# 1. Financial Performance ## A. Key Figures * **Net Interest Income (NII):** **₹774 Cr** * **Total Net Income:** **₹998 Cr** * **Profit After Tax (PAT):** **₹24 Cr** (vs. ₹22.4 Cr loss in Q1) * **Net Interest Margin (NIM):** **6.29%** (vs. 7.69% YoY) * **Yield on Gross Advances:** **15.73%** (-33 bps QoQ) * **Capital Adequacy Ratio:** **20.74%** * **Return Metrics:** **0.18%** RoA · **1.65%** RoE ## B. Revenue & NII * **Yield Compression:** Overall yields faced pressure due to a lower MFI mix, though non-MFI yields demonstrated resilience by remaining stable. * **Treasury Performance:** Treasury income reached **₹34 Cr** despite a volatile environment where benchmark bond yields hardened significantly. * **Capital Inflows:** The bank strengthened its liquidity position with cash receipts totaling **₹72 Cr** across Series A and B funding rounds. ## C. Profitability Metrics * **Earnings Recovery:** The bank returned to profitability this quarter, reversing a substantial loss in Q1, though overall returns remain compressed. * **Strategic Portfolio Shift:** NIM and PPOP were adversely impacted by a deliberate reduction in high-yield microfinance exposure. ## D. Operating Leverage & Capital * **Growth-Led Profitability:** Management views **20% plus** asset growth as the critical threshold to unlock operating leverage against a largely fixed cost base. * **Cost Control:** Operating expenses remained flat sequentially, supported by a mid-single-digit decline in non-personnel operating costs. * **Capital Position:** Capital buffers were bolstered by a **₹500 Cr** Tier 2 capital raise completed in July 2025. --- # 2. Loan Book & Asset Quality ## A. Key Figures * **Gross Advances:** **₹39,123 Cr** (+9% Y-o-Y / +4% Q-o-Q) * **Disbursements:** **₹5,300 Cr** Total · **₹4,700 Cr** non-MFI · **₹682 Cr** MFI (+156% Q-o-Q) * **Asset Quality Metrics:** **2.82%** Gross NPA · **0.95%** Net NPA · **2.16%** Credit Cost (vs. 6.48% Q1) * **Net Slippages:** **₹355 Cr** / 3.78% (vs. ₹453 Cr / 4.77% Q1) ## B. Advances Growth * **Sustained Expansion:** Long-term growth remains robust with high double-digit CAGRs for both advances and deposits over a 3-year horizon. * **MSME Market Share:** The bank currently commands a **0.7% share** of the **₹32 lakh crore** total banking credit exposure within the MSME segment. * **Segment Drivers:** Growth is increasingly balanced, led by record non-MFI disbursements alongside a significant sequential recovery in microfinance lending. ## C. NPA & Credit Cost Trends * **Improving Credit Trajectory:** Credit costs saw a sharp sequential reduction as the impact from the Karnataka portfolio subsided; management projects a medium-term stabilization between **1.5% and 1.7%**. * **Slippage Outlook:** Net slippages are trending downward across both MFI and non-MFI books, with a projected return to "normalcy" by Q4 FY '26. * **MFI Risk Mitigation:** Despite current elevated segment credit costs, fresh overdue flows are decelerating; worst-case annualized MFI credit costs are capped at **4%**. ## D. Provisioning Strategy * **Strategic Buffer Utilization:** The bank utilized **₹58 Cr** of its additional standard asset provision to manage MFI stress, specifically targeting high-risk borrowers with multiple lenders. * **Enhanced Coverage:** CGFMU protection currently covers over a quarter of the book, with expectations to reach **50%** by Q3. * **Secured Loan Resilience:** Management anticipates negligible ultimate losses on secured loans, citing historical recovery rates on small business GNPA at **105% of principal**. * **PCR Dynamics:** Housing finance PCR moderated to approximately **28%** following an ARC sale that removed aged NPAs; aggregate bank-level provisions remain compliant with IRAC norms despite product-level variances. --- # 3. Deposit & Funding Mix ## A. Key Figures * **Total Deposits:** **₹44,094 Cr** (+11% YoY) * **Retail Deposit Mix:** **75%** of total base * **CASA Ratio:** **31%** (Steady YoY) · **+1%** (QoQ) * **Retail Term Deposits (RTD):** **+11%** YoY ## B. CASA & NR Strategy * **NR Segment Expansion:** Launched **EPIC**, a specialized NR program targeting high-potential niches like **seafarers** to drive rupee and FCNR inflows. * **Funding Optimization:** Leveraging the NR proposition (SA, FCNR, and investment accounts) as a strategic lever to lower the overall cost of funds. * **Institutional Deepening:** Expanding current account reach by integrating with **PFMS** and **SNA** systems, alongside active pursuit of new empanelments. ## C. Cost of Funds & Mobilization * **Active Rate Management:** Executed **three distinct rate adjustments** across SA and TD portfolios during H1 to narrow the pricing gap with larger peers. * **Strategic Repricing:** Implementing systematic rate reductions and a targeted mobilization strategy to support long-term credit growth and margin health. * **Relationship Maturity:** Utilizing a now-complete deposit product suite to deepen customer engagement and transition toward a lower-cost liability profile. --- # 4. Segment & Product Performance ## A. Key Figures * **Non-MFI Secured Book:** **₹35,730 Cr** (+17% YoY) · **₹4,700 Cr** Quarterly Disbursements (Record High) * **Microfinance (MFI) Portfolio:** **₹3,392 Cr** Total Book · **98.6%** X-Bucket Resolution * **Vehicle Finance:** **₹9,800 Cr** Total Book · **43%** Used Car Growth · **25%** Used CV Growth * **Housing Finance:** **₹5,066 Cr** Total Book (+15% YoY) * **Gold Loan Book:** **₹400 Cr** Total Value · **15%** Average Yield · **₹2.5 Lakh** Avg. Ticket Size ## B. Microfinance Recovery * **Path to Normalization:** Sector-level stress has subsided to acceptable levels; management expects a return to standard profitability by **Q4 FY2026**. * **Asset Quality Improvement:** Fresh overdues saw a sharp sequential decline from **₹97 Cr** in April to **₹24 Cr** in October, supported by high resolution rates. * **Strategic Capping:** Despite stabilizing conditions, the bank will maintain a disciplined MFI exposure, capping the loan book share at **8% to 10%** of the total mix. * **Yield Compression:** Portfolio yields softened due to interest reversals on NPAs rather than a shift in base lending rates. ## C. Secured Book & MSME Growth * **Strategic Pivot:** AUM mix is intentionally shifting toward secured assets to stabilize NIMs and capitalize on a favorable cost-of-funds trajectory. * **MSME Market Share:** Equitas captured a significant **5%** share of the banking sector's total NTC (New-to-Credit) MSME disbursements for FY25. * **High-Growth Verticals:** Robust momentum in the secured book is led by MSE finance (+36% YoY) and Micro LAP (+39% YoY). ## D. Vehicle & Housing Finance * **Used Vehicle Specialization:** Strategy focuses on older vehicle vintages (**5+ years**), which insulated October disbursements from recent GST changes. * **Distribution Expansion:** Affordable Housing Finance will scale from 70 to **100 branches** in Q3, with a further **120 branches** planned for next year, primarily in Tier 2-5 locations. * **Operational Efficiency:** Scaling of used car and housing products will leverage the existing branch network, keeping incremental costs limited to essential manpower. ## E. Gold Loan Expansion * **Aggressive Rollout:** Following a successful pilot in liability branches with negligible GNPA, the product will expand to **50 asset branches** in H2 FY26 and **150 more** the following year. * **Tiered Pricing Strategy:** Management is transitioning to a portfolio-level approach with tiered yields based on loan brackets to optimize the current cross-sell model. --- # 5. Customer & Distribution Strategy ## A. Key Figures * **Elite Segment Concentration:** **60%** of total deposit book * **Family Banking RV:** **₹4,000 Cr** Relationship Value · **25,000+** families * **SBL Collection Efficiency:** **99.2%–99.3%** in Tamil Nadu · **~99%** in Karnataka * **Digital IPO Processing:** **₹6,000 Cr** ASBA blocked funds ## B. Branch Productivity & Distribution * **Niche Market Dominance:** Limited competition secured by focusing on **Tier 2 to Tier 5** locations and **New-to-Credit (NTC)** segments with high unmet demand. * **Operating Leverage Strategy:** Prioritizing cross-selling over new branch capex; affordable housing is currently in only **70 branches** compared to **350–500** for small business loans. * **Sales Force Optimization:** Strengthening distribution via increased frontline staffing in existing branches to capture latent market demand. ## C. Premium Segment & Relationship Deepening * **Tiered Wealth Strategy:** Expanding the premium book into a three-tier model (**Elite Lite, Elite, and Elite Plus**) to capture the full spectrum of mass-affluent to HNI clients. * **Fee Income Drivers:** Deepening efforts have yielded **35,000 ASBA**, **35,000 SIP**, and **20,000 broking** accounts, enhancing Average Ticket Size and total Relationship Value. ## D. Collection Efficiency & Asset Quality * **Improving Credit Metrics:** Consistent reduction in 1-90 day bucket sizes and slippages, alongside rising X-bucket efficiency. * **MFI Structural Shift:** Transitioned **41%** of the MFI book to a monthly repayment cycle to provide collection teams more resolution time and improve recovery outcomes. * **Portfolio Resilience:** High collection efficiency maintained in the non-MFI book, particularly within core regional Small Business Loan portfolios. ## E. Digital Adoption * **Mobile Ecosystem Growth:** The Equitas 2.0 app has surpassed **4 lakh downloads**, with high digital engagement evidenced by **90%** of ASBA customers utilizing the platform. --- # 6. Regulatory & Credit Risks ## A. Key Figures * **MFI Industry Exposure:** **₹3.5 Lakh Cr** June 2025 (vs. **₹4.4 Lakh Cr** March 2024) * **ARC Sale Value:** **₹216.46 Cr** Gross NPA sold · **₹72 Cr** Cash consideration * **Provisioning:** **66.93%** PCR · **₹40 Cr** Provision reversal from ARC sale * **Portfolio Concentration:** **10%** Target MFI mix · **7%** Karnataka MFI exposure ## B. Microfinance & MLAP Sector Stress * **Strategic De-risking:** Management is navigating a four-quarter stress period in Karnataka by implementing a strict **1+1 lender rule** and capping indebtedness at **₹1.5 lakhs**, well below the industry standard. * **Portfolio Rebalancing:** To avoid historical recovery cycles, the bank is capping its microfinance exposure at a lower structural level compared to previous cycles when the segment was double its current size. * **Improving Asset Quality:** Net slippages are moderating as the flow from current to overdue buckets declines month-over-month; industry-wide restraint is shifting the focus toward lending quality over volume. ## C. Geographic & Macro Sensitivity * **Regional Recovery:** Stress in the Karnataka MLAP segment is showing signs of reversal, with October achieving peak collection efficiency. * **Tariff & Tax Insulation:** Asset quality remains insulated from US tariffs due to a domestic-focused "New to Credit" borrower base; revised GST rates on used CVs are expected to have a negligible **3% to 4%** price impact. ## D. ECL Transition & Balance Sheet Cleanup * **ECL Readiness:** Internal assessments suggest existing NPA provisions exceed required Expected Credit Loss levels, positioning the bank favorably for a potential universal bank license application. * **ARC Transaction Dynamics:** The sale of secured NPA assets (primarily SBL and Micro-LAP) allowed the bank to offload high-provisioned assets (**85.25%** coverage) and reclaim capital through provision reversals. --- # 7. Guidance & Outlook ## A. Key Figures * **Advances Growth:** **15% to 16%** FY25 Target · **20%+** FY26 Target * **Net Interest Margin (NIM):** **>6.5%** FY25 Exit Target · **6.5% to 7.0%** Long-term Steady State * **Return on Assets (ROA):** **~1.5%** Steady-state Target * **Credit Costs:** **1.5% to 1.7%** Projected Range * **MFI Disbursements:** **~₹1,000 Cr** Q3 Target ## B. Growth Targets * **Strategic Scaling:** Management anticipates accelerated momentum in the next fiscal year, supported by a **₹30 lakh crore** unmet credit demand in the MSME sector. * **Disbursement Drivers:** Non-MFI volumes are expected to climb beyond record Q2 levels (**₹4,700 Cr**), while MFI growth is focused on core markets in Tamil Nadu, Karnataka, and Maharashtra. * **Portfolio Mix:** Potential to increase MFI exposure from **10%** up to **15%** post-industry stabilization to support margin and ROA targets. ## C. Margin & ROA Normalization * **Yield Recovery:** NIM compression is expected to reverse in Q3, driven by higher MFI loan outstandings and a downward trend in the cost of funds. * **Profitability Outlook:** ROA targets are underpinned by improving PPOP levels and the conclusion of a **three-to-four quarter** credit stress cycle. * **Liability Management:** Strategy focuses on maintaining a cost-of-funds differential of **1% to 1.1%** as per the established roadmap. ## D. Product Rollout Timeline * **NR Suite Completion:** Following recent activations of AD-1 and FCNR services, the bank will launch outward remittance and prepaid forex within **three months**.