Equitas Small Finance Bank conducted a conference call on 25 January 2024 to discuss its financial results for the quarter ended December 2023. PN Vasudevan, MD&CEO of the bank addressed the call:

Highlights:

As the bank lends to the customers at the bottom of the pyramid, it continues to see healthy demand, normalizing asset quality trend and opportunity for growth.

The bank has exhibited a healthy performance despite 85% of its loan book is fixed rate and it is impacted by the rising interest rate scenario.

The bank has improved its yield on advances by 60 bps on loan book and on incremental loans by 100 bps. The bank expects the interest rate to remain stable and decline by the end of FY2025.

The bank is planning to reduce the credit-deposit ratio to 85% by March 2025 from 91% at end December 2023. However, its impact on the margin is expected to be neutral.

The bank expects loan growth at 25 to 28% by March 2024.

On the deposit side, about 80% of the incremental deposits were retail deposits.

The share of disbursement in the non TN States has improved to 46% from 35% last year.

The fresh slippages were higher mainly on account of the floods in the Tamil Nadu and the vehicle and microfinance segment mainly contributed to the higher fresh slippages in Q3FY2024. However, the bank sees the fresh slippages in the range of 3 to 4% to be normal for the bank.

While the credit cycle is normalizing, as per the bank the collection efficiency is best in the fourth quarter and the bank expects healthy collections for Q4FY2024.

The bank has continued to maintain the credit cost guidance of 1.25% for FY2024. It expects maintain credit cost below 1.25% in FY2024.

The bank has already invested into branches and there would not be any large requirement of investments in the branch expansion. However, there would be some requirement of investment in the technology and new product launches such as credit cards and 81 bonds.

The bank expects affordable housing finance segment to achieve break even in FY2024 and start generating profit from FY2025

The bank has witnessed 75 bps decline in the net interest margin. Despite decline in the margins and continuous investment, the bank has delivered reasonable RoA of 2% and the RoE of 15%.

If the interest rate continues to rise, the margins of the bank would be impacted. But even if the interest rate remains steady, the margins would start improving with fresh disbursements at high rates and the flat cost of funds. However, the bank would benefit if the interest rate starts reducing with high share of fixed rate loan book.

The bank expects the net interest margins for FY2024 at 8.5% and for Q4FY2024 at 8.25%.

The treasury gains of the bank were steady sequentially at Rs 27 crore in Q3FY2024.