Equitas Small Finance Bank is shifting its focus towards a more secure business model, according to a report by Motilal Oswal. The banking institution is making a concerted effort to transform its operations, prioritizing stability and security in its pursuit of growth. This strategic pivot is expected to have a positive impact on the bank’s overall performance, leading Motilal Oswal to maintain its “buy” rating for the company.
The report highlights Equitas Small Finance Bank’s efforts to strengthen its balance sheet, improve its asset quality, and enhance its liquidity position. The bank has been working to reduce its exposure to high-risk sectors, such as microfinance, and is instead focusing on more secure and stable business lines, including small and medium-sized enterprises (SMEs) and retail lending.
Motilal Oswal notes that Equitas Small Finance Bank’s provision coverage ratio (PCR) has improved significantly, reaching 74.4% as of June 2024. This indicates a substantial reduction in the bank’s non-performing assets (NPAs) and a decrease in its credit costs. The report also mentions that the bank’s net interest margin (NIM) has expanded, driven by an increase in its yield on advances and a decrease in its cost of funds.
The researchers at Motilal Oswal believe that Equitas Small Finance Bank’s new business model will lead to a more stable and sustainable growth trajectory. The bank’s focus on securing its balance sheet and improving its asset quality is expected to result in lower credit costs and higher profitability in the long term.
The report also highlights the bank’s strong capital position, with a capital adequacy ratio (CAR) of 20.6% as of June 2024. This provides Equitas Small Finance Bank with the necessary buffers to absorb any potential shocks and support its growth plans.
Overall, Motilal Oswal’s report suggests that Equitas Small Finance Bank is on the right path, with a more secure business model and a strong balance sheet. The bank’s efforts to prioritize stability and security are expected to yield positive results, making it an attractive investment opportunity. As a result, Motilal Oswal maintains its “buy” rating for the company, indicating a positive outlook for Equitas Small Finance Bank’s future performance.