Equitas Small Finance Bank: Information Analysis

Equitas Small Finance Bank was originally incorporated as V.A.P Finance Private Limited in 1993. In June 2016, its promoter, Equitas Holdings Limited, got approval from RBI to set up a small finance bank (SFB). Thereafter, the NBFC was converted into an SFB and its operations commenced on September 5, 2016. SFBs are set up in line with the government's initiative of financial inclusion and inclusive banking for the underbanked or unbanked sections of the economy. Holding an edge over NBFCs, these banks can take deposits, which enable them to get funds at low costs and earn high-interest margins. Further, the deposit rates of some SFBs are higher than those offered by larger commercial banks. With a network of 991 banking outlets across 17 states and union territories in India, Equitas Small Finance Bank is the leader among SFBs in terms of the distribution network. Further, it is the second-largest SFB in India in terms of assets under management (AUM) and total deposits in FY19. The SFB's product offerings include small business loans, housing loans, agriculture loans, vehicle loans and microfinance loans. On the liability side, it offers current accounts, salary accounts, savings accounts and term deposits to its customers. Besides, Equitas SFB also offers a range of third-party products, including insurance, FASTag for toll plazas and mutual fund products. Strengths A well-diversified asset portfolio: Equitas SFB has been able to offer a diverse basket of products to its customers and at the same time, has significantly reduced its dependence on the microfinance business from 28.4 per cent on March 31, 2018 to 23.2 per cent on June 30, 2020. Large presence- It is a leader among SFBs in terms of the distribution network. Risks and Concerns COVID-19 impact: There was a significant decline in collections as well as disbursements, owing to the pandemic and the restrictions imposed by the lockdown, which could also lead to an increase in NPAs going forward. Fierce competition: The company operates in a highly competitive industry. Also, the products o