Background & Operations:
Equitas Small Finance Bank Ltd (ESFBL) was the largest SFB in India in terms of number of banking outlets, and the second largest SFB in India in terms of assets under management and total deposits in Fiscal 2019. It has been able to successfully diversify its loan portfolio and significantly reduce its dependence on microfinance business as compared to other microfinance companies that has converted to SFBs. It offers a range of banking products and services to customers with a focus on serving the financially unserved and underserved customer segments in India. Its strength lies in promoting financial inclusion within these segments, with its group beginning operations in 2007 as an NBFC providing microfinance loans through EMFL. It has been providing housing finance since 2011 through EHFL. It has also been providing vehicle finance and MSE finance through the Erstwhile NBFC that received its asset finance license in 2012, primarily to economically disadvantaged households. While its business model has transitioned over the years, the provision of sustainable credit to unserved and underserved segments has remained its core focus.
ESFBL’s focus customer segments include individuals with limited access to formal financing channels on account of their informal, variable and cash-based income profile. It offers a range of financial products and services that address the specific requirements of these customer segments by taking into account their income profile, nature of business and type of security available. Its asset products are suited to a range of customers with varying profiles. These include provision of small business loans comprising LAPs, housing loans, and agriculture loans to micro-entrepreneurs, microfinance to JLGs predominantly comprising women, used and new commercial vehicle loans to drivers and microentrepreneurs typically engaged in logistics, MSE loans to proprietorships, and corporate loans. On the liability side, its target customers comprise mass and mass-affluent individuals to whom it offers current accounts, salary accounts, savings accounts, and a variety of deposit accounts. In addition, it also provides non-credit offerings comprising ATM-cum-debit cards, third party insurance, mutual fund products, and issuance of FASTags.
ESFBL has witnessed significant growth in its business, and in Fiscal 2019 had a market share of 16% in terms of assets under management in India. In Fiscal 2019, it recorded the fourth lowest yields indicating its diversification away from microfinance. It also witnessed the second fastest growth in deposits from Fiscal 2018 to Fiscal 2019. It deposits has grown at a CAGR of 38.75% from Rs.56,039.73 million as of March 31, 2018 to Rs.107,884.05 million as of March 31, 2020. As of March 31, 2019 its CASA ratio was the second highest among SFBs in India, and its retail deposits to total deposits ratio was the third highest among SFBs in India. As of June 30, 2020, its CASA ratio and retail deposits to total deposits ratio was 19.97% and 37.13%, respectively. As of March 31, 2019, it had the largest network of banking outlets among all SFBs in India. As of June 30, 2020, its distribution channels comprised 856 Banking Outlets and 322 ATMs across 17 states and union territories in India. It also distribute products through digital channels, and leverage technology to identify opportunities to better serve its target customer segment. As its products comprise small ticket loans and retail deposits, its operations require a large number of employees in the field to generate volumes for this business. As a result, it trains its employees to undertake assessment and appraisal of customer creditworthiness with limited documented income. As of March 31, 2019, it was third among SFBs in India in terms of advances made per employee and fourth in terms of deposits collected per employee.
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