Small business loans & merchant OD facility helped Equitas SFB loan growth: CEO
Synopsis
“We do not expect our risk profile of the portfolio to change pre Covid and post Covid. Also pre Covid, our average annual credit cost used to be in the range of 1 to 1.1% which went up during the Covid period, This year it is seeing a little bit of normalcy and is around 1.5%. We aim to get our credit cost back to that 1.1 to 1.2% level.”
“Today our affordable housing portfolio is nearly about 9% of our growth to book, which used to be 4-5% about a year back. That is a segment which is growing strongly. Besides this, our traditional businesses, which are commercial vehicles, continue to be contributing 25% to the total book and microfinance which continues to contribute about 18% to the total book. They have all shown regular levels of growth,” says PN Vasudevan, CEO,
Equitas Small Finanace Bank NSE-1.75%
Equitas Small Finance Bank growth has been quite strong in the Q3. What are the top contributors to your loan growth? What is standing out for you?
There were two areas where it has really been doing strongly; one is our small business loan which is our flagship programme. Nearly 40% of our loan book is in small business loans. These are very small businesses run by people and they take a loan typically in the range of Rs 3-4 lakh and Rs 7-8 lakh and Rs 10 lakh. That is the kind of loan sizee that they take and secured by their host property and for running the small businesses.
So that is our flagship programme and that is one thing which has been growing at a very strong pace. The second thing is that we have recently introduced a merchant overdraft facility, merchant OD as they call it for the small businesses. That has again been something which has really taken off very strongly as well as the affordable housing finance segment that we started pre Corona. It entered a lull during the Covid period but has picked up momentum again. It is also growing very strongly.
Today our affordable housing portfolio is nearly about 9% of our growth to book, which used to be 4-5% about a year back. That is a segment which is growing strongly. Besides this, our traditional businesses, which are commercial vehicles, continue to be contributing 25% to the total book and microfinance which continues to contribute about 18% to the total book. They have all shown regular levels of growth. So the growth is evenly spread across all our product range with specific extra contributions from our small business and affordable housing.
With higher growth also comes high risk. How are you looking at credit costs and risk, especially on these new loans?
If you look at our product mix, the segment that we deal with on the loan side has really seen no change before Covid. After Covid also there has really been no change. We are continuing to pursue the same segment of borrowers which is principally the borrower from the informal economy. The new credit segment has been our focus, pre Covid and post Covid also.
So to that extent we do not expect our risk profile of the portfolio to change pre Covid and post Covid. Also pre Covid, our average annual credit cost used to be in the range of 1 to 1.1% which went up during the Covid period, This year it is seeing a little bit of normalcy and is around 1.5%, We expect it to land for the current financial year but going forward into the next financial year and thereafter we should aim to get our credit cost back to that 1.1 to 1.2% levels.
I do not see any change in our risk profile just because of the growth as the segment that we deal with is exactly the same as what we have dealt with right from the beginning.
What is your expectation? How deposit growth is likely to pan out? Are you expecting the pace to be faster from here on?
Deposits grew by 31% year-on-year as of December and within that, our CASA has grown by about 19% year-on-year and the remaining is basically contributed by term deposits. Our CASA percentage continues to be fairly robust, it is around 46% odd but it has come down a bit compared to the 50% that was there about a year back. So there is a little bit of reduction in the CASA ratio but still at 46.5%, it is a fairly robust CASA ratio.
Our interest rates are attractive for potential depositors but besides that, we have been doing a lot of other work. Our digital programmes have actually taken off very strongly and today digitally sourced accounts are contributing 9% of our total savings account balances. So this 9% is a complete addition to the savings account balance which would not have been there about a couple of years back when we did not have a digital acquiring programme at all.
So there has been a lot of push both physical and digital and as a result we have been comfortable in seeing a pretty strong deposit as well as CASA growth.
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