Shares of Equitas Small Finance Bank (SFB) have taken a beating since its founder PN Vasudevan on May 19 announced his intention to step down from official roles in the bank as managing director and chief executive officer.
On May 20, Vasudevan told Moneycontrol he was open to take up a role at the bank even after his exit and that the board was keen to accommodate him as well, provided the banking regulator cleared the proposal.
“I want to do something more in my life. There is so much good that we can do for society,” Vasudevan had said.
However, investors still seem to be spooked by the sudden announcement of Vasudevan’s decision to move on from the bank. The SFB’s shares have fallen over 30 percent since the announcement and ended at Rs 41.15 a piece on the National Stock Exchange on Wednesday, June 1.
In a candid interview with Moneycontrol on Wednesday, Vasudevan opened up on why the bank's share price is seeing a correction and gave his commentary on succession planning. Edited excerpts:
The SFB’s share price has been impacted significantly post announcement. How are you handling the investor sentiment?
It is business as usual for the bank. We are just coming out of the pandemic and the bank is well poised for its next phase of growth. As we guided earlier, this year (FY23) we are looking at 30 percent growth in advances and deposits and everyone is geared and busy working towards achieving that.
Yes, this announcement would have been a surprise for people because it was not known to anybody. We cannot keep anyone informed in advance either because we are a listed entity. It cannot be loosely sent out to the market, so yes, there was a surprise element in it but beyond that I am sure we will learn to live with it and keep moving.
What are the main challenges to finding a successor?
The challenge is not so much about me leaving the bank, it is about who is the successor. That is the topmost concern or issue on anyone’s mind. That is why we have formed a search committee to ensure that the next person will be someone who will be completely aligned with the system. Someone who not just culturally and value-wise connects with the bank but also the business model of the bank because it is quite different from normal banks… Whoever comes in should understand the informal space of lending and grow our strength.
We already built good strength, 15 years of capability we have built into the system, so they should be able to grow that further. So the question on whether we will get that kind of a person, that is what is playing in everybody’s mind and obviously that is what we are focused on, myself and the board. We will be working very closely to ensure we choose the right candidate.
Do you think your successor should continue the bank’s focus on the informal segment?
Our unsecured book is only 18 percent, the remainder is secured. As part of our own medium-term plans, we have guided that our microfinance loan book which is 18 percent of overall advances will drop to 15 percent at some point in time so that 85 percent will be secured.
From the secured book, 90 percent lending is to the informal sector and that is the strength and uniqueness of the bank. In the informal space, as they say, there is not much competition. Ninety-five percent of credit demand is unmet and it is difficult to do business in the informal space. This is why there is so much unmet demand even after so many decades of banking in India. And we have perfected that ability to lend and collect in that segment over the last 15 years, so we will not want to lose that advantage. We will only want to build on that further as we go forward.
Can we expect someone within the SFB to take charge?
It is too early to comment.
Will the SFB’s plan to apply for a universal banking licence be affected due to the succession process?
Our reverse merger with the holding company of the bank is one of the compliance requirements for this and that process is underway and the RBI (Reserve Bank of India) has approved the merger… Hopefully, by March-end we would have completed the reverse merger process. As soon as we complete the reverse merger we will probably talk to the RBI and if they permit us then we will begin the process.
Will you be looking to make investments in other microfinance lenders after the management transition?
I have not started thinking on any of those lines as of now. It is so far away, our board's energy and attention is focused on both running the bank and finding a successor.I know that is going to take time, we do not have time constraints on ourselves so we are not in a hurry. Our whole focus is only on this and my transition is itself such a long time away that I am not even remotely thinking on those lines.