Financial Performance and NIM Expansion
Equitas Small Finance Bank reported a robust financial performance for the fourth quarter of FY26, characterized by high profitability and margin expansion. Net Interest Income (NII) grew by 18 percent year-on-year to reach 981 Crore. The bank achieved a significant Net Interest Margin of 7.29 percent, up from 7.13 percent in the previous quarter, primarily driven by a decline in the cost of funds.
This margin expansion, coupled with a 136 percent sequential growth in Profit After Tax to 213 Crore, highlights the bank's operational efficiency. For the full year FY26, the bank reported a consolidated PAT of 103 Crore.
Advances and Asset Quality Trends
- Gross advances reached 46,165 Crore, marking a 22 percent year-on-year growth driven by diversified verticals.
- Small Business Loans (SBL) remains the flagship product, contributing 40 percent of the total advances book.
- The Gold loan portfolio witnessed exceptional growth of 180 percent over the previous year, crossing the 850 Crore mark.
- Asset quality improved significantly as GNPA stood at 2.49 percent, down from 2.89 percent in the prior year.
- Net slippages plummeted to 0.79 percent from 2.52 percent in Q3FY26, reaching their lowest level in ten quarters.
- Provision Coverage Ratio (PCR) remains healthy at 73.03 percent, strengthening the bank's balance sheet resilience.
Strategic Liability Management
The bank's Liability 2.0 strategy has been a key driver in reducing interest expenses and enhancing competitiveness. By narrowing the cost differential on retail term deposits compared to larger banks, Equitas reduced its cost of funds to 6.94 percent during the quarter. Total deposits grew 8 percent year-on-year to 46,533 Crore, with the CASA ratio standing at 26 percent.
The bank's focus on the mass affluent and HNI segments through new product launches like ARTHA and Elite Lite has supported high-quality deposit mobilization. Additionally, the recently launched FCNR deposits have already crossed 29 million USD.
Management Outlook and Sector Dynamics
Management has expressed high confidence in future growth, stating that the worst of the credit stress in the Microfinance (MFI) sector is now in the past. For FY27, the bank is targeting a growth rate of 20 percent plus in overall advances, supported by balanced growth across all product categories. The bank expects to maintain MFI advances at approximately 10 percent of the total portfolio.
While credit costs benefited from seasonal factors in Q4FY26, management anticipates a normalization of these costs in the coming year. The bank aims for an exit Return on Assets (ROA) of approximately 1.5 percent by Q4FY27.
Key Metrics to Watch
- Sustainability of the 7.29 percent NIM in a potentially changing interest rate environment.
- Progress of the 20 percent plus growth guidance for overall advances in FY27.
- The stabilization of credit costs following the seasonal benefits observed in the current quarter.
- Growth in the Gold loan and NBFC segments which showed significant momentum in FY26.
- Impact of the Liability 2.0 strategy on further reducing the cost of savings accounts and deposits.
