Equitas Small Finance Bank conducted a conference call on 06 May 2023 to discuss its financial results for the quarter ended March 2023. PN Vasudevan, MD&CEO of the bank addressed the call:

Highlights:

The bank is on the right path of building a sustainable and scalable institution.

The bank has substantially improved its asset quality with the reduction in gross NPA ratio to pre-covid level of 2.6% end March 2023.

The credit cost has been in line with the guided level of 1.5% for FY2023. The bank expects credit cost to further improve to pre-covid level of 1.25% in FY2024.

The bank is targeting loan growth of 25-30% for FY2024.

As per the bank, it is well prepared for sustainable RoA delivery of 2.0-2.25%.

The bank has declared the maiden dividend of Rs 1 per share for FY2023.

The bank has built a strong liability franchise and expects the cost of funds to further reduce to match with the largest bank in next 5-6 years.

The bank is well prepared to enter its best phase of growth.

The other income included Rs 70 crore realization from sale of assets ARCs.

The bank has sold microfinance loans amounting to Rs 581 crore to ARCs in Q4FY2023, of which Rs 500 crore were already written off. On the balance Rs 81 crore, the bank has recognized income of Rs 70 crore and reverses excess provisions of Rs 11 crore.

There will not be any further provisioning on the ARC sales, as the security receipts have been fully provided and realization will be recognized as income.

The bank is carrying total provisions of Rs 549 crore on the balance sheet of which Rs 412 crore relates to NPA provisions and Rs 137 crore relates to standard asset provisions.

The provision coverage ratio has improved to 56.9% end March 2023. Bank aims to improve the provision coverage ratio to 70% in the next few quarters.

The cost to asset ratio is expected to gradually reduce over next few years, as the bank average loan ticket size is very low. Excluding microfinance, the average loan ticket size stands at 6 lakh.

Introduction of new products with low operating cost would aid in reducing cost ratio.

The share of microfinance loans stands at 18.7% and in the next 5 years the bank aims to reduce its share by 4-5%.

The bank has raised provisioning rate for early bucket NPAs leading to excess provisions of Rs 90 crore in Q4FY2023.

The bank aims to add 15 liability branches and 30-40 asset branches in FY2024

The bank has achieved important regulatory requirement in Q4FY2023 and as and when RBI signals it would apply for the universal bank licence.

The bank expects to maintain margin at around 9% for next 2-3 quarters

About 50% of the vehicle loan book is a used vehicle, 30-40% is new and the remaining 10% is used cars. The blended yield for the vehicle loan book is 16%. The blended yield on the small business loans stands at 16.5%.

On the loan mix, the bank targets the share of mortgages at 50%, vehicle finance book will be 20-25% and microfinance will reduce to 15%.

The restructured loan book of the bank stands at Rs 235 crore, of which small business loans stands at Rs 109 crore. The NPAs in restructured loan book stands at Rs 177 crore with 88% provisions.

The restructured loan book of the bank has declined from a peak of 9.7% end December 2021.

About 97% customers by number and 90% by value had availed the benefit of moratorium.

The fresh slippages of loans has declined to Rs 190 crore in Q4FY2023 and the bank expects further improvement in the fresh slippages of loans ahead. collections are improving and trend will be maintained.

The cost of saving deposits stands at 6.2-6.3%.