Equitas Small Finance Bank Q3 FY26: Strong Growth, Improved Asset Quality, and Strategic Digital Push

Equitas Small Finance Bank has delivered a robust performance in the third quarter of fiscal year 2026, showcasing significant growth across key financial and operational metrics. The bank reported a Profit After Tax (PAT) of INR 90 crore, marking an impressive 36% year-on-year and a substantial 273% quarter-on-quarter increase. This strong profitability was achieved despite a one-time incremental provision of INR 29.52 crore related to the implementation of new labour codes, underscoring the underlying strength of its operations. The Net Interest Margin (NIM) also saw a healthy expansion, improving by approximately 43 basis points quarter-on-quarter to 6.72%, primarily driven by increased interest income from advances and a reduction in the cost of funds.

Total net income for the quarter grew by 8% year-on-year and 14% quarter-on-quarter, reaching INR 1,137 crore. This growth was supported by a diversified revenue stream, with interest income from loans contributing INR 1,495 crore, and other income streams like asset fee income and treasury & PSLC fee income also showing positive trends. The bank's gross advances expanded by 16% year-on-year to INR 43,268 crore, fueled by strong disbursements across all verticals. Notably, overall disbursements reached an all-time high of INR 6,557 crore in Q3 FY26, reflecting a 28% year-on-year and 22% quarter-on-quarter growth. This robust disbursement activity highlights the bank's ability to drive credit growth while maintaining a focus on asset quality.

Strategic Portfolio Management and Asset Quality Improvement

Equitas Small Finance Bank has demonstrated proactive strategic management, particularly in its Microfinance (MFI) portfolio and secured loan segments. The MFI portfolio, which had seen a recalibration, is now showing significant improvement in collection efficiency. The bank has aligned 63% of its MFI book to a monthly repayment mode, contributing to an X Bucket collection efficiency of 99.4% in December. New customer acquisition in MFI has also surged, with the New-to-Bank (NTB) customer mix increasing to 47% in Q3 FY26 from 18% in Q2 FY26. Furthermore, 100% of MFI loans disbursed from Q1 FY26 are covered under the CGFMU guarantee scheme, covering 51% of the MFI principle outstanding.

Asset quality across the bank's portfolio has seen a marked improvement. Gross Non-Performing Assets (GNPA) reduced by 20 basis points quarter-on-quarter to 2.62%, and Net Non-Performing Assets (NNPA) decreased by 7 basis points to 0.88%. The net slippages ratio for the bank reached its lowest in the last six quarters, indicating effective risk mitigation and collection strategies. The Small Business Loans (SBL) segment, a flagship product, also showed signs of improvement in net slippages, with Karnataka, a previously stressed region, showing significant recovery. The bank's strategic focus on secured segments like Used Commercial Vehicles (CV) and Used Cars has yielded positive results, with these segments growing 23% and 36% year-on-year, respectively. Gold Loans and Affordable Housing Finance (AHF) are also expanding, contributing to a more diversified and resilient asset base.

Liability Strategy and Digital Innovation

The bank's 'Liability 2.0' strategy is aimed at optimizing the cost of funds and enhancing customer engagement. The cost of funds reduced by 22 basis points to 7.13% during the quarter, aided by a reduction in rates offered on Savings Accounts (SA) and Term Deposits (TD). The bank is strategically shifting customer preferences towards longer-duration deposits (e.g., 888 days) with lower rates, replacing older, higher-cost deposits. New products like 'Elite Lite' for the mass affluent, 'ARTHA' for HNIs, and 'EPIC' for Non-Resident HNI segments have been launched to strengthen relationship management and offer value propositions beyond just interest rates. The recently launched FCNR deposit has already crossed USD 20 million, demonstrating traction in new liability offerings.

Digital innovation remains a core pillar of Equitas's strategy. The bank launched 'Selfe Loans,' a mobile application designed for tiny entrepreneurs to facilitate loan enquiries, built on a cloud-native architecture for scalability. The Equitas Mobile Banking App 2.0 has been revamped with a new user interface, enhanced security features, and integrations such as a New UPI Platform, BBPS, Face Recognition, and ASBA IPO. These digital initiatives, along with 'Insta Banking Services,' aim to eliminate paper-based requests, leverage Aadhar biometrics for authentication, and enhance doorstep services, ensuring 100% digital and instant service processing. These efforts are crucial for expanding reach, improving customer experience, and driving operational efficiency.

Outlook and Future Trajectory

Equitas Small Finance Bank is well-positioned for sustained growth and improved profitability. Management has guided for an exit Return on Assets (ROA) of approximately 1% in Q4 FY26. The overall advances growth for FY26 is projected at 15% year-on-year (excluding direct assignment purchases), with an anticipated growth of 20-25% for the next financial year. The cost-to-income ratio is expected to moderate to around 65% by Q4 FY27, driven by continued business growth and income expansion. The bank's strong capital adequacy ratio of 20.47% and a healthy Liquidity Coverage Ratio (LCR) of 148.83% provide a strong foundation for future expansion without immediate capital raising needs. The strategic focus on secured lending, digital transformation, and liability management underscores the bank's commitment to disciplined execution and sustainable value creation for its stakeholders.