Equitas SFB sees MFI stress for another two quarters after higher provisions dent profit

The lender is hopeful of a stronger second half for the non-business loan as well as the CV finance segment, given that the vehicle finance business has seen improvement in October.

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Shares of Equitas Small Finance Bank were lower by over 5% on November 11 on sharply higher impact on profitability due to an additional provisioning of Rs 146 crore for the MFI segment, and the management has indicated that the overhang of the MFI segment may continue to linger on for some more time.

"The MFI stress is likely to remain for possibly another two quarters, given that the stress started three quarters back," PN Vasudevan, MD, Equitas SFB said.

About Rs 100 crore out of these additional MFI provisions are in the form of stress sector provisions, the bank said, to address the 31-90 Days Past Due loans.

The worsening of the lender's MFI portfolio meant the first half of the year was 'turbulent' at an industry level, PN Vasudevan, MD, Equitas SFB said during the earnings call. The bank said fresh slippages from SMA-1 and 2 continue to 'elevated'. Equitas said it is strengthening its branches to improve collections and DPD resolution.

"We need to see slippage into NPAs reduce by half to bring MFI portfolio to a stable level," PN Vasudevan said. However, some signs of recovery were visible in October, such as disbursement crossing Rs 1,900 crore level after six months, but the bank said it needs to improve further, the bank said.

The retail deposit growth has seen momentum, the lender added, with the segment making up 24% of the bank's deposits.

The bank has been making efforts to expand the non-MFI loan book, which saw a growth of 20% YoY, led by 23% growth in housing finance and 28% growth in Securities-based lending over previous year. The Micro LAP segment saw a growth of 12% QoQ, and disbursement grew 156% YoY.

The lender is hopeful of a stronger second half for the non-business loan as well as the CV finance segment, given that the vehicle finance business has seen improvement in October.

The bank saw strong overall deposit growth of 29% YoY & 6% QoQ, supported by growth retail term deposit growth of 39%. Retail deposits now form 74% of bank's overall deposits.

On a YTD basis, shares of Equitas SFB are down by 40%, touching levels last seen in April 2023.