BackFor Equitas Small Finance Bank, focus shifts to core performance
Analysts expect the credit growth to sustain going forward, considering the customer base of the Equitas SFB driven by non-microfinance segments such as small business loans and vehicle finance
PremiumThe amalgamation of Equitas Small Finance Bank Ltd and Equitas Holdings Ltd has concluded. As per the scheme, the bank received 231 shares of the bank for every 100 shares of holding. Post this, existing shares of around 934 million held by the holding company have been cancelled or extinguished, a BSE notice said. The bank had to initiate an amalgamation scheme between Equitas Holdings and Equitas Small Finance Bank (SFB) for the purpose of reducing the promoter holding as per the RBI mandate.
With the overhang of the promoter holding gone, the focus now shifts to the bank’s performance. Note that the board’s decision to renew the term of PN Vasudevan as managing director and chief executive officer of the bank for three years (subject to RBI approval), is another positive.
“EQUITASB has been focusing on building a diversified loan book with small business loans (SBL), vehicle finance, MFI and housing finance being the key business segments" said a report from Motilal Oswal Financial Services. Considering the favourable demand outlook, the management is confident of achieving 25% loan growth for FY23. In Q3FY23, the bank reported a healthy loan growth across its business verticals leading to an overall credit (loan) growth of 27% year-on-year (y-o-y) versus 13% y-o-y last year.
Analysts expect the credit growth to sustain going forward, considering the customer base of the Equitas SFB. Two key segments, non-microfinance segments such as small business loans and vehicle finance, are expected to drive the credit growth going forward. “Considering the under-penetration in both these segments, analysts at Motilal Oswal estimate loans to grow at 26% CAGR over FY23-25.
At a time when most large banks scramble to garner deposits to meet the credit demand, Equitas SFB is well placed with a healthy current account and savings account ratio (CASA). “Among the listed small finance banks, Equitas SFB has the strongest CASA" says Dnyanada Vaidya, research analyst, Axis Securities. Further, nearly 95% of term deposits are non-callable and this lends comfort for the bank, particularly in a rising interest rate scenario. According to the management, the bank may not hike interest rates in savings accounts and will play competitively via term deposit rates.
With the healthy credit growth and stable deposit growth, the net interest margins for the bank to remain at current levels of 9% in the March quarter. However, going forward, there could be some compression. "As the bank’s focus shifts more towards a secured portfolio, we see some stress on margins, about 60-70 basis point contraction by FY25," said Vaidya. But the compression in NIMs to be supported by improvement in opex ratios and moderating credit costs, she added.
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