EQUITAS SMALL FINANCE BANK (NSE: EQUITASBNK) Q4 2025 Earnings Call dated Apr. 30, 2025
Corporate Participants:
Vasudevan Pathangi Narasimhan — Managing Director & Chief Executive Officer
Sridharan N — Chief Financial Officer
Rohit Phadke — Senior President and Head Assets
Unidentified Speaker
Murali Vaidyanathan — Senior President
Analysts:
Renish Patel — Analyst
Rajeev Mathur — Analyst
Nidhesh Jain — Analyst
Vibhav Khandelwal — Analyst
Shreepal Doshi — Analyst
Darshan Deora — Analyst
Ashlesh Sonje — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Earnings Conference Call of Equita Small Finance Bank Limited’s Financial Performance for Q4 FY ’25. We have with us today Mr P.N, MD and CEO; Mr Balaji Nuthalapadi, Executive Director, Technology and Operations; Mr N, CFO; Mr Murli, Senior President and Country Head, Branch Banking, Labilities, Product and Wealth; Mr Rohit Farke, Senior President and Head Assets; Mr Jay, Head of Assets; Mr Naturajan M., President and Head of Treasury; and Mr Dhiraj Mohan, Head Strategy. 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 telephone. Please note that this conference is being recorded. I now hand this conference over to Mr P.N. Thank you, and over to You, Mr. Thank you.
Vasudevan Pathangi Narasimhan — Managing Director & Chief Executive Officer
Thank you. Good afternoon to all of you, and thank you for taking the time-out to dial into our investor call. The last financial year ’25 opened with no indication of what was coming. The first-quarter was marginally weaker-than-normal, but it was laid down to heat waves, general elections, etc. However, the reality hit us in the second-quarter of last year when the weakness further deepened. Last year turned out to be a tough year.
We had credit cost in microfinance portfolio moving up from 2.3% in FY ’24 to 11.37% in FY ’25, wiping away about INR630 crores of profit of the bank. In response to these headwinds, the bank slowed down its fresh disbursements in microfinance, leading to a drop-in the MFA advances from INR6,265 crores in March ’24 to just around INR4.500 crores in March ’25. This had the double impact of high credit cost and lower-income reflected in the rather unimpressive ROA of 0.32% for the financial year ’25. If we step outside of microfinance, the rest of the advances grew by 19% for the year.
Credit cost remains very comfortable at just about 1%. Very importantly, our yield on advances have remained steady during the year-around 16.3% in-spite of reduction in the microfinance book. The cost of funds for the bank remained more or less steady at around the 7.5% level for the full-year. The NIMs went down for the year from 8.36% to 7.51%, largely contributed by the mix change in the loan book. In the last year, we also stopped giving our normal guidance in view of the evolving crisis in microfinance. Coming to FY ’26, we believe we have many things under better control.
To highlight a few, collection efficiencies in microfinance has come back to near normal and expected credit cost should settle down to normal levels by 3rd-quarter of this year. Size of the microfinance book is expected to reduce from the around INR4.500 crores of March ’25 to about INR3,000 crores by March ’26 as we strictly implement the guardrails and originate fresh loans largely from existing clients. The contribution of MFI to total advances is expected to reduce from 12% in March ’25 to mid-single digit by March ’26. This is expected to reduce the impact of any further unexpected headwinds in the MFA sector on the bank. Small-business loans, used cars and used CV finance continues to grow profitably with credit cost under control. Affordable housing and MSE Finance is expected to turn profitable this year.
Major parts of the large projects such as CRM, the native IBMB app, credit cards and project, investments in these large projects, most of the investments are behind us and additional investments in this should be nominal. Cost of funds is stable and expected to come down after a few quarters as repricing of deposits and lower rates take effect. We remain focused on accelerating growth and improving the bank’s ROA and ROE as this is a top priority in the coming year. We expect to exit the 4th-quarter of this year with a ROEA greater than 1% on the way to reaching an improved ROEA of around 1.5% to 1.75% over the next few quarters running into FY ’27. Lastly, before we move into Q&A, I’m happy to welcome and introduce Padi, who joined us recently as the Executive Director for Tech and Ops.
Valaji is an alumnus of the Indian Institute of Management, Ahmedabad and joins us from Citi where he worked for over 28 years across five countries. At City was the Head of Citicorp Services India Private Limited, employing about 31,000 people and constituting the largest talent base for City outside the USA. Also, Balaj is served as Head of Ops and Tech for the Citibank South Asia from ’21 to ’24. He is also a member of the Tamilado FinTech Governing Council and a member of the Strategic Advisory Group of Indian Institute of Information Technology, Andhra Pradesh.
I would once again like to welcome Balajee on-board. Rohit, who heads our assets is retiring by June 25. Jagdesh, whom we call as Jaggy will be taken over from him. Jaggy has been with the bank for 15 years and joined us as an area manager. Over the years, he has built our microfinance and our flagship product SBL into what it is today. He has been the business ahead and managing this product for over five years now.
I’m sure some of you might have met him earlier. After he completed his MBA from Dasan Institute of Management, he had worked in companies like HLL, Apollo, ICISL before joining Aequitas. He will be taking over from Rohit as Business Head of Assets and Rohit will be spending the next couple of months mentoring him into this position before he retires. So that’s it from my side. And to sum-up, we can say that the last year, as I mentioned, was really a bad year and we are hoping that this year will be a much better year basically because lots of the fundamentals have been strengthened.
And with microfinance portfolio coming down, the headwinds, if any unexpected headwinds do come also, the impact should be hopefully much lesser. And we as a management remain committed to ensuring that our ROAs and ROEs reach the normal levels as early as possible now I hand it over to
Sridharan N — Chief Financial Officer
Good evening to everyone. I shall quickly give you an overview of our financial performance for the quarter as well as for the year. Most of this is already covered in our presentation. Our net interest income and other income for the year was INR3,252 crores and INR871 crores, respectively. The total treasury income for the year stood at INR142 crores, registering a growth of 36%. Net income for the year stands at INR4,123 crores, registering a growth of 9%. Our yield on advances for the quarter stood at 16.30% and the yield on disbursement dropped by 140 bps on Q-on-Q basis to 16.76%.
The drop was largely due to slowdown in microfinance. Microfinance disbursement stood at 8.32% of the overall disbursement in Q4 FY ’23 ’25 vis-a-vis 29% in Q4 FY ’24. On the cost side, operating expenditure for the quarter came at INR736 crores, clocking a growth of 16% over last year’s same quarter. During the quarter, the bank purchased PSLC certificate, incurring a cost of INR11.04 crores and for the entire year, the cost was INR16 crores. For the whole year, the total operating expenditure went up by 15% as the bank invested in technology, people and new products.
Cost-to-income for the entire year increased to 67.64% vis-a-vis 63.74% last year. PPOP remained flat for the year at INR1,334 crores. Credit cost for the quarter came in at INR258 crores, majorly contributed by MFI with INR185 crores. The bank made an additional NPA provision of INR33 crores in microfinance and vehicle finance. The total credit cost for the year stood at INR1,135 crores. The bank’s GNPA stood at INR1,068 crores and NPA provision of INR714 crores. Our PCR now stands at 66.83% and including technical write-off stands at 82.01%. PCR for individual product segments are already given in the PPT. As of, 31, 2025, the total CRAR stood at 20.6% with the Tier-1 at 17.84% and Tier-2 at 2.676%. With this, I hand over to Rohit.
Rohit Phadke — Senior President and Head Assets
Thank,. Good evening, everybody. Advances at INR37,986 crores grew by 11% year-on-year. SBL advances, SBL has grown by 25% year-on-year. The collection efficiencies in SBL are very stable. Across the year collection — expected collection efficiency was more than 99% in the last quarter two, it was 99.2%. The merchant overdraft book in SBL has grown very well. It’s now INR1,400 crore book with about 51,000 customers. We believe that this is a product which fulfills dire need for small and informal customers, our intent will be to grow this book this year.
The selfie loan app was launched Last year. It is a primarily a lead sourcing app and we have sourced about INR1,247 crores of loans. These loans were sourced from the — these loans were disbursed from the leads that were sourced through the selfie loan. In the CV segment, we have grown by 14%, but this 14% is a misnomer. The growth in used-car was 53% and the growth in used CV was 24%. We chose to de-grow the new CV book by 13% and hence the overall CV growth dropped to 14%. The focus in-vehicle finance is to grow both the UCV and used-car books. Collection efficiencies in-vehicle finance have been looking up last quarter. The overdue book, which was 16% in the previous quarter has now come down to 14.5%. The expected collection efficiency has also moved to about 99%. We will continue to grow the used-car and the UCV books. The housing book also the affordable housing book also continues to grow well. It’s now it’s grown 14% year-on-year. The MSME portfolio has also grown at 41% year-on-year. So this is also — this is also a segment that we are seeing good growth. The microfinance de-grew by 28% and this is by choice. The book — book stands at about 12% of the overall mix. The entire microfinance team has been trained to now do Microlab. And as we — our intent is to keep de-growing microfinance and keep growing the book. And in the coming months, as the microfinance book degrows and the micro lag book grows, we see that an era of uncertainty will disappear and I see a very glorious future for the bank. Thank you so much. Over to Mr.
Unidentified Speaker
Good evening, friends. As you would have gone through the presentation, our segmented approach, what we have been discussing has been yielding a good traction in terms of quality customers. If you see the ELIT book, which is our focus between middle-class plus to HNI is showing a very steady growth and we are seeing close to 25% to 26% of growth in ELITE as a key segment. And as we are talking about liabilities too as a strategy in the last as well as previous presentations, our focus on NR as well as transaction-centric banking is helping us to expand, A, the footprint; and B, the spread of customers.
And today, I think in NR book, we have customers who are present across 140 plus countries and we have close to INR3,000 crores of book coming from NR, which is the first step, which is our next initiative of AD1, which should go-live very soon. Third-part of — in terms of business banking, that is current account, our focus on retail merchants is helping us to acquire lower-end spectrum of current account with the intelligence solutions, which we will try to offer through QR as well as a pause in coming months should help us to grow the current account also. B, in terms of the transaction banking, our important focus is how do we get the active savings account in coming days.
So the new mobile banking and Internet banking app which we have come up and today we are lending both the apps together and we are happy to say that new app despite being there have a download of close to a lakh now at this point of time. So I think that user interface and user experience is going to help us to move ahead. We have launched very critical UI UX-based initiatives what we have mentioned in terms of banker on wheel as well as you know, a service-centric approach, which we will discuss it later. And RTD has been a good year. Last year, we could add close to 1.2 lakh customers who have actually come in and used our new retail TD proposition. So that has helped us to keep the retail ratio also close to, 69% 70%. And I think increasingly, we have to hold and grow that base and see how best we can penetrate more on product holding.
So overall, it was a challenging year. The future what we are seeing through version two what we have liabilities to, which we have mentioned should give you the perspective on where we stand-in terms of individuals to other deposit categories. So retail mix is one healthy mix, which we will continue to focus with segmented approach?
Sridharan N — Chief Financial Officer
Yeah. Thank you.
Questions and Answers:
Operator
Now thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Renish from ICICI. Please go-ahead.
Renish Patel
Yeah, hi, sir. A couple of things from my side. One on this SBL book, right? So sort of we are sounding quite confident about scaling this book in FY ’26. But when I look at the slippage ratio sort of which is increasing quarter-by-quarter impact in Q4 this year as well, it has gone up. So what is giving you the confidence to grow this book when delinquencies are also going up sequentially.
Vasudevan Pathangi Narasimhan
Yeah. So basically in the SBL book, the MLAP has really grown strongly last year and MLAP typically has a loan size ranging from 2 lakhs to 7.5 lakhs. That’s what we internally classify as a micro lab. Typically, the micro lab does have a higher-level of GNPA. But because it’s a secured product, the ultimate credit cost actually turns out to be quite low. So I’m going to request Rohit to answer what’s the typical GNP of MLAP and what’s the credit cost that we have seen in MLAB over the past so many years.
But what I can say beyond data is that over the last maybe what 12 years that we have been doing micro lab, we have gone through the demonetization period, we have gone through the GST period, we have gone through the corona period and we have gone through the last year microfinance stress. And through all these periods, the credit cost of Microlab in particular and SBL in general has been extremely comfortable. So I’m just going to leave it to Rohit to give the data in terms of credit costs and GNP for.
Rohit Phadke
So see, we’ve been seeing Microlab now for quite a few years now. I think two cycles, we have seen it. It’s nearly a INR2,600 crore book. And the GNPA is hover around between 4% and 4.5%. The credit cost is only 0.4%. And if you look at the overall credit cost for, it’s just 0.3% and MLAP is just 0.4%. Also what we have seen is you know a lot of these we don’t have to really go and repurchase properties. A lot of these properties, they come of a settlement as the customer does not want to lose his only property. So overall, we do think that Microlab is a very good product and we should really increase it.
Renish Patel
So again, I’m just sorry to follow-up on that. So of Microlab, I mean of total, INR16 odd thousand crores of book, as you said, Micro is roughly INR3,000 odd crores. So I’m sure the bulk of increase in slippages over last four quarters actually coming from a legacy book. So is there anything, let’s say, any of the geography or any events which are happening in some pockets and that is leading to this, which might be temporary and hence you are confident that going into FY ’26, the slippage ratio will sort of come back to normal and that’s why we are confident on-going as well.
Vasudevan Pathangi Narasimhan
Is there any particular geography we see any stress?
Sridharan N
So we have not seen any stress in any particular geography. So I see a good future. I have not seen any particular stress in any specific geography for this has been higher in the last slippage has been higher. I think that maybe I will take it offline. I know what you said. Actually, we don’t see any underlying stress and this is a product that will continue to remain a key focus for the bank for this one is.
Renish Patel
And sir, my second question on the vehicle finance book, right? So you did mention that new CV, we chose not to grow or maybe because of the lower OEM sales this year. And we are equally confident on growing UCV book. So just wanted to get a sense, you know this entire TN issue, which is there because of the bill, do you expect any impact of this bill on any of our product segment? I mean apart from MFI?
Vasudevan Pathangi Narasimhan
And not really. We don’t. I mean, we have gone through a similar thing in a few months back and You know, there’s really no impact on anything else.
Renish Patel
Got it. Got it. And would you like to guide us on credit cost in FY ’26.
Sridharan N
The credit cost for FY ’25 was 3.15%, correct? 3.14% credit cost, but that included a one-time INR180 crores of floating provision that we created in the first-quarter of last year. But if you remove that INR180 crores, the credit cost would come to around 2.6% for last year. Now the question is that, you know, do we want to guide for credit cost this year? We will want to definitely guide, but we are going to just wait for this 1/4 to go by because first-quarter and second-quarter of this year, we expect the credit cost to remain at a higher-level basically because of the lag effect of slippage of expected microfinance in the last two quarters.
They will all hit us in the credit cost with a lag of around two quarters. So that way we are going to have some amount of credit cost coming up in the first and second-quarter of this year. But from 3rd-quarter onwards, we expect that to actually go down and get into more normal levels. So I think we’ll start giving a guidance on that. At the end of this quarter, we should be able to guide for the full-year.
Renish Patel
Got it. Got it, sir. That’s it, sir. Thank you and best of luck, sir.
Sridharan N
Thank you, Renesh.
Operator
Thank you very much. The next question is from the line of Mr Rajiv from YES Securities. Please go-ahead.
Rajeev Mathur
Yeah, hi, good evening. Sir, can you share an outlook on loan growth because, see, you’ve given some color on the ROA. So there is an underlying growth assumption in that ROA outlook also. So what is that growth that you’re looking in the overall book? Because see, different pieces are moving in different direction because MFI, as you have communicated, is going to come down further. Affordable housing is actually growing slowly versus your peers. And in UCV, you are defocusing even where the book is shrinking. So how should we look at the bank level growth in FY ’26 and what — what has been with your ROA assumption of maybe exiting the year with 1% plus ROE.
Sridharan N
Yeah. So microfinance will degrow. As I mentioned from around INR4,500 crores, we expect it to land at around INR3,000 crore by end of this year. But in-spite of that, we expect an overall credit growth for the year, which should be in the range of late teens. That’s what we expect for the full-year. Late teens is the credit growth that we should be looking at. And that’s what is factored in for the — for the guidance of more than 1% ROA by the 4th-quarter of this year.
Rajeev Mathur
Okay. Okay. And sir, when I look at your non-MFI SMA pool on Q-on-Q basis. There’s not much improvement. So I mean — and so is the new flow persistently coming from the X bucket into the SMA pool across products? And is that a challenge that the new floor rate is not improving or are the rollbacks not happening in the SMA buckets, resolution is not happening? Is that a problem?
Sridharan N
If you look at the SMA non-MFI book, we are talking of what is the gray line? SMA-2 was 1.69% in Q3, it’s come marginally down to 1.5%. Now SME 1, which is 2.7% is gone to 2.8% and SME 0, which was 3.9 has come down to 3.65%. So I mean, you can — I don’t see that the SMA
Rajeev Mathur
No, it’s stable, sir, I agree with you. It’s pretty stable. It’s not detail rating for sure. But from an improvement point-of-view, since if you want to kind of go down on the credit cost, even on the non-MFI book from where we are. So that bucket — these buckets will also have to improve.
Sridharan N
See, as far as the credit cost for the non-MFI book is concerned, it is around 1% last year and we expect it to be at — I mean that 1% is more or less like a normal level. We do not really expect that to go further down. I mean, it may marginally go down by a few basis-points up or down, but it will not be dramatically lower than that. That’s a very normal — normalized level of credit cost. So this SMA book also you see is a zero to 90 or whatever SME 023, 0 to 2, it will be at these levels. We don’t expect that really come down and credit cost is also at reasonably normalized levels around that 1% level.
And these products are priced for that level of credit cost. So the profitability should not be an issue because the pricing takes care of that level of credit cost. And these are — we must understand that these are customers where our average ticket size is just about INR7 lakh rupees. If I remove microfinance, that is assuming I don’t count microfinance, I just look at the rest of the book. Our average ticket size on lending is just INR7 lakh. So we are really addressing the seriously low-income profile who are who are from the informal economy and some level of delinquency and some level of behavior in terms of on that repayment will be a given and these are very normal levels. I don’t see that this should be an issue.
Rajeev Mathur
Yeah. So okay. And just one clarification about that stress sector provisioning of INR100 crore we did in Q2, which was essentially on the microfinance SMA pool, I believe. Now how do we look at that number? What is the corresponding number now? Do we still hold that provision on the MFI SMA book or has that got utilized and now it is a part of the PCR?
Sridharan N
And all the best
Vasudevan Pathangi Narasimhan
38.4%
Sridharan N
Okay. So we had created INR100 crore provision in the 3rd-quarter, in the second-quarter of last year.
Renish Patel
Yeah.
Sridharan N
On the SMA-1 and 2 book, basically, we had some internal parameter. Out of SMA-1 and 2, we took some parameter like how many of them have loans beyond a certain number from different lenders and how many of them have beyond certain level of exposure as a borrowing. So we took some profile of those customers who are in that SMA-1 and 2 bucket in September and we said these are the stress to customers. And so we made that advanced provision of INR100 crores. Now that profile is continuing to be used on this SMA book in the month of December and in the month of March. And since that profile of — that segment of stress customers as per that profiling has been coming down from September to December to March, it’s been coming down.
So in December quarter, we used the provisions of approximately INR38 or so crores out of that INR100 crore because the amount of stress to customers within that segment had come down. And further, in the quarter-ending March, we have utilized another — about INR23 crores we have reversed back because the level of stress customers has further come down. So that’s how it is. So currently, we are carrying about INR30 crores 30 crores 38.38 crores we are carrying still in the books out of that INR100 crores.
Rajeev Mathur
Okay, clear. Thank you so much,.
Sridharan N
Thank you. Bye.
Operator
Thank you very much. The next question is from the line of Nidhesh from Investec. Please go-ahead. Go-ahead.
Nidhesh Jain
Thanks for the opportunity. Sir, first question is that what — what is the steady-state ROA that you think our bank can deliver from a net, let’s say next two to three year perspective and the entire product mix stabilizes, what is the steady-state ROA that bank can deliver and what is the long-term thought on microfinance whether we will take it to zero?
Vasudevan Pathangi Narasimhan
So on the microfinance you know we will be applying the guardrails very, very-very strictly. And also large part of the sourcing is restricted to existing clients. So we are not really out there to try and grow the market-share or grow the disbursement. So we will only disburse to well-performing existing clients and which means that the percentage of microfinance and the quantum of microfinance book also should be coming down over the next few years.
Whether it will go to zero, I’m not going to be able to say that it may not go to zero because ultimately, there will still be certain customers who are very good and continuing to be with us and performing very well. So it may never go down to zero, but it will keep going down as a percentage. As far as the steady-state ROA is concerned, Ziraj?
Unidentified Speaker
Yeah. So Nidhesh, what visibility we have right now is to look at FY ’27 and from that perspective, we’ve given a range of 1.5 to 1.7. I think let us first hit that for a few quarters and then see what more we can expand our ROEs. But at this point in time, let’s focus at FY ’27 and we’ll then discover what steady-state is.
Nidhesh Jain
Sure. And that is for FY ’27 or exit FY ’27. Exit quarter.
Unidentified Speaker
FY ’27, at least in a few quarters, we
Unidentified Speaker
Should be between that 1.5 to 1.7 ROEs.
Nidhesh Jain
Sure, sir. And in which segment we have bought PSL?
Vasudevan Pathangi Narasimhan
They bought PSL in the small and marginal farmer category. Actually, what happened is that we were looking to be a little short on that. So we didn’t want to take a risk. So we bought it. But end-of-the period by March, our incremental asset PSL category itself was actually sufficient, but by then we had already bought because we didn’t want to take a risk, but it was in the SFMF category.
Nidhesh Jain
So with the microfinance further coming down, let’s say, over next two to three years, how do we plan to get SMF category fulfilled on PSL.
Vasudevan Pathangi Narasimhan
Okay. Yeah. So that’s the challenge for the team and that’s what the MLAB product that the microfinance team, I think we mentioned that in the last con-call of the microfinance team because they will not be totally tied-up in terms of disbursements on new microfinance loans. And so that bandwidth is being allocated for them to enable them to do microLab. And Microlab, as you know, is typically a semi-urban to rural product. And so the end-use of the customer — the end profile of the customer borrower quite often does come as an agricultural profile.
So most of the reductions in FFMF category from microfinance should be compensated by the MLA?
Nidhesh Jain
Sure. And sir, can you share the liability opex number for FY ’25? What is the opex of liability franchise for FY ’25
Sridharan N
Yeah, one second. So their direct their cost after allocating common cost altogether is about INR750 crores. From this, they have — we have given the income they generate from third-party and other products. So — but the direct opex is INR750 crores. This includes allocated costs also, not allocated. Yeah, whether it’s a head office cost allocated is a technology cost allocated, there are some common resources like us, which gets allocated. All of those costs are added to this when I say 750
Vasudevan Pathangi Narasimhan
And what will be the direct cost?
Sridharan N
Okay. No, sorry, sorry. Direct cost is INR750 and the allocated is about another 120 above that.
Vasudevan Pathangi Narasimhan
Okay.
Nidhesh Jain
So we have been trying to reduce our lended cost of liabilities vis-a-vis large banks. So is there an update on that how that is progressing? It seems like our landed cost of liability has gone up sharply in the FY ’25.
Vasudevan Pathangi Narasimhan
Yes. The landed cost of money has gone up in FY ’25, principally because the cost of funds went up from 6.5% to 7.5% in the year. So 1% increase in cost of funds really resulted in the landed cost of money going up in FY ’25, whereas the other elements of the landed cost, which is the cost of raising the money actually went down because basically we are not increasing the — I mean the deposit is growing at a rate higher than the operating cost of liability team. So obviously, the leveraging is continuously kicking-in. So the cost of raising the money, that percentage went down from ’24 to ’25, I mean FY ’24 to FY ’25, but the interest cost itself went up by 1%. So the overall landed cost of money had gone up. What we will do is, I don’t want to give you any adopt number at this point in time. Next quarter presentation, I’ll request to put out a slide on this so that we can trace the trends and also look at how it is progressing towards this year.
Nidhesh Jain
Sure. And sir, last question, sir, have you seen any impact of the TN ordinance as of now in terms of collection — collection behavior in microfinance?
Vasudevan Pathangi Narasimhan
No, no, nothing as of now. You know, there is a difference between what happened in Karnataka and what happened in Terminal Nado. In Karnataka, there was lot of lot of disturbance in the market, lot of articles, newspaper reports and the TV reports about various kind of practices and all that going on for about couple of three months and the ordinance came at the end of that. Whereas in Tamil Nadu, the situation is very different. I mean, there is absolutely no news reports or anything at this point in time. This ordinance is something probably the government is looking to do on a proactive basis and not as a reactive to something which is happening on-the-ground. So I think that’s a major difference. So as of now, we know we don’t see any difference.
Nidhesh Jain
Yeah. Thank you, sir. That’s it from my side. Thank you.
Vasudevan Pathangi Narasimhan
Thank you, Nidhesh.
Operator
Thank you. The next question is from the line of Vibhav Kandelwal from Laburnum Capital. Please go-ahead.
Vibhav Khandelwal
Thanks for the opportunity. I wanted to understand in the MFI book, how do we see the impact of the incoming guardrails?
Vasudevan Pathangi Narasimhan
Of what?
Unidentified Speaker
Got it.
Vasudevan Pathangi Narasimhan
Guardrails okay. So I think we mentioned that in the last quarter con-call also, we gave some data, 48% of our existing MFF clients are not eligible for fresh funding because of the guardrails. That’s information that we had shared last-time also so that’s the impact of the guardrail implementation. And this means any part of the guardrail. For example, if they have already borrowed from 3, then they are not eligible. If they’re already borrowed more than INR2 lakhs, including other loans not eligible. Also, they may be on X bucket with us, but they may have an overdue with some other lender. And if that overdue is more than INR3,000, then again, they are not eligible. So all parameters put together, about 47% of our customers were not eligible
Vibhav Khandelwal
Understood. But just to get some sense, what’s our overall estimate as to what the impact would be on credit cost or collection efficiency because of this? Because of what the guardrails, an incremental impact?
Vasudevan Pathangi Narasimhan
See, we don’t see, we don’t expect anything. And we have implemented the right from January and our collection efficiency has actually been improving between Jan to March. And even in April, it’s further showing signs of improvement. So we don’t see any issue between these two.
Vibhav Khandelwal
Understood. And my second question was regarding the used CV book. Now we are seeing that we have very good growth that we’re coming in the used CV book. Just wanted to get some sense on the competition, pricing, et-cetera that you’re seeing in this particular portfolio.
Vasudevan Pathangi Narasimhan
Right. So the competition, there are a few NBOCs who are active in this, you know, like Sriram, Mahindra Finance and Chola and all that, practically, we don’t see much of banks in that space, the yield from used commercial vehicle typically is in the range of around 18% to 19%, that’s a range. The type of products that we lend can cover both, I mean, heavy commercial, light commercial and small commercial. However, as far as Equitas is concerned, the largest contributions come from small and light commercial. Heavy commercials contribute much less. The yield, as I mentioned, on an overall basis from used to CV will be normally that range is between 18% and 19%.
Vibhav Khandelwal
Understood. No, that’s helpful. Also, just wanted to understand regarding the liability franchise, right? Now we’re seeing the SAS, the savings account growth being sort of on a lower-end of on a year-on-year run-rate basis. Just wanted to understand how do we plan to improve our cost of funds if our CASA ratios are trending downwards? I mean, I understand that there has been a liquidity plant in the system, but given that we are a small part of the overall system at the moment, just how do we see cost of funds improving given the low CASA growth.
Vasudevan Pathangi Narasimhan
Yeah. So there are two elements to the cost of funds. So one is of course, just reducing the interest rates itself, that is one element. Second is, of course, improving the CASA ratio and within the CASA ratio, improving the current account ratio will be another element of cost-reduction — cost of funds reduction. As far as the first point is concerned, which is the cost of — the interest rates that we pay on deposits, we have been trying to consciously reduce the interest rates on deposits that we pay.
So in the month of October of last year, we reduced the peak deposit rate by 25 basis-points from 8.5% to 8.25 when it was actually there is no change in deposit rates from the other banks, but we reduced it just to help us reduce the cost to some extent. And that will have a benefit somewhere another two-quarter down the line, we should see the benefit of repricing on that. Also, we had reduced the savings account interest-rate, a few slabs. We had tweaked in the last year twice. And this year, again, in the month of April, we have reduced the peak deposit Rates by-20 basis-points. So 8.25 has become 8.05 as a peak right now. And effective, I think 1st May, we have already announced, we have communicated to our depositors. There is further tweaking on savings account rates. The lowest to slab, which was 3% is now been going to be reduced to 2.75% and some marginal drop-in interest rates on further, you know buckets in the higher levels also. So that is one element of cost of funds reduction where we are consciously trying to reduce the interest rates, which will help in reducing the cost. The second one is, of course, in terms of growing the CASA as a book last year was difficult for us. The CASA was not — it didn’t really grow much and as a result, CASA ratio came down from 32% to 29%. So I’ll just ask Murli to kind of share this year, what is — what do we plan to do to try and improve the CASA ratio from 29% to a little higher percent. So I’ll ask to share on that part of it.
Murali Vaidyanathan
Hi, the three things which we discussed. One is going deeper with regard to family banking, that is getting the ELIT segment in and getting the family banking accounts. Second is what we discussed on merchant acquiring SAPs for current account and getting that differentiated solution. So car actually brings down the cost of it. Third is leveraging on AD1 and getting NR as a segment. So these three is our key to get value. And to get the mass banking and proposition right, we are going-live for COPS D2C, which is end-to-end digitally journey from origination to where we are going to go deeper at corporate-level.
So this four should actually help us in a garnering more number of accounts. It’s actually one more thing that will happen is as the arbitrage between SA and TD keeps shrinking, the quantum of money that keeps getting into the SA will actually go up. And last year, we had hook product of and SAP helping us. We will go deeper through that route also to get the spread, spread depth and digital leveraging right.
Vibhav Khandelwal
Understood. That’s all from my side. Thank you so much.
Vasudevan Pathangi Narasimhan
Thank you. Thank you,.
Operator
Thank you. The next question is from the line of Shreepal Doshi from Equirus. Please go-ahead.
Shreepal Doshi
Hi, sir. Good evening. Thank you for giving me the opportunity. Sir, my question was on understanding the ROA profile for SBL and vehicle finance. And then within SBL also, if you could give some color on Micro lab and GLAP? That’s my question, sir.
Vasudevan Pathangi Narasimhan
So we don’t share the product-wise or subcategory wise ROAs, we don’t share that publicly.
Shreepal Doshi
Okay. But some color on SBL as a category??
Sridharan N
Yeah. So the easiest way to understand these businesses is to do a sum of parts. Our SBL book is very similar to some of our competitors who are in similar geographies. So you can look at their numbers. It’s very similar. And they will look at anyway. So I’m just saying way. It is very correlated to that. Similar from a vehicle scenario,
Vasudevan Pathangi Narasimhan
Yeah, it’s similar yield and —
Sridharan N
Yeah, the yield is there on the — so I’ll give you rough yield SBL is roughly about 16% is the yield. Vehicle finance currently is about 15.5%, likely to go up as new CV comes down. So those are the yields. But at this point in time, we actually don’t want to give ROEs. The credit cost is no piece here.
Shreepal Doshi
Got it, sir. That is helpful. I’ll maybe take it up separately. And just another question was on asset quality front. So if you look at the GS3 or GNPA in HL and SBL also highlighted by one of the earlier participants has been increasing.
Operator
But sorry to interrupt you, sir. The audio is not clear.
Sridharan N
No, no, we can hear.
Shreepal Doshi
Yeah. Okay. So my question was on rising GNPA in HL and SBL, while these two segments have been growing at a decent rate for us, but the NPAs have also been inching up. So are we taking any measures to sort of contain this going ahead or we are comfortable with this level of NPA, especially in HL and SBL both.
Rohit Phadke
So SBL, even when we do a — when we plan for SBL, these are the numbers which we take. So this is in a comfortable range given the yield and the nature of the product. So SBL, when you see the GNPA of 2.54, it is actually within a comfortable range. It can actually go up for the yield the product offers. For home loans, I understand that the profile of our customers are self-employed. They are not the prime segment. And increasingly, we are also growing the self-employed own construction space. So I think housing finance is where you can assume as steady-state GNPAs.
SBL as composition changes with MLAB going up, it has the room to inch up a little higher. But those what we consider are normal levels for those products.
Shreepal Doshi
Got it, sir. And last question was on the loan book mix that we’re targeting for, let’s say, FY ’27 sort of a time period.
Unidentified Speaker
For FY ’21, what loan book mix for FY ’27?
Vasudevan Pathangi Narasimhan
Loan book mix for FY ’27,
Unidentified Speaker
If only give an indication on where microfinance will be.
Vasudevan Pathangi Narasimhan
Microfinance, as I mentioned, should be in the mid-single digit by FY ’26, right, which means that by FY ’27, microfinance might come below the Mid-single-digit. So that will be the contribution of MFI. But rest of the book, by and large, they will remain where they are. I mean small-business loan will be around that 45% level, affordable thing around 12 to 15%. I mean, all of them may go up by 2%, 3% because our MFI book is dropping, so they’ll be taken-up by some of the others. But there will be no major dramatic shift in the rest of the book.
Shreepal Doshi
Got it, sir. Got it. Thank you. No plans of opening of having any new products as such, right?
Vasudevan Pathangi Narasimhan
So see the new products are too, which we have just launched, which is credit cards and personal loans. But personal loan will be strictly for the cross-sell purpose. So we are not pushing personal loan as a standalone product, it’s significantly only meant for supporting the stickiness of deposit customers. So it may not be a much volume driver. It’s more of a relationship driver and not a volume driver. So it will not never be a big contributor. Credit cards is something again we have launched. Again, credit card is largely meant for existing clients. Credit cards will be something which we’ll offer to both asset customers and liability customers. In asset customers, so normally on a standalone basis, most of our asset customers may not be eligible for standalone credit card from other banks.
But since we have an underlying security from them, so our exposure on credit cards will be also secured by the underlying property and that gives us the comfort of giving them a card with some limit on that. So again, both of them are meant to be cross-sell products. So we are not going to be pushing huge volumes on that, but principally, it will be driving cross-sell. So there’s no other new product that I think we’ll launch over the next two years. We are — we have a complete bouquet of products. So now the challenge is only to keep growing as on the platform that we have.
Shreepal Doshi
Got it. Thank you for the detailed answer and good luck for the next quarter.
Vasudevan Pathangi Narasimhan
Thank you. Thank you, Sripal.
Operator
Thank you. The next question is from the line of Darshan from Invest Group. Please go-ahead.
Darshan Deora
Hi, thanks for the opportunity. So my question was regarding the microfinance segment. If you compare the ex-bucket collection efficiency of Equitas’ reported numbers versus that of other SMBs are in MFIs for the March quarter for the March month, sorry, EBITDA seems to be lagging behind both in Karnataka and rest of India. Like for example, in Karnataka, we see that it’s lagging by potentially 600 basis-points compared to some of the other peers and in our rest of India or all of India is by about 100 basis-points. So what in your opinion explains this large difference in the ex-bucket collection efficiency.
Vasudevan Pathangi Narasimhan
See, two things. One is that we wouldn’t know what others are doing. So that’s the first point. The second point is that you know consciously, as I mentioned before, we have been reducing our disbursement on microfinance over the last year, leading to a 26% — 27% drop-in the book. And because of that, automatically, the ex-bucket collection efficiency as a percentage for us may look a little lower compared to others because you do a large disbursement this month, for example, next month, practically all of them are likely to pay their first EMI and so your bucket as a percentage may look better compared to somebody who is disbursing lesser.
So for us, what will happen is that over a period of time as the microfinance book keeps shrinking, we may actually start you know, giving out the amount and rather than the percentage, we may actually start giving the amount ex-bucket collection efficiency in terms of amount rather than percentage because that may become more Relevant for us. And the quantum of money, which quantum of loans which become delinquent may be more relevant for us than a percentage as the book shrinks.
Darshan Deora
Got it. I mean that explains it. My second question was again with respect to microfinance. So obviously, we have seen a lot of pain in the microfinance space. And excluding microfinance, I think we have built a pretty good book on the asset side, whether it’s SBL, whether it’s home loans, whether it’s vehicle finance. But now with these guardrails coming in, you know, in terms of the cap on the number of borrowers and on the cap and the amount that can be lent and also things like CGMFU, et-cetera, which sort of gives some protection in case of downside. Does that change the attractiveness of microfinance? Should we be rethinking of microfinance or exposure microfinance as in not being so negative about it? I mean, how do you think things have changed fundamentally after the guardrails?
Vasudevan Pathangi Narasimhan
So we have been having guardrails from 2010 onwards. Before the AP crisis, before the AP crisis, MFIN was born in the month of March 2010, the AP crisis happened in October 2010 — sorry, was born in 2009 and October 2010 is when the AP crisis happened. But before the crisis happened, MFIN had come out with its own set of guidelines for all of us, which included the cap on number of lenders, the cap on the total amount of loan to be given to a borrower, et-cetera. So this are not exactly new. This is something that we all sat together and implemented long before the first major crisis, long before RBI stepped in long before the SRO as a concept came up and was approved by RBI long before that.
And in-spite of that, we have been seeing a series of crisis in the microfinance sector time and again for various reasons. The reasons change, but the repetitiveness of the crisis doesn’t change. So I think from Equita side, we are very clear in our view that over-time, microfinance will continue to go down and be a much smaller and smaller part of the book, so that any problems in that space should not really put us into the kind of situation that we found ourselves in last year and our ability to you know, deliver a sustainable performance and a sustainable return is what we are looking to build. And that is where the approach to microfinance very clearly for us. We are very clear on that.
Darshan Deora
Got it. Thank you. That’s very helpful. That’s all from my side.
Vasudevan Pathangi Narasimhan
Thank you, Darshan
Operator
Thank you. The next question is from the line of Ashlesh from Kotak Securities. Please go-ahead.
Ashlesh Sonje
Hi, team. Good evening. First question is on the MFI book. Firstly, what is — what do you do with these set of borrowers who are ineligible for additional funding? And I understand you are probably cross-selling, migrating some of them to the Microlab book. What are the filters which you apply to determine what is the eligibility here.
Vasudevan Pathangi Narasimhan
So those who are not eligible, of course, we don’t fund them. But as I mentioned to a previous caller in this call, he asked me a question that if you are not going to be funding again because of the guardrail, does it have an effect on your collection efficiency? I had already answered that for somebody else saying that our collection efficiencies have actually been improving in the last few months in — post the implementation of guardrail, very strictly from our side. We have extremely strict in implementation in the guardrail, but we haven’t found our efficiency actually going up.
So we don’t have an issue on that. Now second thing is, of course, what do we do with the customers, if they are good, can we convert them into the MLA product, that’s our — that’s our whole focus. And that is why, as I mentioned earlier, the MFI team, which is available on-the-ground and they have the relation with the customer, they have the knowledge of the customers, relation to the customer all established and they are on-the-ground. Now I can’t do microfinance to them because of the guardrails. I can’t do that. But are they eligible for MLAB? And if they are eligible, then we can convert into that.
And for MLAB, the filters that we use are basically it’s an individual credit — cash flow-based credit appraisal. That’s the filter that we use. We have a full set of credit norms for MLAB, which includes a visit to the customer’s place of business premise, trying to understand his cash-flow from his business, expenses, et-cetera, get his credit bureau reports, find out his ability to pay EMIs and back work the loan that he is eligible to — that he can maximum service.
So we actually back-calculate the loan eligibility. And that’s how it is done. And we have random sampling by the credit teams to confirm that everything is in order. So these are processes we have put up in-place over the last 12 years and those are the same filters that we use for moving an MFI borrower who is not eligible under the guardrail, but if they are eligible under MLA, we’ll move them to that.
Ashlesh Sonje
Understood. Thank you.
Vasudevan Pathangi Narasimhan
Thank you, Ashlesh.
Operator
Thank you. As there are no further questions, I would now hand over the conference over to Mr P.N for closing comments.
Vasudevan Pathangi Narasimhan
Thank you. Thank you. Thanks to all of you for dialing-in and thank you for putting — raising all your queries and keeping us on our toes. And as promised in the beginning of the call, the management is completely focused in terms of delivering a proper returns to the investors. It’s a question of time and we are also waiting for the time, but meanwhile, the effort goes on. Thank you so much and wishing you guys all the very best.
Operator
Thank you very much. On behalf of Equita Small Finance Bank Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you thank you