Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Equitas Small Finance Bank Ltd (BOM:543243, Financial) reported strong growth in retail deposits, with 74% of deposits being retail, indicating a healthy momentum in deposit mobilization.
- The bank's investments in technology infrastructure, including PRM, Super app, and customer app for borrowers, have progressed well, enhancing operational efficiency.
- The small business loan segment continues to perform well, with robust disbursements and a focus on micro LAP showing positive results.
- Vehicle Finance is recovering, with improved collections and disbursements in used commercial vehicle and used car loans reaching the highest levels during the second quarter.
- The bank's treasury desk has contributed positively, actively participating across asset classes and taking advantage of market opportunities.
Negative Points
- The microfinance portfolio is under stress, with elevated fresh slippage and flow from SMA-01 and 2, requiring additional provisions and strategic interventions.
- Operating expenditure increased by 14% over the last year, with cost to income rising to 66.09% from 64.37%, indicating pressure on operational efficiency.
- The yield on advances remained flat year-on-year due to a slowdown in microfinance, impacting overall profitability.
- The bank's credit cost for the microfinance portfolio is significantly high at 10%, affecting overall financial performance.
- The attendance at microfinance center meetings has decreased post-COVID, impacting group cohesiveness and repayment behavior.
Q & A Highlights
Q: Can you explain the higher SMA levels in the bank's portfolio compared to the microfinance book?
A: The SMA levels for other products like vehicles and small business loans are higher, but the resolution percentage is quite high, typically around 85% to 90%. This means that while there is some stress, the ultimate slippage is low due to high resolution rates. In contrast, microfinance has lower resolution percentages, which is why extra provisions have been made for it.
Q: What is the expected flow from SMA buckets into NPAs for the bank and microfinance?
A: For the bank, about 15% of SMA-2 might flow into NPAs, but this is offset by resolutions of previous NPAs. For microfinance, the resolution in the SMA-2 bucket is around 40% to 45%, meaning nearly half could flow into NPAs.
Q: What is the long-term outlook for cost-to-income ratio and ROA?
A: The cost-to-income ratio is expected to remain elevated for the next two to three years due to investments in new products and technology. However, efforts are being made to control operating costs. In the longer term, as credit costs normalize, the ROA could return to around 2%, similar to past performance when credit costs were stable.
Q: How is the microfinance portfolio expected to evolve, and what is the strategy for credit cards and personal loans?
A: The microfinance portfolio is expected to decrease as a percentage of the total portfolio, potentially reaching single digits in three to four years. Credit cards and personal loans will fill the gap, with a focus on existing customers to minimize acquisition costs. The total unsecured book, including microfinance, will not exceed 20% of the portfolio.
Q: What measures are being taken to improve microfinance collections and attendance at center meetings?
A: Attendance at center meetings has been low post-COVID, affecting group cohesiveness. To address this, the bank is offering interest rate discounts based on attendance and repayment behavior. Additionally, efforts are being made to increase field staff to improve customer engagement and collections.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
