Equitas Small Finance Bank Q1FY26: Rs224cr loss, NIM 6.55%

What changed in Q1FY26

Equitas Small Finance Bank reported a quarterly loss of Rs 224 crore in Q1FY26 after taking additional provisions linked to microfinance and a change in provisioning norms. The bank disclosed an additional standard asset provision of Rs 185 crore in microfinance, along with Rs 145 crore of additional NPA provision due to the revised provisioning framework. Even with these one-time impacts, several operating indicators such as deposits, secured lending share, and reported asset quality ratios showed steady trends.

The quarter also highlighted a continued shift in business mix. Secured loan advances formed 91% of total advances, underlining the bank’s preference for secured products as microfinance contracted.

One-time provisions and the quarterly loss

The bank stated that the combined provisioning actions resulted in a loss of Rs 224 crore for the quarter. The two disclosed items were:

• Rs 185 crore as additional standard asset provision in microfinance (one-time impact)
• Rs 145 crore as additional NPA provision due to a change in provisioning norms

Alongside these provisions, the bank said net income and total operating expenditure (opex) grew 8% and 16% year-on-year (YoY) in Q1FY26. The numbers indicate that underlying income and spending moved up, but the provisioning impact dominated reported profitability for the period.

Advances growth muted as microfinance book contracts

Gross advances growth was described as muted at 8% YoY and flat quarter-on-quarter (QoQ), with the bank attributing the slow pace to contraction in the microfinance loan book. In contrast, the non-microfinance book grew 18% YoY, led by a 22% YoY growth in SBL (small business loans).

This split is important for how investors interpret headline loan growth. A flat QoQ headline can hide healthier momentum in segments the bank is prioritising, especially if microfinance is shrinking at the same time.

Deposits expand, CASA ratio steady

Deposits registered an 18% YoY growth and 3% QoQ growth during the quarter. The CASA ratio was stable at 29%, with current account (CA) balances growing 92% YoY.

Retail term deposits also rose meaningfully. The bank reported retail term deposits up 20% YoY to Rs 19,354 crore. This deposit mix matters because it influences cost of funds and resilience during tight liquidity cycles, especially for lenders that are expanding secured retail and small business portfolios.

Business segment highlights: vehicle finance and used vehicles

The bank flagged continued traction in vehicle finance and used-vehicle products:

• Vehicle finance portfolio crossed Rs 9,500 crore during the quarter
• Used car advances crossed Rs 2,000 crore, up 50% YoY
• Used commercial vehicle (CV) advances grew 26% YoY

These segments tie into the broader message of pivoting towards secured assets. Used-vehicle lending is typically secured and can scale faster when distribution is strong, but it also requires disciplined underwriting and collections, particularly in softer demand periods.

Margins and operating efficiency

For Q1FY26, net interest margin (NIM) stood at 6.55%. The cost-to-income ratio came in at 70.62% in Q1FY26, compared with 70.28% in Q4FY25 and 65.75% in Q1FY25.

The rising cost-to-income ratio on a YoY basis indicates operating costs have grown faster relative to income compared to the same quarter last year. The bank also separately reported that total opex grew 16% YoY in Q1FY26.

Treasury and liquidity position

On liquidity and treasury, the bank highlighted three datapoints:

• Its certificate of deposit (CD) programme has the highest short-term rating of A1 from India Ratings, CareEdge Ratings, and CRISIL
• Liquidity Coverage Ratio (LCR) was 209.5% as on 30.06.2025
• Profit on sale of investments for the quarter was Rs 116 crore

A high LCR can provide comfort on near-term liquidity buffers, while treasury gains can support reported income in volatile rate conditions. However, treasury income can be variable across quarters.

Asset quality improved QoQ in Q1FY26

The bank reported an improvement in headline asset quality ratios on a QoQ basis:

• GNPA improved by 7 bps QoQ to 2.82% in Q1FY26 from 2.89% in Q4FY25
• NNPA improved by 3 bps QoQ to 0.95% in Q1FY26 from 0.98% in Q4FY25

These changes suggest incremental improvement versus the immediately preceding quarter, even as the bank increased provisioning in microfinance and due to revised norms.

How this compares with the March quarter (Q4FY25)

The broader context includes a sharp profit decline reported for the March quarter of FY25 due to higher provisioning. PTI reported that Equitas Small Finance Bank posted an 80% decline in net profit to Rs 42.11 crore in the March quarter, compared with Rs 207.62 crore a year earlier. Total income rose to Rs 1,869.41 crore from Rs 1,685 crore.

In that March quarter (Q4FY25), the bank’s gross NPAs were reported at 2.89%, compared to 2.61% a year ago, while net NPAs improved to 0.98% from 1.17%. Gross NPAs in value terms were Rs 1,068 crore versus Rs 821.3 crore in the year-ago quarter, and provisions (excluding taxes and contingencies) rose to Rs 258 crore from Rs 107 crore.

Key numbers at a glance

Market reaction and why investors track these lines

Market reaction around results has been mixed in the referenced updates. One report said the shares surged 7.5% to Rs 78.35 after the bank reported Q1 net profit of Rs 190 crore and total income of Rs 1,394.41 crore, while a separate update on the March-quarter performance noted the stock settled 2.83% lower at Rs 67 on the BSE.

For investors, the immediate focus in the Q1FY26 update is the scale and nature of provisions, because provisions can obscure underlying business momentum. The bank’s commentary on secured advances (91% of total), the growth in non-microfinance lending, and deposit expansion provides additional context to assess how the portfolio is being reshaped.

Conclusion

Equitas Small Finance Bank’s Q1FY26 update combined a reported loss of Rs 224 crore with improving QoQ asset quality ratios, steady CASA at 29%, and 18% YoY deposit growth. The quarter’s key driver was the one-time and norm-linked provisioning in microfinance and NPAs, alongside muted headline advances growth due to microfinance contraction. Investors are likely to track how the non-microfinance growth engines, especially SBL and vehicle finance, scale in subsequent quarters, and whether cost-to-income and NIM trends stabilise after the provisioning reset.