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%.