Equitas Small Finance Bank Q3 FY23 Earnings Conference Call Insights

Key highlights from Equitas Small Finance Bank (EQUITASBNK) Q3 FY23 Earnings Concall

Q&A Highlights:

• [00:24:44] Jai Mundhra from B&K Securities asked about the key changes in MD’s terms of employment or remuneration details. P. N. Vasudevan MD answered that the Board has recommended a 3-year renewal of his term and the terms of appointment will remain similar with normal marginal increases in compensation, subject to RBI approval.

• [00:26:11] Jai Mundhra from B&K Securities enquired how one should look at the relative importance on SA vs. TD. P. N. Vasudevan MD replied that the bank will focus on increasing CASA deposits as much as possible, but will also accept deposits due to the gap between savings and deposit interest rates. The goal is to retain 45% CASA while the remaining comes from deposits.

• [00:27:42] Jai Mundhra from B&K Securities asked about the SA and TD rate growth outlook. P. N. Vasudevan MD answered that there’s no particular plan today to touch the SA rates at this point in time. So largely, the rate changes will be on the TD part of it.

• [00:30:34] Deepan Shankar at Trustline queried if the company has started seeing profitable growth visibility in microfinance segment and if the growth will continue. Rohit Phadke replied that microfinance is profitable and will continue to be, with the microfinance book restricted between 15-20%.

• [00:38:09] Renish Bhuva from ICICI Securities asked how confident the company is of sustaining the 2% plus ROA in coming quarters. Rohit Phadke replied that the credit cost for the company is 0.84%, and hope to trend back towards 1% next year if business remains normal. EQUITASBNK also hopes to increase the PCR to 60% by FY25.

• [00:40:16] Punit Bahlani with Nomura asked about the reason for cost of funds increasing while yields being broadly flat. Sridharan N CFO said that the treasury assets as a percentage of balance sheet has roughly remained the same at 20%, and the treasury yields have gone up in Q3 vs. Q2, with the investments or the interest-earning higher yields.

• [00:41:23] Punit Bahlani with Nomura enquired if the company is planning to increase the PCR in the microfinance book. Rohit Phadke replied that credit cost for the next year will be released next quarter and is generally 1%. PCR will be increased to 60% in 4-6 quarters. This higher PCR will apply to higher-risk assets, and microfinance accounts for 18% of the book so there will not be a lot of disturbance.

• [00:42:45] Punit Bahlani with Nomura asked about the slippages from the restructured pool. Rohit Phadke answered that INR85.99 crores was the slippages on the restructured book.

• [00:43:55] Jyoti Khatri  at Arihant Capital asked about the guidance for credit cost for FY23. Rohit Phadke replied that 1.5% is for the current financial year. And for the first nine months it’s 1.64%.

• [00:49:11] Ashlesh Sonje of Kotak Securities asked about opex, if the company is done with most of the employee addition. P. N. Vasudevan MD replied that the company will continue to add people and the manpower won’t be flattening.

• [00:54:29] Abhishek from HSBC enquired what kind of improvement could be seen in opex ratios as growth recovers and asset quality improves. Rohit Phadke said the cost to assets is around 6.4%. As the business expands, the average asset duration of 2.2 years will increase, and the cost to assets will slowly start trending downwards.