Equitas Small Finance Bank — Poised To Tap Growth Opportunities In MFI, SFB Loans: HDFC Securities

HDFC Securities Retail Research

Equitas Small Finance Bank Ltd. is one of the largest small finance banks in India and offers bouquet of products and services. The key business verticals include micro finance, small business loans, home loans and vehicle finance.

It started as an MFI and gradually forayed into other businesses like small business loans, home and vehicle loans. The bank also has one of the best in class current account and savings account ratio (at 42%), supported by its digital acquisition strategy and fintech tie-ups.

This along with high growth in the other businesses has helped the bank maintain high margins, despite transforming itself from a micro finance institution to a diverse services provider. Covid led weak economic scenario had impacted the MFI and small business segment.

Equitas SFB’s performance had also deteriorated. There was a sharp spike in non-performing assets and due to higher provisions, the profitability of the bank was also impacted.

However, we feel that going by the Q4 FY23 results, the worst is over and situation has improved with the economy picking up again and the rural demand on the rise, the growth outlook looks positive for the short to medium term.

Reserve Bank of India in March 2022 issued new directions for microfinance lending and has eased microfinance regulations. For the long term we feel that the opportunity is huge as penetration of MFI and SFB loans in Indian market is still low.

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