/** blogpostTitle: "Equitas SFB Q1 FY27: Growth holds firm as funding costs rise" */

Equitas SFB Q1 FY27: Growth holds firm as funding costs rise

Equitas Small Finance Bank entered FY27 with a quarter that management described as a shift “from resilience to momentum”. The headline numbers support the claim on growth and asset quality, even as deposits and funding costs remained the key balancing act.

For Q1 FY27, the bank reported profit after tax of 184 crore, a sharp turnaround from a loss of 224 crore in Q1 FY26. Return on assets stood at 1.18% and return on equity at 11.76%. Net interest income rose to 1,030 crore, while total net income increased to 1,280 crore. The cost side reflected seasonality and annual increments, with operating expenses at 875 crore and cost-to-income at 68.38%.

The bank’s growth engine stayed strong. Gross advances rose 27% year-on-year to 47,641 crore, supported by broad-based disbursement momentum. Total deposits grew to 48,976 crore, up 10% year-on-year and 5% sequentially, but the CASA ratio moderated to 25%.

The quarter in numbers: earnings, margins and efficiency

Net interest margin for Q1 FY27 was reported at 7.24% on a daily average basis, down about 12 basis points sequentially. Management attributed the margin softness to higher funding costs and quarter-end surplus liquidity deployment. Cost of funds increased to 7.05% during the quarter, reflecting revisions in savings and term deposit pricing.

While NIM moderated from the previous quarter, the yield on gross advances improved to 15.74%. The mix also remains relevant. Microfinance has a higher yield range, while secured non-MFI products are lower yielding but typically more stable. Management reiterated the intent to keep microfinance around 10% of overall advances over time.

Operating costs were elevated in the quarter due to annual increments. Even so, cost-to-assets declined to 5.61% from 5.75% in Q4 FY26, indicating some operating leverage. The bank also guided that cost-to-income is expected to moderate further in the second half of FY27.

Advances mix: diversification with clear focus areas

Equitas’ advances portfolio continues to tilt toward secured products, with Small Business Loans remaining the largest segment. As of Q1 FY27, the book split shows SBL at 19,249 crore (40% mix), Vehicle Finance at 10,947 crore (23%), Housing Finance at 6,044 crore (13%), Micro Finance and Micro Loans at 6,018 crore (13% including direct assignment), MSE Finance at 2,176 crore (5%), NBFC lending at 1,778 crore (4%), and Gold Loans at 979 crore.

Disbursements for the quarter were 6,784 crore, up 93% year-on-year, though down 8% sequentially. The mix of disbursements indicates a continued push in secured segments, with SBL and Vehicle Finance being meaningful contributors.

A key nuance in the microfinance mix is the impact of a direct assignment book acquired earlier. Management indicated the direct assignment outstanding is 838 crore currently and expects it to run down to about 150 crore by Q4 FY27. The bank reiterated that microfinance advances are expected to be maintained at around 10% of overall advances, implying that the mix should normalize as the DA book amortizes.

Asset quality: steady improvement and normalized credit costs

Asset quality remained on an improving trend. GNPA reduced to 2.36% from 2.49% in Q4 FY26. Including securitization book, GNPA would stand at 2.31%. NNPA rose marginally to 0.70% from 0.68%.

Provision coverage ratio was 71.02%, and including technical write-offs it stood at 86.96%. Net slippages were reported at 1.43% in Q1 FY27, described as the second lowest among first quarters over the last five years.

Credit costs declined sharply to 1.37% in Q1 FY27 versus 6.48% in Q1 FY26. Management clarified that Q4 FY26 also had a reversal of stress sector provisioning, and that the underlying sequential credit cost trend is broadly stable.

In microfinance, collections and early delinquency metrics improved. Management highlighted an X-bucket collection efficiency of 99.7% and a reduction in 1 to 90 DPD to 1.10% from 1.34% in Q4 FY26.

Deposits and funding: growth with a higher cost

Deposits grew 10% year-on-year to 48,976 crore. The deposit mix shows CASA of 12,307 crore and term deposits of 36,669 crore. CASA ratio stands at 25%.

Management acknowledged that bulk term deposits have increased in share, and explained that cooperative banks and government bodies contributed meaningfully to this mix. It also noted that about 91% of bulk TD is non-callable, which helps manage repricing risk.

The bank’s funding profile includes term deposits, certificates of deposit, refinance, securitization or assignment and IBPC. Refinance increased to 5,722 crore in Q1 FY27 from 4,773 crore in Q4 FY26. Management noted refinance funding benefits from CRR and SLR exemption, making its effective cost marginally lower than deposit funding.

FCNR deposits, launched in Q3 FY26, crossed USD 42 million, and management positioned this as a part of building a diversified deposit franchise.

Technology and distribution: moving toward automation and new propositions

Equitas continues to invest in technology as a strategic lever. The bank outlined a roadmap to 2030 with focus areas including customer experience, market-leading digital platforms, stronger in-house development, automation and adoption of emerging technologies.

The presentation listed six AI initiatives in flight spanning payments validation, cheque clearing automation, voice AI for collections, automated test case generation (EquiTest), AI-enabled account servicing and AI-assisted loan processing. Management stated on the concall that the first benefits of AI should be visible in the coming couple of quarters.

On liabilities, the bank continues to expand segmentation-led propositions under the “House of ELITE” framework, including Elite Lite, Elite, ARTHA and Elite Epic for NRI customers.

What management is guiding for FY27

Management reaffirmed a set of explicit FY27 outlook points.

The bank expects microfinance advances to be maintained around 10% of overall advances. It guides for 20% plus overall advances growth for FY27. It also reiterated an exit ROA of about 1.5% in Q4 FY27 and a full year ROA of about 1.2%.

On margins, management indicated that NIM could trend toward about 7.1% over the next two to three quarters on a daily average basis, primarily due to funding cost pressure.

The underlying message from the quarter is that Equitas is attempting to convert scale and portfolio diversification into sustainable profitability. The main variables to track through FY27 will be deposit mix improvement, the trajectory of funding costs, and whether operating leverage and normalized credit costs can sustain the planned ROA expansion.