Equitas Small Finance Bank expects its loan book to grow at a 19% compound annual growth rate (CAGR) through FY28. The small finance bank is banking on vehicle finance, small business loans and housing finance to drive expansion. Its advances rose 29% year-on-year to Rs 46,800 crore in Q2 FY27, while non-microfinance disbursements increased 31%.
Key Highlights
- Loan book expected to grow at 19% CAGR over FY26-28.
- Deposits increased 19% year-on-year to Rs 52,500 crore in Q2 FY27.
- FY27 return on assets (RoA) guidance raised to 1.35% from 1.2%.
Vehicle Finance and Housing Loans Drive Growth
Vehicle finance and small business loans grew 16% year-on-year each in the September quarter. Housing finance expanded 27%, while micro, small and enterprise (MSE) finance recorded 38% growth. Together, small business loans, housing finance and vehicle finance account for around 75% of the bank's loan book.
The unsecured portfolio, mainly comprising microfinance loans, remained stable at around 12% of advances. The bank aims to keep this share below 15% in the medium term, according to Motilal Oswal Financial Services.
Deposits grew 19% year-on-year and 7% sequentially to Rs 52,500 crore. Retail deposits contributed around 60% of the total. The current and savings account (CASA) ratio improved 60 basis points sequentially to 25.7%. The credit-deposit ratio also declined to 89.1% from 91.3% in the previous quarter.
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Margins Expected to Recover as Liquidity Improves
The bank's net interest margin (NIM) declined 55 basis points sequentially to 6.69% in Q2 FY27. Its cost of funds rose to 7.12%, with another 8-10 basis points increase expected in Q3 due to deposit repricing.
However, management expects surplus liquidity to be largely deployed during the December quarter. This could support an 18-20 basis point NIM recovery by March, taking the margin closer to its medium-term target of 7%.
Asset quality also improved. Gross non-performing assets declined to 2.29% from 2.60% in March, while net NPAs fell to 0.70%. Credit costs moderated to 0.94% from 1.37% sequentially.
The small finance bank has also raised its FY27 RoA guidance to 1.35% from 1.2%. It is targeting around 1.5% in FY28. Motilal Oswal expects the cost-to-income ratio to improve to 66.4% by FY28 from 71.7% in FY26, supported by operating efficiencies and business expansion.
