Equitas Small Finance Bank: Navigating Growth with Strategic Precision in Q2 FY26

Equitas Small Finance Bank has demonstrated a strategic pivot in its Q2 FY26 performance, showcasing resilience and a clear roadmap for sustainable growth amidst evolving market dynamics. The bank reported a Profit After Tax (PAT) of INR 24 crore, marking an impressive 87% year-on-year growth, a significant turnaround from the INR 224 crore loss in Q1 FY26. This performance reflects the management's focused efforts on asset quality improvement and strategic portfolio re-calibration.

The bank's total operating income for Q2 FY26 stood at INR 998 crore, with Net Interest Income (NII) at INR 774 crore and other income contributing INR 224 crore. While the Net Interest Margin (NIM) saw a decline to 6.29% from 7.69% in the prior year, primarily due to a reduced microfinance mix, management anticipates a strengthening of NIM in the coming quarters. The overall Gross Advances grew by 9% year-on-year to INR 39,123 crore, driven by a healthy uptick in disbursements, particularly in the non-MFI segments.

Strategic Portfolio Re-calibration and Asset Quality

A significant highlight of the quarter is the bank's strategic shift away from a high concentration in microfinance. While the microfinance portfolio contracted by 40% year-on-year, the non-MFI book demonstrated robust growth of 17% year-on-year. This growth was led by Small Business Loans (SBL) at 17%, MSE Finance at 36%, and NBFC funding at an impressive 80%. The Used Car Advances segment also saw substantial growth of 43% year-on-year, with the overall Vehicle Finance portfolio growing by 10% year-on-year to INR 9,800 crore. This diversification reduces the bank's exposure to the inherent volatilities of the microfinance sector.

Asset quality showed marked improvement, with Net Slippages reducing by approximately 100 basis points quarter-on-quarter. The Gross Non-Performing Assets (GNPA) remained flat at 2.82%, and Net NPA stood at 0.95%. Credit Cost significantly improved to 2.16% in Q2 FY26 from 6.48% in Q1 FY26 and 3.72% in Q2 FY25. The bank also proactively sold NPA assets amounting to INR 216 crore from its secured portfolio to an Asset Reconstruction Company (ARC), leading to a reversal of INR 40 crore in excess provisions. This proactive risk management and focus on secured lending are crucial for long-term stability.

Digital Transformation and Future Outlook

Equitas is aggressively pursuing digital transformation to enhance customer experience and operational efficiency. The launch of the 'Selfe Loans' app, targeted at tiny entrepreneurs, and the Equitas Mobile Banking App 2.0, offering seamless banking and self-service features, underscore this commitment. The 'Insta Banking Services' initiative, leveraging micro-service based technology and biometrics, aims to eliminate paper-based requests and provide 100% digital and instant service processing.

On the liability side, total deposits grew by 11% year-on-year to INR 44,094 crore, with a stable CASA ratio of 31%. Retail deposits now constitute 75% of the total deposit base. The bank's capital adequacy ratio stood at a robust 20.74%, with Tier I at 16.44%, providing ample capital for future growth. Management guidance for FY26 includes a mid-teen growth in overall advances, primarily driven by the secured portfolio, and an expected exit ROA of about 1% by Q4 FY26. The bank also plans to introduce Elite Lite and Elite Plus offerings by Q3 FY26, expanding its reach to mass affluent and HNI segments.

Equitas Small Finance Bank's Q2 FY26 performance reflects a strategic shift towards a more diversified and secured lending portfolio, coupled with a strong focus on digital innovation and enhanced customer engagement. The improvements in asset quality and proactive risk management position the bank for sustained growth and profitability in the coming quarters, reinforcing investor confidence in its long-term trajectory.