Last updated: 01 Nov, 2021 | 08:19 pm
Equitas Small Finance Bank shares fell as much as 6% intra-day to Rs 60.55 on NSE, after the company’s earnings came in below expectations. Here are important highlights from the earnings, and the outlook going forward.
Profit misses estimates: The net profit fell over 60% on-year to Rs 41 crore for the quarter ended Sep, on the back of higher provisions. Analysts had earlier estimated a net profit of about Rs 68 crore. The bank had reported a net profit of Rs 103 crore in the same period previous year.
Total income rises: Total income rose by 16.3% on year to Rs 991.40 crore in Jul-Sep 21, up from Rs 852.08 crore in the same period of the previous fiscal year. The bank has reported a 8% drop in net profit to Rs 195 crore as against Rs 211 crore over the same period.
NIM contracts, PPoP falls - A bank’s primary business is to borrow money and lend the same at a rate higher than the rate at which they borrowed. The income generated from this differential is known as net interest income. Net interest income for Equitas SFB grew by a muted 5% YoY to Rs 484 crore. The Net Interest Margin contracted by a huge 88 bps yearly to 8.14%.
Equitas Bank Q2 results: Important highlights
Higher provisions dent bottomline: The bank’s net profit was mainly impacted by higher provisions during the period. Provisions rose 84% to Rs 138 crore during the quarter, as compared to Rs 75 crore last year. The bank has restructured Rs 1,400 crore of loans, which forms around 7% of gross advances. It carries a total provision of Rs 196 crore towards the restructured book.
Asset quality worsens: The bank’s Gross NPA rose to 4.69% from 2.39% last year. There has also been a sharp increase in the bank’s Net NPAs to 2.37% from 1.09%, up 128 bps on-year. Given the steep rise in NPAs, the provision coverage ratio has fallen to 50.09% from 58.98%. This is despite a 84% increase in provisions during the quarter.
Deposits and Advances: The Bank’s deposits aggregated to approximately Rs 18,094 crore as of Sep-21, a growth of around 40% year-on-year. Bank’s CASA (current and savings account) deposit now comprises 45% of the total deposits of the bank, up by 25% last year. CASA capital is the cheapest source of capital for banks. The higher the number, the more profit a bank can earn. Advances rose to Rs 18,978 crore, up by 13% YoY in the quarter ended Sep 21.
Return ratios decline: The bank’s RoA (Return on Assets) as well as RoE (Return on Equity) fell during the quarter. RoA fell to 0.65% from 1.88% while the RoE fell to 4.79% from 14.42% last year, reflecting the huge dent in the bottomline.
Equitas small finance bank quarterly results
Equitas Small Finance Bank has reported a weak set of numbers in Jul-Sep 21 period, missing street estimates. Higher provisions during the quarter weighed on the bottomline. Asset quality has also worsened, as 17.74% of Covid 1.0 restructured book slipped into NPA. The bank also saw higher restructuring during the period, indicating the stress in the economy. As a result of higher provisions, the return ratios have also deteriorated sharply.
The bank has said that it is seeing improved collection efficiency leading to reduction in overdue cases between 1 to 90 days. The company expects to reach steady state operating level shortly, with asset quality improving. Demand for credit continues to be strong. The second quarter saw the highest quarterly disbursement done by the Bank ever, said Equitas SFB. The positives during the quarter include a healthy rise in deposits as well as improvement in CASA to 45% from 25% earlier. Going forward, a lot would depend on how the bank’s restructured assets behave, and the consequent impact on provisions and NPAs.