Equitas Small Finance Bank conducted a conference call on 24 April 2024 to
discuss its financial results for the quarter ended March 2024. PN Vasudevan,
MD&CEO of the bank addressed the call:
Highlights:
The
year was good for the bank, while it has continued to invest in the people and technology.
Despite
85% loan being fixed rate, the bank has well maintained its margins and profitability
during the rising interest rates scenario.
The
bank has also decided to defocus from the NBFC loans and low margin new commercial
vehicle loans.
On the
deposit side, the bank has focused on retail term deposit as the customers
focused on locking in term deposits at higher rate for long term.
The
bank has substantially reduced CD ratio from 103% end March 2023 to 87% end
March 2024 which has also impacted the margins of the bank. The bank aims to further
reduce CD ratio to 85% by March 2025.
The
bank has also assigned higher portfolio of Rs 584 crore in Q4FY2024 causing
pressure on margins.
The technology
is the focus area of the bank with the focus on delivering excellent customer
services.
Strategy
of the bank is to build a diversified new age bank.
The
bank has recorded 23% loan growth driven by 30% growth in the small business
loans, 20% in the microfinance, 19% vehicles and 60% in the affordable housing finance.
The
microfinance segment has the completely gone digital with 100% digital KYC.
As per
the bank the unsecured loan book will not exceed 20% of the loan book.
In the vehicle
finance business, the used vehicle loan book has jumped 71% to Rs 1224 crore
and the bank is focused on used car and used commercial vehicles segment.
About
20000 customers have a availed ASBA facility of which 12000 customers were
added in the current year.
The
latest geo political tensions have slightly impacted the expectations of
earlier rate cut.
The RBI
has guided that once the primary account of the borrower is classified as NPA, the
accounts of the co-borrower has to be also classified as NPA. Thus, the bank
has classified accounts of Rs 38.45 crore as NPA in Q4FY2024. The bank has also
created additional provisions of Rs 15.17 crore.
The
bank has not written off any accounts in the microfinance loan book in current
year. The microfinance portfolio at risk in the 90-180 days category stands at 0.9%
for the bank as against 1.1% for the small finance banks and 1% for the
microfinance companies.
GNPA in
the microfinance loan book is expected to be in the range of 2.5 to 3.5%.
The
interest rates have already peaked and with the repricing of the balance
deposits, the bank expect further 10 to 12 bps rise in the cost of funds for Q1
or H1FY2025.
As the bank
expect microfinance loan book share to continue to moderate there would be some
pressure impact on the yield.
The
long growth is expected to be around 25%
About 62%
of the deposit book deposit book is less than Rs 2 crore.
About 22%
of the deposit is coming from the institutions with 91% being non callable with
the maturity of over 1 year.
The deposits
in the category above Rs 10 crore account for 30% of the overall deposit base
with non callable at more than 90%.
During
the investment phase, the bank expect to maintain cost to income ratio at 60 to
63%
The fee
income on the securitized loan book recognized in the other income stands at Rs
22 crore Q4FY2024 compared with Rs 7 crore in Q3FY2024.
Disbursements
of the bank where impacted in Q4 on account of focus on yield, while the bank
expects disbursements to pick up going forward with the strong demand across
segments.
The
bank expects to maintain NIM stable at current level. The bank is targeting RoA
of 2% in FY 2025.
The
credit cost is expected to be at pre-covid level of 1.25% in FY2025.
The
bank is planning to launch personal loans in the current quarter and the credit
cards by the end of a FY2025. The microfinance, personal loans and credit cards
under unsecured loan category will remain below 20% of the loan book.
The
bank is planning to sell the personal loans and the credit cards to the
existing customer to improve the relationship with the customer, while the new
to bank customers will be acquired by the bank itself.
The
bank has a term deposit differential of 125 bps with the largest bank. The bank
is improving the relationship with the customers with the cross sell of more
product and over the next three years it would look at reviewing the term
deposit structure depending on the strength of customer relationship.
The
bank wants to maintain its capital adequacy ratio above 18 to 19%.
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