Equitas Small Finance Bank – the banking subsidiary of Equitas Holdings – listed at a discount to the IPO price of ₹33 per share on Monday. The IPO was mainly to meet the RBI’s regulatory norms that require the banking subsidiary to be listed within three years of commencement of operations and to reduce promoter (Equitas Holdings) stake in a staggered manner. With disbursements recovering significantly over the past few months and collections at 94 per cent, PN Vasudevan, MD and CEO, Equitas Small Finance Bank, expects normalcy to return by the fourth quarter of the fiscal. Excerpts:

Post the IPO, the promoter holding (Equitas Holdings) has come down to about 82 per cent. But it needs to be brought down further to 40 per cent by September 2021; 30 per cent by September 2026; and 26 per cent by September 2028. What are the various options you are considering to reduce promoter stake?

So, there are two or three standard options that include the M&A route (taking over an NBFC/HFC) and raising fresh capital by the bank. We will assess each of these options at the appropriate time and take a decision that is more beneficial to existing investors.

Equitas has been among the well-diversified SFBs, with its non-MFI portfolio at 77 per cent of total loan book. While this lowers the concentration risk, do you think that branching out of MFI loansmay have lowered long-term growth and returns significantly? In hindsight, do you thinkMFIs converting into SFBs has augured well for them, given the cost of meeting regulatory norms and challenges in raising low-cost deposits?

We have been very clear in our strategy right from the start. We intended to diversify our assets, and we will continue to do so in the future. We want to create a bank that is professional and scalable for a long period of time. We are happy with the diversification we have built in our loan book, and we believe that we have built a very strong platform, which will be scalable over a long period of time.

How have disbursements panned out in the last two months? Are we close to pre-Covid levels across loan segments?

No, we are yet to come back to normal levels. By fourth quarter, we should be back to normal levels. The MHCV segment (about 5 per cent of total loans) will take longer to recover because there was pain even before Covid. Barring that, all other segments should see disbursements recover to normal levels.

According to your latest update, post the moratorium (August 31), collections stand at 94 per cent (paid EMIs either during September 2020 or October 2020 or both months). Is this a satisfactory performance?

For Equitas, 90 per cent of the customers are from the informal economy, and we have a good relationship with them built over the years. So, we understand the customer segment very well and are able to assess their cash flows and credit worthiness. Hence, in April and May, we offered moratorium to everyone, so they are not troubled by payment of instalments. So, we had 90 per cent of our borrowers taking the moratorium in April-May. We were not worried because we believed that once the lockdown is lifted and businesses open, they would start paying the EMIs. And, we were proved right. In October, only 6 per cent of the loans have not paid both the September and October 2020 EMIs; of this, only 1 per cent is unsecured (MFI loans) and remaining 5 per cent is secured loans.

So, we are very comfortable with this level of collections. In the second half of the fiscal, we should get back to normal levels of business.

But in some segments such as vehicle finance, collection efficiency is still lower at 88 per cent? Do see any concern there?

In the vehicle finance segment, the light and small CV segments have started doing very well. Only in the heavy CV segment, the levels of freight availability remain a challenge, and that segment may take some time to come back to normalcy.

Can throw some light on the impact of asset classification standstill (owing to Supreme Court order) and restructuring requests?

On asset classification benefit, we will be able to disclose that number during the announcement of the September quarter results. On restructuring, we have approached our customers and, as of now, we do not have too many requests. We expect restructuring requests mainly from customers in the heavy CV segment, or those running staff transport/school transport etc.

Equitas has made about ₹145 crore of Covid-related provisions so far (until June quarter). Will this suffice to absorb losses on account of higher delinquencies?

The board will decide whether we need to make additional provisions in the September quarter. But ₹145 crore of provisions itself present a strong level of provisions at 0.9 per cent of loans.

The company has performed well on the liability front so far – retail deposits constitute 57 per cent of total deposits as of June 2020. Will increasing the share of CASA significantly hereon be a challenge? Equitas has been offering higher rates on retail FDs. How long will you continue to offer higher rates to garner deposits?

Our overall strategy on deposits will remain; we will continue to offer relatively higher rates than traditional banks. Deposit flows have continued to be strong in the September quarter, too. We will keep tinkering with the rates, but for some time, we will continue to keep rates higher to acquire customers. Over a period of time, we will ensure that they also avail other services so that we can build a sticky relationship. So when we drop rates over time, we should be able to retain customers.

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