and optimising the cost of funds. We remain focussed on maintaining low deposit concentration and high customer trust, a philosophy that has consistently supported high rollover ratios. We remain committed to our retail- dominant, low-volatility deposit model, which has consistently proven resilient across interest rate cycles.

Branch-Led, Technology- Assisted, Customer-Centric Growth

FY25 was a year of purposeful expansion, in terms of both reach and capability. Our network grew to 195 branches across five states and two union territories, with new additions driven by market adjacency, demographic potential, and distribution efficiency. Looking ahead to FY26, we plan to open 20-25 new branches, including our entry into one additional state. These decisions are guided by granular insights into credit and savings patterns, allowing us to replicate our model in high-potential areas without compromising cost efficiencies and discipline.

At the same time, we are investing purposefully in digitisation, not to replace our physical model, but to enhance and extend it. Our strategy is anchored in a phygital model, blending the trust and familiarity of our branch-led presence with the speed, efficiency, and scalability of digital platforms. Capital Mobile+ has matured into a full- service banking application with growing adoption across our core customer segments.

We are leveraging technology and data analytics for scalability and profitable growth, improving operational efficiencies and effective customer engagements to create multiple opportunities. This integrated approach enables us to meet customers where they are, whether at a branch, or on a mobile device, while ensuring that the experience remains intuitive, secure, responsive and user- friendly. For us, technology is an enabler that simplifies banking, sharpens governance, and empowers every team member to deliver more.

Above all, we remain deeply customer-centric. Today, over 7.8 lakh customers choose to bank with us, not merely for our credit or deposit products, but because we strive to be their primary financial partner, supporting them through every stage of their financial journey. Our operating model is structured to foster relationship-driven service, especially across semi-urban and rural markets. This not only builds trust but also enables us to drive meaningful insights into borrower behaviour, repayment capacity, and lifecycle needs.

Our network grew to 195 branches across five states and two union territories, with new additions driven by market adjacency, demographic potential, and distribution efficiency.

A Legacy Spanning over Two Decades and Its Enablers

This year, we celebrated nine years in our current avatar as a Small Finance Bank, building on a rich legacy of over two decades. More than just a marker of time, this milestone highlights the agility, trust, and enduring impact that have shaped our journey. Over the years, we have built a business that has withstood policy shifts, credit cycles, pandemic disruptions, and macroeconomic inflection points. This has been done without ever losing sight of who we serve and how we serve them.

From being India's largest local area bank to becoming the first SFB in the country, our story has been one of quintessential leadership. We introduced branch banking to credit- deprived regions, offered full- service banking to underserved communities, and grew without deviating from our secured lending model. These foundations are not only historical but also a testament to our future readiness.

Building Profitability, Expanding Purposely

Looking ahead, we are intensifying our focus on profitability drivers. While our return metrics have strengthened with ROA at 1.4% and Net Interest Margin (nim) at 4.2%, we believe there is scope to further enhance returns through:

? Accelerating the credit-to- deposit ratio to enhance the NIM

? Improving operating efficiency through scaling and increasing proportion of mature branch mix

? Leveraging partnerships to expedite cross-selling opportunities

? Extending presence into contiguous states and intensifying penetration in current markets

? Capitalising on anticipated tailwinds in middle-income segments

This continuity in leadership and business model reflects our long-term vision and intent to deliver greater value per customer, per relationship.

Grounding Sustainability in Business

At Capital SFB, sustainability is embedded in how we lend, operate, and grow. In FY25, we deepened our alignment with ESG principles by advancing further towards digitisation of banking operations, optimising branch energy use and prioritising regulatory- compliant vendors across our sourcing ecosystem.

Our model, anchored in collateral-backed lending and focussed on underbanked regions, naturally aligns with the principles of responsible finance. With over 75% of our branches in semi-urban and rural areas, we deliver meaningful credit access without resorting to unsecured or high-risk products. We see sustainability not as a policy checkbox but as a driver of long-term resilience for our balance sheet, customers, and the communities we serve.

The Road Ahead: Future- Ready, Striving Responsibly

FY26 will be a year of acceleration. Our priorities include growing our secured loan book, strengthening our presence in high-potential markets, and enhancing operating efficiency across locations. This is not a symbolic goal but a natural progression of a model that has demonstrated resilience, earned stakeholder trust, and proven its relevance at scale.

We are driving this progression with purposeful intent and steadfast discipline. Our aim is to achieve higher standards of professional excellence, strengthen internal systems and controls, ensure regulatory compliance in both letter and spirit, and foster the leadership mindset required to operate across a broader geographical footprint and an expanded business profile, ultimately creating long-term value for all stakeholders. With a CRAR well above regulatory requirements and ample liquidity, a tested model, and deep stakeholder trust, we are strategically positioned to pursue growth while withstanding external shocks, entering the next phase with both readiness and resolve.

FY26 will be a year of acceleration. Our priorities include growing our secured loan book, strengthening our presence in high- potential markets, and enhancing operating efficiency across locations.

A Word of Gratitude

To all our stakeholders including our regulators, Board members, shareholders, customers, and employees, I offer my deepest thanks. Your belief in our journey remains our greatest strength. Your trust enables us to evolve.

Behind every number and milestone is the commitment of our people. Our teams, deeply rooted in the communities we serve, remain the driving force behind our success. As we evolve, we continue to invest in their growth, encourage ownership and foster a culture anchored in integrity, agility, and long-term thinking. We believe our next phase will be defined not just by strategy, but by the strength of our people who deliver it.

Capital SFB is now a nine years old SFB. However, in many ways, our journey is just beginning. With experience behind us, capital in place, and strategy aligned with abundance of opportunities, we are ready to chart our next chapter of acceleration. Our journey ahead is rooted in resolve and strength for momentous growth, shaped by foresight, and prepared for the future we are forging with intent.