Equitas SFB Share: From Microfinance to Housing and Vehicle Loans, Can a Broader Loan Book Improve Returns?
Equitas was originally built around lending to underserved customers, particularly through microfinance. That business remains relevant, but management is deliberately reducing its contribution and building a larger secured-lending franchise around small businesses, housing and vehicle finance. Management said MFI advances are expected to remain around 10% of overall advances going forward.
Equitas Small Finance Bank closed at ₹74 , with a market capitalization of around ₹8,484 crore . The stock's 52-week range is ₹51.25-₹83.90 , while its P/E is around 16.6x and price-to-book is around 1.35x .
The valuation is therefore no longer at the distressed levels seen during the bank's earlier asset-quality problems, but the market still appears to be waiting for a more consistent improvement in returns.
The Loan Book Is Changing Quickly
Gross advances reached ₹47,641 crore in Q1 FY27 , up 27% year-on-year . More importantly, the growth is coming from a broad range of products rather than from microfinance alone.
The bank's non-MFI book stood at ₹41,623 crore , up 22% year-on-year , while non-MFI disbursements increased 68% to ₹5,441 crore . This is a significant shift in the business model.
Small-business loans are the largest component at ₹19,249 crore , followed by vehicle finance and housing. Housing grew 24% , while vehicle finance increased 15% year-on-year. Used commercial vehicles and used cars were particularly strong, growing 25% and 30% , respectively.
Microfinance Is No Longer Driving the Story
Microfinance disbursements were ₹1,343 crore in Q1 , accounting for around 11% of overall disbursements. Management wants the MFI contribution to remain close to 10% of the loan book. That is important because diversification reduces the bank's dependence on a segment that has historically been more vulnerable to collection cycles and regulatory changes.
The current strategy is instead focused on secured lending, where Equitas can use its existing customer relationships and distribution network to build larger loans.
Small Business Lending Is Becoming the Core
Small-business loans are now the largest part of the portfolio.The ₹19,249 crore SBL book grew 15% , while secured business loans within the segment grew 32% . This is important because secured MSME lending can provide a different risk-return profile compared with unsecured or microfinance lending.
Equitas is also trying to increase its exposure to business loans with stronger collateral and better customer profiles, which could support more stable credit costs over time.
Vehicle and Housing Add More Diversification
Vehicle finance has become another meaningful growth area.The overall vehicle book grew 15% , with used commercial vehicles growing 25% and used cars 30%. Management said it is intentionally increasing its exposure to used segments.
Housing is also expanding at 24% year-on-year , providing another secured asset class. This broader product mix means the bank has several avenues for growth rather than relying on one lending segment.
Asset Quality Is Improving
The diversification is happening alongside better credit quality.GNPA declined to 2.36% from 2.49% in the previous quarter , while NNPA stood at 0.70% . Credit cost dropped sharply to 1.37% from 6.48% in Q1 FY26 .
Microfinance also showed signs of stabilization. Collection efficiency was 99.7% , while 1-90 DPD improved to 1.10% from 1.34% . Management still expects credit costs to normalise from the unusually favourable levels seen recently, so investors should not assume that the Q1 figure will continue indefinitely.
Profitability Has Started to Recover
The change in asset quality and stronger loan growth is beginning to show up in profitability.Q1 FY27 net interest income was ₹1,030 crore , while total net income increased 19% to ₹1,280 crore . PAT turned positive at ₹184 crore , compared with a loss of ₹224 crore in Q1 FY26. ROA was 1.18% and ROE was 11.76% .
Management is targeting around 1.2% ROA for FY27 and an exit ROA of approximately 1.5% in Q4 . It has also indicated that full-year ROA could eventually come in above its earlier 1.2% guidance. That makes ROA one of the most important numbers to watch.
Funding Strength and Capital Provide Room for Growth
A larger loan book will require a stronger deposit franchise. Total deposits grew 10% year-on-year and 5% sequentially to ₹48,976 crore, with CASA at 25% and retail deposits contributing around 66% of the total. The bank is also expanding its HNI, emerging affluent and NRI offerings, while its FCNR deposits crossed $42 million. However, the cost of funds rose to 7.05% from 6.94%, making funding efficiency important as loan growth accelerates.
At the same time, the bank's capital adequacy ratio of 19.44% and Tier-I capital of 16.01% provide a cushion for expansion. Management does not currently expect to raise Tier-I capital during the calendar year, though it may consider a raise in Q4 FY27 or Q1 FY28 depending on growth and capital requirements.
Gold Loans Add Another Potential Growth Lever
Equitas is also expanding its gold-loan business.Management said it is increasing distribution across branches and targeting full-year gold-loan disbursements of around ₹1,600 crore , up from a current run-rate of about ₹1,000 crore. Around 120 branches are expected to support the expansion by Q4. Gold loans can provide another secured, higher-yielding product for the bank and fit with its broader move away from microfinance dependence.
Can the Broader Loan Book Improve Returns?
That is the central question for Equitas.The business is already shifting away from microfinance, with secured non-MFI advances growing faster and contributing most of the loan book. Housing, vehicle finance, small-business lending and gold loans now provide multiple growth avenues.
The early signs are encouraging: advances grew 27%, non-MFI disbursements rose 68%, credit costs declined sharply and the bank returned to profit. But the transition is not complete.
The bank still needs to improve its deposit franchise, manage funding costs and maintain asset quality while growing at more than 20%. Management expects operating leverage to help lower cost-to-income in the second half of FY27.
At around ₹71 , the market is already giving Equitas credit for part of the recovery, with the stock trading at about 1.35x book value and 16x earnings . The next level of rerating will likely depend on whether ROA can move sustainably above 1.2%, as management expects, while the broader secured loan book continues to grow.
For now, Equitas looks like a small finance bank in the middle of a business-model transition rather than a finished transformation. The shift towards mainstream secured lending has the potential to make earnings more diversified and stable, but the real test will be whether that diversification produces better returns without creating new asset-quality or funding-cost problems .