Equitas Small Finance Bank: A Profitable lender to small businesses

Thanks for sharing the results. Would like to add couple of more points here:

1. Bank is going to apply for universal bank license in FY 24. This will help it to drift loan book more towards Urban customers and sell Loans such as PL/VL/SME loans and credit cards since a Universal bank needs to have only 40% PSL lending against 75% for SFB. This will protect bank in a better way in covid type macro disasters.

2. The way Bank has grown Small business loans with Overdraft facility also added- It is a feather in the cap which not even large banks can poach since it is not based on proprietary lending models and needs some variations as per customer needs. To my understanding, this is a game changer for the bank. With only 50% LTV, it has high security against NPA.

3. Cost of funds will moderate in rest of the year and NIM around 9% should be manageable since deposit rates have peaked. Mind you-AU SFB has 5.5% NIM much lower than IDFC NIM of 6.3%. AU is too expensive as compared to Equitas.

Equitas has NIM of 8.75% with 81% secured book as compared to 9.2% of Ujjivan with only 26% secured.

4. Fee income is growing well with good focus on wealth, cross sell.

5. Huge respect and credit to MD Vasudevan sir who has 37 years work ex: 20 years with Cholamandalam. Few might know that in 2005, he was a contender of CEO of cholamandalam but he left and started Equitas microfinance. He has a strong team with him from Chola who takes care of Assets & liabilities. Vasu sir knows his stuff very well and is a very humble person.

Bank’s growth us highly dependent on its Leader and employees. I went through a linkedin post where equitas employees were extremely happy being part of the bank as compared to Large banks such as HDFC, Axis where attrition is 35-40%. Believe me, employees are fed up of the target culture and business pressure.

IMHO, Equitas is a strong contender for long term compounding if it doesnt commit any mistakes since banking is all about not doing big mistakes as per Mr. Aditya Puri. Happy investing!