Equitas SFB Q3 FY26: Record Disbursements Drive Growth

Introduction

Equitas Small Finance Bank delivered a robust operational performance in the third quarter of fiscal year 2026, driven by record-high disbursements and significant improvements in asset quality. The bank's gross advances grew by 15.86% year-on-year, reaching ₹43,269 crore. This growth reflects a strategic pivot towards secured lending, which now constitutes 88% of its loan portfolio, mitigating risks from the stressed microfinance sector.

Record Disbursements Fuel Loan Growth

The bank's lending momentum accelerated in Q3 FY26, with disbursements hitting an all-time high of ₹6,557 crore. This marks a substantial 22% increase from the previous quarter and a 28% rise compared to the same period last year. This strong performance in lending pushed the bank's gross advances up by 10.6% sequentially. The non-microfinance segments, which include small business loans, affordable housing, and vehicle financing, expanded by 19.19% year-on-year to ₹38,110 crore, underscoring the success of the bank's diversification strategy.

Significant Improvement in Asset Quality

Equitas SFB demonstrated marked improvement in its asset quality during the quarter. Early-stage delinquencies saw a meaningful reduction, with the 1-90 Days Past Due (DPD) amount decreasing to ₹106 crore in December 2025 from ₹365 crore in April 2025. Consequently, the 1-90 DPD ratio improved sharply to 2.77%. Collection efficiency also strengthened, with the X-bucket collection efficiency rising to 90.61% in December. This indicates better on-time collections and a reduction in early portfolio stress, particularly within the microfinance segment where collection efficiency reached 98.99%.

Strategic Shift Away from Microfinance

The bank has consciously reduced its exposure to the microfinance sector, which now comprises only 12% of its total advances. This strategic move is a response to industry-wide headwinds, including borrower overleveraging, which has led to elevated credit costs. The bank's MD and CEO, P. N. Vasudevan, acknowledged that the microfinance portfolio is currently loss-making and that credit costs in this segment may remain high for the next one to two quarters. The focus has shifted to the secured loan book, where the credit cost remains at a comfortable 1.1%.

Proactive NPA Management

During the quarter, Equitas SFB took proactive steps to clean up its balance sheet. The bank completed two transactions with Asset Reconstruction Companies (ARCs), selling Non-Performing Assets (NPAs) worth approximately ₹55 crore and a technically written-off asset pool amounting to ₹294 crore. These sales help in managing portfolio health and reducing the burden of stressed assets.

Financial Health and Margin Outlook

The bank's financial position remains stable. The Cost of Funds declined to 7.13% in Q3 FY26 from 7.49% in the corresponding quarter of the previous year. The CASA (Current Account Savings Account) ratio stood at 30%. However, Net Interest Margin (NIM) contracted by approximately 30 basis points during the quarter. This was primarily attributed to the shrinking contribution of the high-yield microfinance portfolio. Management expects this trend to continue for another two to three quarters before stabilizing as the portfolio mix settles.

CEO's Perspective and Future Outlook

According to the management, the secured loan portfolio is performing well and is expected to continue growing at a rate of 20% year-on-year. A significant portion of the bank's loan book, around 85%, is at a fixed interest rate. This positions the bank to benefit from a potential reversal in the interest rate cycle over the next year, as its cost of funds would decrease while earnings from its fixed-rate assets remain stable. The primary challenge remains the recovery of the microfinance segment, with the bank aiming to improve collection efficiency to a break-even point of around 98.6%.

Conclusion

Equitas Small Finance Bank's Q3 FY26 performance highlights a successful strategic pivot towards a more resilient, secured lending model. While challenges in the microfinance segment persist, the bank's record disbursements, strong growth in secured loans, and improving asset quality metrics position it for sustained profitability. The focus for the upcoming quarters will be on navigating the remaining microfinance stress while capitalizing on the strength and growth of its diversified portfolio.