Equitas Small Finance Bank Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Turnaround quarter, led by MFI: Microfinance collection efficiency hit 99.4% in December, driving a sharp reversal in slippages and a 43 bps QoQ NIM jump to 6.72%.
• Cost of funds tailwind is material: The bank has repriced 65% of its deposit book, cutting TD rates by 95 bps, with an exit target of 85% repriced and further room to fall before stabilising.
• Credit cost is normalising fast: Net slippages fell to a six-quarter low of 2.52%, and credit cost dropped to 1.88%, with management guiding a downward trajectory into Q4 and FY27.
• Growth engine restarts in FY27: Advances growth guided at 20–25% next year, with SBL disbursements already ramping monthly and all non-MFI products now profitable or on the path.
• What to watch next quarter: Whether the Q4 exit ROA of 1% lands, the pace of the remaining deposit repricing, and any update on the universal bank licence application.

Microfinance: The Turnaround Story

• Collection efficiency restored: The shift to a monthly repayment mode (EMIs by the 15th) now covers ~63% of the MFI book, and X Bucket collection efficiency reached 99.4% in December, a level that signals the stress cycle has broken.
• Portfolio deliberately shrunk: MFI exposure is down to 8.5% of advances (ex-DA) from 20% in March 2024, a conscious derisking that management intends to hold around 10% to capture yield without inviting disproportionate volatility.
• Industry guardrails are helping: Improved lending discipline and MFIN guardrails, combined with a focus on new-to-credit customers with lower leverage and reduced caseload per staff, have structurally lowered the risk profile of the remaining book.
• 1–90 DPD improved dramatically: The early-bucket stress indicator fell from 5.40% to 2.14% QoQ, confirming that the pipeline of future NPAs is thinning fast.

Vasudevan: "The X Bucket collection efficiency on a POS basis, has moved up to 99.4% in December."

NIM & Funding Cost: The Repricing Tailwind

• NIM jumped 43 bps QoQ to 6.72%: The driver was twofold: MFI stabilisation stopped the yield-side drag, and cost of funds declined as the deposit book repriced lower.
• Deposit repricing is a multi-quarter lever: 65% of the book was repriced by December, with the Q4 exit expected at ~85%. The SA rate fell from 6.08% in April to 5.1% by Q3 exit, while the TD rate dropped 95 bps to 7.3% as 444-day deposits rolled into 888-day deposits at lower rates.
• Further room to fall: Management expects cost of funds to decline further before stabilising, with one more rate cut anticipated (likely in April, not February) and the bank ready to follow.
• NIM outlook is stable-to-up: With the MFI drag removed and funding costs still falling, management sees no downward pressure on NIM and expects a marginal tick-up from the current ~6.7% range, though it stops short of giving a precise target.

Vasudevan: "We do not expect a downward pressure on NIM any longer because of MFI going down."

Asset Quality: Slippages Peaking, Credit Cost Falling

• Net slippages at a six-quarter low: At 2.52% (vs 3.78% in Q2), the headline number reflects improvement across both MFI and SBL books, with the Karnataka SBL stress that hit 2–3 quarters ago now reversed.
• Credit cost declined to 1.88%: Down from 2.16% QoQ, and management expects the downward trajectory to continue through Q4, with a FY27 full-year range of 1.5–1.7% and a Q4 FY27 exit below 1.5%.
• SBL portfolio quality normalising: X Bucket improved from 97.5% to 98.5%, DPDs and GNPA reduced, and monthly disbursements rose steadily from ₹440 cr (Q1) to ₹612 cr (Q3) as the earlier recalibration in Karnataka and certain product segments concluded.
• Used CV segment remains resilient: A 15-year track record with no serious portfolio quality issues, built on small operators and light commercial vehicles, differentiates the bank from peers with new or heavy CV exposure.
• ECL transition looks favourable: Based on draft RBI norms, the bank's ECL working shows a positive impact versus IRAC norms, thanks to the secured nature of the book.

Vasudevan: "We've never really had a serious issue on the portfolio quality in the used commercial vehicle segment."

Growth & The FY27 Rebound

• FY26 advances growth ~15% (ex-DA): The year was marked by deliberate MFI degrowth and SBL recalibration, but the exit rate is improving as disbursements ramp.
• FY27 guided at 20–25% advances growth: Management points to its historical 20–25% trajectory and expects SBL to grow at least 20%+, with disbursement numbers on an upward movement and all non-MFI products now mature and profitable.
• Deposit growth to outpace advances: Guided ~2–3% higher than advances growth, supported by the ongoing branch-led liability franchise build.
• Product profitability is broad-based: Used car is quite profitable, affordable housing turned profitable this year after being loss-making last year, and all non-MFI products are either fully profitable or on the path.
• Geographic diversification underway: Tamil Nadu contribution reduced from over 50% to 44%, with a strategy to bring it down further to ~36% over 3–4 years, while the South overall stands at ~62% (not 90%).

Vasudevan: "Historically, we have generally grown between 20% and 25% growth on a yearly basis. So going forward, next year, we should look at anything between 20% and 25%."

Capital, ROA & The Universal Bank Path

• Q4 FY26 exit ROA target: 1%: The near-term milestone, with the Q4 FY27 exit target set at 1.5%, implying a steady climb as credit cost normalises and operating leverage kicks in.
• Capital raise deliberately postponed: With CAR at 20.47% (vs an internal floor of 18% and a regulatory 15%), management sees no need for capital in H1 FY27 and wants to delay any raise as long as possible given the current market price.
• Universal bank licence in sight: The bank hopes to meet all RBI guidelines by March 2026 and may apply subsequently, a milestone that would expand its addressable market and potentially lower its cost of funds further.
• Cost-to-income target ~65%: To be achieved by Q3/Q4 next year, driven by business growth leveraging the fixed cost base, after a Q3 that included a one-time ₹29 cr labour code impact that pushed the ratio higher.

Vasudevan: "The objective from our side clearly is to postpone capital raise as long as possible given our current market price scenario."

Guidance & Commitments

Key Metrics