What drove the recent recovery of small finance banks?

Small finance banks, instrumental in lending to small farmers and businesses, faced significant stress after the pandemic. Some of them even traded below their book value, grappling with high gross NPA levels. Many of them were even selling a portion of their loans to asset reconstruction companies. However, their recent share price performance indicates a shift. What are small finance banks? Set up to enhance financial inclusion, small finance banks cater to the un-served and underserved, providing essential banking services. They offer credit and deposit facilities to groups such as microfinancing recipients, small farmers, and MSMEs. When the pandemic struck, it impacted the income of small businesses, as well as lower-and middle-class segments significantly, which are the primary clientele of small finance banks. As a result, the banks' asset quality took a hit, their NPAs shot up, and profits fell. But surprisingly, these banks have made a smart recovery with rising net profits and improving NPAs - trends mirrored in their stock prices. Three-year performance of SFBs Company M-cap (Rs cr) 3Y advances growth (% pa) 3Y PAT growth (% pa) 3Y deposit growth (% pa) AU Small Finance Bank 47900 29.4 28.4 38.4 Equitas Small Finance Bank 10208 23.4 33.1 33