Equitas Small Finance Bank Q4 FY26: A sharp profitability rebound, but FY27 starts with a tougher base

Equitas Small Finance Bank closed Q4 FY26 with its strongest quarterly profitability to date, helped by a meaningful expansion in margin and a sharp drop in credit costs. The bank reported profit after tax of 213 crore for Q4 FY26 versus 42 crore in Q4 FY25. Return on assets improved to 1.46% in Q4 FY26 from 0.32% a year ago, and return on equity rose to 14.10% from 2.79%.

The quarter stood out because the bank delivered on most operational levers it had spoken about earlier in the year. Net interest margin rose to 7.29% in Q4 FY26 versus 6.72% in Q3 FY26. At the same time, credit cost declined to 1.11% from 1.88% in Q3 FY26. Asset quality also improved on headline metrics, with gross NPA at 2.49% and net NPA at 0.68%.

However, management repeatedly framed Q4 as seasonally strong and warned against extrapolating the quarter. For FY27, the bank guided for full-year ROA of around 1.2% and an exit ROA of about 1.5% in Q4 FY27. The bridge between the strong Q4 exit in FY26 and the full-year FY27 guidance is expected margin moderation from deposit repricing and a normalization of credit costs.

Growth stayed strong, led by secured lending

Equitas ended March 2026 with gross advances of 46,165 crore, up 22% year-on-year and 7% sequentially. Disbursements were 7,347 crore in Q4 FY26, the highest ever quarterly number for the bank, rising 72% year-on-year.

The loan mix remains anchored around secured products. Small Business Loans continued to be the flagship portfolio at 18,559 crore and formed 40% of gross advances. Vehicle Finance was the next largest at 10,627 crore or 23% of the mix. Housing Finance rose to 5,782 crore and formed 13% of advances, while Microfinance and Micro Loans were 5,756 crore or 12% of the book. Smaller but fast-growing pockets included gold loans, which reached 894 crore in Q4 FY26, and MSE finance at 2,090 crore.

In the concall, management reiterated a calibrated stance on microfinance. It expects microfinance advances to be maintained around 10% of overall advances in FY27. This is relevant not just for risk but also for structural margin expectations, because microfinance typically carries the highest yield.

Financial summary (Q4 FY26)

Notes: Values are in crore. Ratios are as reported by the bank.

Margin improved, but management expects moderation

The bank’s NIM expansion in Q4 came from two moving parts. First, interest income from loans rose 13% year-on-year to 1,632 crore in Q4 FY26, supported by advances growth. Second, the cost of funds declined meaningfully. Daily average cost of funds reduced to 6.94% in Q4 FY26 from 7.54% in Q4 FY25, with term deposit cost at 7.82% and savings account cost at 5.10%.

Management described this as the result of both growth-driven income expansion and lower interest expense, aided by repricing. It also highlighted that income reversals were lower as slippage trends improved.

But the bank also expects pressure from Q1 FY27. The presentation and concall both noted that savings account rates were revised upwards in February 2026 and term deposit rates were increased in March 2026 for certain buckets. Management expects this to lift cost of funds in the near term. It also said it will work to bring the credit deposit ratio slightly below 90% from the current 90% plus range, which could also weigh on interest income.

On the concall, management was direct on sustainable NIM expectations. With microfinance now only around 10% of the portfolio, it does not expect to return to the 8.5% to 9% NIM seen when microfinance had a much larger share. The bank indicated a sustainable NIM around 7%.

Asset quality: microfinance stabilizes and provisions strengthen

The bank reported improving asset quality across the quarter.

Gross NPA reduced to 2.49% in Q4 FY26 from 2.62% in Q3 FY26. Net NPA reduced to 0.68% from 0.88%. Provision coverage ratio rose to 73.03%, and 86.81% including technical write-offs.

A key driver was the improvement in microfinance collections. In the investor presentation, microfinance 1 to 90 DPD fell to 1.34% in Q4 FY26 from 2.14% in Q3 FY26 and 7.82% in Q4 FY25. The bank also reported X-bucket collection efficiency at 99.71% for Q4 FY26.

Slippage trends also improved sharply. The presentation showed net slippages ratio at the bank level reduced to 0.79% in Q4 FY26 from 2.52% in Q3 FY26, described as the lowest level in the last 10 quarters.

Management, however, guided for a more normalized credit cost going forward. It stated that Q4 is traditionally strong and that credit cost is expected to normalize to around 1.5% for the full year, also factoring seasonality and potential macro volatility.

Liabilities: deposit growth lagged and product-led strategy is being refreshed

Total deposits stood at 46,533 crore as of March 31, 2026, up 8% year-on-year. CASA ratio was 26%, down from 29% in Q4 FY25. Term deposits remained the bulk of the deposit base, at 34,335 crore.

The bank acknowledged that deposit growth was relatively muted and positioned it as temporary. It launched several products in Q4 aimed at segmentation and higher-value customer acquisition. These included ARTHA for HNIs, Elite Lite for mass affluent customers, EPIC for non-resident HNI segment, and an FCNR deposit product that crossed USD 29 million as per the presentation.

In the concall, management also discussed the deposit mix. Retail term deposit share reduced to 61% in Q4 FY26 while bulk term deposits rose to 39%. It said bulk deposits were largely non-callable, and the strategy remains to keep retail at 70% to 75% of the term deposit portfolio over time.

A key structural lever is the Liability 2.0 strategy. The presentation linked this to lowering the cost of mobilizing deposits through efficiency, reducing the savings account cost, and narrowing the rate differential versus larger banks. Management highlighted product ecosystem depth, family banking, and Mobile App 2.0 as enablers.

FY27 outlook: growth remains the anchor, but with cautious assumptions

For FY27, Equitas guided for 20% plus growth in advances, with microfinance kept at around 10% of the overall mix. It expects cost to income to moderate further in the second half of FY27, but warned that Q1 FY27 will be elevated due to annual increments.

On profitability, the bank expects an exit ROA of about 1.5% in Q4 FY27 and full-year ROA of around 1.2%. The bridge to this lower full-year number versus the Q4 FY26 exit is mainly margin normalization and a return of credit costs to a more normal range.

Management also discussed macro risks. It cited potential inflationary impacts if higher fuel costs are passed through to consumers, and said commercial vehicle borrowers could feel pressure in the period before freight rates adjust. It estimated commercial vehicles are around 12% of total advances. Management stated that anything up to about a 10% increase in diesel prices has historically not affected portfolio performance, while increases beyond that can begin to show impact.

Takeaways

Equitas delivered a strong Q4 FY26 with improved margin, lower credit costs, and better asset quality, resulting in its highest-ever quarterly PAT. The microfinance book appears to have stabilized on near-term indicators, and the bank is leaning into secured growth across SBL, vehicle finance, housing, and newer products like gold loans.

The key monitorables for FY27 are the extent of cost of funds increase after deposit repricing, the sustainability of the NIM near 7%, and whether slippage and credit costs normalize within management’s guided range as seasonality turns. If execution remains consistent across these levers, the bank’s stated path to an exit ROA of about 1.5% by Q4 FY27 remains the central headline.