Equitas Small Finance FY26 Annual Earnings Summary

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.

Management acknowledged that disbursement yields may decline due to the overall interest rate scenario, which could offset NIM gains from lower cost of funds.

Despite improvement, cost-to-income remains high at 72% (70% ex-labor code), and management expects it to decline only gradually to 65% by FY27 exit.

An analyst raised concerns about capital adequacy; management plans to conserve capital via IBPC, CGTMSE, and gold loans, but may need to raise capital in H2 FY27.

West Asia conflict could lead to diesel price hikes >10%, stressing the 12% CV portfolio due to lag in freight rate adjustment.

March 2026 rate hikes on savings and term deposits will increase cost of funds, pressuring NIM from Q1 FY27 onwards.

Q1 and Q2 are seasonally weak for collections, likely leading to higher GNP slippage and income reversals, impacting NIM and credit cost.

An analyst noted that ~62% of advances are in South India; management plans to reduce Tamil Nadu exposure from 44% to 36% over 3-4 years, but near-term concentration risk remains.

If RBI raises rates or deposit competition intensifies, cost of funds could rise further, though management believes ability to pass on costs to borrowers.