90% of Equitas Small Finance Bank's advances are in the informal economy

Ahead of its IPO, Equitas Small Finance Bank's Managing Director & CEO PN Vasudevan explains that 90 per cent of its advances are given to small businesses in the informal economy. Given the huge unmet demand in the underserved segment, he believes that there is enough room for growth. Edited excerpts from an interview.

What is the appetite that you are seeing for the issue so far, what is the sense that you get?
We believe that there is a good amount of interest for our IPO which is why we are doing it now. We also need to do that as per the tough regulatory requirement.


We have been growing at around 30-35 per cent per annum over the last few years. Microfinance is about 23-24 per cent of our book, commercial vehicle finance is about 25 per cent, small business loans about 40 per cent, SMEs about 5 per cent and lending to other NBFCs is about 5 per cent. So we are fairly diversified.

Lending to SMEs and NBFCs is about 10 per cent of the total advances. 90 per cent of our advances go to informal economy customers who are very small business people. Various government reports suggest that more than 95 per cent of demand from that segment is not met by banks. That is why you have been seeing a very consistent growth in our advances over the last few years.

Our asset quality has been quite steady. Our GNPA has always been in the range of 2.7-2.8 per cent. As long as we have control on asset quality, we should always be pursuing growth given that there is a large amount of unmet demand in the segment that we serve.

How much of the issue is primary, how much is secondary. What will be your capital adequacy?
In the current IPO, there is a fresh capital of Rs 275 crore and the holding company is selling 7.25 crore shares. Capital adequacy of the bank is just over 21 per cent, and after the IPO it should move up to around 22 per cent. So we are fairly well-capitalised and should be able to pursue growth with this level of capital adequacy.

How is the latest collections efficiency trend, especially in the last couple of weeks?
August collections efficiency is in the range of around 84 per cent. We have not put out the September number in the RHP (red herring prospectus), so we would not be able to share that but suffice to say that the trend has been improving since the easing of lockdown in June. 90 per cent of our accounts were under moratorium in April and May. In the subsequent months, it has been coming down continuously.

What are your plans for sector-specific credit growth? Where do you see robust lending opportunities?
We have a fairly diversified book and our asset quality across all products has been very comfortable. So the focus on growth will be across all our product lines.

We are operating in markets which are fairly under served by the banking industry. The unmet demand is high and so is the ability to grow.

Any geographies that you are focusing on at this point of time?
Right now we operate in the south, west and north. According to our medium term plan, we do not want to go to the east. In terms of advances, south is our largest contributor and so we will give an extra focus there.

What about segments like gold loans which are showing a lot of promise. Do you have any concrete plans to build a strong gold loan book?
Yes, we are looking at leveraging the investments that we have made so far in the last 2-3 years of conversion into a bank. With 850 banking outlets, we believe that the scale of the bank can be much larger than what it is today. So the entire short-term to medium-term plan will be to leverage the investments we have made on our branch network which will help us keep reducing our cost-to-income ratios.

Gold loan is definitely one of the products that we are looking at. We have more than 3.5 million clients on the asset side and a large number of those customers are potential gold loan customers.

We have introduced gold loan recently. Besides the open market customers, we will also be focusing sharply on our existing clients. Banks offer attractive gold loan rates.