Equitas Small Finance Bank: A Profitable lender to small businesses

Equitas Holding ltd.
CMP: 158 Marketcap: 4233 crore
Equitas Holding ltd. (EHL) is diversified NBFC offering loans to individuals and small & micro enterprises, which are economically weaker with low incomes and are underserved by the formal financing channels. It is the 5th largest microfinance company that provides micro loans and also offers vehicle finance, Small and Micro finance and housing finance to leverage on its existing customers.
A youtube link of EHL

Basically EHL is a holding company and has 100% stake in following:

  1. Microfinance business:
    a. Offers loan with a ticket size of Rs 2000 to Rs 35,000 mainly to women entrepreneurs
    b. Average ticket size is Rs 10,500 with 14 – 28 days collection cycle.
    c. The whole process is based adopted by international microfinance companies where women are the borrower and repayment is at the centre.
    d. Passbooks are issued to customers and centrally issued pre-printed stickers are used for each loan account evidencing cash receipt.(prevents fraud)
    e. Equitas follows Grameen Model for MFI customers.

  2. Equitas Finance ltd.:
    a. It offers loans for vehicle finance and micro & small enterprise loans.
    b. Registered with RBI under asset finance company.
    c. The main motive is to diversify this finances under unsecured lending business
    d. This business has the highest Net interest margins as cost of funds is lower and the yields are the highest at nearly 20%.
    e. Higher margins are possible due to higher yielding products like used cars.

  3. Vehicle finance business:
    a. Operates through 134 branches in 13 states with major revenues comes from Tamil Nadu, Karnataka and Maharashtra.
    b. To achieve operating leverage, EFL operates from the same branches of micro finance business.
    c. Customers are sourced via field staff from their networks and relationships with transporters through various means including telecalling and direct marketing activity in transport hubs. It also enters into arrangements with dealers of used commercial vehicles.
    d. Credit appraisal involves personal interview, guarantor, inspection of vehicles and document check.
    e. It offers loans to Used CV borrowers and small fleet operators with ticket size in range of Rs 1.5 lakhs to Rs5 lakhs with tenure of 3 – 5 years
    f. Asset quality at 150 dpd remains in line with industry levels but coverage ratios remains poor.

  4. Micro & Small Enterprise business.
    a. Primarily focused to self- employed individuals operating small and micro business typically in urban and semi-urban areas.
    b. Loans from Rs50,000 to Rs 500,000 with credible asset backing with evaluated cash flows.
    c. Average ticket size is Rs 200,000
    d. Major businesses from Tamil Nadu (77%) and rest from Maharashtra, Pondicherry, MP, Karnataka, Gujarat and Rajasthan.

  5. Housing Finance business:
    a. Provide housing finance loan to self-employed individuals to higher income microfinance group with proper track record.
    b. Ticket size 2 lakhs to 20 lakhs and loan tenure of 7 – 20 years.
    c. Average ticket size of 5.70 lakhs with 2.6 lakhs for micro housing and Rs 12 lakhs for housing segment.
    d. Non housing business with 21.5% and is under limit prescribed by NHB.
    e. EHFL offers its housing loans through 14 branches across Tamil Nadu, Karnataka, Maharashtra and Pondicherry with most of these branches located in existing microfinance and vehicle finance branches.
    f. Asset quality has been deteriorating but low coverage ratio (a concern)

  6. Small Finance bank:
    a. EHL is amongst the few companies who got in principle license from RBI in OCT 2015 to set up a Small Finance bank.
    b. This SFB will help EFL from restrictions made by NBFC.
    c. There are some weak points against SFB:
    i. Out of 75% lending to be given to Priority sector lending (PSL), 40% should be given to RBI specified sectors i.e. Agriculture where the company doesn’t have any strengths.( they will breach it by Gold loan offering and would create a new product offering.
    ii. EHL would have to invest heavily into technology upgradation rapid branch expansion and augment employee base to support operations mainly in liability side.
    iii. Equitas will have to depend on deposits to fund its growth as inter bank borrowings restrictions will come in and as it builds its CASA franchise it would have to depend on bulk borrowing and maintain high SLR & CRR.

  7. Equitas Technologies pvt ltd.:
    a. Development of a technology platform for freight, logistics, carriers and related services which matches demand with supply and wherein various such vendors and customers can be brought together for further fulfilment of sales and services between them on a real time basis.
    b. Brand name “WOWtruck”
    c. It has 23 branches as of 31st march 2016
    d. WOWtruck will be developed in various phases of which 1st was completed be end of December 2015
    e. This would be completed by early Q2 FY17

Bearish View Point

  1. Microfinance loans unsecured; susceptible to credit risks
    a. Economically weaker sections, customers are at times unable to or may not provide accurate information about themselves. Further, in case of emergencies like death or major illness, microfinance customers may find it difficult to pay EMIs on time. These factors may lead to increased levels of NPAs.

  2. Heavy dependence on southern states, particularly Tamil Nadu
    a. The operations have extended to other states like Maharashtra, Madhya Pradesh, Karnataka, Rajasthan, etc, branches and products continue to be concentrated in Tamil Nadu or factors such as a slowdown in sectors such as MSE, the company may pronounce effects on financial condition and results of operations.

  3. Scalability concerns due to regional presence
    a. EHL being a strong player in Tamil Nadu and other southern regions, scalability of the leading business will be a concern due to regional presence. Also, with an SFB licence, better liability management will be needed to scale up resources.

Share holding pattern:
April 30, 2016(investor presentation)
Corporate 13.8%
Mutual Funds 25.6%
FII 44.2%
Others 14.0%
Market cap Free float 2077.65
SBI Mutual Fund recently bought

  • Valuation:
    o Ratios:
    Particulars 2015 2014
    Book value 43.54 102.13
    ROA 2.98% 3.25%
    ROE 11.19% 12.25%
    ROCE 13.49% 13.99%
    Fixed asset turnover 11.37 9.87
    Receivable days 670.87 696.70
    Inventory days 0.00 0.00
    Payable days 33.96 33.93
    Cash conversion cycle 636.91 662.77
    Total debt/Equity 2.59 2.49
    Interest cover 1.55 1.60

o P & L A/c:

Mar-16	Mar-15	Mar-14

SALES 1110.93 755.06 482.43
SALES% 47.13% 56.51% 70.98%
EBITDA 705.85 465.82 308.44
EBITDA% 51.52 61.69% 63.93%
NET PROFIT 167.14 106.99 74.32
NETPROFIT MARGIN 15.04 14.17% 15.41%
NET PROGIT GROWTH 56.22 43.96% 132.98%
EPS 6.21 4.48 3.99

Disc: Not invested


CONFERENCE CALL - from Capital Markets

Equitas Holdings

To continue focus on strong growth

Equitas Holdings conducted concall on 09 May 2016 to discuss financial performance for the quarter ended March. PN Vasudevan, MD of the company addressed the call:

· The company has 3 subsidiaries - Equitas Microfinance providing group loans to the customers having no formal documents of income, Equitas Finance offering loan for used commercial vehicles and micro and small enterprises (MSE), Equitas Housing Finance providing loans in the affordable housing segment

· The company has recently launched another subsidiary Equitas Technologies Private Limited which would provides technical platform connecting entities interested in transporting their loads and truck owners. The company would soon start its operations.

· The loan tickets size stands at Rs 3.5 lakh for used vehicle loan segment, Rs 1.7 lakh for MSE loan segments and Rs 12000 to 20000 for microfinance.

· The lending rate stands at 22.5% microfinance, 18% to 22% for used commercial vehicles as well as for MSE loans.

· As per the RBI regulation, 90 days over due bas NPA recognition norms applies to the microfinance companies, while the company is classifying its microfinance loan based on 30 days overdue basis. Housing finance company has been recognising NPAs on 90 days overdue basis basis.

· However, the company has shifted to 150 days overdue basis NPA recognition norms in the commercial vehicles and MSE loans segment in June 2015. The company expects to shift to 120 days NPA recognition norms by March 2017. However, the company will have to recognise NPAs on 90 days overdue basis, immediately on conversion to the bank.

· The company has the network of 549 branches at end March 2016. The company has added about 40 branches in FY2015.

· The company expects to consistently improve opex to asset ratio from 10.9% in FY2013 to 7.1% in FY2016. It expects to reduce opex to assets ratio to 3% to 3.5% in the near term.

· The customer base of the company stood at 27.44 lakh. The loan officers count stood at 1008, while collection officer count was at 1500 at end March 2016

· The stock of repossessed vehicles has come down to 220 vehicles at end March 2016 from 360 vehicles at end March 2015.


· The PAT of the company increased 28% to Rs 46.8 crore in Q4FY2016 and 57% to Rs 167.1 crore in FY2016.

· The provisions of the company increased to Rs 59.1 crore in FY2016 from Rs 50.4 crore in FY2015, mainly lead by increase in standard asset provisions to Rs 17.65 crore in FY2016 from Rs 10.3 crore in FY2015.

· The company has improved RoE to 13.3% in FY2016 from 11.15% in FY2015, driven by increased leverage and improved efficiency. The company expect to continue to improve RoE, while raising leverage.

· The company has continued to maintain NIMs at 9.5 to 9.7%

· The ending rate for microfinance has been reduced in FY2016 to 22% from 23.5%, driven by decline in the cost of funds to 11.3% in FY2016 from 12.07% in FY2015.

· The employee cost of the company increased in FY2016 mainly on account of Rs 9 crore of provisions for employee benefits due to change in Bonus Act, while the senior level recruitment to take care of Small finance Bank also contributed to the rise in operating expenses.

· The loan book of the company increased 11% QoQ and 53% yoy to Rs 6125 crore and March 2016 over March 2015. The company proposes to continue focus on strong loans growth.

· Microfinance loan Book stood at Rs 3283 crore (up 53%), used vehicles at Rs 1510 crore (up 28%), MSE at Rs 1087 crore (up 113%) and Housing Finance at Rs 246 crore (up 37%).

· GNPA ratio of the company stood at 1.3 4% at end March 2016 up from 1.08% at end March 2015.

Small Finance Bank

· The company has applied for final Small Finance Bank (SFB) licence with the Reserve Bank of India.

· The merger of 3 subsidiaries is pending with the Madras High Court order which is expected in short time.

· The banking operations are expected to be launched by the end of 2016

· The SFB would focus on four major areas – first, it would focus on growing existing loan products, while may also add couple of new loan products such as loan against gold which will be mainly a banking loan product than a NBFC loan product.

· Secondly, the SFB would focus on building strong retail liabilities.

· Thirdly, the SFB would be offering third party products such as insurance, pension etc

· Fourthly, the SFB would strongly utilise technology to improve efficiency and customer experience which would in turn help to improve risk control and reduce cost.

· The SFB would be 100% subsidiary of the holding company. As the SFB has to be listed within 3 years, the company may consider the option of reverse merger.

· As per the company on conversion to the SFB, about 400 branches will be converted to the liability branches and rest will be the asset branches.

Copied from another thread.thanks to Crazymama


Adding some more points:

  1. Disbursement (cr.) 2015 2016 YOY growth
    Micro finance 2129 3173 49.04%
    UCV 902 1191 32.06%
    MSE 463 726 56.65%
    Housing Finance 112 104 (-7.17)%

Business segments - I have attached a screen shot

  1. Credit approvals and disbursements:

An example on how vehicle finance business work

When a customer is identified and the requisite information for a financing proposal is received, the SO meets the customer to assess the loan requirements and his creditworthiness. The proposal form furnished by the customer contains a range of information about the borrower, including on outstanding loans, if any. The applicant may also be required to furnish a guarantor in certain cases. The SO prepares a viability report based on his interaction with the applicant. The application is forwarded by the SO to the credit officer (CO), who following a field visit to the applicant, arranges for inspection of the vehicle through an independent expert that evaluates used commercial vehicles, to ascertain, among other matters, registration information, vehicle condition and market value of such vehicle. A field investigation report is also prepared relating to the place of residence and of various movable and immovable properties of the applicant and the guarantor, if applicable. Our credit policies are designed to categorize borrowers according to their profile, based on ownership of vehicle, experience in transportation, ownership of any immovable property, repayment track record, age of the borrower, loan tenure, as well as vintage and kind of vehicle.

their credit process also includes checking of vehicle documents and the condition of vehicle prior to release of payment in order to ensure that the loan is adequately secured. The borrower and the relevant guarantor, if applicable, are required to execute a standard form of loan cum hypothecation agreement setting out the terms of the loan. A loan repayment schedule is attached as a schedule to the loan cum hypothecation agreement. The loan cum hypothecation agreement also requires a promissory note to be executed containing an unconditional promise of payment to be signed by both the borrower and the relevant guarantor, if any. An irrevocable power of attorney authorizing, among others, the repossession of the hypothecated vehicle upon loan payment default, is also required to be executed.

  1. How they are different?
  • Their operating cost is down because they use one table and two chairs office model
  • they do their two business under one roof.
  • In annual report, management commented that they will deploy cash in Housing Finance only when they would be
    confident in knowing the business

Thanks to @Ayush Sir, @Hitesh sir and @Manish Sir

RBI gave approval to Equitas Holding Ltd. for Small Finance Bank (SFB) : Link

Some points:

  1. Operations expected to start by September or October
  2. it will focus on four key strategies including offering existing range of credit products such as micro-finance, small enterprise loan, business banking loans for tiny to small commercial establishments, commercial vehicle finance and affordable housing.
  3. Current out of 580 branches, around 410 will be converted into full-fledged SFB branches, while the balance will be specialized branches
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Q1 2017 results out. Standalone profits increased, but consolidated profits gone down compared to Q1 2016.

From Press release -
AUM growth despite Micro Finance [MF] slowdown
AUM as of June 30, 2017 at 7,036 Crore up 7.3% YoY. MF AUM dropped 14% YoY, while other products grew by 31% YoY. New products like Business Loans, Agri Loans, Loans against Gold and Small & Mid Corporate loans now make-up 3% of AUM, with 157 Crore
disbursement during the quarter.
Liability franchise gains traction
Deposits stood at 2,255 Crore, up from 1,886 Crore last quarter. CASA stood at 25.6% of
deposits. 51 new branches added during the quarter, taking the tally up to 335 across India.
The number of deposit account holders has crossed 1 lakh and CASA balance crossed 580 Crore. **Gross NPA at 4.9%** With RBI’s 90-day moratorium for NPA recognition coming to an end, the GNPA stands at 4.9%, against 3.5% of previous quarter. However, GNPA of non-MF portfolio, comprising ~60% of AUM, remained relatively stable at 4.9%. Provision cover is at 51.8% and Net NPA stood at 2.4%. **PAT down 74% YoY, incremental provision of 24 Cr for MF in Q1**
Net Interest Income [NII] increased by 5.6% YoY to 215.8 Crore for quarter ended June 30, 2017, and Net Income [NII and Other Income] increased by 31% YoY, to 298.0 Crore.
However, Pre Provision Operating Profit [PPOP] reduced by 39% YoY, due increase in
operating expenses from setting-up of liability network and related increase in employee &
other costs.
Given the stress in MF, the bank has made an incremental provision of 24 Crore during the quarter towards MF portfolio. PAT for Q1 is at 15.6 Crore

Any one who follows company closely and studies in relation to other SFBs/MFIs can comment on this results comparing to other listed SFBs/MFIs once all results out.


Disc: Tracking Position

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What happening for Ujjivani nd Equitas Goldman Sachs sold 17.67 lakhs share on 24 July @ 174.5. How do we interpret it. As a general thinking people like Goldman selling at 52 lows means there is something seriously Wrong wth Ujjivan and Equitas.

Can Senior Board members share your thoughts.
Dis: Invested in Ujjivani and not Equitas.

Equitas management seems to be risk averse. Now they plan to aggressively cut Microfinance exposure. I am fine with it but only if they also scale up the Leverage.
There ROA is strong but ROE is poor due to lower leverage, does anyone have heard of any plans from them to start operating at 8-10x leverage like banks instead of current 4x?

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Interest on this thread seems quite low. Have we written off the MFI -> SFB story?

Few points I noted from a quick analysis today below. In summary, everyone is of the view that they have bottomed out and should start to improve henceforth. If that happens, EQuitas , Ujjivan , Au could be among the best stories in BFSI space for 2020.

2QFY18 summary -
The Good - Growth in AUM despite de-growth in MFI portfolio ; Able to grow the non-MFI franchise in used vehicle loans, home loans etc - MFI now comprises of only 35% of total advances and is on track to be <20% by 2020 ; seems to be on track to achieve the branch expansion (392 in place and no plans to add anymore against the earlier target of 450) ; Able to drive CASA from 17% to 27% with over 8.8 B n INR of deposits ; CA forms ~20% of the CASA which is not surprising as term deposits would be the main driver for growth ; Some new initiatives like Fast Tag show that Equitas management is thinking out of the box ; And despite the challenges, Equitas has continued to stay in black (Unlike Ujjivan)

The Bad - MFI portfolio has gone down and expected to continue going down ; GNPA has incrased to 5.3% ; However , their provisioning cover as a ratio has gone down (Not sure why) ; Loan waiver and related challenges in Maharastra have seriously impacted their MFI franchises ; Apparently they were struggling to even enter villages in Aug sept ;

The Ugly - They seem to be in midst of a perfect storm ; ROE is down to 2% and RoA is 0.4% ; Cost-Income ratio has spiraled to 83% ; Their Used Vehicle business came under stress and therefore even the SFB business has > 5% NPA which is so surprising ;

In summary, Equitas needs to really get its act together. Last 6 months of performance is being attributed to Demo+GST but is there an element of poor execution in this ? (remember these guys are new to retail banking) .

Disc - I am holding Equitas and Ujjivan


I like Ujjivan better than Equitas due to their better management of NPA’s and geographic footprint. Ujjivan is very spread out whereas Equitas is mostly in Tamilnadu. Regarding not posting any losses, while Ujjivan prudently wrote-off bad loans with aggressive provisioning, Equitas has high GNPA and NNPA ratios and if written off will probably be more than Rs500cr losses. Also GNPA of 5.5% while their MF business is 35% is baffling as only MF is supposed to be risky and high yielding.


I agree. Ujjivan seems to have done more provisioning compared to Equitas and their geographic spread clearly gives more comfort.

But Ujjivan has been slower in CASA growth and diversification - I think this is the core point where strategies differ and one would have to wait to see whether the gambit (of de-focus on MFI) pays off for Equitas


Q2 FY18 presentation - https://www.equitasbank.com/pdf/Equitas-Group-Investor-Presentation-Q2FY18.pdf
Q1 FY18 presentation - https://www.equitasbank.com/pdf/Equitas-Group-Investor-Presentation-Q1FY18.pdf

The deposits’ growth and CASA growth seem quite good -
Q1FY18 deposits at 2255 cr. with 26% CASA Vs. Q2FY18 at 3098cr. deposits with 28.3% CASA ratio. [AUM 7326 cr.]

Disc.: invested

Listen from 7:30 for 45 seconds for aspirations of becoming a universal bank.


15% growth in loan book doesn’t look too good considering their low base. Also it will take a while to bring down 6% odd GNPA to a reasonable 2% or below. Probably at least another year of pain left.

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Dec Qtr results out:


Bottomline again in the red. Almost threefold increase in provisioning QoQ.

Asset quality improves http://www.bseindia.com/xml-data/corpfiling/AttachLive/a4628147-e9fa-4bc1-9a44-f19be3520d86.pdf
Gnpa from 5.76% to 4.95%
Nnpa from 2.8% to 1.62%

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CASA has been increasing. NPAs under control. Non-MF business increasing. MFs provided for. Am I missing out on something critical? Some prefer Ujjivan to Equitas. Not sure why.