Why equitas over other SFB’s
Why equitas over other SFB’s
Part of the micro-lap book is indeed a cross-sell to MFI customers. Pls check this Q1 interview
One of the de-risking stuff, will closely watch how it is reducing its concentration in TN. We have seen how Repco suffered with its over-concentration in TN. The faster Equitas can do it, the better
Investing is all about reducing risk , that way Equitas looks safer bet from diversity of products perspective. Management is clear on its objective.
Even if it can make its HFC business success , that will be a good game changer. This product ‘Micro-Lap’ is excellent. Again we know in a economic downturn, LAP suffers the most but the way, it is de-risking its LAP, needed to be appreciated
Equitas opex will not come down so easily as it is more focused on ‘smaller ticket size’. I still feel that is better than high NPA, in the latter, you have permanent loss of capital…
Thanks @desaidhwanil for detailed responses.
Just 1 follow up questions =>
- RBI has some rules on margin cap based on cost of funds for micro loans like - 10% for > 100Cr AUM, 12% for < 100Cr AUM or 2.75 x base rate of 5 largest commercial banks. So these rules not apply to SFBs & even commercial banks with MFI portfolio?
Rupesh great question, here is what I have been able to dig up so far.
“6.4 Marginal Cost of Funds based Lending Rate (MCLR), other related regulations on interest rates and fair practice code for lenders. The extant provisions as applicable to scheduled commercial banks shall be applicable to SFBs as well.” - Source: https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10636
“i. Rate of interest - The rates on interest on bank loans will be as per directives issued by our Department of
Banking Regulation from time to time.”
- Source: https://rbidocs.rbi.org.in/rdocs/content/pdfs/CF06072017_AN.pdf Page 15.
Even before the rate of interest was capped by RBI for MFIs, a few MFIs which were on a true social mission, ran their organizations not with a sole focus on profitability but with a mission to do common good.
As per my reading, of the various letter to investors in annual reports of different MFIs and SFBs majority of founders have rationalized their interest rates on loans, as if there is a silent directive from RBI to pass on benefits of scale to the customers. Most of them have followed this approach to stay on the right side of RBI.
Especially with the need for continued funding every few years to grow their balance sheet, none of these organizations wants to be labelled as an extortionist and jeopardize their future.
The best example of this is Bandhan Bank as it is the most matured of the converted MFIs, they have their NIMs below 10% in FY18 from above 10% in FY17. Their AUM yield is also lower than other MFIs and SFBs. We can either say this is because of RBI or the social mission of the founder but not really possible to know.
Lowest interest rates on loans in the industry could also be a strategy by BB to induce rapid growth by taking advantage of their scale, size and unique universal bank status in the MF industry.
If anyone actually finds the directive from RBI, w.r.t. interest rate cap please do share.
@desaidhwanil Sir, how would IL&FS default affect equitas? will it increase cost of fund for the company?
I dont think ILFS default would have much impact on equitas cost of funds. Nearly half of funds for equitas are from CASA and they plan to take it up further. That would make them less vulnerable to external borrowing.
The bigger fear is lower disbursements from all players fearing liquidity crunch. Personally I think survivors from this NBFC fiasco would prove to be big winners as a lot of small NBFCs have recently been disqualified by RBI only a couple of days ago. That should be healthy for the whole sector and provide some supply side shrinkage.
A very detailed presentation during analyst meets from last month
Disc: Invested at 130 levels
Deposit base keeps on growing on a good pace. They expect 300 cr. Casa growth per quarter.
I don’t like the word ‘small’ in sfb names. Suppose one wants to deposit some amount, he will think twice before parking it in a ‘small’ finance bank, but not so in case of a YB or a kotak. While equitas, YB n kotak are probably having same interest rates.
It has to remain an SFB till mid of 2021 after which it can become a universal bank, if rbi grants permission. It had got SFB license in mid of 2016 iirc. For 5 yrs, it has to remain an sfb.
The main thing here is the small base. It can grow for years and years and specially if it can become a universal bank in 2021.
Disc: invested and adding.
How safe is a fixed deposit in the small finance banks compared to a Public or Private sector banks. I am asking for amounts around 10 lacs since uptil one lac is insured by RBI.