Ladies and gentlemen, good day and welcome to the earnings call of Equitas Small Finance Bank Limited financial performance for Q4 FY 2026. We have with us today Mr. P.N. Vasudevan, MD and CEO, Mr. Balaji N, Executive Director and Head of Operations and Information Technology, Mr. Sridharan N, CFO, Mr. Jagadesh J, Head of Assets, Mr. Murali Vaidyanathan, Senior President and Country Head, Branch Banking, Liabilities, Product and Wealth, Mr. Gopalakrishnan G, Head Treasury, Mr. Suresh, Head Strategy and Business Intelligence, Mr. Sundaram D, Head Investor Relations, Mr. Abhishek, Specialist Investor Relations. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. P. N. Vasudevan. Thank you, and over to you, sir.
Good morning, everyone, and thank you for taking the time to join us today. Building on the sign of resilience demonstrated in Q3 of the last financial year, Q4 continued to be a good quarter for the bank, marked by strong performance across business growth, asset quality and profitability. The NIM increased for the first time in Q3 after many years of decline. In Q4, the NIM continued to show an upward trajectory. This was led by higher levels of income due to growth, lower reversal of income due to lower net slippage, and a simultaneous reduction in cost of funds. Credit cost at 1.11% for the Q4 came in lowest compared to the previous eight quarters.
The combined effect of the above has enabled us to deliver a PAT of INR 2 and INR 3 crores for Q4, which is the highest ever PAT achieved by the bank so far. This translates to a reasonably healthy ROA of 1.46% and an ROE of 14.1%. This is in spite of the fact that microfinance portfolio only contributes to around 10% of the advances, and going forward, we expect to maintain microfinance portfolio contribution to this similar levels of 10%. In terms of sustainability of this performance of Q4, the income levels are expected to maintain their upward trajectory, given the visibility on sustaining growth in advances of about 20%. It should be, however, impacted by any increase in GNPA slippage, which may result in reversal of income.
We have increased our interest rate on TD and SA during March 26, and this is expected to increase the cost of funds going forward. Credit cost at 1.11% represents the traditionally strong Q4 performance that we normally see. Going forward, this is expected to normalize to our guided range of around 1.5% for the full year. Given the above, we expect to end the current financial year with a Q4 exit ROA of about 1.5%. Macroeconomic factors. The ongoing geopolitical tensions in West Asia do present certain risk, particularly through their potential impact on global supply chains and in turn on broader GDP indicators.
The customer segments that we serve are at a level two and level three order of dependency, which substantially limits the direct transmission of such external shocks to the cash flow of our borrowers. As a result, the immediate impact of these developments on our portfolio remains contained. However, if the government decides to pass on the increased cost of gas and fuel to consumers, this could have an inflationary impact. In Small Business Loans and affordable housing, we believe our borrowers may be able to pass on the increase in cost to their customers since our borrowers largely deal in daily use products and services. However, in commercial vehicles, freight rates may take some time to adjust upwards, and during such interim period, our borrowers are likely to be affected. We will continue to closely monitor the situation and remain vigilant.
In the unlikely event of any emerging risk, we are well prepared to respond with calibrated and timely actions, which include tightening credit norms, moderating leverage levels, along with other prudent underwriting measures. Our focus in case of such eventuality would remain on preserving quality of asset over growth. On the advances side, I am happy to share that all products have turned profitable now. Products introduced during the past three, four years, such as affordable housing and MSE Finance, have turned positive during the previous year and expected to improve their contribution to the bottom line during the current financial year. In terms of deposits, the overall deposit growth was 8% year-on-year. We believe this relatively muted growth is largely transitory.
We have introduced new products such as Elite Artha, Elite Epic, Elite Lite, and FCNR deposits during the last quarter. We are enabling, I mean, these enable us to cater to different customer segments while creating incremental deposit opportunities. Alongside this, continued enhancement to our technology platforms are strengthening customer experience and supporting better customer acquisition and retention. Importantly, we remain firmly focused on building a stable, granular, diversified deposit franchise anchored around retail deposits, CASA and non-callable wholesale deposits, where we believe the bank is well-positioned on the deposit front. Murali will elaborate further on these aspects. Capital adequacy, we ended the last year with a capital adequacy ratio of about 20.3%.
We continue to pursue multiple initiatives to conserve capital, including increasing central government guarantee coverage for our eligible loans, IBPC, and focus on lower risk weightage products, such as affordable housing and gold loans. To sum up, we believe that with microfinance collection efficiencies coming back to normal, with all lending products lines turning profitable, sustainable improvement in collection efficiencies across products, we should look forward to continued good performance in the coming quarters. Thank you, and with this, I hand over to Sridharan.
Good morning, everyone. Thank you for joining us today for the Q4 FY 2026 earnings call of Equitas Small Finance Bank. I appreciate your continued interest and support. Let me take a few minutes to walk you through the financial performance for the quarter. Most of these details are also available in our investor presentation. We reported a net interest income of INR 980 crores and other income of INR 259 crores, bringing our total net income to INR 1,239 crores for the quarter. Total net income grew by 18% year-on-year and 9% on Q-on-Q. NIM has significantly improved by 57 bps Q-on-Q to 7.29% in Q4 FY 2026, as compared to 6.72% in Q3 FY 2026.
The bank reported highest quarterly PAT of INR 213 crore, a growth of 406% year-over-year and 136% Q- on- Q. Return on assets and return on equity for Q4 FY 2026 were at 1.46% and 14.1% respectively. In terms of asset quality, gross NPA reduced by 13 basis points Q- on- Q at 2.49% in Q4 FY 2026, as compared to 2.62% in Q3 FY 2026. Net NPA reduced by 20 basis points Q- on- Q to 0.68% in Q4 FY 2026, as compared to 0.88% in Q3 FY 2026.
Credit costs are significantly declined to 1.11% in Q4 FY 2026, as compared to 1.88% in Q3 FY 2026 and 2.74% in Q4 FY 2025. Our provision coverage ratio remains healthy at 73.03%, including technical rate of PCR stands at 86.81%. Moving to the advances book, gross advances grew 22% year-on-year to INR 46,165 crores, driven by robust disbursement. Disbursement for the quarter stood at INR 7,347 crores with strong momentum in across all verticals. On the liability side, total deposits grew 8% year-on-year to INR 46,533 crores. Our CASA ratio at 26%. Retail deposit now constitutes 68% of the total deposit base.
As of March 31, 2026, our capital adequacy ratio stood at 20.31%. Thank you. Handing over to Jagi.
Good morning, everyone. We closed the quarter with gross advances of INR 46,165 crores, delivering 22% year-on-year and 7% quarter-on-quarter growth, which is driven by the strong disbursement momentum. Excluding DA, our overall bank advances grew 19% year-on-year. I will cover three things. One is on the growth momentum, product performance, and asset quality. Firstly, on the growth momentum. We deliver our highest ever quarterly disbursement at INR 7,347 crores in this quarter, with a growth of 72% year-on-year and 12% quarter-on-quarter. Within this, our microfinance disbursement increased to INR 1,512 crores in this quarter, up 326% year-on-year and 29% quarter-on-quarter.
On our secured book, we also delivered our highest ever quarterly disbursement of INR 5,835 crores, up 49% year-on-year and 8% quarter-on-quarter. Our non-MFI secured book stood at INR 40,409 crores, which is growing at 21% year-on-year. Secondly, on the product performance. Our Small Business Loans remain the largest contributor at INR 18,559 crores, up 13% year-on-year. Within the Small Business Loans, the secured business loans growing at 26% year-on-year. On the vehicle finance segment, our focus is on the used segments. Our used commercial vehicles at INR 5,899 crores, which has grown by 25% year-on-year and 7% quarter-on-quarter. Used cars grown by 31% year-on-year and 7% quarter-on-quarter.
Our new CV declined 20% year-on-year to INR 2,270 crores. On the housing finance, we grew to INR 5,782 crores, up 21% year-on-year and 8% quarter-on-quarter. MSE Finance, we grew up to INR 2,090 crores, up by 24% year-on-year.
On the MFI, excluding DA, we stood at INR 4,667 crores at quarter end. We expect it to grow in a calibrated manner supported by improved disbursement and collection trends. Coming back to the asset quality. Our net slippage has reduced to 0.79% in this quarter from 2.52% in the previous quarter, which is lowest level in the last 10 quarters. On the SBL front, our net slippage has reduced to 0.11% from 1.53% in the previous quarter. On the credit cost, it has declined to 1.11% compared to 1.88% in the previous quarter and 2.74% in Q4 FY 2025.
On the microfinance, our 1-290 DPD improved to 1.34% from 2.14% compared to the previous quarter, supported by strong collection efficiency. Looking ahead for financial year 2027, we remain aligned to our stated advances growth guidance of 20%+ year-on-year, supported by improved disbursements. Thank you. I will now hand over to Mr. Murali.
Good morning. Thanks for joining the call. While the ratios as well as growth details are given in the PPT, I would like to dwell upon four things. What is planned, what is happening at this point of time. First, let me start with savings account. Savings account, we have strengthened our proposition covering from mass to HNI through House of Elite as a proposition, which means earlier we had Elite as a program for HNI. Today, we have three different categories within the HNI, one for mass affluent, one for affluent, and third for HNI, which we call it as Artha, Elite LITE, and Elite. Now, this categorization is very important because we are moving towards the direction of family banking and product holding as a key thing, which is, you know, shown in our key liability strategy slide.
Today, we have close to 28,000, 29,000 families. Our aim is to double in this coming year and also to add Elite Artha customers close to 3,000-4,000, and start of Elite Artha is really encouraging. Based on this categorization of customers, we have categorized branches where set of 100 branches is going to focus only on House of Elite and manning is planned as per that. Strengthening RM channel, enhancing the product proposition, and more importantly, this year you will see more and more value-added services within the account along with a reasonably good pricing at the entry point. In terms of current account, we are shifting it at this point of time into three different categories. One is we have now got our Soundbox, our POS and QR ready, operational in the market, CUG done.
Increasingly, branches will source transaction and payment-led current account. We are launching a specific current account product, which is with backed by unsecured based on our own norms, which means asset-led approach. Third is high variant only to focus on debt-free and payment non-centric companies. This is on current account. Current account last quarter showed a reasonable growth, but to sustain that, we need this proposition. NR, we already launched our SC NR. We have crossed INR 30 million, we are seeing a good appetite. We have gone live on three more currencies. Most importantly, full range of AD1 product we have gone live. Here again, our focus is going to be Elite, that is HNI, and most importantly, family banking.
We have launched a specific product last quarter, which we called it as Explorer for seafarers as a segment, which the initial days are good. This should help us inward and outward remittance. In terms of RTD, retail TD, we had a huge last year renewal in terms of yearly pricing on 444 days, which we have focused and converted 70% of that into 888 days. Today, our 70% of the book is duration-centric with 888 days, and we are planning to add 30,000 customers internally and externally, and this will help us to enhance the PH proposition also. In mobile banking, we have crossed our 5 lakh to 6 lakh closer to mobile bank downloads on our Equitas 2.0, which is on par.
I think this is one of the few app where one can do UPI payments as well as ASBA related, that is secondary market, when it live, we are ready, and primary market they can do, and investment and insurance proposition. This is a year it's going to be clear segmentation, categorization, resource management through RM, and most importantly, driving transaction-centric. We will cover as and when questions arises. Thank you. I'll hand it over to Gopi.
Thank you, Murali. Good morning, everyone. The quarter went by was very challenging given the virtually hour by hour change in geopolitics and attendant fuel price, global supply chain impact. Financial markets continue to exhibit volatility with effects of geopolitical uncertainty continue to impact asset prices across the board. All Indian asset classes continue to underperform. This has largely been caused by foreign investors seeking safe haven bets and rebalancing in favor of indexes with AI constituents and high technology access. Rupee depreciation pressure continues. There have been active interventions by RBI to better manage volatility. In the immediate term, CPI is expected to broadly remain within MPC inflation target. The effects of imported inflation, impact of extreme weather events such as the current heatwave, expected impact of super El Niño on this year's monsoon are likely to see some upside risk materialize against current RBI projections.
Government bonds saw benchmark 10-year yields significantly harden during the quarter and close at above 7% against a 6.6% at the beginning of the quarter, with the market beginning to price in possibility of rate hikes this fiscal. RBI actions will be keenly watched for further cues given the overall pressure on domestic economy and consumption. Coming to Equitas, income from investments was a loss of INR 7.3 crore for this quarter. For the full year, treasuries income stood at INR 179.9 crore. With heightened volatility becoming new normal, we approach the coming quarter with caution. Thank you. Back to operator.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Renish from ICICI Securities. Please go ahead.
Hi, sir, and thank you for the opportunity. Sir, my first question is on this FY 2027 ROE guidance, right? We are looking at 1.2% ROA versus 1.5 in Q4, and you also mentioned that, say, for CASA actually to normalize, you know, maybe from 1.11% - 1.5%. In that case, are you not expecting any margin expansion from hereon?
See, as I mentioned, this is Vasu here. As I mentioned in my opening comments, we have a NIM of 7.29% in Q4. While we should continue to look at a 20%+ you know, growth in advances, which will lead to a higher level of income. However-
Mm-hmm.
We have two issues. One is that our net slippage was the lowest in Q4, which means that income reversal on GNPA again is obviously the lowest.
Mm-hmm.
That is, that's because Q4 is seasonally the strongest always. Q1 and Q2 are seasonally the weakest, and Q3, Q4 will again pick up. There is a likelihood.
Right.
Of a higher GNPA slippage resulting in lower, I mean, higher income reversal in Q1 and Q2. Second thing is in March, we have raised our rates on TD and savings accounts.
Mm-hmm.
That is expected to have a increase in the cost of funds. These two together might moderate the NIM from 7.29%.
Okay.
That is one at the top line. At the bottom line, the credit cost at 1.11% is probably again the lowest given the Q4 seasonality issue. It is more likely to be at around 1.5% for the full year. If you kind of take all of this into account, that's where we are.
Mm-hmm.
We believe that we should be able to deliver a 1.2%- 1.25% ROA for the full year, while we should exit the fourth quarter at around 1.5%.
Got it. Got it. I mean, just to follow up on that, so, you know, basically pre-crisis our NIM, you know, used to be anywhere between 8.5%-9%. Now, you know, given our NIM at 7.29% and, you know, sort of we are not expecting any improvement from here on. Does that mean that, NIM at this level, would be a new normal NIM for, our business mix?
Yes, absolutely. Because our microfinance, which used to be around 50, 45, 50%, in the past, now it's come down to 10%. As in fact, if you see our NIMs over the last, maybe, three years or four years, if you see the trajectory of our NIMs, it's been coming down quarter after quarter, largely because.
Correct.
Microfinance has been coming down as a percentage of the portfolio. MFI, we all know, has the highest yield. As it was coming down, the NIM was also coming down. Now today we have reached a level where MFI is just 10% of the book, and we should expect that MFI to continue to remain around that 10% level. That's why we believe that our NIMs are more or less bottomed out and somewhere around 7%-7.1% is where we believe it should kind of stabilize on an ongoing basis.
Got it. Got it. My, sir, last question on the corporate book side. This book has actually become pre-existing past one year, and I'm assuming it will be one of the lowest yielding book for us. What's the strategy of growing corporate book so aggressively?
If you are meaning by corporate, if you are meaning the NBFC?
Yeah, yeah. Totally.
Right. NBFC for us is a filler, you know? It's not a product where we have a target to lend. It's a filler. Wherever we have.
Okay. Okay.
Surplus money, we lend to the NBFCs because otherwise we would have to park it in government securities.
Mm-hmm. Exactly. Okay. Okay.
Last year we had some excess liquidity at some point. In fact, our CDR ratio had gone down as low as 79% at some point in time during the last year, and we were stuck with some excess liquidity. We just deployed short-term loans to especially Gold Loan NBFCs because they have short-term assets. That's where that numbers reflect.
Got it. Can I ask last question?
Yeah, please.
Okay. Just on the CV portfolio, right? I mean, you did mention about, you know, there is, we don't foresee any near-term pressure. I mean, it's a level two, level three honoring bank. In your assessment, you know, what kind of a fuel price hike do you think CV operators will not face challenges? At what fuel price hike do you think, you know, we as a company should be cautious in terms of CV portfolio behavior?
See, it's all very open-ended at this point in time. The latest news report that we are seeing is that the oil marketing companies are actually out of pocket by as much as INR 100 on per liter of diesel. INR 100 per liter. Practically, the cost of today's diesel is also about INR 100. Practically it looks like they are out of pocket by as much as 50% of what they are selling at.
Correct.
We don't know exactly how far the government will try to recoup this cost from the consumers, but it all depends on how much they want to pass on the diesel cost, especially the diesel cost to the pump purchasers. We don't know. I mean, frankly, it's very, very open-ended, very difficult to put a number.
Okay.
-or anything around it. but anything-
Okay.
Normally, we have seen in the past over the last so many years that we have been financing commercial vehicles, we have seen in the past that anything up to 10% increase in diesel prices has no effect on the performance of the portfolio. When it goes beyond 10%, then we start seeing some effect.
Yeah, that's exactly what I wanted to check. This is very helpful, sir. Thank you and best of luck.
Thank you, Renish.
Thank you. The next question comes from the line of Pritesh Bumb from DAM Capital Advisors. Please go ahead.
Hi, sir. Good morning and congratulations on a great set of numbers. Just two questions. One is on the savings account. There's a sharper decline in this quarter. Generally, this is a stronger quarter, but any reason for that? What is the strategy for the same?
We have analyzed our book. We have seen where we have lost the book is between INR 5- INR 10 lakhs and INR 10- INR 15 lakhs. In March we calibrated those accounts with slightly higher interest rate because the primary market ASBA was also weak during the quarter. We had close to 35,000 customers who were on this bucket using savings account for ASBA. We have enhanced the rate in that particular segment. Moving up, earlier it was at 3% levels. Now it is at competitive level of double what other competition can offer. This is on one side. Second thing, we are enhancing, as I said in my presentation, the proposition by itself, House of Elite, focused more on program and specific targeted segment and branches. These are the two approaches by pricing, by program expansion and offerings. You will see the takeoff from this segment.
Sure. Also in continuation for the same, we've seen also our bulk deposit move up significantly this quarter. Any thought process on the same as well?
Bulk, we got it non-callable. If you see, year- on- year, till quarter three, we were shedding it and building a retail portfolio. There was a opportunity available at bulk and non-callable across segment, government, insti, and financial institution. It is not skewed towards one segment. We leveraged what we had at that point of time and built it up. Our entire strategy for insti, as always, is hold and grow so that 70%-75% of the portfolio remains always retail.
Sure. Sure. Just in continuation from the previous question on NIM front.
Yeah.
What is our sustainable NIMs for our business where now we are going to calibrate mix and mix on the both side of balance sheet? What can be the sustainable NIM if you look at a two, three year perspective?
Yeah. I think we should be looking at a sustainable 7% NIM, give or take a few basis points. Lastly, because of, as I mentioned, two factors. One is that our cost of funds might start seeing an upward trend because we have increased the rates in the month of March. Second thing is that our CD ratio is slightly over 90%, so we will be trying to bring it to slightly less than 90%. That could again mean some level of impact on interest income. I think, broadly, we should be able to look at about around 7%, give or take some basis points, this way, that way.
In the concentration side, now as we are, right asset quality side, are we thinking about getting out of-
I'm sorry to interrupt, Pritesh. You're not quite audible. Could you be a little louder and use your phone on the handset mode in case if you're not using it on the handset mode? Thank you. Ladies and gentlemen, the participant has got disconnected. We will move to the next participant. The next question comes from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi, team. Good morning. First question is on the SBL business and particularly the Micro LAP side. Assuming that over the next year, the global tensions don't worsen from here, how comfortable are you with growth in the MLAP segment in context of the challenges which you experienced last year? Along with that, if you can share, in FY 2026, you made total provisions of about INR 1,140 crores. How much of that went towards microfinance and how much went towards Micro LAP?
Yeah. All right. This is Jagadesh . We don't see any kind of impact due to global tensions for Micro LAP or the microfinance book. Okay. Micro LAP, if you look into that, even the current year, we have been growing in that particular segment. Okay. Not at the high level because our focus has been more on the business loans. Which is about 10 lakh segment, which we have grown at 26% year-on-year. Micro LAP, within the available opportunities and with good credit quality customers refining our credit norms, we have growing at a double-digit growth in Micro LAP. Okay. Does that answer your question, Ashlesh?
This Micro LAP growth today is around 13- odd percent. You think that can go closer to a 20% number?
It's a Small Business Loans. It's growing at a 13%, which might go up to a level of 20%. Okay. They're not given on the Micro LAP, 13%. It's the overall Small Business Loan segment.
Understood, sir. I was calculating based on the mix which you shared in percentage terms, but that answers the first part of my question anyway. If you can also share the provision breakup for the full year FY 2026, that would be helpful. I can ask the next question.
Yeah. Microfinance, we made a provision of INR 588 crores in the last year, and on the Micro LAP it's INR 42 crores.
Sir, the next is on the liability side, for Murali sir. What would be the incremental cost of term deposits and savings accounts for you in the last quarter?
We brought it down from 6.3%- 5.98%. Now, with the increased, you know, slabs, what we have anticipated based on present slabs static is close to 0.7%- 0.8% only on savings account.
Sorry, sir, this 0.7%-0.8% is.
It will be 6.06%. It will go 5.98%- 6.06% or 6.07%.
This is incremental cost on the savings account.
Total cost is 9 basis points. Savings will go to 6.07%. Cost of funds will go up to 7.1% plus.
Understood. This was for 4Q. Is that right?
Yeah.
Understood, sir. Perfect. Lastly, if you can share that, the provisions which you have made in 4Q, have you utilized any standard asset provisions? Are there any standard asset non-NPA provisions which are still outstanding on the balance sheet? That was my last question. Thank you.
Yeah. See, we had in microfinance grow INR 775 crores brought forward. Of this INR 30 crores we used, INR 29.6 crores we used in Q4. We are carrying forward INR 46 crores out of the additional transfer provision.
Understood, sir. Thank you for the detailed answers.
Thank you. The next question comes from the line of Shailesh Kanani from Asian Market Securities. Please go ahead.
Good morning, everyone, and congrats on a good set of numbers, and thanks for the opportunity. Just wanted to understand, we have in one of the buckets, that is INR 5-INR 10 lakhs, we have in the savings account, we have increased the rate by around 200 basis points. Just wanted to understand what is the contribution in of that bracket and the hike seems to be quite steep. It is even higher than the January numbers, if my data is correct. Can you just throw some light on this?
See, our principle, our focused sourcing is through Elite. Elite is for HNI as a segment. INR 5 lakhs-INR 10 lakhs today contributes to close to 13% of my entire book. 13% of the entire book actually today doesn't have any secondary offering because of ASBA market stale, SIP market came into a standstill. Second thing, we are pushing through family banking as a proposition. It is a conscious decision because earlier it used to be 3.5%, and we saw there was a bleed inside this. To grow the customer to a reasonable level, within that cost of funds not going up to this level, we have taken this bucket as a key approach, which helps in sourcing, deepening, and most importantly, getting retail participation.
That is why in SA, as I said, it came down up to as low as 5.98% from 6.1%.
Just one clarification. This is 13% of the total deposits, right?
INR 10 lakh, yes.
Okay. Fair enough. Thanks for that. Another thing, sir, I've noticed there is a jump in the disbursement ATS of SBL. Is it primarily because of we have stopped lending in less than 3 lakh packet or anything else we can read into? Also if you can specify what is the current sweet spot and impact, if you can, is visible on the macro because of the macro on this portfolio.
This is Jagadesh. We don't want to depend on any specific product segment. Okay? Earlier, we have been focusing more on the Micro LAP and GLAP, which is a sub INR 10 lakh segment, sir. Now we have diversified our product segment into various categories, sir. That's what you can able to see that the recalibration of the product mix shows the ATS has been increased. If you look at the growth, we have been focusing on all the segments. Even the previous question on the Micro LAP as a segment alone, we have grown by 16%, and our primary focus would be majorly on the BL, which is about INR 10 lakh segment, which we have grown by 27%.
We do the recalibration based on the available opportunities, but we don't want to specifically focus on any specific customer segment.
Fair enough. Just a last question, if you can squeeze in. Just I noted, there is a sequential drop in terms of number of employees, right? Despite we are having highest ever disbursement volumes. How should we think about this? Any benefit we had in the employee expenses in terms of one-offs or anything?
On the asset part, if you see, we have reduced the employees to close to 600 numbers between Q3 and Q4. This is basically integration of the supporting functions. We have not reduced our sales or the collection numbers because we integrate the affordable housing and SBL within the same branches, so we can able to leverage the supporting functions, which effectively can able to demonstrate better productivity and efficiency. On the employee cost numbers, Mr. Sridhar can answer.
This is Sridhar here. On the one-off, in Q4 in employee expenses, we had a reversal of around INR 14 crores in gratuity and leave encashment, though we have provided INR 29 crores with regard to new labor law code in Q3.
Just one clarification that employee decrease is predominantly can be considered an operating thing, right? It's a structural change, right?
Yes.
Yeah. Okay. Thanks a lot, sir. Thanks, thanks for answering my questions, and best of luck.
Thank you. The next question comes from the line of Shreepal Doshi from Equirus Capital. Please go ahead.
Hi, sir. Thank you for giving me the opportunity, congrats on a good quarter. My question was again on the deposit side and its implications on margins. If you look at, we've already taken some rate hikes on the deposit side. Incrementally, if the systemic rates further go up, we would also take a rate hike. In that case, do you see the margin contraction for the year to be higher? Especially when I don't think we plan to change the loan book mix broadly. In that case, do you see the margin contraction being relatively higher than what we are envisaging today?
I'll take that. See, as far as the cost of funds is concerned, interest rates on deposits is concerned, we will have to keep it tuned to what's happening in the external market. We need to ensure that deposit flow continues to be strong into the bank, and the rates will be aligned from that perspective. Going forward, if RBI raises the rate and the market rates go up, of course, we'll necessarily follow suit. We have to follow suit. Even if the RBI does not raise the rates, we have seen that some of the banks have actually started raising the rates in the last one to two months.
Mm-hmm.
We don't know how this will go forward, happen because, as you know, sectoral deposit growth is less than the sectoral credit growth. Somewhere along the way, banks might start increasing the rates on their own, even if repo rate does not really change. If such a thing happens, we'll also have to follow suit, and our cost of funds will go up. The only advantage we have in the system is that the segments to which we lend to is largely the underserved to unserved segment of the, you know, borrowing segment.
Because of that, a 0.2% or a 0.1% or a 0.2% increase in cost of funds, by and large, you can say we should be able to pass it on maybe with some little bit of a timing gap, but it should be possible. So that, around a 7% NIM that we are talking of, is something we should be able to maintain even if cost of funds does go up in the future.
Okay. Got it, sir. That was helpful. The second question was on, I mean, our aspiration on the universal banking license, as well as visibility on the capital raise plans if we have in the near term.
Okay. On the universal bank license, you know, RBI has a guideline for SFBs to convert to universal bank. Now this year's financials are now completed. We'll be doing a full analysis, then we will have to take it up with RBI and see whether we comply with the various requirements of that guideline. If there's a consensus feeling that, yes, we do qualify, then we'll end up applying. That's something that we'll dialogue and come to a decision and do it on that basis.
As far as capital raise is concerned, you know, our approach has been consistent over the last one year that we will try and manage capital conservancy approaches as much as we can, conserve capital as much as we can, through various forms. We have started getting lot of our qualifying assets guaranteed under the central government various fund schemes, like our vehicle finance under CGTMSE, microfinance under CGFMU. All those release capital to the bank. Second thing is that our affordable housing and gold loans have been growing quite strongly, so they are all lower risk-weighted assets. Third is IBPC is a tool that we use from time to time based on, you know, demand and supply appetite from the other banks. All of this is something we continue to do.
Our Tier 2, we raised about INR 1,000 crore last year. Out of INR 1,000 crore, by September, I think around INR 300 crore will run out from the Tier 2 classification.
Somewhere by end of this calendar year, we are looking to raise another maybe INR 400-INR 500 crores of Tier 2. We will be putting up a suitable resolution into the AGM at some point in time. All of this, we hope, will enable us to keep our capital adequacy, you know, at a comfortable level. RBI has come with a draft guideline on capital adequacy. There are a few factors which might actually support our capital adequacy if those guidelines become an applicable guideline from being a draft guideline. We'll keep monitoring it and if at all required, we will try and raise the Tier 1 capital towards the end of fourth quarter maybe, or first quarter of next year, maybe.
Our objective is to try and see how do we manage capital through various other instruments and means.
Got it, sir. Got it. Thank you so much, sir, for answering all my questions, and good luck for the next quarter.
Thank you. The next question comes from the line of Nitin Aggarwal from Motilal Oswal Financial Services. Please go ahead.
Hello. Yeah. Hi, good morning, everybody. Am I audible?
Yes, Nitin, please go ahead.
Thanks. Sir, I have two questions. One is on the gold loan book. Last two quarters we are seeing pretty strong, like 45%, 50% sequential growth. In the past, we have not been, I will say, so successful in scaling up this portfolio and now the traction is really quite evident. What is our game plan here? How much mix do you see this book shaping up to in the next two, three years? What all underwriting changes have you made to drive this kind of growth? Any color around the yields also that we are making in this business?
Hi, Murali here. Conceptual changes, three things. One is we did a data mining. We first found out how many of our existing customers are having gold loan outside. We went, you know, behind those campaign, and that campaign has yielded numbers. Second thing is we focused our activity to the largest markets, which means we actually bought in resources closer to those markets where gold loan naturally exists. We targeted, if you see, with the new RBI norms, up to INR 2.5 lakh, 85% and on. Our entire ticket ATS went up, campaign went up, and we added resources in those branches where there is a opportunity. These three things actually helped. Now we have started using asset branches to cross-sell gold loan.
That has kicked in, that should add more and more cross-sell as an opportunity in coming days. We have the entire range of gold loan products from bullet payment to Gold Loan OD. Now every line of product actually expands the market. While Gold Loan OD today is less than 5%, it should help in coming days, current account led acquisition. Overall it is a mix of campaign, understanding data mining, allocating resources and focused on branches. That is the reason.
Right. Any color around the yield also and the mix that you see this portfolio gaining in the next two years?
See, today we are predominantly cross-selling to, you know, asset into liability based customers. Our yield is anything around closer to 14. Moment we start expanding it through asset branches, the yield should shoot up because here the ATS requirement is non-seasonal, but for consumption or emergency purpose, it comes up to 14. It should start looking up as we expand into asset branches.
Okay, got it. The other question is around like LCR ratio, which is fairly high for us. While we talked about NIMs to kind of start kind of seeing some moderation after this sharp rise this quarter, we have raised deposit rates, do you plan to, like, use LCR as a lever to deploy additional liquidity and so as to support margins? What is the thought process there?
Yeah.
Hi, this is Gopi here. Yeah, you are right. Our LCR is high. One, if you look at it, what we focus is also on the quality of deposits. Naturally, what we look at is the quality of deposits naturally tend to be LCR friendly. That is the primary reason why our LCR remains high vis-a-vis the market. Second thing is with respect to the surplus liquidity, we are, while we carry this surplus in the balance sheet, it is adequate for the immediate growth plans. There is no massive liquidity being carried in the balance sheet, which may cause a drain on interest income.
Okay, okay. Sir, one data point also on the interest reversal, because we talked about that next quarter there, it may not be there as much level. Any one-off, the side interest reversal that is there in this quarter number that you would want to call out?
Nothing, nothing as such. Nothing special.
how much is this number?
INR 27 crores for the quarter is the reversal.
Okay. That's the only, like, kind of measurable one-off, meaningful one-off.
Yeah. Sorry.
Sorry. This is
Okay.
Yeah, yeah. Basically INR 27 crore is the only meaningful one-off in this quarter.
It's not one-off. This is a reversal for the quarter.
Interest reversal.
Interest reversal for the quarter.
Yes, yes.
Yeah.
Yeah, yeah.
Every quarter we do have it. For this Q4 it is INR 24.27 crores.
Got it, sir. Thank you so much, sir. I wish you all the best.
Thank you. The next question comes from the line of Rajiv from Yes Securities. Please go ahead.
Yeah. Hi, good morning. Congratulations on strong numbers. Firstly, I want to understand, you know, the walk between, I mean, you're integrating at a credit cost of 1.1%, but you're trying to indicate is that for the whole year, FY 2027, your guidance is kind of building in 1.5 % as a credit cost number. I'm just trying to understand where the PCR of 73%, we are seeing strong trends, which is structural in terms of slippages. We also have a leftover standard asset provision of INR 4,460 crore on the MFI. What makes us, you know, guide for 1.5% credit cost? Because, given the trends as we see right now, things are looking pretty strong.
Are we building in any geopolitical risk of, you know, higher slippages coming through Q1? Are we building it that your LGDs may increase possibly? Are you seeing something like that already? You know, that's the first question. Yeah.
Yeah. You know, Q4 traditionally is the best for in terms of performance for us, probably for the rest of the system also. That 1.1 % is not something which we can assume to be a repeatable number. If you look at Equitas specifically, our microfinance is now back to complete under control. The X-bucket collection efficiencies are totally back to normal.
Yes.
We expect the microfinance credit cost to be back to the normal range, which used to be anywhere between 2%, 3%. The credit cost of microfinance could be in that range. The rest of the business, all of them have actually been improving over the last two, three, four quarters, and performance of them have been good. We expect the credit cost across the board to be, you know, kind of, comfortable going forward. We really don't have much of an idea what is the entire effect of the, this, war that's going around is going to have. We don't really know. That's one thing.
Second thing is that first and second quarter, traditionally, the collection efficiencies will be lower because of the fact that April to June is seasonally the weakest, and July to September, there'll be a lot of rains all over the place, which will have an impact on customers', you know, cash flows. All this is what we are factoring in when we are guiding for that.
So-
Yeah.
Does that answer your question, Rajiv?
Sir.
I'm sorry to interrupt, Rajiv. We are not audible.
Gold loan. Am I audible now?
Yes, now it's better. Please go ahead.
Now it's better? Yeah, yeah. I think, my question is on the product level ROAs. Sir spoke about in the initial remarks that the new products have turned ROA profitable in the last year. How further you see the ROE maybe moving for Affordable, MSE, gold loan, you know, in the current year? Could you share, you know, ROAs, exit ROAs for some of the existing products like vehicle, SBL and MFI? Can you give some color on the ROA of the vintage product also?
Okay. In Equitas, you know, we do a hundred 100% transfer pricing to the lending divisions, which means that the entire cost of the rest of the bank is transfer priced to the asset side. When an asset does an ROA, it's actually an ROA. Let's say we take the ROA of the different lending business divisions and you sum it up, it should actually come equivalent to the ROA of the bank, because the entire rest of the cost of the bank is transfer priced to the asset side. That's how we do it. When I say that all products turned profitable last year, it is on a fully loaded cost basis.
The new products like Affordable and MSE turned in black for the first time last year. Hopefully with increased volumes and better leverage of their cost, they become more and more contributing from a bottom-line perspective. We haven't and we don't want to really give the ROA at different product levels. At this point in time, we are not really wanting to give that. Broadly, we can say that microfinance, when the collection efficiency is good, will be very high from a ROA perspective. Micro LAP, on an ongoing basis, Micro LAP is probably one of our best products from an ROA perspective. The SBL as a whole, including Micro LAP, is again a well-performing product from an ROA perspective.
Vehicle finance, you know, maybe just marginally lower than SBL from an ROA perspective. The other products, we should see them catching up soon.
Yeah. Sir, can I just ask one more, one last question, please? Yeah.
Okay.
Yeah. Just comparing Q2 to Q4 ROAs, I mean, you exited this Q4 with 1.4% ROAs. Now you're guiding that your exit to FY 2027 ROA will be 1.5 % . What is the difference? What will change between these two years, in 12 months? Are you saying? See, the credit cost number is already lower at 1.1 % . You are exiting at a higher NIM. Would the, you know, cost, scale efficiencies and the growth efficiencies and the cost efficiencies try and overcome whatever dip you see in the NIM? Or are you also building in some lending NIM hikes following some deposit rate hikes?
See, what we are saying is that the NIM might contract a bit compared to Q4 of this year to Q4 of last year. Credit cost, at least at the Q4 level, credit cost may not be very different to the Q4 credit cost of last year. The other thing is that our operating cost to assets, which is about 5.8% at this point in time, should come down a bit because of the growth. Basically the growth in the advances and overall asset growth. If you see NIM contracting a little bit, credit cost will remain more or less at similar levels on Q4 to Q4 base. I'm not talking of full year, just Q4 to Q4.
Operating cost to assets should come down a bit. The NIM reduction and operating cost reduction should hopefully net each other out. If Q4 of this financial year credit cost is similar to Q4 of last financial year, that's where we are saying that this 1.45% of this year exit ROA should be around 1.5% for the current financial year.
Thank you, Madhyastha.
Thank you.
Thank you. The next question comes from the line of Parth Gutka from 360 ONE Capital. Please go ahead.
Yeah, hi. Thank you for the opportunity. What is the comfortable level of PCR that you would like to operate at? You know, our PCR has gone up substantially over the last couple of quarters. What is the customer or what is the target PCR that, you know, that the bank would like to operate at?
Around 70%.
Okay. Okay, fair enough. The second question is, what segments of your on the asset side are covered under CGTMSE?
Under CGTMSE, two type of businesses are getting covered. One is on our MSE loans where it is where we don't take a collateral. That part of MSE loan, which is non-collateralized, is something that we cover under CGTMSE. Second thing is that, vehicle finance, the commercial vehicle finance, you know, a large part of our commercial vehicle finance are eligible for cover under CGTMSE, which gets covered.
Okay. Sure. Okay, thanks a lot. Just trying to squeeze in one more. You know, considering, you know, it's around 1 and a half month that the West Asia conflict is going on, are we seeing any, you know, any kinds of stress on the ground or the early bucket delinquencies? Have you guys, you know, tightened the risk filters, you know, in March end or somewhere in, you know, early part of April? Yeah, that's my question.
Hi, this is Jagadesh. As we early clearly indicated, not going to have a direct impact due to the West Asia conflict. Okay. Even in the month of March, we have seen a excellent collection efficiency in terms of all parameters. Even April, we don't want to comment immediately, but looking at the microfinance as such, we didn't see much of the impact on that. We need to see whether any kind of impact maybe in the month or so. As of now, we don't see any kind of impact due to West Asia for our client segments.
Okay, sir. Thanks a lot.
Thank you.
Thank you. The next question comes from the line of Deepak Poddar from Sapphire Capital. Please go ahead.
Yeah, am I audible, sir?
Yes, please.
Yeah, Thanks, sir, for this op. Few clarification first up, sir. Now this cost of fund you mentioned is likely to increase due to higher saving rates and higher term deposit rate. That's right? Hello?
Yeah. Yes, Deepak.
It's effective from what, first April?
See, we have done this change from March.
Acha, effective from March only. Okay.
Yes. Yes.
Okay. The NIM pressure is likely because of higher cost of fund and lower CD ratio that you are expecting.
Yes, Deepak. Yes. Those are the couple of factors which will have an impact on the NIM as we move forward.
Understood. The NIM pressure will be visible from first quarter itself?
From marginally yes, from Q1.
Mm-hmm. Okay.
Further as we move forward.
Full impact by 2Q and 3Q.
Yes, yes. Q3 and Q4 time.
Okay, understood. Your borrower profile, I mean, I mean, getting impacted due to this macro scenario and you are looking at tightened credit norms that focus more on quality of asset over growth. Sir, can you throw some more light, I mean, how much percentage of your borrower is being impacted due to this and what sort of credit norms tightening? I mean, I mean, this 20% growth that you mentioned is after factoring in tightening, right? What sort of impact do you see it on the slippage front? Yeah.
See, as I mentioned, in my opening remarks, the inflation, which is the most likely outcome of the West Asia war, right? The inflation may actually go up. In our small business loan and affordable housing, we do not expect that to have any effect from a borrower perspective because our borrowers are dealing in daily use products and services. You know, like let's say that she's having a provision store or she or he's running a salon, a barber shop or a salon or eatery or something like that. These are not discretionary consumption by people. These are just daily use products and service.
I mean, if an idli cost you know, INR 25, INR 30 today, and if that INR 30 has to go to INR 35 or INR 38 tomorrow. People will still have to just consume that idli. You can't just stop it, right? Most of our borrowers are dealing in daily use product and service, and that is where, not only now, historically in the last, say, 15 years that our SBL has been operating, we have never seen inflation, we have never seen GDP movements up and down affecting the borrower's ability to repay because they actually are able to adjust their selling prices in line with what's happening in the economy.
The area where I mentioned we might see an impact will be our commercial vehicle borrowers, because if the diesel price goes up, freight rates will also go up. There's always a lag time. There's always a lag period. During that lag period, the operators income cash flow comes down, and obviously, during that time they may struggle to repay. For us, your commercial vehicle customers on our total advances should form about,
12%.
12%. About 12% of our total advances represent commercial vehicle borrowers. That's a segment where if the diesel price goes up, let's say beyond 10% or so, if the diesel price moves up, yes, those people are the ones who are likely to feel an impact till the time that the freight rates get adjusted. Any tightening of credit norms and all that will be primarily in that segment. The rest of the business, we don't see really much of an issue because we have seen this over the last 15 years. GDP movements have been going up and down, and inflation has been going up and down, but we have never seen that having an impact on our customers.
It's this 12% business that we'll have to continuously track from a credit tightening if the diesel price starts going up.
Understood. That's very helpful, sir. What does it mean for slippage? I mean, are you seeing right now? I mean, we are already, I mean, 30 days into the month of April in terms of increased slippages in these segments.
April has been good. I mean, you know, last year April, compared to last year April, this year April has actually been much better. We are keeping our fingers crossed.
Okay, great. Great. That would be it from my side. Wish you all the very best. Thank you so much.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. P. N. Vasudevan for the closing remarks.
Putting a lot of questions to us. Always they enable us to keep us on our feet, look at what the market looks for, and ensure that we deliver a all round performance. Look forward to seeing again next quarter, and we hope to continue to be able to deliver a good performance. Thank you. Bye-bye.
Thank you, sir. Ladies and gentlemen, on behalf of Equitas Small Finance Bank, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.