Equitas Small Finance Bank is strategically positioning itself for significant growth, with managing director and CEO P N Vasudevan revealing plans to nearly treble advances to Rs 1.2 trillion and potentially apply for a universal banking licence within a year, while also diversifying its loan portfolio.
Key Points
- Equitas Small Finance Bank aims to increase its advances from Rs 45,000 crore to Rs 1.2 trillion over the next five years, targeting a 20 per cent annual growth rate.
- The bank expects its 'landed cost of money' to decrease from 8.2 per cent in March 2026 to below 7.5 per cent within five years, enhancing its competitive lending ability.
- Equitas SFB plans to reduce the share of informal and semi-formal borrowers in its loan portfolio from 90 per cent to 70-75 per cent over the next five years to mitigate risk.
- The bank is in discussions with the RBI and may apply for a universal banking licence within a year, emphasising a cautious approach after observing other SFBs' experiences.
- Equitas has diversified its portfolio over 15 years, reducing microfinance's share to 10 per cent and securing 90 per cent of its book, positioning it for faster growth without credit cost concerns.
What is your growth outlook for the next five years?
We are targeting growth in our advances from ~45,000 crore now to ~1.2 trillion over the next five years, implying a growth rate of 20 per cent per annum.
Our compound annual growth rate (CAGR) over the past 10 years was 26 per cent, so we believe we can comfortably achieve 20 per cent growth.
We have something called the landed cost of money, which includes interest costs as well as several other components.
This determines my competitive ability to lend.
The landed cost was 12.8 per cent in the first year after we became a bank in 2017.
In March 2026, it was 8.2 per cent. Over the next three years, we expect it to come down to around 7.5 per cent and, in five years, to below that level.
On the lending side, almost 90 per cent of our loans are to informal and semi-formal borrowers, while only 10 per cent, comprising MSMEs and NBFCs, is to the formal segment.
Over the next five years, we expect the share of informal and semi-formal borrowers to come down to around 70-75 per cent.
This will reduce the risk. In the semi-formal and informal segment, we should be the number one choice of banker.
That is our strategic positioning. As our landed cost of money comes down as expected, we should become the most competitive lender in this segment, where the primary competitors are NBFCs.
Universal Banking Licence Aspirations
What is your road map with regard to applying for a universal banking licence?
We should be able to deliver whether we become a universal bank or not.
There is no restriction on an SFB's growth. From Equitas' perspective, we believe we are in line with the guidelines for conversion into a universal bank.
There are several other factors, such as the Reserve Bank of India's (RBI's) supervisory comfort.
There are some things beyond just the numbers that the RBI will look at.
We are in touch with the RBI, and we may end up applying within a year. We do not want to rush into it.
The RBI returned the universal banking licence applications of both Ujjivan SFB and Jana SFB. What did you learn from this?
We have been diversifying our portfolio for the past 15 years, and that is why we are in a position today where we are well diversified.
That is a journey we started 15 years ago to diversify.
So, it is not as though I have learnt a lesson from them and am diversifying now.
We are now in a position of great comfort with regard to the diversification of our portfolio.
In terms of lessons, the takeaway for us is not to rush.
Even if we apply two quarters later, it does not make any difference. We will do it when we feel comfortable and confident.
Leadership and Succession
In May 2022, you expressed a desire to resign from the post for a career in health and education. However, in December that year, you came back. What was the reason, and what is your succession plan?
I expressed my desire to focus on my social work, and I wanted to start a new NBFC to create some value and then use the returns to fund my family trust's social-sector initiatives.
At that point, a friend of mine started an NBFC, and my daughter became a partner in it. My objective was not to run an NBFC, but to generate good returns on the corpus for the trust.
My daughter therefore became part of it.
She is not involved in the company's operations; she is a psychologist.
At the same time, the transition at Equitas ran into some trouble, and the shortlisted candidates could not join for various reasons.
Hence, I returned. As far as my future is concerned, I have received an extension until July 2029, and I will still have the option of another three-year extension after that.
I am committed to and will remain firmly associated with the bank until then, if God and the regulator allow.
Microfinance Segment Strategy
How are you planning to position the microfinance segment going ahead?
We were a microfinance institution (MFI) long ago and began diversifying our portfolio in 2011.
When the microfinance crisis happened in 2024, there was overleveraging in the MFI segment, which led to a lot of defaults across the industry. At that time, microfinance accounted for 20 per cent of our advances, and that hurt us.
There were certain recurring issues, which affected our bottom line.
However, over the past two years, we have also been able to bring down the share of microfinance to 10 per cent.
Today, we have strengthened the bank's position by having only 10 per cent of our book unsecured, while 90 per cent is secured.
Microfinance itself has now returned to a better shape, and in the rest of the non-MFI business, we have never had a problem in the past 15 years.
This will now enable us to grow faster without credit cost being a concern.
