Equitas founder Vasudevan open to take up board-level role in bank if RBI permits

PN Vasudevan, MD & CEO, Equitas Small Finance Bank

PN Vasudevan, the outgoing managing director and chief executive officer of Equitas Small Finance Bank (SFB), is open to take up a role at the bank even after his exit.

The bank's board too is keen to accommodate him, provided the banking regulator clears the proposal, Vasudevan told Moneycontrol on 20 May. “It’s a long way…we just had a discussion in the board and we haven’t discussed in great details. The board expressed their desire that if regulator permits then even after a successor joins then you be associated with bank in some form or other,” he said.

Vasudevan, who founded Equitas in 2007 as a microfinance institution (MFI), announced his decision on May 19 to move on from the SFB to work for his trust going ahead.

Despite his interest, the final decision is with the regulator, he pointed out. “Obviously I would love to (take a new role) if the board and the regulatory framework allow it... I would obviously love to be associated in whichever role the board is comfortable with,” he said.

In a three-page letter to the board, Vasudevan said his shareholding in SFB was too small to create a large enough corpus for the trust and thus he has asked the board to find a successor in his place.

“I want to do something more in my life. There is so much good that we can do for society,” Vasudevan said. “We have a trust that I want to grow. We want to build a corpus for the trust, scale up its activity sustainably but that does not mean that I need to do it tomorrow morning.”

On whether the successor will be from within the bank or outside, he said the race is open for anyone. However, the SFB will take its time in finding a right candidate as it wants the candidate to fit with its values and culture, he said.

“We are going to appoint a search committee  shortly which will then start looking for candidates and anyone can be considered. I am not going to pre-empt the search committee by making any advance statement on behalf of the committee,” he said.

Equitas reverse merger

Vasudevan said the reverse merger process of Equitas Holdings with Equitas SFB will likely be completed by March 2023. “We need a Sebi approval now, we are waiting for that and then we will file with NCLT… I think by March 2023 the process should be completed,” he said.

Eventually, the goal would be to gain a universal baking license and the SFB will think about the same post completion of the revere merger, he said.

The RBI had on May 6 had conveyed its “no-objection” to the company’s proposal for voluntary amalgamation of the Equitas Holdings and Equitas SFB merger with certain conditions.

As per the conditions set by the Reserve Bank, Equitas Holdings would have to divest its shareholding in its subsidiary, Equitas Technologies P Limited prior to the scheme taking effect.

Financials

In terms loan book size, Equitas SFB ranks second in the overall SFB space with AU Small Finance Bank being first with Rs 46,789 crore loan book as on March 31.

The SFB reported its January-March net profit at Rs 120 crore as against Rs 113 crore in Q4FY21. Its gross advances stood at Rs 20,597 Cr as on March 31, up 15% on a year-on-year basis.

Vasudevan said the loan growth figures are lower on account of Covid-19 related credit demand challenges but in the current financial year the SFB will likely post over 30 percent on-year growth in advances.

The SFB’s asset quality is also recovering to pre-Covid levels, Vasudevan said, with GNPA at 4.06 percent as on March end as compared to 4.39 percent as on December end and 3.59 percent last year. Net NPA stood at 2.37 percent as on March end, 1 bps lower than December quarter but higher than 1.52 percent a year ago.

A growing segment

As per data from the RBI’s report on Trends and Progress of Banking India, since their inception, the consolidated balance sheet of SFBs has been growing at a pace higher than that of large banks, mainly reflecting inorganic growth in their operations.

During 2021, the growth was aided by higher deposits on the liabilities side, the RBI said.

“With SFBs offering lucrative interest rates on savings accounts, the share of CASA in their total deposits increased to 23.9 per cent in 2020-21, from 15.4 per cent in 2019-20. On the assets side, growth was supported by higher accretion to investments. Although loans and advances was the dominant constituent—with share of more than 66 per cent of total assets—their growth decelerated, reflecting the overall system wide anaemic credit growth,” RBI said.

The GNPA ratio nearly tripled last year, reflecting the impact of COVID-19 on asset quality. However, there was improvement in the overall capital positions of SFBs on the back of high quality Tier-1 capital, the RBI said.