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Financials
Title:
Nuvama Initiates Coverage on Jana Small Finance Bank: 3 Key Reasons Why Shares Could Soar 43% in One Year
Content:
The Indian small finance banking sector is capturing the attention of investors, and Nuvama Institutional Equities’ recent coverage initiation on Jana Small Finance Bank (JSFB) with a ‘Buy’ rating has sparked enthusiasm around this growing financial institution. With a target price of ₹600, implying an upside potential of approximately 43% from current levels, Nuvama’s optimism is rooted in the bank’s improving fundamentals, strategic shifts, and promising growth outlook. This article explores three compelling reasons why Jana Small Finance Bank shares could surge significantly over the next 12 months, supported by expert analysis and market data.
Jana Small Finance Bank transformed its business model from a non-banking financial company (NBFC) to a scheduled commercial bank by 2019, focusing on financial inclusion by catering to underserved and unbanked populations across India. Under the leadership of CEO Ajay Kanwal since 2017, the bank has redefined its strategy towards a more balanced loan portfolio, enhanced deposit mobilisation, and improved asset quality through technological and operational enhancements[5].
Currently, JSFB ranks as the fourth largest small finance bank in India by advances and deposits, with an Asset Under Management (AUM) of nearly ₹28,000 crore as of the third quarter of FY25. Its network includes 778 banking outlets, with 252 located in rural and unbanked regions across 22 states and two Union Territories[5].
One of the most significant shifts in JSFB’s strategy is the move from unsecured to secured lending. The bank has successfully increased the share of secured loans from 50% in FY22 to 68% in Q3 FY25—a compound annual growth rate (CAGR) of 39% in this segment. This transition has resulted in an overall loan book CAGR of 25% during the same period.
Looking ahead, Nuvama projects the loan book to grow at a healthy 21% CAGR between FY24 and FY27, with secured loans expected to reach about 80% of the total loan portfolio by FY27, aligning with management guidance. This shift to secured loans not only mitigates credit risk but also supports sustainable credit growth, underpinning the bank’s profitability and stability[1][2][5].
Jana Small Finance Bank has demonstrated resilience in an otherwise challenging credit environment, particularly in the microfinance segment, where stress has been rising industry-wide. Despite a slight increase in gross non-performing assets (GNPA) in H1 FY25 due to microfinance portfolio pressures, the bank’s asset quality deterioration has been minimal compared to other small finance banks and NBFCs.
This relative stability is attributed to the bank’s enhanced underwriting standards, focus on secured lending, reduced reliance on business correspondents (BC channels), and a transition from group lending to individual loans. Nuvama expects asset quality to improve further in FY26, with credit costs normalising, which will support better earnings visibility going forward[1][2][5].
JSFB’s strong deposit franchise is a critical factor for its growth and margin sustainability. The bank has achieved a remarkable 27% CAGR in deposit mobilisation from FY22 to Q3 FY25, despite intense competition in the banking sector. A significant contributor to this is the expanding share of CASA (Current Account and Savings Account) deposits, which are low-cost funds that improve the bank’s net interest margins (NIM).
Nuvama highlights that JSFB has maintained stable NIMs even as the secured loan share has increased, thanks to focused measures on improving retail deposits and growing the CASA base. The management’s efforts to optimise the cost of deposits are expected to reduce funding costs by approximately 25 basis points once the bank transitions to a universal bank license, which is anticipated in Q1 FY26.
Projected return ratios are impressive, with a return on assets (RoA) expected between 1.7% and 1.9%, and return on equity (RoE) ranging from 16% to 18% during FY26-27. An unrecognised Deferred Tax Asset (DTA) of ₹735 crore also enables tax-free operations until FY27, providing additional financial leverage[1][2][5].
Following Nuvama’s coverage initiation, Jana Small Finance Bank’s shares rose approximately 5% intraday, reflecting investor confidence in the brokerage’s bullish outlook. The stock quoted around ₹447 on the National Stock Exchange with a market capitalisation near ₹4,700 crore, outperforming key indices on a year-to-date basis despite a volatile market environment[1][3].
Other brokerage firms echo the positive sentiment, naming Jana Small Finance Bank among attractive mid-cap investment opportunities due to its growth potential, improving fundamentals, and market positioning. With valuations at 1.1 times FY27E Adjusted Book Value (ABV), the stock offers an appealing risk-reward ratio for long-term investors[3][5].
JSFB’s management plans to apply for a universal bank license by Q1 FY26, which could significantly enhance its product suite, funding profile, and competitive positioning. The bank is also investing in technology, data analytics, and fee-based services such as co-branded credit cards, FASTag, and transaction banking, aiming to diversify revenue streams and boost non-interest income[4].
The strategic focus on financial inclusion, secured lending, and deposit growth aligns well with broader market trends favouring quality assets and low-cost funding. As competition intensifies in the small finance banking sector, JSFB’s evolving franchise and stronger operating leverage provide a solid foundation for sustainable profitability.
Nuvama Institutional Equities’ initiation of coverage on Jana Small Finance Bank with a ‘Buy’ rating and a target price of ₹600 underscores the bank’s attractive valuation, strong growth prospects, improving asset quality, and stable margin outlook. The three key reasons highlighted—accelerated growth in secured loans, robust asset quality, and effective deposit mobilisation—position JSFB as a compelling investment opportunity in the financial services sector.
For investors seeking exposure to the expanding small finance bank universe with a growth-oriented yet risk-mitigated profile, Jana Small Finance Bank presents a well-timed buy with potential upside exceeding 40% over the next year.
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