Equitas sees strong AUM growth, NPAs rise due to transition to small finance bank: Raghavan HKN, Equitas Holdings

In a chat with ET Now, Raghavan HKN, CEO, Equitas Holdings, says housing finance is a very small percentage of contribution to portfolio, roughly at 3% to 4%.

Edited excerpts


The NII growth and the AUM growth. It has been rather solid. What have been the key drivers? How do you see the rest of the year shaping up?

This quarter has been quite an eventful one for us and we converted ourselves into a small finance bank and performance of this quarter is in line with our expectations and consistently in line with the past performance.

If you look at the asset growth, it is about 45% and we have crossed Rs 7000 crore of asset and in terms of net interest income, grown by 40% and in terms of the PAT, we have grown by 16%. And if you look at the PAT, I would like to bring in two important elements of this PAT. One is that conversion from an NBFC to small finance bank, it entailed one which is a one-time cost. The one-time cost is basically, during the month of August, we raised Rs 4500 crore in order to meet the SLR and CRR requirement and partly also to pre-close the high-cost loans.

Put together, certain costs, pre-closure charges were there plus we carried NPA of Rs 4500 crore for a month which actually is a negative of 4% and NPA recognition which is actually a one-time moment from 120 days to 90 days.

All these factors put together would have cost roughly around Rs 14-15 crore. So if you gross it up, we would have been around 50% growth in terms of PAT compared to last year.

Although NII growth has been very strong, profits seem to have been impacted due to one-time transition cost and recurring cost. Could you elaborate more on the nature and how these costs will be accounted for going forward, also what is the kind of recurring cost that one can expect over the next three-four quarters, people need to work with the cost base of the bank?

As far as recurring costs are concerned, we have close to 1,500 branch employees coming on board and their salaries have started ticking in. While the rentals of these branches is not substantial as we go forward, as we start launching branches, the rental cost plus additional manpower cost will also start coming in. And also if you look at it, the depreciation will also start coming in. Hence the recurring cost is only going to go up and then once our completely 412 branches operational which is going to happen by the end of August next year, that will stabilise product time as far as recurring expenses are concerned.

Let us talk about the NPA report this quarter. Although NPAs are broadly stable, which sectors are you seeing NPAs on the 90 DPD?

Our NPA levels are quite stable. But because of the recognition part, number one is that moving to 90 days plus as an NBFC the repossessed vehicle was not part of an NPA. But currently it will start getting into as an NPA. We also have a securitisation of around Rs 800 crore. Put together, the NPA number is at 2.53%. And NPAs are basically in microfinance. The NPA recognition is actually kind of adding a realising lot of provisions there.

As far as the vehicle finance is concerned, coming to this 90 days plus, if you add the NPA provision for the repossessed vehicle, it will be around 6.5 and I would say that compared to the industry we are definitely far better as far as the NPA of the vehicle finance is concerned and housing finance is a very small percentage of our contribution to the portfolio, roughly around 3% to 4%.

We are into affordable housing and we would continue to experiment this particular product because there is no proven model as far as the affordable housing sector is concerned. We will be continuing to go slow as far as the housing is concerned. Overall, the NPAs are quite stable.


What about NIMs? What has led to this impact on margins and how do you see the rest of the year shaping up?

If you look at the net interest margin, it will continue because we are servicing the segment which is not serviced by the formal sector. The model is different though we just converted into a small finance bank operation model does not completely change. Hence the NIM would hover between 10% and 11% and that is how it is going to be moving forward.

Your small finance bank, the Equitas small finance bank commenced operations on September 5th. If I am not wrong, what is the key competitive advantage in a crowded market like this? How do you see that shaping up?

Equitas right from the beginning has been known for its execution, innovation, cutting edge IT technology that we actually implemented in the microfinance sector which actually improved our efficiency. However, the corporate governance I would say is highly competitive advantage for us, actually that is what actually brings us lot of strength into it.

Equitas is a professional organisation not led by one single promoter having a very high stakes. So in this kind of situation the corporate governance and being a fair and transparent organisation actually gave us a competitive advantage.

Going forward, after converting into a bank, we were the first one to start our operations within a matter of one year. That gave us a kind of credibility.