Note: This is a preliminary transcript and may contain inaccuracies. It will be updated with a final, fully-reviewed version soon.
EQUITAS SMALL FINANCE BANK (NSE: EQUITASBNK) Q4 2026 Earnings Call dated May. 02, 2026
Corporate Participants:
P. N. Vasudevan — Managing Director and Chief Executive Officer
Sridharan N. — Chief Financial Officer
Jagadesh J. — Head of Assets
Murali Vaidyanathan — Senior President and Country Head for Branch Banking, Liabilities, Products, and Wealth
Gopalkrishnan. G — Head of Treasury
Analysts:
Unidentified Participant
Pratham Chandgothia — Analyst
Shreepal Doshi — Analyst
Deepak Poddar — Analyst
Ashlesh Sonje — Analyst
Shailesh kanani — Analyst
Unidentified Participant
Unidentified Participant
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the earnings call of Equitus Small Finance Bank Limited financial performance for Q4FY26. We have with us today Mr. P.N. Vasudevan, M.D. And CEO Mr. Balaji N, executive Director and Head of Operations and Information Technology Mr. Sridharan N. CFO Mr. Jagdish J. Head of Assets Mr. Murli Vaidyanathan Senior President and Country Head, Branch Banking Liabilities, Product and Wealth Mr. Gopalakrishnanji 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 touchstone 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.
P. N. Vasudevan — Managing Director and Chief Executive Officer
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. And in Q4 the name 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 and 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 Rupees 2 and 3 crores for Q4 which is the highest ever pat achieved by the bank so far. This translates to a reasonably healthy ROE 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 the rapport trajectory given the visibility on sustaining growth in advances of about 20%. It should be however impacted by any increase in GNP slippage which may result in reversal of income. Further, 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 given the above, we expect to end the current financial year with a Q4 exit ROI 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’m happy to share that all products have turned profitable now. Products introduced during the past 34 years such as affordable housing and MSC 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 Light and FCNRB deposits during the last quarter and 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 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.
Sridharan N. — Chief Financial Officer
Good morning everyone. Thank you for joining us today for the Q4FY26 earnings call of Ecota 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 980 crores and other income of 259 crores bringing our total net income to 1239 crores for the quarter. Total net income grew by 18% y on y and 9% on Q1Q.
NIM has significantly improved by 57bps Q1Q to 7.29% in Q4FY26 as compared to 6.72% in Q3FY26. The bank reported highest quarterly PAT of 213 crores, a growth of 406% y on y and 136% q on Q. Return on assets and return on equity for Q4FY26 were at 1.46% and 14.1% respectively. In terms of asset quality, gross NPA reduced by 13bps q on Q at 2.49% in Q4FY26 as compared to 2.62% in Q3FY26. Net NPA reduced by 20bps q1Q 2.68% in Q4FY26 as Compared to 0.88% in Q3FY26. Credit costs are significantly declined to 1.11% in Q4FY26 as Seen to 1.88% in Q3FY 26 and 2.74% in Q4FY25.
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 46,165 crores driven by robust disbursement. Disbursement for the quarter stood at 7347 crores with strong momentum in across all verticals. On the liability side, total deposits grew 8% y on y to 46,533 crores. Our CASA ratio at 26%. Retail deposits now constitute 68% of the total deposit base. As of 3-31-2026 our capital adequacy ratio stood at 20.31%.
Thank you. Handing over to Jaggi.
Jagadesh J. — Head of Assets
Good morning everyone. We closed the quarter with gross advances of 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 percentage 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 7347 crores in this quarter with a growth of 72% year on year and 12% quarter on quarter.
Within this, our microfinance disbursement increased to 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 disbursements of 5835 crores up 49% year on year and 8% quarter on quarter. Our non MFI secured book stood at 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 18,559 crores up 13% year on year. Within the small business loans, the secured business loans growing at 26% year on year.
And on the vehicle finance segment our focus is on the used segments. Our used commercial vehicles at 5,899 crores which has grown by 25% year on year and 7% quarter on quarter. And used cars grown by 31% year on year and 7 percent quarter on quarter. Our new CV declined 20% year on year to 2,270 crores. On the housing finance we grew to 5,782 crores up 21% year on year and 8 percentage quarter on quarter. And MSC finance we grew up to 2090 crores up by 24% year on year. On the MFI excluding DEA we stood at 4,667 crores at quarter end and we expect it to grow in a calibrated manner supported by improved disbursement and collection trend.
And coming back to the asset quality, our net sleep wages 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 slippages reduced to 0.11 percentage 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 financial year 25. On the microfinance our 1 to 90 DPD improved to 1.34% from 2.14 compared to the previous quarter supported by strong collection efficiency and looking ahead for financial year 27 we remain aligned to our stated advances growth guidance of 20% plus year on year supported by improved disbursements.
Thank you, I will now hand over to Mr. Murley.
Murali Vaidyanathan — Senior President and Country Head for Branch Banking, Liabilities, Products, and Wealth
Good morning, thanks for joining the call. While the ratios as well as growth details are given in the ppt, I would like 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 Mars 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, Light 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 shown in our key liability strategy slide. So today we have close to 28, 29,000 families. Our aim is to double in this coming year and also to add AARTA customers close to 3,000 to 4,000 and start of Arta is really encouraging. So based on this categorization of customers we have categorized branches where set of hundred branches is going to focus only on House of Elite and Manning is planned as per that so 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.
Current account we are shifting it at this point of time into three different categories. One is we have now got our soundbox, our Pause and QR ready operational in the market CUG done. So 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 so which means asset led approach and third is high variant only to focus on debt free and payment non centric companies. This is on current account and current account last quarter showed a reasonable growth but to sustain that we need this proposition.
NR we already launched our SCNR we have crossed 30 million so we are seeing a good appetite. We have gone live on three more currencies and most importantly full range of 81 product. We have gone live and here again our focus is going to be elite that is HNI and most importantly family banking and 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 so 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 triple four days which we have focused and converted 70% of that into 888.
Today our 70% of the book is duration centric with 888 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 find up 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 entire payments as well as asbar related that is secondary market when it live we are ready and primary market they can do and investment and insurance proposition.
So 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.
Gopalkrishnan. G — Head of Treasury
Thank you Murali. Good morning everyone. The quarter went by was very challenging given the virtually hour by hour change in geopolitics and fuel price. Global supply chain impact. Financial markets continue to exhibit volatility with the 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. However 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. However the effects of imported inflation impact of extreme weather events such as the current heat wave expected impact of Super El Nino on this year’s monsoon are likely to see some upside risk materialized against current RBA projections. Government bonds saw benchmark 10 year yields significantly harden during the quarter and closed at above 7% against 6.6% at the beginning of the quarter.
With the market beginning to price in possibility of rate hikes, this fiscal RBA actions will be keenly watched for further queues given the overall pressure on domestic economy and consumption. Coming to Equitas income from investments was a loss of 7.3 crore crores for this quarter. For the full year Treasury’s income stood at 179.9 crore. With heightened volatility becoming new normal, we approach the coming quarter with caution. Thank you, back to operator.
Questions and Answers:
Operator
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star N1 on their touchstone 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 Ranesh from ICICI securities. Please go ahead.
Unidentified Participant
Yeah, hi sir and thank you for the opportunity. Sir, my first question is on this SR27 RoA guidance, right? So we are looking at 1.2% RoA versus 1.5 in Q4 and you also mentioned that you can normalize maybe from 1.1% to 1.5, but in that case are you not expecting any margin expansion from here on?
P. N. Vasudevan
See as I mentioned this vaso here. As I mentioned in my opening comments we have a name of 7.29% in Q4. While we should continue to look at a 20% plus growth in advances which will lead to a higher level of income. However we have two issues. One is that our net slippage was the lowest in Q4 which means our income reversal on GNP again is obviously the lowest. But that because Q4 is seasonally the strongest always now Q1 and Q2 are seasonal is a weakest and Q3 Q4 will again pick up. So there is a likelihood of a higher GNP slippage lower I mean higher income reversal in Q1 Q2.
Second thing is in March we have raised our rates on TD and savings savings accounts
Pratham Chandgothia
And that
P. N. Vasudevan
Is expected to have a increase in the cost of funds. So these two together might moderate the NIM from 7.29 and
Gopalkrishnan. G
Over. That is one
P. N. Vasudevan
At the top line and at the bottom line the credit cost 1.11% is probably again the lowest given the Q4 seasonality issue. But it is more likely to be at around 1 1/2% for the full year. So if you kind of take all of this into account, that’s where we are. We believe that we should be able to deliver a 1.2 to 1.25% ROI for the full year, while we should exit the fourth quarter at around 1 1/2 percent.
Unidentified Participant
Got it, got it. So I mean, just to follow up on that, so, you know, so basically pre crisis, our name, you know, used to be anywhere between 8 and a half to 9% and now, you know, given our name at 10.29 and you know, sort of, we are not expecting any improvement from here on. So so does that mean that name at this level would be a new normal name for our.
P. N. Vasudevan
Yes, absolutely. Because our microfinance, which used to be around 50, 45, 50% in the past, now it’s come down to 10%. And so 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 Micro Finance has been coming down as a percentage of the portfolio. And MFI we all know, has the highest yield. And as it was coming down, the NIM was also coming down. And now today we have reached a level where MFA is just 10% of the book.
And we should expect that MFI to continue to remain around that 10% level. And that’s why we believe that our NIMS are more or less bottomed out. And somewhere around 7 to 7.1 is where we believe it should kind of stabilize on an, on an ongoing basis
Unidentified Participant
Myself. Last question on the corporate book side. Right. So this book has actually become a pre ex in past one year and I’m assuming it will be one of the lowest reading book for us. So when we are, you know, seeing the definite pressure on main, then what’s the strategy of growing corporate book so aggressively?
P. N. Vasudevan
You, if you are meaning by corporate, if you are meaning the nboc.
Unidentified Participant
Yeah.
P. N. Vasudevan
Right. So NBOC for us is filler. You know, it’s not a, it’s not a product where we have a target to lend. It’s a filler. So wherever we have plus money we, we lend it with to the NBC because otherwise we would have to of parakeet in government securities.
Shreepal Doshi
So last year we had
P. N. Vasudevan
Some excess liquidity at some point. In fact, our CD 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. So we just deployed short term loans to especially gold loan NBCs because they have short term assets and so that’s where the numbers reflect.
Unidentified Participant
Got it. Can I ask last question?
P. N. Vasudevan
Yeah please.
Unidentified Participant
Okay, so 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 2, level 3 order impact but in your assessment, you know what kind of a fuel price hike do you think CV operator will not of these challenges and at what fuel price hike do you think? You know we as a company should be cautious in terms of civil portfolio behavior.
P. N. Vasudevan
It’s all very very very open ended at this point in time but the latest news report that we are seeing is that the. The oil marketing companies are actually out of pocket by as much as rupees 100 on per liter of diesel. Rupees hundred per liter Practically the cost of today’s diesel is also about 100. So practically it looks like they are. They are out of pocket by as much as 50% of what they are selling at. So 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 fewer diesel costs especially the diesel cost to the pump purchasers.
So we don’t know. I mean frankly it is very very open ended very difficult to put a number or anything around it but anything 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 port portfolio. When it goes beyond 10% then, then we start seeing some effect.
Unidentified Participant
Yeah, that’s exactly what I wanted to check this very helpful sir. Thank you and best of luck.
P. N. Vasudevan
Thank you. R
Operator
You. The next question comes from the line of pritesh bump from Dam Capital Advisors. Please go ahead.
Deepak Poddar
Good morning and just two questions. One is on the savings account there’s a sharper declining this quarter. Generally this is a stronger quarter but any reason for that and what is the strategy for the same?
Murali Vaidyanathan
See we have analyzed our book. We have seen where we have lost the book is between 5 to 10 lakhs and 10 to 15 lakhs. That is why in March we calibrated those accounts which with slightly higher interest rate because 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. So 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 S focused more on program and specific targeted segment and branches. So these are the two approaches by pricing by program expansion and offerings. So you will see the takeoff from this segment.
Deepak Poddar
Sure. And also in continuation for the same we’ve seen also our bulk project move up significantly this quarter. Any purposes on the theme as well
Murali Vaidyanathan
The bulk we got it non callable. If you see year on year till quarter three we were shredding it and building a retail portfolio. And there was an opportunity available at bulk and non callable across segment government inste and financial institution. It is not skewed towards one segment. So we leveraged what we had at that point of time and built it up. But our entire strategy for insti as always is hold and grow so that 70 to 75% of the portfolio remains always retail.
Deepak Poddar
And just in continuation from the previous question on what is our sustainable NIMS for our business where now we are going to credit mix and mix on the both side of balance sheet, what can we do? Sustainable nim if you look at it from three year perspective.
P. N. Vasudevan
Yeah. So 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. And second thing is that our CD ratio is slightly over 90% so we will be trying to bring it to slightly less than 90%. So that could again mean some level of impact on interest income. So I think broadly we should be able to look at above about around 7%.
You will take some basis points this way, that way.
Deepak Poddar
For the concentration side. So now as you are. Thinking about, you’re
Operator
Not. 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 Ashleesh Sonjay from Kotak Securities. Please go ahead.
Ashlesh Sonje
Hi team, good morning. The first question is on the FBL business and particularly the Micro Lab site. Presuming that over the next year the global tensions don’t worsen from here, how comfortable are you with growth in the MLAB segment? In context of the challenges which you experienced last year. And along with that if you can share in FY26 you made total provisions of about 1140 crores. How much of that went towards Micro finance and how much went towards Micro Lab?
Jagadesh J.
Yeah, hi, this is Jagdish. So we don’t see any kind of impact due to global tensions for Microlab or the Microfinance book. Okay, so Microlab, if you look into that even the current year we have been growing in that particular segment. Okay. But 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. But Microlab, within the available opportunities and with good credit quality customers refining our credit norms we are growing at a double digit growth in Microlab.
So.
Operator
Does that answer
Ashlesh Sonje
Your question? Ashlesh, if you can. So this Microlab growth today is around 30 not percent. You think that can go closer to a 20% number?
Jagadesh J.
It’s a small business loans. It’s growing at a 13 percentage which might go up to a level of 20. Percentage. Okay. They’re not given on the micro lab 13 percentage. It’s the overall small business loan segment.
Ashlesh Sonje
Understood. I was calculating based on the mix which you share 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 FY26 that would be helpful. Then I can ask the next question.
Jagadesh J.
Yeah. Microfinance, we made a provision of 588 crores in the last year. And on the micro lap it’s 42 crores.
Ashlesh Sonje
The next is on the liability side for Murali. Sir. So what would be the incremental cost of term deposits and savings account for you in the last quarter?
Murali Vaidyanathan
See, we brought it down from 6.3 to 5.98. Now with the increased, you know slabs what we have anticipated based on present slabs, attic is close to 0.7 to 0.8. Only on savings account.
Ashlesh Sonje
6.06
Murali Vaidyanathan
It will go 5.98 to 6.06 or 6.07.
Ashlesh Sonje
Incremental cost on the savings account
Murali Vaidyanathan
Is 9 bits. Savings will go to 6.07. Cost of funds will move up to 7.1 plus.
Ashlesh Sonje
Understood. And this was for 4Q. Is that right?
Murali Vaidyanathan
Yeah,
Ashlesh Sonje
Understood sir. Perfect. And lastly if you can share that the provisions which you have made in 4Q have you utilized any standard asset provisions and are there any standard asset non NPA provisions which are still outstanding on the balance sheet. That was my last question. Thank you.
Sridharan N.
Yeah. See we had in microfinance 75 crores brought forward office 30 crores. We use 29.6 we use in Q4 and we are carrying for 46 quotes out of additional transportation.
Ashlesh Sonje
Understood sir. Thank you for the detailed answers.
Operator
Thank you. The next question comes from the line of Shailesh Kanani from Asian Market Securities. Please go ahead.
Shailesh kanani
Yeah, good morning everyone and congrats on a good set of numbers and thanks for the opportunity. So just wanted to understand we have in one of the buckets that is 5 to 10 lakhs we have in the saving account we have increased the rate by around 200 bids. So just wanted to understand what is the contribution of that bracket. And the hike seems to be quite steep. It is even higher than the Jan numbers if my data is correct. Can you just put some light on this?
Murali Vaidyanathan
See our principal or focused sourcing is through elite and we are elite is for HNI as a segment. So 5 to 10 lakhs today contributes to close to 13% of my entire book. So 13% of the entire book. Actually today doesn’t have any secondary offering because of as the markets SAP market came into a standstill. And second thing we are pushing through family banking as a proposition. So it is a conscious decision because earlier it used to be 3.5% and we saw there was a bleed inside this. So 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.
Shailesh kanani
So just one clarification. This is 13% of the total deposits, right?
Murali Vaidyanathan
10 lakh. Yes,
Shailesh kanani
Thanks for that. So another thing sir, we. I’ve noticed there is a jump in the disbursement ETS of svl. Is it primarily because of we have stopped lending in less than 3 lakh packet or anything else we can read into. And also if you can specify what is the current sweet spot and impact fu and is visible on the macro because of the micro on this portfolio.
Jagadesh J.
Yeah, this is jagdish. So we don’t want to depend on any specific product segment. Okay. Earlier we have been focusing more on the Microlab and Glab which is a sub 10 lakh segments. Now we have diversified our product segment into various categories. Okay. That’s what you can able to see that the recalibration of the product mix shows that the ATS has been increased. But if you look at the growth, we have been focusing on all the segments. Even the previous question on the micro lab as a segment alone we have grown by 16 percentage.
And our primary focus would be majorly on the BL which is about 10 lakh segment which we have grown by 27 percentage. So we do the recalibration based on the available opportunities but we don’t want to specifically focus on any specific customer segment.
Shailesh kanani
Just the last question if you can squeeze in sir, just I noticed there is a sequential drop in terms of number of employees, right? Despite we are having highest ever disbursement volumes. So how should we think about this and any benefit we had in the employee expenses in terms of one offs or anything.
Jagadesh J.
On the asset part. If you see we have reduced the employees to close to a 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 3 and surveillance
Sridharan N.
Here on the one off in Q4 in employee expenses we had a reversal of around 40 crores in graduity and leave and catchment though we have provided 29 crores with regard to new labor law code in Q3.
Shailesh kanani
Just one clarity that employee decrease is predominantly can be considered an operating thing, right? It’s. It’s a structural change, right?
Jagadesh J.
Yes.
Shailesh kanani
Yeah. Okay. Thanks a lot sir. Thanks. Thanks for answering my questions and best of luck.
Operator
Thank you. The next question comes from the line of Sripal Doshi from Equerious Capital. Please go ahead.
Shreepal Doshi
Hi sir. Thank you for giving me the opportunity and congrats on a good quarter. My question was again on the deposit side and its implications on margins. So if you look at we’ve already taken some rate hike. We’ve already taken some rate hikes on the deposit side. So incrementally the systemic rates further go up. We would also take a rate hike. Then 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.
So in that case, do you see the margin contraction being relatively higher than what we are doing today?
P. N. Vasudevan
Okay, I’ll take that. See as far as the cost of funds is concerned, interest rates and deposits is concerned Concerned we will have to keep it tuned to what’s happening in the external market and we need to ensure that deposit flow continues to be strong into the bank and the rates will be aligned from that perspective. So going forward, if RBA raises the rate and the market rates go up, of course we will necessarily follow suit. We have to follow suit even if the RBA does not raise the rates. We have seen seen that some of the banks have actually started raising the rates in the last one to two months.
And we don’t know how this will go forward happen because as you know, sectoral deposit growth is less than the sectoral credit growth. So 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 will 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 borrowing segment.
And because of that, a 0.2 or a 0.1 or a.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. And so that around that 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.
Shreepal Doshi
Okay, got it sir, that was helpful. And the second question was on, I mean our expiration on the universal banking license as well as visibility on the capital raise plans if we have in the near term.
P. N. Vasudevan
Okay. So on the universal bank license, you know, RBA has a guideline for SOBs to convert to universal bank. And so now we have completed the, this year’s financials are now completed. So we’ll be doing a full analysis and then we will have to take it up with RBA and see whether we comply with the, with the various requirements of that guideline. And if there’s a consensus feeling that yes, we do qualify, then we’ll end up applying. So that’s something that we will dialogue and come to a decision and do it on that basis.
As far as capital raise is concerned, you know, our, our approach has been consistent over the last one year that we will try and manage capital consistency approaches as much as we can, conserve capital as much as we can through various forms. So we have started getting lot of our qualifying assets guaranteed under the central government, various fund schemes like our vehicle finance under cgt MSC Micro finance under cgfmu. So all those release capital to the bank. Second thing is that our affordable housing and gold loans have been growing, growing quite strongly.
So though they are all lower risk weighted assets. And 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. And so all of this is something we continue to do now our tier 2 we raised about 1000 crores last year out of thousand crore. By September I think around 300 crores will run out from the tier 2 classification. And and so somewhere by end of this calendar year we are looking to raise another maybe 4 to 500 crores of tier 2.
We will be putting up a suitable resolution into the AGM at some point in time. And so all of this we hope will enable us to keep our capital adequacy at a comfortable level. And RBA has come with the draft guideline on capital adequacy. There are a few factors which made actually support our capital adequacy if those guidelines become an applicable guideline from being a draft guideline. So we will keep monitoring it and if at all required we will try and raise the tier on capital towards the end of fourth quarter maybe or first quarter of next year maybe.
But our objective is to try and see how do we manage capital through various other instruments and means.
Shreepal Doshi
Got it? Got it. Thank you so much sir for answering all my questions and good luck for the next question.
Operator
Thank you. The next question comes from the line of Nitin Agarwal from Motilal Oswal Financial Services. Please go ahead.
Unidentified Participant
Good morning everybody.
Operator
Yes Nathan, please go ahead.
Deepak Poddar
Thanks.
Unidentified Participant
So 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. But now the traction is really quite evident. So what is our game plan here? Like how much mix do you see this book shaping up to in the next two, three years or what all underwriting changes have you made to drive this kind of growth and any color around the yields also that we are making in this business.
Murali Vaidyanathan
Hi Murali. Here see conceptual changes, three things. One is we did the data mining and we first found out how many of our existing customers are having Gold Loan outside. And we went behind those campaign and that campaign has yielded. 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. And we targeted if you see with the new RBI norms up to 2 and half lakhs, 85% and on. So our entire ticket ATS went up, campaign went up and we added resources in those branches where there is an opportunity.
So these three things actually help. And now we have started using asset branches to cross sell Gold loan that has stepped in and that should add more and more cross sell as an opportunity in coming days. And 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. So while gold loan OD today is less than 5% it should help in coming days current account led acquisition. So overall it is a mix of campaign understanding, data mining, allocating resources and focused on branches.
That is the reason.
Unidentified Participant
Right. And any color around the yield also. And the mix that you see this portfolio gaining in the next two years.
Murali Vaidyanathan
See today we are predominantly cross selling to you know asset into liability based customers. So our yield is anything, anything around closer to 14. So moment we start expanding it through asset branches, the yield should shoot up. Because here the ATS is high, requirement is non seasonal but for consumption or emergency purpose. So it comes up to 14 and it should start looking up as we expand into asset branches.
Unidentified Participant
Okay, got it. And the other question is around like LCR ratio which is fairly high for us. So while we talked about NIMS to kind of start kind of seeing some moderation after this sharp price this quarter. And we have raised deposit rates. But 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?
Gopalkrishnan. G
Yeah, hi, this is Gopi here. Yeah, you are right. Our LCR is high 1. If you look at it, what we focus is also on the quality of deposits. So naturally what we look at is the quality of deposits naturally tend to be LCR friendly. That is the primary reason where our LCR remains high vis a vis the market market. Second thing is with respect to the surplus liquidity we are while we carry these surplus in the balance sheet, it is adequate for the immediate growth plans. So there is no massive liquidity being carried in the balance sheet which may cause a drain on interest income.
Unidentified Participant
Okay. Okay. And so one data point also on the interest reversal because we talked about that next quarter it may not be there as much level. So any, any one of the side interest reversal that is there in this quarter number that you would want to call out.
Unidentified Participant
Nothing, nothing assets, nothing special. And how much Is
Unidentified Participant
This number?
Unidentified Participant
27 crores for the quarter is the reversal.
Unidentified Participant
Okay, so that’s the only like kind of measurable one off, meaningful one off.
Unidentified Participant
Yeah, sorry.
Unidentified Participant
Yeah. So basically 27 crore is the only meaningful one off in this quarter.
Unidentified Participant
It’s not on up. This is a reversal for the quarter to have it for this Q4 it is 2427.
Unidentified Participant
Got it sir. Thank you so much sir. I wish you all the best.
Operator
Thank you. The next question comes from the line of Rajiv from yes, securities. Please go ahead.
Deepak Poddar
Yeah, hi, good morning. Congratulations on strong numbers. Firstly I want to understand, you know the work between, I mean you’re exiting at a credit cost of 1.1 but you’re trying to indicate is that for the whole year FY27 your guidance is kind of building in 1.5 as a trade cost number. So I’m just trying to understand where the PCR of 73% we are seeing strong trends which is structural in terms of slippages. And we also have a leftover standard asset provision of 40, 46 crore on the MF5. So what makes us guide for 1.5% credit cost?
Because given the trends as we see right now, things are looking pretty strong. So are we building in any geopolitical risk of higher slippages coming through in Q1 or are we building it that your LEDs will increase possibly. Are you seeing something like that already? You know, that’s the first question.
P. N. Vasudevan
Yeah. So you know Q4 traditionally is the best in terms of performance for us probably for the rest of the system also. So that 1.1 is not something which we can assume to be a repeatable number. Now if you look at Equitas specifically our micro finance is now back to complete under control that X bucket collection efficiencies are totally back to normal. And so we expect the microfinance credit cost to be back to the normal range which used to be anywhere between 2, 3%. So the credit cost of microfinance could be in that range and the rest of the business, all of them have actually been improving over the last 2, 3, 4/4 and performance of them have been good.
So we expect the credit cost across the board to be, you know, kind of comfortable going forward. But we really don’t have much of an idea what is the entire effect of the war that’s going around is going to have. We don’t really know. And 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 will be lot of rains all over the place which will have an impact on customers, you know, cash flows.
So all this is what we are factoring in when we are guiding for that. Yeah.
Operator
Does that answer your question, Rajiv? I’m sorry to interrupt. Rajiv. We are not audible,
Deepak Poddar
Am I? I’m audible.
Operator
Yes. Now it’s better. Please go ahead.
Deepak Poddar
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. So how further you see the ROE needle moving for affordable MSC Gold loan, you know, in the current year? And also 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?
P. N. Vasudevan
Okay, so in Equitas, you know, we do a 100% transfer pricing to the lending divisions, which means that the entire cost of the rest of the bank is transfer price to the asset side. So when an asset does an roa, it’s actually an roa. If the, 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 ROI of the bank because the entire rest of the cost of the bank is transfer price to the asset side. So that, that’s how we do it.
So when I say that all products turned profitable last year, it is on a fully loaded cost basis. And so the new products like affordable and MSC turning black for the first time last year and hopefully with increased volumes and better leverage of their cost, they should become more, more and more contributing from a bottom line perspective we have and we don’t want to really give the ROI at different product levels at this point in time. We are not really wanting to give that. But broadly we can say that microfinance when the collection efficiency is good,
Pratham Chandgothia
Will be, will
P. N. Vasudevan
Be very high. From a ROA perspective. Microlab on an ongoing basis, Microlab is probably one of our best products. From an ROA perspective. The SBL as a whole, including Microlab is again a well performing product. From an ROA perspective. Vehicle finance maybe just marginally lower than SBL from an ROA perspective. And the other products, we should see them catching up soon.
Deepak Poddar
Yeah. Can I just ask one more one last question please? Yes.
P. N. Vasudevan
Okay.
Deepak Poddar
Yeah. Just, just comparing Q4 to Q4 ROAS. I mean you exited this Q4 with 1.4% ROAS. Now you’re guiding that your exact FY27 ROA will be 1.5. So 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 then would be, you know, cost scale efficiencies and the growth efficiencies and the cost efficiencies. Try and overcome whatever dip you see in the nims. Or are you also building in some lending rate hikes following some deposit rate hikes?
P. N. Vasudevan
See, what we are saying is that the, the NIM might contract a bit compared to Q4 of this year to Q4 of. I mean last year to Q4 of this year. And credit cost, at least at the Q4 level, credit cost may not be very different to the Q4 credit cost of last year. And the other thing is that our operating cost 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. So if you see NIM contracting a little bit, credit cost will remain more or less at similar levels on Q Q4 to Q4 base.
I’m not talking of full year, just Q4 to Q4. And operating cost cost to assets should come down a bit. So the NIM reduction and operating cost reduction should hopefully net each other out. And 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 Rye should be around 1 1/2% for the current financial year.
Pratham Chandgothia
Thank you. Best of luck.
P. N. Vasudevan
Thank you.
Operator
Thank you. The next question comes from the line of part gutka from 361 Capital. Please go ahead.
Pratham Chandgothia
Yeah, hi. 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. So what is the sustainable or what is the target PCR that that the bank would like to operate at?
P. N. Vasudevan
Around 70%.
Pratham Chandgothia
Okay. Okay. And second question is what what segments of your on on the asset side are covered under CGT MSC?
P. N. Vasudevan
So under CGTS 2 type of businesses are getting covered. One is on our MSC loans where it is where we don’t take a collateral and that part of MSC loan which is non collateralized is something that we cover under cg. 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 the. Which gets covered.
Pratham Chandgothia
Okay, thanks a lot. And, and just, just trying to squeeze in one more. You know, considering, you know, it’s around one 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 and have you guys, you know, tightened the risk filters, you know, in March and, or somewhere in March, you know, early part of April? Yeah, that’s one question.
Jagadesh J.
Hi, this is Jagdish. So as we early clearly indicated, we didn’t not going to have a direct impact due to the West Asia conflict. Okay. So even in the month of March we have seen excellent collection efficiency in terms of all parameters and even April we don’t want to comment immediately but looking at the micro finance as such, we didn’t see much of the impact on that. We need to see whether any kind of impact, maybe the month or so, as of now, we don’t see any kind of impact due to West Asia for our client segments.
Pratham Chandgothia
Okay, thanks a lot.
Jagadesh J.
Thank you.
Operator
Thank you. The next question comes from the line of Deepak Podar from Sapphire Capital. Please go ahead.
Deepak Poddar
Yeah, I’m audible sir.
Jagadesh J.
Yes, please.
Deepak Poddar
Thanks. Thanks for this few clarification. First up, sir, now this cost of fund you mentioned is likely to increase due to higher saving rate and higher term deposit rate and. That’s right. Hello.
Unidentified Participant
Yeah. Yes, yes.
Deepak Poddar
And it’s effective from what first? April.
Unidentified Participant
See we have done this change from March.
Deepak Poddar
Yes,
Unidentified Participant
Yes.
Deepak Poddar
Okay. And, and, and, and the NIM pressure is largely because of higher cost of fund and, and lower CD ratio that you’re expecting.
Unidentified Participant
Yes. Those are the couple of factors which will have an impact on the NIM as we move forward.
Deepak Poddar
Understood. And the limb pressure will be visible from first quarter itself
Unidentified Participant
From marginally. Yes. From Q1.
Deepak Poddar
Okay.
Unidentified Participant
And further as we move forward, full impact by 2Q
Deepak Poddar
And 3Qr.
Unidentified Participant
Yes, yes, Q3 and Q4 times.
Deepak Poddar
Okay, understood. And so you borrower profile, I mean, I mean getting impacted due to this macro scenario and you are looking at a tightened credit norm that focus more on quality of asset over group. So 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 norm tightening and this 20% growth that you have mentioned is after factoring in tightening. Right. And what sort of impact do you see it on the slippage front? Yeah,
P. N. Vasudevan
See as I mentioned in my opening remarks, the inflation which is the most likely outcome of the West Asia or right there the inflation may actually go up. But 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 is having a provision store or she or he is running a saloon barber shop or a saloon or eatery or something like that. Now these are not discretionary consumption by people.
These are just the daily use products and service. I mean if an Italy cost you, you know, 25, 30 rupees today and if that 30 rupees has to go to 35 rupees or 38 rupees tomorrow, people will still have to just consume that Italy. You can’t just stop it. Right? So most of our borrowers use RB dealing in daily use products 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 borrowers 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, might see an impact will be our commercial vehicle borrowers. Because if the diesel price goes up, freight rates will also go up. But there is always a lag time, there is always a lag period and during that lag period the operators income cash flow comes down and obviously during the time they may struggle to repay. For us, your commercial vehicle customers on our total advances should form about
Jagadesh J.
12%.
P. N. Vasudevan
So about 12% of our total advances represent commercial vehicle borrowers. And that’s the segment where if the diesel price goes up, let’s say beyond 10% or so, if the diesel price moves up is those people are the ones who are likely to feel an impact till the time that the freight rates get adjusted. So 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. So it is 12% business that we will have to continuously track from a credit tightening if the diesel price starts going up.
Deepak Poddar
That’s very helpful sir. And 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
P. N. Vasudevan
April has been good. I mean you know last year April compared to last year April this year April has actually been much better. So we are keeping our fingers crossed.
Deepak Poddar
That would be from my side. Wish you all the very best. Thank you so much.
Operator
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.
P. N. Vasudevan
And 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 all around performance. So look forward to seeing again next quarter and we hope to continue to be able to deliver a good performance. Thank you. Bye bye.
Operator
Thank you sir. Ladies and gentlemen on behalf of Equitus Small Capital Small Finance bank that concludes this conference call. Thank you for joining us and you may now disconnect your lines.