News Analysis

Why the Equitas SFB stock has plunged

Hamsini Karthik |BL Research Bureau | Updated on: May 24, 2022
PN Vasudevan, MD and CEO, Equitas SFB

PN Vasudevan, MD and CEO, Equitas SFB | Photo Credit: Bijoy Ghosh

The MD & CEO’s exit sparks questions, coming as it does amidst corporate changes such as the reverse merger with the holding company and Equitas’ universal bank aspirations

For any company the management committee or the mancom is an extremely important unit. Headed by the MD & CEO, for banks, mancoms hold high relevance. It sets the tone for the bank’s credit discipline, its future plans and pins down its underlying principles. From that perspective, MD & CEO PN Vasudevan’s untimely exit from Equitas Small Finance Bank is a huge setback.

Reacting to the move, which was announced on Thursday after market hours, the Equitas SFB stock, trading at a 52-week low, has plunged by over 20 per cent since last Friday. When his term comes to an end on July 22, Vasudevan would seek a year of extension (instead of the three years he would have normally sought) to handhold the incumbent MD & CEO.

Unlike most bank CEOs, Vasudevan is the promoter of Equitas, though his stake in the bank and the holding company adds up to less than two per cent on a combined basis. In 2007, he set up Equitas Micro Finance as a microfinance institution and it was quick to establish its dominance in the southern market. Much ahead of time and well ahead of peers, Vasudevan had set his sights on transitioning Equitas from an MFI business to a bank. “Bank is the ultimate evolution of an NBFC”, Vasudevan often said this at various forums.

Therefore, when the opportunity to become an SFB came up in 2015, he was quick to grab it. Within 18 months of obtaining a licence, Equitas SFB reduced the share of MFI loans to less than 50 per cent of the total book. At present, MFI loans account for about 18 per cent of a diversified loan book, which is the bank’s biggest plus. Likewise, on the liabilities side, Equitas was quick to replace its bond options with deposits. With a CASA ratio of 45 per cent (the share of low-cost current account--savings account deposits to total deposits in FY22), Equitas has an edge over the competition. Its peers lag with a CASA ratio of less than 30 per cent.

Equitas has initiated a reverse merger of the holding company with the bank and plans to elevate to the next level as a universal bank. While organisations are said to be larger than their key managerial personnel and generally the show goes on irrespective of who is in charge, in Equitas’ case, it may be a bit different. As someone who has steered the ship since day 1 and has been hands on with the bank’s operations, Vasudevan’s exit is a setback at a time when the bank has grand plans.

Until a new MD & CEO takes charge and spells out the way forward and more importantly assures continuity of plans, which have already been rolled out, such as its diversification strategy and its universal bank aspirations, the Equitas SFB stock may remain under pressure.

We at BL Portfolio have a constructive view on the stock (Why Equitas SFB stock is a bankable bet for the long-term). From the perspective of financials, there is little to suggest that the exit if the top brass can be detrimental to the bank and, hence, we continue to hold a positive view on it. However, we will keep a watch on how the change impacts the overall strategy, based on which our view may be revised if required.

Published on May 24, 2022
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