Ladies and gentlemen, good day, and welcome to earnings call of Equitas Small Finance Bank Limited, financial performance for Q1 FY 2027. 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. Mukund Shyamrao Barsagade, 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. Sundarar aman D., Head Investor Relations, Mr. Abeshek, Specialist Investor Relations. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the 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. Thank you for taking the time to join us today. To start with, I am pleased to introduce our new CFO, Mr. Mukund, who has joined Equitas leadership team recently after Sridharan, the earlier CFO, had retired after being associated with Equitas for over 15 years. Mukund brings with him extensive experience across finance strategy, business planning, with a strong track record of driving financial discipline and supporting scalable growth. We are delighted to have him on board and confident that his experience and insight will contribute significantly to Equitas growth in the next phase. This is Mukund's first earnings call at Equitas. I would like to extend a warm welcome to him. Coming to Q1 of current financial year, business performance. Despite a challenging operating environment and continued impact of elevated funding costs, the bank delivered a resilient and steady performance during Q1.
Our gross advances grew by 27% year-on-year to INR 47,640 crores, driven by broad-based growth across key asset classes. We continue to see strong momentum in the small business loan, housing finance, and vehicle finance, while used commercial vehicle and used car delivered a particularly robust growth of 25% and 30%, respectively. Our microfinance continues to perform well, reflecting the discipline for portfolio management. The expected collection efficiency in microfinance remained strong during the quarter at 99.7%, while the one to 90 DPD in microfinance has improved by 14 basis points at 1.1%, indicating continued normalization of the portfolio behavior. Other products like Gold and AHF are also showing traction. Encouragingly, despite the geopolitical tension in West Asia and the associated macroeconomic uncertainties, the quality of retail and vehicle finance portfolio remains intact. We are confident on the stated guidance of 20%+ advances growth for the current financial year.
Mr. Jagadesh, Head of Assets, will explain in detail our strategic priorities and growth drivers to achieve this target. On the deposit front, the total deposits grew by 10% year-on-year and 5% sequentially to around INR 48,900 crore. Our CASA ratio stood at 25%, while retail deposits continue to account for a stable 65% of the overall deposit base. While the increase in savings and term deposit rates recently has led to a rise in funding cost by 11 basis points sequentially, our focus remains on building relationship-led deposit franchise across retail, affluent, business banking and NRI segments. We are seeing a good traction in the new FCNR as well as retail domestic deposit flow in the current month of July, we are looking at a better deposit growth in the second quarter. Murali Vaidyanathan, Head of Liabilities, will explain in detail the strategies that drive deposit growth.
Our initiatives on IT remain robust. A few key apps, such as Enterprise LOS and Litigation Management System, are being developed in-house and should be launched during the year. The first few projects using AI are underway, we expect to see the first feel of the benefit of usage of AI in the bank in the coming couple of quarters. Even though the first quarter is seasonally supposed to be the weakest quarter for the industry, we have seen one of our best performance in the first quarter compared to the same quarter over the past few years, be it in advance growth, credit cost, or cost to asset ratio. We have guided for a 20%+ advance growth and an ROA of about 1.2% for the full year.
The first quarter momentum gives us confidence that we should be able to deliver beyond our guidance on both the fronts. Overall, this performance reflects the strength of our franchise, the execution of our strategic priorities are increasingly reflected in our financial outcomes. The benefit of our balance sheet growth, improving portfolio diversification, and sustained progress in asset quality are now becoming more visible across our key earnings metrics. These efforts help us to strengthen the quality of growth while maintaining a prudent approach to risk and capital management. We had conducted an investor day meeting in the month of June and had set out a five-year vision for the bank, we remain committed to delivering the same. Thank you. With this, I hand over to Mukund.
Thank you, sir. Good morning, everyone, this is my first opportunity to engage with many of you in my role at Equitas. I would like to begin by expressing my sincere gratitude to the board, our MD and CEO, Vasu, sir, and the leadership team for their trust, confidence, and support.
I would like to extend a warm welcome and heartfelt thanks to all our investors, analysts, and stakeholders who have joined us today. We value your continued interest in Equitas and greatly appreciate the trust and confidence you have placed in us over the years. Let me briefly walk you through the financial performance for the quarter. This will be the summary of the details available in our investor presentation. We reported a net interest income of INR 1,030 crore and other income of INR 250 crore, bringing our total net income to INR 1,280 crore for the quarter. Total net income grew by 19% year-on-year and 3% quarter-on-quarter. Effective quarter one, FY 2027, NIM is reported based on daily average interest earning assets, replacing the earlier methodology based on the average of opening and closing interest earning assets for the quarter.
NIM stood at 7.24% for the quarter one, FY 2027, a decline of 12 basis points quarter-on-quarter due to the increase in cost of funds. Total operating expenses were at INR 875 crore, up 16% year-on-year and 5% quarter-on-quarter, reflecting the impact of annual increments during the quarter and increase in the employee count on year-on-year basis. Cost to assets declined by 14 basis points quarter-on-quarter to 5.61% in quarter one, FY 2027, as compared to 5.75% in quarter four, FY 2026. Cost to income ratio stood at 68.38% in Q1, FY 2027, as compared to 67.52% in quarter four, FY 2026, and 70.62% in quarter one, FY 2026. The bank reported a quarterly profit after tax of INR 184 crore compared to a loss of INR 224 crore in quarter one, FY 2026.
Return on assets and return on equity for quarter one, FY 2027 were at 1.18% and 11.76% respectively. Moving to the asset quality. Gross NPA reduced by 13 basis points quarter-on-quarter to 2.36%, as compared to 2.49% in quarter four, FY 2026. Net NPA increased by two basis points quarter-on-quarter to 0.70% in quarter one, FY 2027, as compared to 0.68% in quarter four, FY 2026. Credit costs on average gross advances declined significantly to 1.37% in quarter one, FY 2027, as compared to 6.48% in quarter one, FY 2026. Provision coverage ratio remains stable at 71.02%, including technical write-offs. Provision coverage ratio stands at 86.96%. Moving further. Gross advances grew 27% year-on-year to INR 47,641 crore, driven by robust disbursement across products. On liabilities, total deposits grew 10% year-on-year and 5% quarter-on-quarter to INR 48,976 crore and CASA ratio stands at 25%.
As of June 30th, 2026, our capital adequacy ratio stood at 19.44%, Tier 1 capital at 16.01%, and Tier 2 at 3.43%. Thank you, and I will now hand it over to Mr. Jagadesh.
Good morning, everyone, and thank you for joining us. Before I begin the deep dive into our advances portfolio, let me briefly touch upon the current situation. As of now, we have not observed any visible stress in our portfolio attributable to the ongoing developments in West Asia. We continue to closely monitor the situation and remain watchful of any potential developments. Business momentum remained steady during the quarter, supported by disciplined underwriting and stable collection performance. Against this backdrop, let me now walk you through the key trends in our advances portfolio. We have closed the quarter with gross advances of INR 47,641 crore, reflecting a growth of 27% year-on-year, which is driven by a strong disbursement growth. Let me walk you through some key highlights. We have delivered the highest ever first quarter disbursement of INR 6,784 crore in quarter one, a growth of 93% year-on-year.
Microfinance disbursement at INR 1,343 crore in this quarter, which constitutes around 11% of the overall loan mix, and we intend to maintain it around 10% going forward. Including DA book, MFI currently stands at 13%. 87% of our organic MFI book is covered under CGFMU. On the non-MFI front, our disbursements were at INR 5,441 crore in this quarter, a growth of 68% year-on-year. Our non-MFI book, which is a secured one, now stands at INR 41,623 crore, marking a 22% year-on-year growth. Our small business loan portfolio continues to be the largest contributor with INR 19,249 crore, growing at 15% year-on-year. Notably, our secured business loans within SBL saw a robust 32% year-on-year growth. Vehicle finance grew 15% year-on-year.
Within vehicle finance, used commercial vehicles grown by 25% year-on-year and used car posted a strong growth of 30% year-on-year. Our strategic focus remains on used CV and used car, which continue to show resilience. Our housing finance grew 24% year-on-year, and MSE finance grew by 28%. Coming to the yield and asset quality front. The yield on gross advances increased by 23 basis points quarter-on-quarter to 15.74%, and non-MFI yield increased by 4 basis points quarter-on-quarter to 14.89%. Our asset quality continues to be in an improving trend. Our net slippage is at 1.43% in quarter one, the second lowest among the first quarters over the last five years. Our GNPA at 2.36% is lowest among the last two financial years. Credit cost stood at 1.37% in this quarter versus 6.48% in quarter one of the financial year 2026.
Adjusting for the INR 29 crore stress sector provisioning reversal in Q4 financial year 2026, credit cost would have been approximately 1.38% in Q4, broadly in line with the current quarter, indicating the stable underlying credit cost on a sequential basis. In microfinance, the 1-90 DPD declined to 1.10% from 1.34% in quarter four, driven by enhanced collection efficiency. The expected collection efficiency at the past level was 99.7% in Q1, reflecting the stability. I would like to conclude that even in a seasonally weak quarter, we deliver strong performance in disbursement and asset quality across products. We expect this momentum to sustain in the quarters again. Thank you, and now I hand over to Mr. Murali.
Good morning, friends. I would like to take you through what's happening on the liabilities front. We continue to build a healthy momentum with total deposits growing sequentially 5%, and book reaching closer to INR 49,000 crore. In this, the composition is 25% of that money coming from CASA, and CASA plus RTD accounts closer to 66% of our total deposit base. This reflects the strength and granularity of our franchise and bank. It is also noteworthy that 91% of our bulk deposits are non-callable in nature and in a duration of one year. This provides greater stability to our funding profile and limiting the repricing risk which happens on the same year. The FCNR we have launched through the AD1 project, which has gone live. Pre-swap and post-swap, we are seeing a healthy traction and we have crossed close to $42 million already.
This will add the diversified as well as opportunity for customer towards hedging and an opportunity for us to build the USD balance sheet. On a daily average cost of funds, it increased by 11 basis points. We actually tweaked our soft pricing and we have launched a branded FD product called Maxima with three year one day as a duration, that is showing enough traction. The culmination of both has increased the cost of funds and moving up to 7.05% from 6.94%. We are also encouraged by the response to our recently launched ARTHA proposition targeting HNI and HNI plus, the proposition as well as segmentation is helping us to penetrate into the HNI segment very deeply and high-value customers are enjoying the premium banking proposition along with the user convenience.
In addition to that, we have specific proposition, Elite Epic for NRI, which is showing attractions in terms of INR as well as USD denominated feature, Elite Lite, which we launched three months back for emerging affluent, it's showing in terms of number and value. Both the offerings are witnessing encouraging traction and helping us to expand our reach across key segmentation. With a strong retail franchisee, differentiated customer proposition and customer segments, along with customer-centric approach towards mobilization of deposits and building balance sheet, we remain well-positioned to support the bank's funding requirements as we move forward. Thank you. I hand it over to Gopi.
Good morning, everyone. The quarter went by was very challenging given continued unpredictable geopolitical situation in West Asia, exerting severe pressure on INR and other domestic assets due to higher crude prices. Financial markets continue to exhibit volatility with uncertainty continuing to impact treasury revenue. Our treasury income stood at INR 31 crore in Q1 FY 2027. Foreign investors have retreated to safe haven investments while placing large bets on AI, causing India to miss out on inward USD outflows. INR depreciation pressure continues. However, the measures announced by RBI in June to attract external flows have got off to a good start, garnering over $20 billion. In the immediate term, CPI is expected to broadly remain within MPC inflation targets skewed towards the upper end. Longer term effects of imported inflation and this year's monsoon shortfall are likely to see some upside risk materialize against current RBI projections.
Government bonds saw the benchmark 10-year yield exhibit heightened volatility during the quarter, closing it at 6.77. The yields have mirrored the volatility in crude prices and geopolitical cues, this is likely to continue till a definitive end to tensions in West Asia is in sight. We approach the coming quarter with caution given the continued volatility. Thank you.
Thank you. We'll begin with 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 one. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question comes from the line of Heet Khimawat from IIFL Capital Services. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. Firstly, on the funding side, maybe Murali, sir, you could take this. The share of bulk has gone up in this quarter, we're also seeing in the last couple of years, the share of individual depositors in our deposit base has been coming down while banks and government bodies share has been going up. Just wanted to understand what is happening here and how do we see this trend in the medium term. Also on the cost of funds, we just wanted to understand the marginal cost of funding that would be seeing in this quarter and how would that compare versus the current cost of funds that we are seeing.
Mainly in the near term, in the next one or two quarters, can the marginal cost remain at the current levels and would that be higher or lower than the current cost of funds? That would be my first question.
Yeah, thank you. first on the retail to bulk side, there are three divisions. We have given it on the slides, which is greater than INR 3 crore- INR 10 crore, INR 10 crore- INR 50 crore, and greater than INR 50 crore as a bucket. in this, government bodies and institution, and we have something called cooperative banks. Today, cooperative banks accounts to close to 18% of the book, and government bodies and institution contributes to 12% of the book. That is how this 30% of the book is coming in for bulk TD requirement. The expansion into government actually helped us to mobilize. the overall pie, at this point of time, looks like 68% coming from individuals as well as HUF and balance 30% coming from institutions.
When we pick up, that is recently what we have done on FCNR as well as Maxima pickup, over a period of six months, it will gradually come down to earlier thing of either 70/30 or 72/28 over two quarters. That is what is expected on the funding side.
Yeah. Got it. just on the marginal cost of fund.
Yeah. Sure. Yes, on the marginal cost of one side, if you look at it, currently we are at about 8%. The current outlook from that point of view, we still believe maybe around this mark only we'll be having it as we move forward as well.
Got it. Secondly, on the MFI slippages, we've seen that coming down. However, the non-MFI slippages have inched up in this quarter. Just wanted to understand if there is any seasonality coming from the vehicle book that we normally see in Q1, or is this from any other non-MFI segments? How do we expect this to trend in the coming quarters?
Yep. This is Jagadesh. Slippages has been better compared to the last Q1 of the financial year. Okay? If you look at the net slippages, the current net slippages is INR 151 crores. Okay? In MFI is INR 30 crores and non-MFI is INR 120 crores. If you look at the last financial year, quarter one, it's INR 453 crores and MFI is INR 230 crores. Which effectively INR 220 crores. It's better compared to the corresponding quarter of the previous year. Normally, the Q1 will be a seasonal. It's based on the seasonal. We see better improvement in the asset quality going forward.
Yes. Mainly, non-MFI would be largely seasonal from vehicle maybe. Just wanted to understand that.
Yes.
Is there any seasonality in the-
Yes, it's a seasonal.
Got it. Lastly, on the MFI side, so we had the DA book of around INR 1,340 crores, which came in 3Q. What is the rundown that we are seeing, or by when can we expect this to run off, in how many quarters?
Currently, we are at INR 838 crores. By Q4, it would come around close to INR 150 crores.
Got it. Sure, sir. That is helpful. That is all from my side. Thank you so much.
Thank you.
Thank you. The next question comes from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Sir, good morning. You had mentioned about capital optimization a couple of quarters ago, which included CGFMU and so on. Is there any chance of increasing your DA or securitization book so that you can grow while maintaining a slightly higher capital adequacy? Now you're at 16% Tier 1, and so I want to know where you'd expect it to be, let's say, in the end of Q4, given your strong growth.
There are a lot of levers for capital preservation that we have been using over the last few quarters. We will continue to do that. In fact, last quarter, meaning the first quarter of this financial year, we did do a DA of around INR 500 crore of the affordable housing book, which released a little bit of capital. We are also actively getting our vehicle finance portfolio covered under CGTMSE, which again releases capital. Of course, the IBPC is always a tool available to sell down and preserve the capital and focus on lower risk-weighted assets like housing finance or gold loans to conserve capital. There are a lot of levers, and we continue to use all the levers available to us. CGFMU, of course, is one more lever.
Today, I think out of microfinance book, our own microfinance, just taking the DA part of it out, almost 87% of the microfinance book is covered under CGFMU, which not only mitigates risk but also releases some amount of capital. All this is something that we'll continue to do. Hopefully that we don't expect to raise Tier 1 capital in the current calendar year.
For this calendar year, I don't think we'll be raising any capital. Maybe towards the end of the fourth quarter of this financial year, or maybe towards first quarter of next financial year, we might look at it. Again, that depends on how much capital we are able to conserve through all these methods. In the forthcoming AGM, we will be putting up an enabling resolution for a Tier 1 capital of INR 1,250 crore. That is again, largely enabling provision. Last year also, we had a similar provision at the last AGM, which was approved by the shareholders. We were able to manage the capital, so we really didn't raise. This year, again, we'll be coming up with enabling resolution.
The target would be to raise it either in the fourth quarter or first quarter, again, depending on how we are able to conserve the remaining capital.
Sir, the current participant's line is disconnected. Should we proceed with the next question?
Yeah.
Thank you. The next question comes from the line of Deepak Poddar from Sapphire Capital. Please go ahead.
Yeah. Am I audible, sir?
Hey, you are audible.
Yeah. Thank you very much, sir, for this opportunity. Just wanted to understand, first up, for the full year, we are still targeting 1.2% kind of an ROA rate. Are we still maintaining exit ROA of 1.5% by Q4? That I think we have mentioned in earlier calls as well.
Yes. We had guided for a 1.2% for the full year and 1.5% exit for our fourth quarter ROA. If you see, our first quarter ROA is almost 1.2%, just a little bit less than 1.2%. It does look like our ROA for the full year should be more than our guided range of 1.2% ROA. We are also looking at a lot of the metrics which go to the ROA tree, and maybe by end of second quarter, we might come with a revised guideline. We believe that our actual ROA for the year should be better than the earlier guided figure. How much better and what is the likely ROA that we should expect for the full year, we should be able to come back to that maybe by end of second quarter.
Okay. We still maintain year-end ROA of 1.5%?
What we have guided, definitely that we should be able to deliver. By end of second quarter, we will be able to say whether it can be better than that.
Mm-hmm. Okay. Anything on FY 2028 next year? What sort of ROA we are looking at?
The exit quarter, whatever the full year ROA that we will end up for current year, the next year should only be better than that. All the metrics are looking good. The whole platform has really been laid out strongly over the last three, four years. Whatever be the ROA that we end up this year, next year should be an improvement on top of that.
Mm-hmm. Improvement over the exit ROA?
Not exit ROA. I'm saying that for the full year.
Full year ROA.
ROA we deliver for the full year, next year full year ROA should be definitely better than that.
Got it. That's very helpful, sir. That would be it from my end.
Sure.
All the best. Thank you.
Thanks.
Thank you. The next question comes from the line of Shailesh Kanani from Asian Markets Securities. Please go ahead.
Good morning, everyone, and thanks for the opportunity. Sir, a couple of questions from my side. Wanted to check on the growth of gold loan book. It seems to be little bit some moderation has been there in this quarter, on quarter-on-quarter basis. How should we think about this and what should be the year-end target for this book?
Gold loan, we have already informed that we are expanding gold loan to liability branches also. From the asset branches side, we are enhancing our distribution. We are closer to INR 1,000 crores now. On a full year basis, we intend to scale it up to INR 1,600 crores mark. That's how we are looking at it as we move forward. Of course, there are opportunities to further scale it up as we move forward with the distribution getting enhanced and branches as well. We will come back on that maybe in subsequent quarters as well, how it comes out.
Any reasons for moderation during this quarter?
It's largely seasonal and some bit of network expansion, what we have undergone. It's taking some more time. Otherwise, the month-on-month disbursements are healthy, we continue to do healthy numbers there. Jagadesh J.
This is Jagadesh J. On the asset part of the gold loans, we had to start off with our branch expansion. Okay? By Q2, we'll come up with more branches and our plans of getting into close to some 120 branches will be done by Q4. You can able to see the upsurge in disbursements from Q2 onwards.
Okay, fair enough. Just to repeat that number, 2,600 is the target for the gold book? That is what I heard properly?
It's 1,600. I said 1,600.
1,600. Okay, fair enough. Thanks.
Thank you.
Sir, my second question was with respect to liability fee income. That growth on a year-on-year basis seems to be muted. Any steps we are taking to boost that line item?
Yeah. In terms of product mix in insurance, we are now skewed towards term as well as traditional. As we know, the commission structures are coming under scrutiny. We are putting a lot of guardrails in terms of focus on solutions based on suitability, and also, most importantly, the mix which should not be driven through revenue. Top-line growth will happen and revenue will be a byproduct of top-line. That is what we call BWRP. That is going to be our approach for this year. In the coming quarter, we are going to enhance our health insurance proposition within the customer segment. It's a product of life, general and health. In the first quarter it was skewed towards general and life. In the second quarter, we will be focused more on health penetration and life ticket size penetration.
Fair enough. Just last question from my side. Any update on the universal banking license?
Yeah. On that question, we are looking at it internally. As of now, we have not put a timeline to apply to RBI. We have gone through the RBI guidelines. We have gone through the data of the bank. Technically, it looks like we are in compliance with the guideline requirements. That's what it appears to be for us. We'll be doing more analysis of that. We will take our time. We are not really in a hurry to file our application at the earliest. We are not in that hurry. We'll take our time. We'll study the guidelines and the bank's position. We'll have dialogues with RBI also, then we'll take that call as to when we should file. If you ask me a timeline by when we expect to file, we don't have the timeline at this point in time.
We will come back to you shortly on that. We are working on that project as of now.
Okay, sir. Thanks a lot and best of luck.
Thank you. Bye-bye.
Thank you. The next question comes from the line of Ashwani Kumar Agarwalla from Edelweiss Mutual Fund. Please go ahead.
Good morning, [Shyam]. Sir, can you explain what was the reason for your decline in NIMs? Can you break it and the impact of the yield impact because of cost of funds? Yeah.
From a yields point of view, if you look at it on an average basis, daily average basis, the yield has gone up by three to 4 basis points on a QoQ basis. On the other side, on a cost of funds, again on daily average basis, it has dropped by close to 12 basis points. This has resulted in a NIM drop for the quarter on a sequential basis.
Sir, you said your cost of funds also declined and yields also increased, your NIMs-
Yield increase was on a nominal basis, around four basis points on a daily average basis. The NIM drop is primarily contributed by the cost of funds increase.
How much did your cost of funds increase? Roughly 16, 17 basis points?
11 basis points during the quarter.
Okay. Do you hold any extra liquidity which can be deployed in the next quarter?
Yeah.
Yeah. During the quarter, a lot of transactions which has been undertaken by Treasury, the IBPC transactions and also we have some refinance. During the fag end of the quarter, the last few days of the quarter has contributed to the higher liquidity at the end of the quarter. We expect that to be consumed in the current quarter. We already saw a significant amount of consumption in the last few days, and then this entire liquidity surplus security will get consumed now.
Okay, what was the drag in the margins caused by that liquidity?
Since it is on daily average basis, the drag is very nominal.
Where do you see the margins going forward? Is it likely to improve in the second quarter and for the entire year?
From a NIM point of view, currently we are at 7.24%, or it will come down as we move forward, primarily attributed to the increase in cost of funds. Maybe 7.1% levels is what we are looking at NIM on a daily average basis. That's the mark in the next two to three quarters we are looking at.
Okay, sir.
Also, I would like to add.
Sorry.
Also, I would like to add one more thing is the LCR on a daily average basis, if you look at it is 142%. This 176, what we have put in the presentation is on a quarter-end basis. Relatively we are comfortable in that liquidity point of view as well.
NIMs is also declining because you are consuming capital. On spread basis, how much would be the decline?
Yeah, 7.24% will come down to around the 7.1% NIM as we move forward.
What about spreads?
From a yield point of view on advances?
Yields on advances minus cost of funds.
A combination is what I'm saying. Yields, there is a marginal uptick expected as we move forward, but it will be very marginal. Largely the drag will be from the cost of funds side.
Okay, sir.
Thank you.
Thank you. The next question comes from the line of Param Subramanian from Investec. Please go ahead.
Hi. Thanks for taking my question and congratulations on the quarter. My question is on the deposits. If I look at the Elite book as well as the SA growth, it is still in, say, low single digits. You highlighted there will be some pickup through the year. Where do we see these numbers going to broadly, if you could talk about, and what implication will that have for the cost of funds?
Today, Elite book is standing at close to INR 18,500 crore. INR 18,475 to be precise. About 40% of the book comes from Elite. This is at a CRV level basis, which means SA plus TD, what it has. Earlier we had only one proposition called Elite. Today we have one at the lower side, Elite Lite, for emerging affluent, and one we have created on the upper side called ARTHA, three months back. ARTHA trajectory, we have already crossed 1,000 ARTHA and close to the ATS is very healthy. We are seeing a trajectory of Elite customers migrating towards ARTHA and, most importantly, sourcing ARTHA as a customer. For our normal sourcing in most of the branches, we are using Elite Lite.
Our ambition is to do at least INR 200 crore month on month on NTB acquisition, INR 100 crore addition on the existing Elite portfolio on savings account. This is going to be our drive and direction all about. This, in a continued or a sustained basis, we target from House of Elite, what we call, 4,000 accounts to come from. 2,000 accounts will come from Elite Lite, 1,500 accounts will come from Elite and 500 from ARTHA. We have a segmentation and product differentiation backed by RMS approach to build this RV and SA.
Okay, sir. Will it get to a double-digit growth, Elite and SA, Elite and TD by the end of the year?
By end of the year, definitely. This quarter itself, as we said, RTD, we are seeing a significant uptick.
Okay, great to hear. Sir, you mentioned on the margins, 7.24% I think goes to 7.1% through the year. That will be led by an uptick in cost of funds, largely, is what you're talking about?
Yes, right.
Okay. Sir, the ROA improvement through the year, this 1.2% going to 1.5% by exit is mainly then the offset coming through from credit cost decline and OpEx to assets, is it?
Yes, Param. From Q1 to 4Q point of view if you look at it, there is potential on the fee income as well because Q1 is sequentially a big quarter from a fee income. Q4 will be very strong in that perspective. OpEx and credit cost all can be the drivers for that 1.5 exit.
Okay. Very clear. Sir, one last question. In the last few quarters, we are seeing borrowings in the balance sheet, and I think it is refinance that is going up sharply. If you could talk about, say, the funding cost from the refinance and relative to your deposit cost, because that is incrementally helping your funding. That's my last question.
The refinance which we avail from the refinance agencies, all come with the benefit of CRR, SLR exemption. If from a cost of funds perspective compared to the deposits, it is marginally lower for the refinance funds. In the deposit funds added to the cost of funds plus CRR, there will be a higher cost. In the refinance, we see a marginal benefit coming out of that.
Okay. The effective cost will be better than the, say, 7.05% cost of fund you have. Okay.
Yeah.
Thank you so much. Congrats once again on the quarter. Thank you.
Thank you.
Thank you. The next question comes from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi, team. Good morning. A few questions from my side. First one is on the slippages. If you can share a breakup of the INR 360 crores slippages, gross slippages in the quarter between MFI and non-MFI. Similarly, if you can also break the INR 160 crore provisions in the P&L this quarter between MFI and non-MFI. Third one, your CD ratio seems to be in a fairly comfortable place, so is LCR. Can you tell me how much more you can stretch the CD ratio on the higher side? Fourth one is on the employee base.
There has been a QoQ reduction here. If you can share the reason for that, as well as tell us how much more employees you intend to add during the year or during the next two years, and what proportion of them would be on the branch banking side versus on the asset side.
Those are my questions.
Hi, this is Jagadesh J. Regarding on the gross slippages for the quarter, it's almost 3.45%. Okay. Which is INR 397 crore.
Breakup.
Breakup between microfinance and non-microfinance is microfinance is INR 36 crore and non-microfinance is INR 360 crore.
Yes, sir, the breakup of the P&L provisions, CD ratio question, and employee base question.
Ratio point of view, we are at around 93%, Ashlesh. We feel we'll maintain this as we move forward and there is a potential for us to bring it marginally down as well during the coming quarters. Provision breakup, we are assuming.
Sir, hi. This is Mukund here. The provision breakup for microfinance is INR 34.73 crores and the non-MFI is INR 125.93 crores, totaling to INR 160.66 crores.
Sorry, sir, you said non-microfinance is INR 125 crores.
125.93, yeah.
Okay, understood. On the employee basis?
In employees, there was a marginal drop in Q1 compared to Q4. That's largely because we have not added new branches, so that's why there's a marginal drop. Otherwise, for the rest of the year, we should see some increase in the front lines sales staff in the liabilities. Liabilities, we expect to add another about maybe anywhere between 300 people- 400 people we should be adding on the liability side. That we should see as an increase going forward. On the asset side, marginally there may be an increase, but by and large, we don't expect an increase in the number of staff on the asset side. The rest of the bank, in terms of the HO, the rest of the functions, there may be marginal headcount increase, but it will not be anything significant.
If you look at it overall, maybe we can assume a 500 headcount increase for the rest of the year, largely coming from the liabilities division.
Understood, sir. Just one follow-up question on the provision line. As on March, I believe we still had about INR 45 crore-INR 46 crore of stress sector provision for MFI outstanding on the balance sheet. How much of that is still left now?
Yeah, it is roughly INR 44 crore as of now.
Understood, sir. Thank you, sir, for your response.
Thank you, Ashlesh.
Thank you. The next question comes from the line of Rajiv Mehta from YES Securities. Please go ahead.
Hi. Congratulations on good performance. Just continuing on the provision of this INR 160 crore provision in the quarter, we did INR 200 crore of write-off. What was the write-off related provision in the quarter? Was it INR 20, INR 30 crore?
Sir, those write-offs were primarily 100% provided.
They were MFI?
Yeah. MFI is INR 143.83 crores.
INR 143.8 is MFI.
Residual is INR 24.21. Vehicle finance, primarily.
Okay. These were all almost 90%-100% provided.
Yeah.
Okay. Got it. Okay. Understood. From collections point of view, both MFI as well as non-MFI, how is July going? If you can share whether the X bucket in MFI as well as non-MFI is stable versus June?
Yeah. It is almost stable. Not only July, even this quarter, we expect a similar kind of performance in microfinance, both in X bucket as well as on the credit cost.
Mm-hmm. This INR 24 crore of remaining additional provision will get automatically consumed.
Not INR 24. Sorry to interrupt. It's INR 44 crores.
Oh, it's still left?
Yes.
44.
Yes.
I believe it was a very similar number as of March also.
March, it's INR 46 crore. Now, it's INR 44 crore.
Yeah. This INR 44 crore, how do you plan to consume it in the next two, three quarters?
See, this INR 44 crore-INR 46 crore, they are arrived at. We have some formula basis which we make this provision for standard assets in microfinance.
Which is basically that out of all standard assets of MFI, all accounts where customers are leveraged more than INR 200,000 by all the lenders or more than three lenders per borrower. We arrive at that number based on a credit bureau run that we do at the end of each quarter. That amount, we take it, and we make a provision of 50% on that standard asset as this additional provision, the stress sector provision. That's how we do it. In fact, we started this last year when the MFI was under a lot of stress and over-leveraged clients were causing the problems of non-repayments. That's when we started this process, and we are continuing it as of now. How do we consume it going forward? It depends. I think the comfort has come in very strongly in terms of the MFI coming back to normal levels.
We may watch it for maybe another one or two quarters, and at the end of one or two more quarters, if MFI continues to behave very well and we don't see any particular level of stress other than normal, we might just reverse the whole standard asset provisioning. That's something that we may do maybe at the end of one or two quarters, or maybe three quarters. It all depends on how we perceive the MFI industry to come back to normalcy.
Correct. This is an ongoing policy, right? It will always be subject to review every quarter, depending on the leverage at the customer level, right?
That's right.
Correct.
In fact, I can tell you the portfolio which is coming under this over-leveraged position is INR 88 crore as of June, and it was INR 92 crore as of March.
Okay. It's come down. Okay. Got it.
Yeah.
One thing on this net slippage ratio for the non-MFI, obviously, I mean, seasonally, it has gone up. Just to understand in the right way, would this net slippage ratio of non-MFI portfolio Would it be amongst the best in the last four or five years, what you delivered in Q1?
Yes. It is not only best among the Q1 of the last financial years, also barring Q4, even between Q2 and Q3 of the last financial year, this particular quarter we've fared better in terms of the net slippage, even in the non-microfinance.
You are very comfortable with the kind of seasonal movement we saw in all these non-MFI products?
Yes.
Okay. I think that is all from my side. Best wishes.
Thank you.
Thank you. The next question comes from the line of Jeet Suchak from Ambit Capital. Please go ahead.
Hi. Good morning. In the slide six, we see different yields on MFI and non-MFI. In non-MFI, we see a four basis point uptick this quarter while around 40 basis point decline YOY. What explains the YOY decline? Is it because of majorly from mix change or the rate cut? How much was from the rate cut and how much was from the mix change?
Jeet, largely it is from a mix point of view. That's the resultant decline in terms of on a YOY basis.
Okay. Going forward, how it will be going through? The mix change will be, incremental growth will be from the current mix that happened in YOY, or how do you see this going forward?
See, from overall advances point of view, look at it, DA is something which is going to come down, NBFC funding as a portfolio, what we have is something selective we'll do based the appetite. Otherwise, rest of the products will continue to grow at the intended growth of, let's say, 20% +. That's the mark we have. To that extent, mix, there won't be a change in rest of the products.
Okay. From 13% in MFI mix to 10%, you see any meaningful decline in yields on calculation where you-
No, there won't be any meaningful decline in yields on that side because the DA, what we have is around 2.5% of this 13. That is largely at a much lower yield. There should not be any meaningful decline there. In fact, what we anticipate is a marginal uptick on the yield as we move forward.
Okay. That's all my side. Thanks.
Sure. Thanks, Jeet.
Thank you. The next question comes from the line of Saumil Shah from Paras Investments. Please go ahead.
Yeah, hi, team. Thanks for the opportunity. My question is on the credit cost side. For this quarter, it was at 1.37%. Where do you see this number settling in this year? Any credit cost guidance for this year?
We will be in a steady state or we will show a marginal improvement or reduction going forward.
Okay. For this year, we are looking at below 1.37% for the full year basis.
Yes.
Okay. One question on the ROA front. Basically, you alluded to the previous participant that 1.2% ROA for this quarter moves to 1.5% by Q4. Typically, June quarter being the weakest quarter. How shall we look at the coming quarter? This 1.2% gradually increases to 1.3% and then move towards 1.5%?
Yes.
Thoughts on that one?
Yes, there should be a gradual improvement on this. However, we said that post Q2 we will be in a position to guide you in terms of the full year ROA. Otherwise, like you said, there will be a gradual improvement as we move forward and with an exit of 1.5% by Q4.
Correct. Quarter-over-quarter, we are seeing an improvement over Q1, right?
Yes.
Okay.
That's it.
Okay. That's it from my side. Thank you, and all the best.
Yes. Thank you.
Thank you. We'll take this as the last question. Now I would like to hand the conference over to Mr. P N Vasudevan for closing comments. Thank you, and over to you, sir.
Thank you. Thank you all of you for joining in and asking us questions and enabling us to answer your queries. Thank you, and looking forward to next quarter interaction with you again. Bye-bye.
Thank you. On behalf of Equitas Small Finance Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.