Equitas Small Finance Bank Ltd Q4 FY2026 Concall Summary

Key Takeaways

• NIM inflection sustained, but cost pressure is coming: NIM rose 57 bps QoQ to 7.29%, the second straight quarter of improvement after a multi-year decline, driven by higher income and lower reversals. Management expects it to settle around 7.0%–7.1% as March 2026 rate hikes on deposits feed through.
• Asset quality snapped back sharply: Net slippages fell to 0.79% from 2.52% QoQ, the lowest in 10 quarters, and credit cost dropped to 1.11%, the best in 8 quarters. Both carry a seasonal Q4 tailwind that management explicitly warns is not repeatable.
• Highest-ever PAT of ₹213 crores was delivered by the simultaneous improvement in NIM, lower credit cost, and income growth, with all newer products (affordable housing, MSE finance) turning profitable during FY26.
• The deposit franchise is being rebuilt from the top down: Savings account rates were hiked ~200 bps in the ₹5–15 lakh bracket to stem an outflow, a new "House of Elite" segmentation was launched, and bulk deposits rose sharply. The cost of this rebuild will compress NIM over the next 2–3 quarters.
• What to watch next quarter: Whether the seasonal Q1 asset quality deterioration stays within the guided 1.5% credit cost envelope, the pace at which the higher deposit costs flow through to NIM, and any early signal from the CV book if diesel prices rise beyond the 10% threshold.

NIM & Margin Trajectory

• Q4 NIM jump was real but partly transient: The 57 bps QoQ improvement to 7.29% came from higher income on growth, lower income reversal from reduced net slippages, and a simultaneous reduction in cost of funds. Management flagged that Q1 and Q2 are seasonally weaker for slippages, so income reversals will likely rise and pull NIM down from this peak.
• Cost of funds is set to rise: The bank raised TD and savings account rates in March 2026. Cost of funds on savings accounts had already been brought down from 6.3% to 5.98% through conscious management, but the rate hike on the ₹5–10 lakh slab will push the incremental SA cost to 6.06%–6.07%, and overall cost of funds is expected to move above 7.1%.
• The pass-through cushion exists but has a timing gap: Because the bank lends to underserved and unserved segments, management believes it can pass on 0.1%–0.2% increases in cost of funds, albeit with some lag. This underpins the view that NIM around 7% is sustainable on a 2–3 year view.
• CD ratio will be nudged below 90%: The ratio is slightly over 90% and management wants to bring it down, which could mean some impact on interest income.

Vasudevan: "Our NIMs are more or less bottomed out and somewhere around 7% to 7.1% is where we believe it should kind of stabilize on an ongoing basis."

Asset Quality & Credit Cost

• Net slippages collapsed to a 10-quarter low: At 0.79%, down from 2.52% QoQ, driven by a sharp recovery in SBL net slippages to 0.11% from 1.53% and strong MFI collection efficiency with 1–90 DPD improving to 1.34% from 2.14%.
• Q4 credit cost of 1.11% is the seasonal best: Management explicitly stated this is not repeatable and guided to a full-year FY27 credit cost of around 1.5%, factoring in normal Q1/Q2 seasonal weakness, MFI credit cost normalizing to 2%–3%, and uncertainty around West Asia.
• MFI collections are back to normal: Bucket collection efficiencies have fully recovered, and the portfolio is expected to grow in a calibrated manner, maintained at around 10% of the overall book.
• The CV book is the designated risk antenna: Management will tighten credit primarily in commercial vehicles if diesel prices rise beyond 10%, the threshold at which portfolio performance historically begins to show stress. The rest of the book (SBL, affordable housing) has been resilient through past inflation and GDP cycles because borrowers deal in daily-use products and services.

Vasudevan: "Anything up to 10% increase in diesel prices has no effect on the performance of the portfolio. When it goes beyond 10%, then we start seeing some effect."

Deposit Franchise Restructuring

• Savings account outflow triggered a rate response: The sharper-than-expected Q4 decline in savings accounts was concentrated in the ₹5–15 lakh buckets, partly driven by weak primary market ASBA activity affecting ~35,000 customers. The bank responded by hiking rates ~200 bps on the ₹5–10 lakh slab, moving from ~3% to a level it describes as double what competitors offer.
• "House of Elite" segmentation launched: The savings proposition was restructured into three tiers: ARTHA (Mass Affluent), Elite Lite (Affluent), and Elite (HNI). One hundred branches have been designated to focus exclusively on this segment, with manning planned accordingly. The bank aims to double its ~28,000–29,000 Elite families in the coming year and add 3,000–4,000 ARTHA customers.
• Current account strategy was rebuilt around use cases: The CA book has been split into transaction/payment-led (sound box, POS, QR), asset-led (an unsecured-backed CA to be launched), and a high-variant for debt-free, non-payment-centric companies.
• Bulk deposits rose significantly in Q4: The increase was opportunistic across government, institutional, and financial institution segments in non-callable deposits, not skewed to any one segment. The institutional deposit strategy is "hold and grow" while keeping 70%–75% of the portfolio retail.
• Retail TD renewal was successfully extended: 70% of the yearly-priced 444-day retail TD book was converted to an 888-day duration product.

Loan Book Growth & Product Mix

• Disbursements hit an all-time high: ₹7,347 crores in Q4, driven by strong momentum across all verticals. The non-MFI secured book grew 21% YoY to ₹40,409 crores.
• MFI disbursements surged 326% YoY: ₹1,512 crores in Q4, up 29% QoQ, as collection efficiency normalized and the bank resumed calibrated growth. The portfolio share is expected to remain around 10%.
• SBL growth is shifting toward higher-ticket business loans: Overall SBL grew 13%, with secured business loans within SBL growing 26% YoY. Micro LAP alone grew 16%, while business loans (~₹10 lakh ATS) grew 27%. Management sees potential for overall SBL growth to reach 20%.
• Vehicle finance mix is pivoting to used: Used CV grew 25% YoY and used cars grew 31% YoY, while new CV declined 20% YoY, reflecting both demand patterns and a deliberate shift toward lower-risk secured assets.
• Gold loan is a breakout product: Sequential growth of 45%–50% in the last two quarters, driven by data mining of existing customers, focusing resources on the largest gold loan markets, leveraging new RBI norms (up to ₹2.5 lakh at 85% LTV), and using asset branches to cross-sell. Yield is currently ~14% because it is predominantly cross-sold to existing customers; yields are expected to rise as expansion through asset branches brings higher-ATS, non-seasonal demand.
• NBFC lending is purely a liquidity filler: It is not a target product; the bank lends to NBFCs only to deploy surplus liquidity that would otherwise sit in government securities.

Vasudevan: "NBFC for us is a filler. It's not a product where we have a target to lend. It's a filler. So wherever we have surplus money, we lend to the NBFCs because otherwise, we would have to park it in government securities."

New Products & Fee Engines

• All products turned profitable in FY26: Affordable housing and MSE finance turned profitable on a fully loaded cost basis for the first time. The product ROA hierarchy has microfinance (when collection efficiency is good) and micro LAP at the top, SBL overall performing well, vehicle finance marginally lower, and newer products catching up.
• FCNR and AD1 products went live: FCNR crossed $30 million and is live on three additional currencies. The full range of AD1 products is now operational, and a specific "Explorer" product was launched for the seafarers segment.
• Mobile banking crossed a milestone: The Equitas 2.0 app reached 5.5 lakh to 6 lakh downloads.
• Treasury posted a loss: Income from investments was a loss of ₹7.3 crores for Q4, attributed to a challenging quarter with geopolitical changes, fuel prices, global supply chain impact, and financial market volatility.

Capital, Costs & Operating Leverage

• Employee headcount fell by ~600 QoQ: The reduction came from integrating supporting functions by merging affordable housing and SBL within the same branches, improving productivity. A ~₹14 crore reversal in gratuity and leave encashment partially offset the ₹29 crores provided in Q3 for the new labour law code.
• Cost-to-assets is expected to decline: Currently around 5.8%, it should come down as advances and overall assets grow, helping offset the NIM compression expected through FY27.
• Capital management relies on conservation first: Initiatives include expanding CGTMSE coverage to non-collateralized MSE loans and a large part of CV finance, increasing central government guarantee coverage, IBPC, and focusing on lower risk-weight assets (affordable housing, gold loans). A Tier 2 raise of ₹400–500 crores is planned by end of calendar year; Tier 1 capital raise is possible towards end of Q4 FY27 or Q1 FY28 if required.
• Universal bank license is under evaluation: Management will do a full analysis of FY26 financials, engage with RBI on compliance with SFB-to-Universal Bank guidelines, and apply only if there is consensus that the bank qualifies.

Guidance & Commitments

Key Metrics