Equitas Small Finance Bank (EQUITASBNK) Q3 24/25 earnings summary

Executive summary

• Q3 FY25 saw continued stress in the Microfinance (MFI) portfolio, with collection efficiency stabilizing at 98.2%, below breakeven, leading to elevated credit costs and a strategic focus on reducing MFI exposure in favor of secured lending like SBL and Vehicle Finance.

• Gross advances grew 14% year-over-year, led by SBL and Vehicle Finance, while the MFI portfolio declined 11% YoY; deposit franchise grew 26% YoY, with retail term deposits up 31% and CASA stable at 29%.

• Net profit for Q3 FY25 was Rs. 66 crore, down 67% YoY, mainly due to higher credit costs and increased operating expenses; asset quality remained stable with GNPA at 2.97% and NNPA at 0.96%.

• The bank advanced digital initiatives, including new mobile and CRM apps, and launched new products such as personal loans and credit cards for deposit customers.

• Unaudited financial results for the quarter and nine months ended December 31, 2024, were approved by the Board and reviewed by statutory auditors with an unmodified report.

Financial highlights

• Balance sheet grew 22% YoY, crossing INR 50,000 crore, with total income for Q3 FY25 at ₹1,85,033.92 lakh, up from ₹1,63,427.20 lakh in Q3 FY24.

• Net Interest Margin (NIM) declined to 7.39%, down 33 bps YoY, due to lower MFI mix and treasury yields.

• Credit cost for Q3FY25 stood at 2.65%, with INR 38 crore utilized from previous stress provisions.

• Operating expenses increased 18% YoY, with cost-to-income ratio rising to 68.3%.

• Return on Assets (ROA) dropped to 0.53% from 1.98% YoY; Return on Equity (ROE) fell to 4.44% from 14.44% YoY.

Outlook and guidance

• MFI disbursements expected to remain subdued until collection efficiency improves, with no specific growth guidance for FY26; initiatives aim for breakeven by H1FY26.

• Affordable Housing expected to break even and contribute positively to profitability next year.

• Focus on scaling up MLAP and secured lending to offset MFI decline; NIM likely to stay under pressure as MFI mix reduces.

• Cost of funds expected to moderate as deposit franchise matures and interest rates are reduced.

• Implementation of revised RBI investment portfolio norms from April 1, 2024, with positive net transition impact on net worth.