This article first appeared on GuruFocus .
Release Date: May 02, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Equitas Small Finance Bank Ltd ( BOM:543243 ) reported its highest ever quarterly PAT of Rs. 213 crores, marking a 406% year-on-year growth.
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The bank's net interest margin (NIM) improved significantly to 7.29% in Q4 FY26, up from 6.72% in Q3 FY26.
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Gross advances grew by 22% year-on-year, driven by robust disbursement across all verticals.
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Asset quality improved with gross NPA reducing to 2.49% and net NPA to 0.68% in Q4 FY26.
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The bank's capital adequacy ratio stood at a healthy 20.31%, indicating strong capital management.
Negative Points
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The bank anticipates an increase in the cost of funds due to recent hikes in interest rates on term deposits and savings accounts.
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Credit cost is expected to normalize to around 1.5% for the full year, up from the 1.11% reported in Q4 FY26.
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There is potential risk from geopolitical tensions in West Asia, which could impact global supply chains and inflation.
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The bank's CASA ratio remains relatively low at 26%, which could impact its cost of funds.
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The bank's microfinance portfolio, which has historically had higher yields, now contributes only 10% to advances, potentially impacting overall NIM.
Q & A Highlights
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Q: Regarding the FY27 ROA guidance, why is there a decrease from 1.5% in Q4 to 1.2% for the full year? Are you not expecting any margin expansion? A: P.N. Vasudevan, MD and CEO, explained that while the bank expects a 20% growth in advances, the net slippage was lowest in Q4, leading to lower income reversal. However, Q1 and Q2 are seasonally weaker, potentially increasing GNPA slippage and income reversal. Additionally, increased rates on term deposits and savings accounts will raise the cost of funds, moderating NIM from 7.29%. Credit costs are expected to normalize to around 1.5% for the full year, leading to an ROA of 1.2% to 1.25% for FY27, with a Q4 exit ROA of about 1.5%.
Q: With the corporate book growing significantly, what is the strategy behind this aggressive growth, especially given the pressure on NIM? A: P.N. Vasudevan clarified that the corporate book, particularly NBFC lending, serves as a filler for surplus liquidity. The bank lends to NBFCs, especially gold loan NBFCs, when there is excess liquidity, as an alternative to parking funds in government securities. This strategy is not a targeted lending approach but a temporary deployment of surplus funds.
Q: What is the sustainable NIM for the business, considering the current asset and liability mix? A: P.N. Vasudevan stated that the sustainable NIM is expected to be around 7%, with some fluctuations due to increased cost of funds and efforts to maintain a C/D ratio slightly below 90%. The bank's focus on maintaining a stable NIM is supported by its lending to underserved segments, allowing some pass-through of increased costs.
Q: How does the bank plan to manage potential impacts from geopolitical tensions and inflation on its portfolio? A: P.N. Vasudevan mentioned that the bank's customer segments are largely insulated from direct geopolitical impacts. However, if fuel prices rise significantly, it could affect commercial vehicle operators. The bank is prepared to respond with measures like tightening credit norms and moderating leverage levels to preserve asset quality over growth.
Q: What are the plans for universal banking license application and capital raise in the near term? A: P.N. Vasudevan indicated that the bank will analyze its compliance with RBI guidelines for converting to a universal bank and decide on applying accordingly. Regarding capital raise, the bank aims to conserve capital through government guarantees and focus on lower-risk products. A tier 2 capital raise of 400-500 crores is planned by the end of the calendar year, with potential tier 1 capital raise towards the end of FY27 if needed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
