Equitas Bank's Mixed Q1 FY26: Growth and Asset Quality Challenges
Time to check in on Equitas Small Finance Bank’s latest quarterly numbers for the period ending June 30, 2025! The bank, a key player in India’s Small Finance Bank (SFB) segment, has released its provisional business updates, showing a mixed bag of progress and challenges.
Deposits Surge, Driving Growth 📈
Starting with the good news, Equitas Bank continues to build a strong deposit base. Total deposits clocked in at a healthy ₹44,379 crore as of June 30, 2025. This marks an impressive 18.27% year-on-year (YoY) growth and a solid 2.95% quarter-on-quarter (QoQ) increase. Within this, the crucial CASA (Current Account Savings Account) segment also saw decent growth, reaching ₹13,053 crore, up 11.33% YoY and 5.18% QoQ. While the CASA ratio held steady at 29% QoQ, it did see a slight dip from 31% a year ago. A higher CASA ratio is generally good for banks as it signifies access to cheaper funds, which helps manage the Cost of Funds. Speaking of which, the Cost of Funds saw a marginal decrease QoQ to 7.49% from 7.54%.
Advances Show Divergent Paths 🛣️
The bank’s Gross Advances saw a modest QoQ increase of 0.13% to ₹38,034 crore. However, a closer look reveals a significant strategic shift or performance divergence within the loan book:
- Non-Micro Finance & Other Loans: This segment is firing on all cylinders, growing by a robust 18.06% YoY to ₹34,118 crore. This is great news as it indicates diversified growth beyond traditional microfinance.
- Micro Finance & Micro Loans: This segment has seen a notable contraction, shrinking by 34.44% YoY and 13.49% QoQ to ₹3,916 crore. This could be a deliberate move to de-risk or re-align the portfolio, given the inherent challenges in microfinance lending.
Here’s a quick snapshot of the quarterly performance:
| Particulars (In Rs. Crore) | June 30, 2024 (Unaudited) | Mar 31, 2025 (Audited) | June 30, 2025 (Provisional) | YoY % | QoQ % |
|---|---|---|---|---|---|
| Gross Advances* | 34,871 | 37,986 | 38,034 | 9.07 | 0.13 |
| Micro Finance & Micro Loans | 5,973 | 4,527 | 3,916 | (34.44) | (13.49) |
| Non- Micro Finance & Micro Loans | 28,899 | 33,459 | 34,118 | 18.06 | 1.97 |
| Total Deposits | 37,524 | 43,107 | 44,379 | 18.27 | 2.95 |
| CASA | 11,724 | 12,410 | 13,053 | 11.33 | 5.18 |
| CASA Ratio (%) | 31% | 29% | 29% | ||
| Cost of Funds | 7.46% | 7.54% | 7.49% |
*Note: Gross Advances include securitized/assigned portfolios of ₹2,174 crore as on June 30, 2025 and ₹1,064 crore as on March 31, 2025.
Asset Quality: Microfinance Challenges Persist 📉
This is where things get a bit trickier, particularly for the microfinance book. The Annualized Net Slippage percentage, which essentially tells us how much new bad debt is coming in (net of recoveries), saw a significant uptick overall and notably in the microfinance segment.
| Annualized Net Slippage (In %) | Q1 FY 25 (Unaudited) | Q2 FY 25 (Unaudited) | Q3 FY 25 (Unaudited) | Q4 FY 25 (Audited) | Q1 FY 26 (Provisional) |
|---|---|---|---|---|---|
| Micro Finance | 4.98% | 8.31% | 14.16% | 12.85% | 19.75% |
| Non Micro Finance | 1.81% | 2.28% | 1.11% | 1.54% | 2.27% |
| Overall Net Slippage % | 2.38% | 3.31% | 3.15% | 3.16% | 4.35% |
As you can see, Micro Finance net slippage jumped to 19.75% in Q1 FY26 from 12.85% in the previous quarter. This indicates a challenging environment for recoveries and managing defaults in this segment. Overall net slippage also rose from 3.16% to 4.35%. For context, Equitas, like other Small Finance Banks, works with a customer base that often includes segments with higher credit risk, making asset quality management a continuous focus.
On the brighter side, the bank’s collection efficiency for Microfinance & Micro Loans generally remains high. For June 2025, the overall monthly collection efficiency stood at 98.69%. However, Karnataka, while improving to 97.44%, still lags behind Tamil Nadu (98.70%) and the rest of the country (98.71%).
In terms of portfolio composition, unsecured Micro Finance & Micro Loans make up 10% of the total advances, with the remaining 90% being secured, which is a healthy split from a risk management perspective.
What’s Next? 🤔
Equitas Bank’s Q1 FY26 update paints a picture of robust growth in its core deposit franchise and its non-micro finance lending. However, the performance of the microfinance portfolio, specifically the rising net slippage despite its shrinking size, will be a key area for investors and analysts to watch. The bank’s continued focus on diversified growth and maintaining strong collection efficiencies across its broader loan book will be crucial moving forward. These numbers are provisional and subject to final audit, but they offer an early glimpse into the bank’s financial health. Stay tuned for the official detailed results! 📊
source: Corporate Announcement
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