Tag: Equitas Small Finance Bank

AU Small Finance Bank appoints Sharad Goklani as CTO, BFSI News, ET BFSI

Banking & Finance

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AU Small Finance Bank has appointed Sharad Goklani as President & CTO. He will be based out of Jaipur and will report to the company’s CIO, Ankur Tripathi.

In his new role, Goklani would be responsible for ensuring technology deployment and adoption across the bank.

“Moreover, given the diverse personas of our customer base, as a CTO of a tech-first Bank, Mr. Goklani would be responsible for creating technology interfaces, which are adaptable are flexible enabling tailor-made services for our unique set of customers,” the company told ETCIO.

Founded in Jaipur in 1996 as Au Financiers, a non-deposit taking NBFC, the company transformed into AU Small Finance Bank in 2017.

As a retail-focused bank constantly innovating to make banking simple for its customers, AU Bank is now moving towards being a digitally-led Bank with a pan India presence.

Previously, Goklani was EVP & CTO at Equitas Small Finance Bank. He has close to 25 years of professional experience and has worked with companies like Bharti Airtel and NIIT Limited in the past.

Purani has done his MCA from the University of Rajasthan.



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Three metrics to look for in NBFC results

Personal Finance

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If you’ve invested in fixed deposits with finance companies (NBFCs) or small finance banks (SFBs), the new business risks created by Covid-19 have made it necessary for you to keep a hawk eye on their financials. Borrowers, hit by income cuts, have been delaying loan repayments.

The RBI had directed lenders to declare a holiday (moratorium) on repayments until August 31. The Supreme Court has been hearing a case on extending this holiday, while stopping lenders from recognising bad loans until it decides.

With these developments, the already jargon-packed results from banks and NBFCs have acquired some new terms. Here are three new metrics you need to get a grip on.

Collection efficiency

The collection efficiency ratio is one performance metric that has materially moved NBFC and small finance bank (SFB) stocks in the recent results season. This is the proportion of loans that a lender has collected in the month or quarter to the outstanding dues at the beginning of the period. The closer it is to 100 per cent, the greater the comfort that borrowers are repaying their dues on time.

During the April-June lockdown, sudden income shocks and the inability of collection agents to visit borrowers severely impacted the collection efficiency of SFBs that gave out micro-finance loans.

Equitas Small Finance Bank, for instance, saw its overall collection efficiency fall to 11 per cent in April. But with unlocking and revival, it improved to 94.3 per cent by October. The ratio can vary for different types of loans.

Stage 1, 2 and 3 assets

Earlier, Indian lenders reported their doubtful loans based on defaults they had already incurred. Loans unpaid for over 90 days were treated as non-performing assets (NPAs). But with Ind AS, lenders such as NBFCs are now required to use an “expected credit loss”, or ECL framework, to recognise doubtful loans.

Here, each lender is expected to forecast expected defaults over the next 12 months and over the life of each loan. These are, in turn, classified and disclosed as Stage 1, Stage 2 and Stage 3 loans.

Stage 1 loans are those where the lender has not seen any change in default risk from the time of disbursement. Stage 2 loans are those where there has been some increase in the default risk from the date of giving out the loan, though there is no objective evidence of this.

Stage 3 loans are those where there’s objective evidence of defaults. The proportion of Stage 2 and Stage 3 loans in an NBFC’s books and the provisions against them can tell you if a big spike in NPAs is coming in future quarters.

Proforma NPAs

With the apex court imposing a standstill on recognising defaults after August 31 as NPAs, official NPA numbers reported by lenders no longer reveal the true state of bad loans. To get around this , some lenders have taken to disclosing ‘proforma NPAs’.

Proforma gross and net NPAs tell you what the lender’s NPAs would have looked like, if it had continued to recognise bad loans without applying the court concessions.

Bajaj Finance, for instance, has said that its proforma gross NPAs and net NPAs for the September quarter would have been 1.34 per cent and 0.56 per cent, respectively, instead of the reported 1.03 per cent and 0.37 per cent, had the SC concession not applied. This is a more reliable estimate than that reported.numbers.

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Equitas Small Finance Bank FDs: Attractive short-term option

Personal Finance

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Following the RBI’s sharp 75 basis point (bps) cut in March and another 40 bps cut in May, the repo rate has come down from 5.15 per cent at the start of 2020 to 4 per cent now.

In tandem, large commercial banks have slashed their deposit rates by 70-160 bps in the last year or so.

With rates at historical lows, those depending on bank fixed deposits (FDs) such as senior citizens have been left with fewer options than ever before. Small finance banks (SFBs), too, have cut their deposit rates by 100-150 bps the pastyear. Still, SFBs offer higher rates than others.

Attractive rates

FDs from Equitas Small Finance Bank are worth considering. Equitas SFB is offering 6.75 per cent per annum on its one-year to 18-month deposits. For senior citizens, the rate is 7.25 per cent per annum, that is, an extra 0.50 percentage points.

For similar one- to two-year deposits, public sector banks offer rates of 4.9-5.3 per cent and most private sector banks offer less than 6.75 per cent. Senior citizens get an additional 0.50 percentage points on these rates from most banks.

Given the current low rates, investors are better off putting their money in shorter-tenure deposits so that they don’t lose out on better returns once the rate cycle starts turning up.

Hence, one-year FDs are a good option now. While you can opt for deposits of below one year, too, the interest rates on these are lower.

Better rates apart, FDs with SFBs (like with other banks) are covered under the Deposit Insurance and Credit Guarantee Corporation’s (DICGC) deposit insurance cover of ₹ 5 lakh per bank. Fixed deposits with NBFCs, some of which have attractive rates, too, can be riskier and are not covered by DICGC.

Apart from booking an FD in person at the bank branch, investors can also book one online on Equitas SFB’s website. But the maximum deposit amount allowed online is ₹ 90,000 and you can choose a tenure of only between seven and 365 days.

The bank charges a penal rate of 1 per cent on FDs closed prematurely. There is no penalty for premature closure of deposits (under ₹2 crore) that have completed over 180 days. Premature withdrawal in case of death of the primary holder, too, is not penalised.

Healthy financials

Apart from good rates, the bank’s healthy financials also lend comfort. Equitas SFB commenced operations as a SFB in September 2016. It came out with an initial public offering in October 2020.

Equitas SFB has a well-diversified loan portfolio and is into micro- finance, small business loans and vehicle finance.

Nearly 67 per cent of the bank’s loan book of ₹16,530 crore as of September-end 2020 was towards clients in South India (largely Tamil Nadu).

As of September-end 2020, the bank’s gross NPAs (non-performing assets) were 2.48 per cent, down from 2.68 per cent in June-end. Its tier 1 CRAR (capital adequacy ratio) of 20.16 per cent as of September 2020 is well above the minimum regulatory requirement.

Impacted by Covid-19, many SFBs saw their collection efficiencies deteriorate. With an easing of lockdown restrictions, Equitas SFB has seen its collections improve across many loan segments (excluding vehicle finance). The bank’s overall collection efficiency has gone up from 49 per cent in June 2020 to over 94 per cent in October 2020.

With the moratorium ending on 30 August, customers accounting for 94 per cent of the bank’s advances paid their EMIs during at least September or October (or both).

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How Equitas SFB beats most others in FD rates

Personal Finance

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Following the repo rate cuts by the RBI, banks have slashed deposit rates by up to 165 basis points (bps) since the start of the year.

Even small finance banks, which lure depositors with comparatively higher rates, have lowered interest rates on deposits by more than 100 bps (year-to-date).

With rates at a multi-year low now, locking deposits in long tenures will mean missing out on higher returns when the rate cycle begins to move up. A one-year timeframe is ideal as this will give the opportunity to reinvest at better rates later.

After the latest revision of rates, done in June 2020, Equitas Small Finance Bank’s (SFB) rates are better than that of its peers. For deposits of one-year tenure, Equitas SFB offers 7.1 per cent interest per annum. Senior citizens get an extra 0.60 percentage points. The minimum deposit is stipulated at ₹5,000. Investors can choose the cumulative option.

For a similar tenure, public sector banks offer interests of 4.9-5.55 per cent, while private banks offer up to 7 per cent.

For a similar tenure, deposits rates of other small finance banks (barring Fincare Small Finance Bank), after their recent revisions, are also lower than Equitas SFB’s rates.

FDs with banks (including those with SFBs) are covered under the deposit insurance offered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) for up to ₹5 lakh per bank.

Open FD online

Depositors who wish to stay home can apply online, using the Selfe deposit option (on the bank’s website). Customers can open fixed deposits (FDs) online for a tenure of up to one year only. Also, the maximum amount of FD that can be opened online is capped at ₹90,000. For opening a deposit with a higher tenure or amount, customers will have to personally contact the bank. In select regions, doorstep banking facility is available to open an FD.

The bank also permits partial or full premature withdrawals of the FD, but only after 180 days since the date of opening the deposit.

For deposits with effective tenure shorter than 180 days, a penalty of 1 per cent shall apply on premature withdrawal.

However, premature withdrawals are not permitted if the customer opts for monthly interest payouts.

About the company

Equitas Small Finance Bank, previously Equitas Finance, began operations in September 2016. The bank has about 854 outlets across the country, with vast presence in Tamil Nadu (328 banking outlets).

Tamil Nadu also accounts for about 61.9 per cent of its outstanding loan book as on June 30, 2020.

The bank is currently into micro finance, small business loans (including housing and agricultural loans) and vehicle finance. It also lends to MSEs and corporates.

As on June 30 the bank had a loan book of ₹15,573 crore, with gross NPA at 2.68 per cent. The bank’s capital adequacy ratios are well above the minimum regulatory requirement — Total CRAR and Tier-I CRAR at 21.59 per cent and 20.61 per cent, respectively.

In the wake of the pandemic, small finance banks have faced severe anomalies in their collections, predominantly those with higher exposure to micro finance.

That apart, the moratorium on loans also hints at the possibility of bad loans inching up in the coming quarters.

Equitas SFB also saw its collections efficiency drop to 49 per cent in June 2020, from 78 per cent in March 2020. Also, about 51 per cent of the bank’s customers (by value) had opted for the moratorium, as of June quarter end.

That said, according to its recent exchange filing, the bank’s collection efficiency improved to over 80 per cent in August 2020, thanks to the bank’s diversified loan book — micro finance only constitutes about 23 per cent of the loan book currently.

Also, the loan book under moratorium is only 35 per cent of gross advances at the end of August 2020.

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