Equitas Small Finance Bank Ltd Q1 FY2027 Concall Summary

Key Takeaways

• Guidance raised across the board: Q1 momentum gives management confidence to deliver beyond the stated 20%+ advances growth and ~1.2% ROA for FY27, with an exit ROA of 1.5% by Q4.
• Asset quality is healing fast: Gross NPA fell 13 bps QoQ to 2.36%, net slippages hit a five-year Q1 low, and credit costs collapsed to 1.37% from 6.8% YoY. The MFI book is normalizing, with 1-90 DPD improving to 1.1%.
• NIM compression is the price of deposit gathering: NIM fell 12 bps QoQ to 7.24% as cost of funds rose 11 bps, and management guides a further decline to ~7.1% over the next 2-3 quarters before stabilizing.
• The liability franchise is being rebuilt from scratch: New products (Maxima, FCNR), new segments (ARTHA, Elite Lite), and a 300-400 person hiring plan aim to lift deposit growth from low single digits toward double digits by year-end.
• What to watch next quarter: Whether the guided NIM decline to 7.1% holds or overshoots, the pace of SA/Elite deposit growth, and any decision on reversing the ₹44 crore MFI stress provision.

Asset Quality & Credit Cost

• Gross NPA improved 13 bps QoQ to 2.36%, the lowest level in two financial years, while net NPA stood at 0.70% with provision coverage at 71%.
• Net slippages hit a multi-year Q1 low: ₹151 crores (1.43%) was the second-lowest Q1 figure in five years, down sharply from ₹453 crores a year ago, driven by better performance in both MFI and non-MFI books.
• MFI normalization continues: 1-90 DPD declined to 1.10% from 1.34% in Q4, collection efficiency held at 99.7%, and July performance remained stable. Management expects similar behavior through the quarter.
• Non-MFI slippages of ₹360 crores were better than Q1 last year and better than Q2/Q3 of last year, with retail and vehicle finance quality intact despite geopolitical tension in West Asia.
• Credit cost collapsed to 1.37% from 6.8% YoY. Adjusting for a ₹29 crore stress provision reversal in Q4, underlying credit cost was broadly flat sequentially, and management expects full-year credit cost below 1.37%.
• MFI stress provision may reverse entirely: The ₹44 crore standard asset provision held against microfinance could be fully released in 1-3 quarters if the portfolio continues to behave well.

Vasudevan: "If MFI continues to behave very well, and we don't see any particular level of sales other than normal, then we might just reverse the whole standard at provisioning. That's something that we may do maybe at the end of 1 or 2 quarters or maybe 3 quarters."

NIM & Margin Trajectory

• NIM declined 12 bps QoQ to 7.24%, driven by an 11 bps rise in the daily average cost of funds to 7.05%, while yield on advances rose only 3-4 bps nominally.
• Cost of funds pressure came from a combination of decreased staff pricing and the launch of the Maxima branded deposit product. The drag from excess liquidity was nominal on a daily average basis.
• Further compression is guided: Management expects NIM to decline from 7.24% to around 7.1% over the next 2-3 quarters, primarily from the cost of funds side, with only a marginal uptick in yields.
• Yield on advances rose 23 bps QoQ to 15.74%, but the YoY decline of ~40 bps in non-MFI yield was attributed to portfolio mix shift toward secured products, not rate cuts.
• Marginal cost of funds currently sits at about 8%, and the outlook is for it to remain around this mark going forward.
• Liquidity drag is temporary: Higher quarter-end liquidity reflected IBPC transactions and refinance taken in the last few days of the quarter, expected to be consumed in the current quarter.

Barsagade: "From a NIM point of view, currently, we are at 7.24 or it will come down as we move forward, primarily attributable to the increase in cost of funds. So maybe 7.1 levels is what we are looking at NIM on a daily average basis."

Deposit Franchise Rebuild

• Deposit growth remained subdued at 10% YoY and 5% QoQ to ~₹48,900 crores, with SA and Elite book growth in low single digits. CASA stood at 25% and retail deposits at 65%.
• New product launches are the growth engine: Maxima (3-year 1-day branded deposit), FCNR (crossed ~₹4.2 crore post-AD1 go-live), and EPIC for NRI are all in early traction, with good retail domestic deposit flow seen in July.
• Customer segmentation was overhauled: Elite Lite launched 3 months back for emerging affluent, ARTHA created for upper-tier HNI, and the existing Elite proposition retained. ARTHA has already crossed 1,000 customers with healthy average ticket sizes.
• Acquisition targets are specific: Management aims for 4,000 accounts per month from the House of Elite (2,000 Elite Lite, 1,500 Elite, 500 ARTHA), plus at least ₹200 crores month-on-month in NTD acquisition and ₹100 crore addition on the existing Elite SA portfolio.
• Bulk deposit mix to normalize: Currently at 68% retail and 32% institutional, the share of bulk is expected to gradually shift to 70-30 or 72-28 over six months as FCNR and Maxima pick up. 91% of bulk deposits are noncallable with 1-year duration, limiting repricing risk.
• Liability hiring is the priority: Of the ~500 headcount additions planned for the rest of the year, 300-400 will come from the liabilities division, while the asset side stays largely flat.
• Liability fee income was muted YoY due to a shift in insurance product mix toward term and traditional, with commission structures under scrutiny and a suitability-first approach. Q2 focus will be on health penetration and life ticket size penetration.

Loan Growth & Portfolio Mix

• Gross advances grew 27% YoY to ₹47,640 crores, with the highest-ever Q1 disbursement of ₹6,784 crores, up 93% YoY. Non-MFI disbursements grew 68% YoY.
• Small business loans remain the largest contributor at ₹19,249 crores (15% YoY), with secured business loans growing 32% YoY.
• Used vehicle finance delivered standout growth: used commercial vehicles up 25% YoY and used cars up 30% YoY, reflecting strategic focus.
• Microfinance is being deliberately capped: MFI disbursement was 11% of the overall loan mix, and management intends to maintain it around 10% going forward, with selective growth.
• Gold loan growth moderated due to seasonality and network expansion taking time, but month-on-month disbursements remain healthy. The full-year target is to scale to ₹1,600 crores with branch expansion to ~120 branches by Q4.
• The DA book is running down: Currently at ₹838 crores, it is expected to shrink to ~₹150 crores by Q4, releasing capital and removing a low-yield drag. A ₹500 crore DA transaction on the affordable housing book was completed in Q1.
• Capital relief is being actively managed: The vehicle finance portfolio is being covered under CGT MSC for capital release, and an enabling resolution for ₹1,250 crores of Tier 1 capital will be tabled at the forthcoming AGM.

Profitability & ROA Path

• PAT swung to a profit of ₹184 crores from a loss of ₹224 crores in Q1 FY26, with ROA at 1.18% and ROE at 11.76%.
• Full-year ROA guidance is raised: Management now expects to deliver more than the guided ~1.2%, with a year-end exit ROA of 1.5% by Q4. A revised guidance may come at the end of Q2.
• The ROA bridge is gradual: Improvement will come through the year from fee income (Q4 is seasonally strong), operating leverage as cost-to-assets declined 14 bps QoQ to 5.61%, and credit cost normalization.
• FY28 ROA is committed to be higher: Whatever full-year ROA is delivered this year, next year's full-year ROA should be definitively better.
• Operating expenses rose 16% YoY and 5% QoQ to ₹875 crores, reflecting annual increments and higher employee count. The cost-to-income ratio stood at 68.38%.
• Treasury income contributed ₹31 crores in a quarter marked by geopolitical tension, volatile markets, and rupee depreciation pressure.

Vasudevan: "Whatever ROA we delivered for the full year, next year, full year ROA should be definitely better than that."

Strategic Initiatives & Licensing

• Universal banking license work is underway: The bank is running an internal project and appears technically in compliance with RBI guideline requirements, but no timeline has been set for filing the application. Management is not in a hurry and will study guidelines and engage with RBI first.
• Capital raise is not imminent: Management does not expect to raise Tier 1 capital in the current calendar year. A raise may be considered toward the end of Q4 FY27 or Q1 next financial year, depending on capital conservation.
• IT and AI build-out has begun: Key applications including an enterprise LOS and litigation management system are being developed in-house for launch during the year. The first AI projects are underway, with benefits expected to become visible in the coming couple of quarters.
• A 5-year vision was set out at the June Investor Day, and management remains committed to delivering it.
• NIM methodology changed: Effective Q1 FY27, NIM is reported based on daily average interest-earning assets, replacing the earlier opening-and-closing average method.

Vasudevan: "We are not really in a hurry to file our application at the earliest. We are not in that hurry. We'll take our time."

Guidance & Commitments

Key Metrics