Earnings Review
Equitas Small Finance Bank Jul-Sept PAT falls 94% as provisions jump
This story was originally published at 20:52 IST on 8 November 2024
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--Equitas Small Fin Bk Jul-Sept net profit INR 128.83 mln
--Analysts saw Equitas Small Fin Bk Jul-Sept net profit INR 1.73 bln
--Equitas Small Fin Bk Jul-Sept net profit INR 128.83 mln vs INR 1.98 bln
--Equitas Small Fin Bk Jul-Sept total income INR 17.94 bln vs INR 15.40 bln
--Equitas Small Fin Bk Jul-Sept provisions INR 3.30 bln vs INR 631.95 mln
--Equitas Small Fin Bk board OKs raising up to INR 5 bln via NCDs
--Equitas Small Fin Bk Apr-Sept net profit INR 386.40 mln vs INR 3.89 bln
--Equitas Small Fin Bk Apr-Sept total income INR 35.03 bln vs INR 29.66 bln
By Sachi Pandey
MUMBAI – Equitas Small Finance Bank reported a sharp 93.5% on-year decline in its net profit for the Jul-Sept quarter to INR 128.83 million, widely missing analysts' expectations of INR 1.73 billion. This also marked a nearly 50% drop from the preceding quarter's profit, largely due to a substantial increase in provisions.
For the first half of the financial year, the bank's net profit was INR 386.40 million, sharply down from INR 3.89 billion in the corresponding period last year.
The bank's provisions surged nearly five times to INR 3.30 billion in Jul-Sept, compared to INR 632 million a year ago. Sequentially, provisions rose 8.21%, a result of proactive steps taken by the bank to guard against heightened risks in its microfinance portfolio.
"In this quarter, we proactively increased our provisions in microfinance by INR 1.46 billion. This strategic decision aims to adequately cover potential risks associated with current industry stress. As a result, we had a one-time impact on our profit after tax for this quarter," the bank said in a press release. Currently, microfinance accounts for 16% of bank's loan portfolio, the release added.
This approach, while weighing on profits, reflects Equitas's attempt to stabilise amid sectoral challenges. Equitas's provision coverage ratio rose to 67.71% in Jul-Sept, compared to 57.72% a year ago.
Despite the hit to profit, the bank's core performance reflected some resilience. In terms of total income, the small finance bank saw an increase of 16.45% on year to INR 17.94 billion for the quarter, with a 4.92% sequential rise. Total income for the first half of the fiscal year rose to INR 35.03 billion, compared to INR 29.66 billion in the same period last year. Pre-provision operating profit was up 6% on year, totalling INR 3.5 billion.
Gross advances rose 15.4% on year to INR 360.53 billion, with a 3.4% increase from the previous quarter. While the microfinance and micro loans segment saw a 4?cline on year to INR 56 billion, lending to small businesses and micro and small enterprises grew by 28% and 32% on year, respectively.
Total deposits grew 29.3% on year to INR 398.59 billion, while the cost of funds rose slightly to 7.50%, compared to 7.46% in the previous quarter and 7.21% a year ago. Low-cost current account savings account deposits grew at a slower pace of 17.4% on year to INR 121.84 billion. The bank's CASA ratio was 31% as of Sept. 30, flat from a quarter ago and lower than 34% as reported a year ago.
However, credit costs surged to INR 3.3 billion, driven mainly by the microfinance segment, which alone accounted for around INR 2.41 billion in credit costs for the quarter, up from INR 620 million in the previous quarter. The bank's net interest margin slipped to 7.69%, from 7.97% in the previous quarter and 8.43% a year earlier.
On the asset quality front, the bank's gross non-performing assets climbed 54.86% on year to INR 10.23 billion. Net non-performing assets also rose, reaching INR 3.30 billion, up 18.26% from a year ago and 25.05% sequentially. The gross non-performing assets ratio of the bank was 2.95% as of Sept. 30, against 2.73% a quarter ago, and 2.27% a year ago. The net non-performing assets ratio was 0.97%, unchanged on year and as against 0.83% a quarter ago.
Total expenses of the small finance bank rose 19.33% on year to INR 14.44 million in Jul-Sept. On a sequential basis, expenses were up 5.46%.
The bank has announced plans to raise up to INR 5 billion through non-convertible debentures in a single series for inclusion as Tier II Capital. The debentures, which will have a base size of INR 2.5 billion and greenshoe of INR 2.5 billion will be issued on a private placement basis. The bank's Basel II capital adequacy ratio was 19.36% as of Sept. 30. The liquidity coverage ratio was 158.79% as on Sept. 30.
On Friday, shares of Equitas Small Finance Bank ended 2.5% lower at INR 68.63 on the National Stock Exchange. End
Edited by Ashish Shirke
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