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Equitas Small Finance Bank reported a net loss of ₹224 crore for Q1 FY26, driven by aggressive upfront provisioning of ₹185 crore for microfinance standard assets and ₹112 crore for strengthening PCR on the non-MFI book. Revenue from operations was not explicitly stated, but NII stood at ₹786 crore and other income at ₹286 crore. The MFI portfolio contracted 41% YoY to ₹3,537 crore, while secured advances grew 18% YoY, now constituting 90% of the book. Management guided for full-year advance growth of 15-16% and expects credit costs to taper by Q4 FY26. Key risks include prolonged MFI stress, potential further provisioning tightening, and spillover effects from state-level recovery ordinances.
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Guidance to track
- Management expects overall advances to grow 15-16% YoY in FY26, with secured book growing 20%+ and MFI degrowth of 15-20%.
- Management reiterated guidance for ROA to reach around 1% by Q4 FY26, with progressive improvement thereafter.
- Normalized credit cost for the non-MFI book is expected to remain in the range of 1-1.2% for the rest of the year.
- Management expects another ~₹300 crore of credit cost on the MFI book over the remaining three quarters of FY26.
Risks flagged
- Collection efficiency may not normalize until Q3/Q4 FY26, with potential for further credit cost surprises.
- Management did not rule out additional strengthening of provisioning norms in future, which could pressure earnings.
- Karnataka and Tamil Nadu acts against coercive recovery have impacted lower-ticket secured loans, though management sees limited further stress.
- Cost-to-income peaked at 70% in Q1; management expects it to remain elevated in near term before improving to 60-65% in 2 years.
Key quotes
- This is the first time since 2008 that we have reported a loss and hopefully the last time too.
- The thought behind creating a management overlay provision and increasing the provision norms was to speed up the credit cost cycle and showcase the new Equitas going forward without the current drag on the system.
- We have started calibrated lending in microfinance balancing the long-term goal of reduced dependency on microfinance and the short-term goal of improving collection efficiencies.
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