💰 Financial Performance

Revenue Growth by Segment

Total income grew 15% YoY to INR 7,223 Cr in FY25. Segment-wise, Small Business Loans (SBL) grew 28% YoY to INR 14,678 Cr, Affordable Housing Finance (AHF) grew 23% YoY, and Micro and Small Enterprise (MSE) finance grew 32% YoY to INR 1,366 Cr. Conversely, Microfinance (MF) de-grew 4% YoY, and new Commercial Vehicle (CV) disbursements de-grew 36% YoY.

Geographic Revenue Split

The loan portfolio is geographically concentrated with Tamil Nadu contributing 46% of gross advances as of March 31, 2025 (down from 49% in FY24), followed by Maharashtra at 15% and Karnataka at 13%.

Profitability Margins

Profitability saw a significant decline in FY25; Profit After Tax (PAT) fell 81.6% to INR 147.05 Cr from INR 798.96 Cr in FY24. Net Interest Margin (NIM) compressed to 7.51% from 8.36% YoY, and the Spread moderated to 8.74% from 10.03% due to rising cost of funds and lower yields.

EBITDA Margin

Operating Profit stood at INR 1,334.27 Cr in FY25, a 3.1% decline from INR 1,377.36 Cr in FY24. The Return on Assets (ROA) dropped sharply from 2.00% to 0.30% YoY, and Return on Equity (ROE) fell from 14.43% to 2.45% due to elevated credit costs.

Capital Expenditure

While specific INR CapEx figures for infrastructure are not disclosed, the bank invested in technology (Equitas 2.0 platform), workforce expansion, and branding, which drove a 13% increase in operating expenses to INR 2,829 Cr. The bank also opened 10 new liability branches in Karnataka and Gujarat.

Credit Rating & Borrowing

CARE Ratings maintains a 'Stable' outlook. The bank's Capital Adequacy Ratio (CAR) moderated to 20.60% in FY25 from 21.70% in FY24. The Cost of Funds increased to 7.50% from 7.26% YoY, reflecting higher deposit rates in the market.

⚙️ Operational Drivers

Raw Materials

Not applicable as a financial institution; however, 'Cost of Funds' (interest paid on deposits/borrowings) is the primary input cost, which stood at 7.50% in FY25.

Import Sources

Not applicable. Funding is sourced domestically through retail deposits (INR 18,447 Cr) and bulk deposits (INR 12,250 Cr).

Key Suppliers

Not applicable. The bank relies on a retail depositor base of over 43,107 Cr in total deposits and systemic liquidity from the RBI via LAF and MSF schemes.

Capacity Expansion

Current branch network expansion includes introducing Gold Loans in 50 asset branches by H2FY26 and expanding AHF to 30 additional asset branches in Tier 2-5 towns by H2FY26, with a goal of 120 upcountry branches by FY27.

Raw Material Costs

Interest expenses are the primary cost; Net Interest Income grew only 6% to INR 3,252 Cr despite a 15% growth in total income, indicating that interest costs rose faster than interest earned.

Manufacturing Efficiency

The Cost-to-Income ratio increased to 67.95% in FY25 from 64.49% in FY24, reflecting lower operational efficiency due to strategic investments and higher provisioning.

Logistics & Distribution

Distribution is handled through branches and digital channels; the bank launched the 'Selfie Loan' app, which disbursed INR 350 Cr in Q2FY25.

📈 Strategic Growth

Expected Growth Rate

15%

Growth Strategy

The bank aims to achieve 15% growth in FY26 and 20% thereafter by shifting focus to secured assets: growing the Used Car book (up 53% YoY) and Used CV book (up 14% YoY) while de-focusing on new CVs. It is also expanding Gold Loans and AHF to more asset branches and restricting 87% of MFI disbursements to existing customers to ensure asset quality.

Products & Services

Small Business Loans (SBL), Micro LAP, Vehicle Finance (Used/New CVs and Cars), Affordable Housing Finance (AHF), Microfinance (MFI), Gold Loans, MSE Loans, and NRI Banking services.

Brand Portfolio

Equitas Small Finance Bank, Equitas 2.0 (Digital Banking), Selfie Loan (App).

New Products/Services

Selfie Loan app (INR 350 Cr disbursed), Merchant Overdraft (INR 1,222 Cr book), and expanded Gold Loan offerings in asset branches.

Market Expansion

Expansion into Tier 2 to 5 towns for AHF and increasing the NRI customer base which currently spans over 140 countries.

Strategic Alliances

The bank utilizes CERT-In-empanelled external firms for IT audits and distributes third-party products like insurance and mutual funds.

🌍 External Factors

Industry Trends

The SFB sector is experiencing elevated credit costs and provisioning, particularly in MFI. Industry-wide NIMs are expected to compress due to high deposit rates and slower growth in high-yielding segments.

Competitive Landscape

Competes with other SFBs, NBFC-MFIs, and private banks; management notes that SFBs generally have higher DPD (Days Past Due) levels in MFI compared to other player types.

Competitive Moat

The bank's moat lies in its diversified product profile (SBL, VF, HF, MSE) which has allowed it to reduce MFI exposure from 26% to 12% over five years, mitigating the impact of MFI-specific volatility.

Macro Economic Sensitivity

Sensitive to interest rate cycles; a potential decline in lending yields if repo rate cuts materialize would further compress NIMs, which are already under pressure.

Consumer Behavior

Shift toward digital banking (Equitas 2.0) and used vehicle financing (Used Car advances grew 53% YoY) as consumers seek affordable credit options.

Geopolitical Risks

The MFI portfolio is sensitive to local political climates, such as the 'uncertain regulatory and political climate in Karnataka' which affected the MFI book in FY25.

⚖️ Regulatory & Governance

Industry Regulations

The bank must maintain a GNPA below 3% and NNPA below 1% to meet regulatory criteria; it currently uses write-offs and additional provisioning (Credit Cost 3.14%) to stay within these bounds.

Environmental Compliance

The bank's service-oriented model has low direct environmental impact, but it monitors credit risk from asset classes that may be adversely affected by environmental factors.

Taxation Policy Impact

The effective tax rate for FY25 was approximately 26% (INR 51.80 Cr tax on INR 198.85 Cr PBT).

Legal Contingencies

The bank is conducting thematic reviews on critical regulatory areas including compromise settlements, technical write-offs, and stressed loan sales to ensure compliance.

⚠️ Risk Analysis

Key Uncertainties

MFI asset quality remains the primary uncertainty; GNPA rose to 2.89% from 2.52% YoY. Sustained GNPA above 4% or CAR below 18% would trigger a credit rating downgrade.

Geographic Concentration Risk

High geographic risk with 46% of gross advances in Tamil Nadu and a total of 74% concentrated in just three states (TN, Maharashtra, Karnataka).

Third Party Dependencies

Dependency on Business Correspondents for MFI sourcing and CERT-In-empanelled firms for security audits.

Technology Obsolescence Risk

The bank is mitigating this through its 'Equitas 2.0' digital transformation and automation of credit risk monitoring processes.

Credit & Counterparty Risk

Credit risk is elevated in the MFI segment due to the marginal credit profiles of borrowers; however, the bank is increasing its secured lending mix (SBL and VF) to 68% of the total book to improve quality.