Equitas Small Finance Bank Ltd (EQUITASBNK) Q2FY27 Concall Transcript - Sep-2026 Qtr
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Moderator: and welcome to the earning earning call of Equitas Small Finance Bank Limited Financial Performance for Q2 FY '27. We have with us today, Mr. Anil Kumar Sharma, Part Time Chairman and Independent Director; Mr. P. N. Vasudevan, MD and CEO; Mr. Balaji, Executive Director; Mr. Mukund Barsagade, CFO; Mr. Jagdish, Head of Assets; Mr. Murali Vaidyanathan, Senior President and Country Head, Branch Banking, Liabilities, Product and Wealth; Mr. Gopalakrishnan, Head Treasury; Mr. Suresh, Head IR, Strategy and Business Intelligence; Mr. Sundararaman, Unit Head Investor Relations and Strategy; Mr. Abhishek, Manager Investor Relations. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note, this conference is being recorded. I would now like to hand the conference over to Mr. Anil Kumar Sharma for opening remarks. Thank you and over to you, sir.
Anil Kumar Sharma (Equitas Small Finance Bank Ltd): Good afternoon to you all. Thank you for taking this your time out to dial into this conference call. I would like to address the issue of our MD and CEO, Mr. Vasudevan's desire to step down from the services of the bank. The background and the reasons for his decision have been spelt out by him in the letter that he has given to the board and which has been duly disclosed to the exchanges and which I am sure you all would have had time to go through. The board respects his decision and appreciates that he has acted in the larger interest of the bank despite there being no regulatory or legal impediment to his family investments in NBFC. The board has thanked him for the significant contribution and for guiding the bank in the last 10 years of in the first 10 years of its existence and wishes him all the best. A formal transition process has been initiated and the board has requested the nominations and remunerations committee of the board to short list the candidates for this role. We would be evaluating both internal and external candidates. We would be working to complete the successor identification and due regulatory approvals as early as possible. Mr. Vasudevan has confirmed that he would continue to discharge his present responsibilities till his successor takes over from him thus ensuring continuity. The board will ensure that the bank will continue to pursue its long-term vision set out earlier and does not expect this this transition to have any impact on the same. We would keep the exchanges duly informed of the progress in this matter. I now hand over to Mr. Vasudevan to take you through the highlights of the performance of the bank for the second quarter. Mr. Vasudevan.
P. N. Vasudevan (Equitas Small Finance Bank Ltd): Thank you, sir. Good evening, and thank you for taking the time to join us today. The macroeconomic environment remains broadly constructive, supported by healthy economic growth and sustained credit demand across our core retail and MSME segments. While elevated funding costs and competitive deposit market conditions continue to pose industry-wide challenges, borrower cash flows and underlying business activity remains resilient. We're also closely monitoring the evolving drought conditions in parts of Maharashtra and Karnataka following adverse weather patterns. However, our microfinance exposure to the affected regions remains limited at around 2.9% of total advances of the bank, providing comfort from a portfolio risk perspective. This will be closely monitored over the coming quarters. Coming to our business performance for the quarter, the bank maintained a strong growth momentum. Gross advances grew 30% year-on-year to cross 50,000 crores, while deposits grew 19% and also grew surpassed 50,000 crores during the quarter. This took the total business of the bank beyond the significant 1 lakh crore milestone, underscoring the strength of our diversified franchise, sustained customer acquisition, and consistent execution across our core business segments. We continue to see strong tractions across our housing finance, vehicle finance, gold loan and retail businesses. Our microfinance business continues to demonstrate disciplined portfolio management with collection efficiencies remaining strong at around 99.6%. The net slippage at bank level has declined by 4 bps sequentially to 1.39%. Mr. Jagdish, Head of Assets, will explain in detail our strategic priorities and growth drivers. On the deposit front, the bank has started picking up on the deposit growth once again
P. N. Vasudevan (Equitas Small Finance Bank Ltd): 19% year-on-year and 7% sequentially to Rs 52,483 crores. Our CASA ratio stood at 26%, while retail deposits continue to account for a stable 68% of the overall deposit base. On the FCNR (B) deposit front, the bank successfully mobilized US dollar 110 million under the RBI FCNR scheme window. Without and and we didn't have a leveraging opportunity either, without that we are able to mobilize 110 million under the scheme. And our total FCNR (B) book stands at around 138 million USD. The CD ratio is reasonable at 90.53. Cost of funds increased by seven bps sequentially, which is attributable to the recent revisions in SA and the TD pricing that we undertook in the beginning of last quarter. On the deposit mobilization, we are seeing good traction on retail TD and growth momentum is in line with our advances growth. We continue to focus on relationship-led approach to build deposits franchise across retail transaction and NRI segments. Murali Vaidyanathan, head of liability, will explain in detail the strategies that drive deposit growth. In addition to our strong deposit growth during Q2 of I mean the last quarter, we also raised funds through refinance, borrowings, securitization, and direct assignment transactions and also through tier two capital. While these initiatives were undertaken to strengthen the bank's funding profile and support future growth, they resulted in a temporary buildup of excess liquidity at the bank level. The resulting liquidity drag, coupled with an increase in cost of funds, impacted margins during the quarter. Accordingly, NIM on a daily averages basis stood at 6.69% in last quarter compared to 7.24% in the previous quarter, a sequential decline of 55 basis points. We expect this impact to gradually reverse as the surplus liquidity is meaningfully deployed over the coming quarters. We had raised rates on deposits in anticipation in the last quarter, and hence, we do not expect the need to raise rates based on the recent repo rate increase. Credit cost has reduced by 43 basis points from 1.37 to 0.94 in Q1 to Q2. However, if you remove the effect of ARC sale undertaken during the quarter, the credit cost for the quarter would have come in at 1.12%, which is still very good, given the 1.5% credit cost guidance that we had given earlier for the full year. During Q2, the bank has reported the highest-ever quarterly profit of 218 crores, and the ROA and ROE are good at 1.3% and 13.5% respectively. I believe, at this ROE of 1 13.5%, we compare favorably amongst many of the banks. During September '26, the bank raised Rs 500 crores through issuance of tier two bond for a tenure of 10 years with an option for the bank to put in put at the end of 5 years. This has improved our tier two base from 3.43 to 4.57%, and the overall capital adequacy as of September stands at 20.92%. With this capital raise, we have created sufficient headroom to support business expansion for the next few quarters. Because of the 10-year tenure, we would get the full capital benefit of this Rs 500 crores for the first 5 years. The bank has continued to deliver consistent performance across all key operating and financial metrics. Given the strong business momentum witnessed during the first half of the year, we are happy to revise our financial year '27 ROA guidance upwards. We now expect to deliver a full-year ROA of around 1.35% compared to our earlier guidance of 1.2%. This improvement will be driven by gradual recovery in NIM as excess liquidity gets deployed, moderation in credit cost, and a lower cost to asset ratio, which has been coming down quarter-on-quarter. With that, I would now like to hand over the call to our CFO, Mukund, who will take you through the bank's financial performance in greater detail. Mukund?
Mukund Barsagade (Equitas Small Finance Bank Ltd): Thank you, sir. Good evening, everyone. The quarter reflects continued momentum in growth and profitability. Gross advances grew by 30% year-on-year, deposits grew by 19%, asset quality continue to improve, and the bank delivered its highest-ever quarterly PAT of 218 crore. We reported net interest income of 1,026 crore and other income of 288 crore, taking total net income to 1,313 crore for the quarter. Total net income grew by 32% year-on-year and 3% sequentially.
Mukund Barsagade (Equitas Small Finance Bank Ltd): Gross advances grew by 30% year-on-year and 6% sequentially, supported by disbursements of Rs. 7,450 crore during the quarter. Growth was broad based across products and the non-microfinance portfolio grew by 24% year-on-year, reflecting continued diversification of the loan book. Deposits grew by 19% year-on-year and 7% sequentially, demonstrating a significant improvement in liability momentum. CASA stood at 26%, while retail deposits, including CASA, constituted 68% of the total deposits. The credit-deposit ratio stands at 90.53 vis-a-vis 92.93 in the previous quarter. NIM stood at 6.69%, declining by 55 basis points sequentially. The decline was largely driven by surplus liquidity and higher interest expense. Importantly, the underlying yield on advances remained resilient. As surplus liquidity is progressively deployed into earning assets, we expect the liquidity-related drag on margins to moderate. Total operating expenses were 911 crore, increasing by 20% year-on-year and 4% sequentially, in line with the scale-up of the business. Operating leverage is beginning to become visible with cost-to-assets improving sequentially to 5.49 from 5.61%. Asset quality continued to improve. Gross NPA declined by 13 basis points sequentially to 2.29%, and net NPA declined by 1 basis point to .70%. Net slippage slippages reduced to 1.39 from 1.43% in the previous quarter. Provision coverage ratio stood at 70.08%. PCR, including technical write-offs, stands at 86.73%. The reported credit cost stood at .94 of average gross advance advances. During the quarter, the bank sold NPA amounting to 110 crore to an asset reconstruction company. Excluding the impact of this transaction, credit costs improved to 1.12% from 1.37% in the previous quarter. As mentioned earlier, the bank reported its highest ever quarterly profit after tax of 218 crore compared with 24 crore in Q2 FY '26 and 184 crore in Q1 FY '27. Return on assets improved sequentially to 1.31%, and return on equity improved to 13.5%. Importantly, despite the temporary compression of NIM, ROA improved sequentially, supported by higher other income, improvement in cost to assets, and lower credit costs. As of September 30th, 2026, the capital adequacy ratio stood at 20.92% with Tier 1 at 16.35% and Tier 2 at 4.57%. Thank you, and I will now hand it over to Jagdish, our Head of Head Assets.
Jagdish (Equitas Small Finance Bank Ltd): Good evening, everyone. Before I began the discussion on our advances portfolio, let me briefly touch upon the operating environment. We continue to closely monitor the geopolitical, macroeconomic and weather-related developments and have not observed any material impact on our portfolio performance or collection trends. While certain districts in Maharashtra and Karnataka have experienced rainfall deficiency, our exposure remains limited, with MFI advances accounting for only 2.9 percentage of the overall advances. Collection efficiency remains stable, and northeast monsoon in Tamil Nadu has progressed broadly in line with expectations where we have close to 42 percentage of the overall book. Now, let me now take you through the key trends in our advances portfolio. We closed the quarter with gross advances of 50,669 crores, reflecting a growth of 30 percentage year-on-year and 6 percentage quarter-on-quarter, driven by robust disbursement momentum across key products. Let me now highlight some of the key developments during the quarter. We delivered our highest-ever quarterly disbursement of 7,450 crores with a growth of 38 percentage year-on-year. On the non-MFI front, our disbursements at 6,161 crores, registering a strong 31 percentage year-on-year growth, reflecting healthy demand across secured asset classes. Our small business loans continue to be our largest business segment, growing at 16 percentage year-on-year, and vehicle finance grew 16 percentage. Housing finance grew at 27 percentage year-on-year, and MSE finance continued to scale well, growing at 38 percentage year-on-year. We have delivered consistent growth in both disbursement and advances, despite minimal additions to our physical distribution network, with only three asset branches added compared to the Q2 financial year '26. This performance reflects our focus on improving productivity and strengthening product distribution across our existing network. In gold loans, for instance, the business was traditionally sourced and serviced through liability branches. Over the past
Jagdish (Equitas Small Finance Bank Ltd): we have started building gold loan capabilities within select asset branches, which now stands at around 60 locations. We are also expanded sourcing coverage to nearly 90 additional branches with servicing being undertaken through the nearest liability branch. This hub-and-spoke approach has enabled us to expand our reach, improve customer access, and drive growth without materially increasing our branch network. Let me now touch upon the yields and asset quality. Our asset quality continued to demonstrate stability and improvement during the quarter. The bank's reported 1 to 90 DPD stood at 7.42%, while the non-MFI 1 to 90 DPD stood at 8.31. But if you include the recently securitized portfolio of 1,235 crores transferred to DA and PTC transactions during the quarter, the corresponding 1 to 90 DPD ratios would have been lower at 7.24 and 8.08 respectively. The 1 to 90 DPD for the microfinance portfolio, including DA stood at 1.48%, partially impacted by the denominator effect as the direct assignment portfolio continues to run down. Our credit cost stood at 0.94, compared with 2.16 in Q2 financial year '26. Adjusting for the ARC ARC transaction impact, our credit cost would have been approximately 1.12%. indicating broadly stable underlying credit cost on a sequential basis and continued resilience in portfolio performance. To conclude, we delivered our highest ever quarterly disbursement, continued to grow our secured portfolio at a healthy pace, maintained stable collection efficiencies and further improved asset quality. We remain focused on disciplined growth, portfolio diversification, and prudent risk management and we expect the positive momentum in business growth and portfolio performance to continue over the coming quarters. Thank you and I will now hand over to Mr. Murli.
Murali Vaidyanathan (Equitas Small Finance Bank Ltd): Good evening. During this quarter, we actually witnessed an improvement in retail deposit mobilization through launch of multiple initiatives which I will cover and most importantly, it has helped us to get into the trajectory where we want to be in terms of 7% quarter-on-quarter and you know threshold wise we reached actually the number versus 67 52,483. But the most important part is granularization of deposit and during this quarter, as we discussed during the last time, we will slightly tweak the laddering in terms of savings account. So, savings account and TD, we launched a new product called Maxima on the domestic side, which is the first branded exclusive TD product. I think that has helped us to expand the base and helped us to reach close to 68% of the overall deposit base coming through retail. We continued to maintain the prudent mix in bulk with 92% of the bulk coming from non-callable base at this point of time. FCNR, it's not only bulk retail customer, we did close to $110 million coming across 4,000 customers from 150 countries. That shows our depth and spread in terms of NRI customer and most importantly, AD-1 as an investment actually started giving us, you know, return in terms of deposits in dollar as well as remittance volume and value kicking in. So, that's one good aspect of AD-1 which we launched recently. Our cost of funds increased by 7 bps partly because of sales, you know, focused predominantly on House of Elite. What we call, we launched as we are aware, three segments of HNI segment. One is called the Elite program for absolute affluent, then we had one to the emerging affluent, and then we launched something called Artha. Now, all these three proposition in this last quarter actually was coupled and backed by savings account rates and good relationship management and for the first time in last 6 months, we are seeing RM managed book actually growing 11% on quarter-on-quarter. So, this has held savings account as well as TD mobilization at this point of time and in terms of Artha, we crossed 2,000 customers. It's a HNI program and we almost crossed now 2,000 crores of relationship value through this segment. So, our proposition and strengthening is really helping us in that direction. CA, you would have seen a significant uptake. That is because of our IPO skewed current accounts and that will continue to hold and grow and that is actually ASBA as a proposition through current account is helping us to build actually in transaction and volume and value at this point of time and till the time IPO centric approach is there, I think that will propel CASA. And to initiate CASA mass sourcing, we are actually launching digital CA very soon and that we will cover it up later. And most importantly, asset-led approach in liability branches is what we are focusing. I think Jaggi said how we are using gold loans from asset into liability. We are using liability branches to cross-sell assets. That initiative is also throttled among 20 branches and we'll
Murali Vaidyanathan (Equitas Small Finance Bank Ltd): add up to 50 branches this quarter. And TPP and insurance is in line with budgets, what we want to do. Overall, I think retail franchisee with a retail focus, differentiated customer proposition, focusing on HNI, will help a customer-centric approach through our RM and liability branches. I think we remain well positioned to support the bank's funding requirements as we move forward. I'll ask now Gopi to give a insight on treasury.
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