Which small finance banking stocks to buy after crash?

Asset quality, assessed through levels of Gross and Net Non-Performing Assets (NPAs), reveals the bank’s risk exposure, while a strong Capital Adequacy Ratio (CAR) signals financial resilience.

A high CASA ratio indicates access to low-cost funding, supporting margins. Beyond numbers, it’s essential to consider the bank’s management stability, digital capabilities, and competitive positioning. Together, these factors offer a fuller view of the bank’s ability to grow sustainably and deliver consistent returns.

To evaluate a banking stock, focus on both financial health and strategic direction. Key factors include:

Net interest margin: Shows profitability from core lending.

Asset quality: Look at NPAs to assess risk in the loan book.

Loan growth: Indicates demand and bank’s ability to scale.

CASA ratio: A higher ratio means cheaper funding.

Capital adequacy ratio: Reflects the bank’s buffer to absorb losses.

In this article I shall evaluate some setups based on their Net Interest Margin and select the top 3 ones that are also showing some favourable opportunities at the current juncture. However, before that lets try and understand what is net interest margin.

NIM reflects how efficiently a bank earns from its lending compared to what it pays on deposits. It’s the difference between interest income (from loans) and interest expense (on deposits), expressed as a percentage of interest-earning assets.

A higher NIM suggests stronger profitability from core banking operations. It also indicates effective cost management and good lending practices. Analysts use NIM to assess whether a bank is pricing risk well and managing its funding sources wisely.

Also read: IndusInd Bank’s black box moment: What investors must decode before buying the stock

But NIM alone doesn’t show the full picture. It should be considered alongside asset quality, credit growth, and operating costs.

Having got some understanding on what is NIM and how it can impact let’s check out 3 banking names from that perspective and evaluate some short-term prospects for the same.

I have considered the following banking names in this article:

Ujjivan Small Finance Bank

Jana Small Finance Bank

ESAF Small Finance Bank

Ujjivan Small Finance Bank

Ujjivan Small Finance Bank (SFB) has been reporting notable financial performance in the fiscal year 2024-25. As of December 31, 2024, the bank’s gross loan book reached ₹30,344 crore, marking a 14% year-on-year growth. Ujjivan Small Finance Bank’s NIM has shown a positive trend in recent years.

In FY23, the NIM was 9.1%, increasing to 9.3% in FY24. For FY25, the bank has set a NIM target of approximately 9%. In Q2 FY25, the reported NIM was 9.2%, aligning with the bank’s projections. Ujjivan Small Finance Bank’s NIM for the quarter ended December 2024 was 8.6%, while for the 9 months of FY25 (9MFY25), it was 9.0%.

These figures indicate a stable and healthy interest margin, reflecting the bank’s effective interest income generation relative to its interest expenses.​

When we take these set of numbers and co-relate it with the prices, we observe that the downward reaction seen in the last few months since its high in 2024 is seen stabilising.

The prices scale up quite swiftly towards its listing high and then lost its footing and has now tread into some strong set of supports. The momentum readings from Relative Strength Index (RSI) through the past few months are showing signs of positive divergence that can mature into a strong upward drive once the favourable trends kick in.

So, the conclusion of the overall performance so far indicates that the bank continues to focus on enhancing its portfolio, aiming to reduce its overall risk profile.​These figures underscore Ujjivan SFB’s commitment to growth and stability in a competitive financial landscape.

With the banking scenario showing potential to rise this can be a good candidate with a target of 45-50 within the next 6 months. One should parcel their participation in this counter as the market is still discovering its feet.

Jana Small Finance Bank

Jana Small Finance Bank has made decent progress in its financial performance, especially in expanding its NIM, which rose to 8.0% in FY24 from 7.8% the previous year.

This rise in NIM reflects the bank’s growing emphasis on secured lending, which now accounts for 60% of its overall loans. The bank has also witnessed significant growth across key areas, including a 57% rise in affordable housing loans, a 40% increase in micro loans against property, and a remarkable 107% jump in two-wheeler financing—showcasing a deliberate move toward diversified, lower-risk segments.

After listing in early 2024 the stock prices nearly doubled and topped out much earlier and the gradual descent seen in the prices attracted some steady profit booking that dragged the prices lower. However, the weakness in the market did not lead to more exits as the prices scaled down to its listing low and started stabilising since the start of 2025.

The emergence of green shoots after the steady decline augurs well for the prices. Also, we can observe that there is a steady upward drift seen from the momentum indicator which we use to check for participation. Now as the prices are holding firm this could be a good time to consider for some upside as immediate target emerges toward 600 within the next 3 months and could be explored from a short-term investing opportunity.

Jana’s strategy now centres on scaling through digital innovation and enhancing customer service. Its disciplined approach to risk and governance, along with a clear focus on secured products, positions it as a dependable and competitive force in the small finance banking sector.

ESAF Small Finance Bank

ESAF Small Finance Bank has made impressive strides in its financial performance, with its Net Interest Margin (NIM) reaching 8.64% in Q3 FY25, showcasing higher returns from lending activities. The growth is driven by a 172% year-on-year increase in secured loans, totalling ₹4,226 crore in the first nine months of FY25.

Secured loans now constitute 43.35% of the bank’s loan book, a significant rise from 27.91% in the previous year. However, the prices have not been reciprocating this fact that has lead to some sharp decline since its listing and the constant exits have rest the expectations as well as the price discovery process.

The last few weeks we have been observing that the prices have slipped into sharp oversold region and has been attempting some recovery. Further support from the momentum indicator and volume suggests that we could witness some buying interest developing that could push the prices higher.

At such price extremes this stock presents a contra bet that we can consider for an upside if prices move above 30 that gives it a potential target towards 45 – 50 within the next 6 months.

To sustain its growth, ESAF is leveraging technological advancements to enhance efficiency and customer experience. With improved asset quality and diversification, it is positioned for stable and long-term growth.

Also read: RBI cut repo rate in Feb. Why did it take so long for banks to reduce interest rates?

Raja Venkatraman is co-founder, NeoTrader. His Sebi-registered research analyst registration no. is INH000016223.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.