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Informist, Wednesday, Jul. 29, 2026

 

By Aaryan Khanna and Janwee Prajapati

 

NEW DELHI/MUMBAI – Equitas Small Finance Bank is in no hurry to become a universal bank, its management told analysts in a conference call on Wednesday, after its June quarter earnings. In its own assessment, the lender qualified to apply but was still assessing when to file its application and was in talks with the Reserve Bank of India as well.

 

"As of now, we have not put a timeline to apply to RBI. We have gone through the RBI guidelines," the management said. "Technically, it looks like we are in compliance with the guideline requirements."

 

In April 2024, the RBI had laid out guidelines and criteria for voluntary transition of small finance banks to universal banks. The regulator has given AU Small Finance Bank an in-principle approval to become a universal lender in August, but rejected applications from Ujjivan Small Finance Bank and Jana Small Finance Bank over the past year.

 

Even as the universal bank application was in process, Equitas Small Finance Bank said it might outperform its guidance of 20% loan growth in 2026-27 (Apr-Mar). It may also be able to improve its return on assets beyond the 1.2% guidance, though a fresh target would only be given after the September quarter earnings, the management said. At the end of June, advances were up 27% on year at INR 476.41 billion, while the return on assets in Apr-Jun was 1.18%.

 

The loan growth momentum and near-100% collection efficiency will continue in the September quarter, while deposit growth may pick up after only 10% on-year increase by June-end, the management said. Gold loan disbursements may see an "upsurge" starting September as the bank increases its branches which offer the product. Executives targetted gross gold loan advances of INR 16 billion in FY27, against INR 9.79 billion as on Jun. 30.

 

The bank also plans to launch several products for high net worth individuals with robust growth expected in Jul-Sept under its "Elite" category on both the asset and liability side. Business growth may also improve in the ongoing quarter as the bank runs down excess liquidity collected towards the end of the June quarter, which has pushed up its liquidity coverage ratio to 178.5% at the end of June. The regulatory requirement in 100% and the average liquidity coverage ratio through the quarter was around 140%, the management said. 

 

The small finance bank posted a net profit of INR 1.84 billion in the June quarter, down 14% sequentially but recovering from a loss a year ago. Net interest income was up 31% on year at INR 10.30 billion in the reporting quarter, it said in a release Tuesday. At 1420 IST, shares of Equitas Small Finance Bank were off lows, down 1.9% at INR 73.20 on the National Stock Exchange.

 

The focus on gold loans was especially pertinent as these carried lower risk weights, along with housing finance. The management was using all levers available with it to conserve capital, including by direct assignment of some loans and getting vehicle finance and microfinance loans insured under government schemes, it said.

 

Despite the strong business growth, the bank does not plan to raise more tier-I capital in 2026, the management said. The next round of capital raising might come towards the end of the current financial year in March or in the first quarter of FY28. At the upcoming annual general meeting, the bank will also seek shareholder approval for an enabling provision to raise INR 12.50 billion. The capital to risk-weighted-assets ratio was 19.44% as on Jun. 30, with a tier-I capital ratio of 16.01%.

 

"So, there are lot of levers for capital preservation that we have been using over the last few quarters. So, we will continue to do that," the management said. 

 

Asset quality would also improve in the coming quarters, with the increased slippages in the June quarter due to seasonality rather than any stress from the war in West Asia, the management said. Despite the ongoing war and its impact, the retail and vehicle finance loan book had not seen any build-up in stress. Credit costs on average gross advances in FY27 on the whole would be lower than the 1.37% recorded in the June quarter, the management said. 

 

A standard asset provision of INR 1.85 billion was still being held against microfinance loans after the surge in non-performing assets over the past two years. However, the Chennai-based lender may reverse that if asset quality in the microfinance book remains stable over the next one to three quarters, the management said. 

 

On the other hand, margins are likely to decline going ahead. Equitas Small Finance Bank guided for the daily average net interest margin to fall to 7.10% over the next two to three quarters from 7.24% in Apr-Jun. While the yield on advances may rise marginally, the bank's cost of funds is likely to climb at a faster clip, the management said. 

 

Separately, it said the small finance bank had seen good traction in foreign currency non-resident bank deposits, bringing in $42 million already. Equitas offers the highest rate of 7.52% among all lenders on 3-5 year FCNR(B) deposits. On Jun. 8, the Reserve Bank of India unveiled a facility under which it would bear the full hedging costs for banks raising fresh three- to five-year FCNR(B) deposits until Sept. 30.  End

 

US$1 = INR 95.65

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Avishek Dutta

 

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