Equitas Small Finance Bank Limited: history, ownership, mission, how it works & makes money

A Brief History of Equitas Small Finance Bank Limited

Equitas Small Finance Bank Limited (ESFB) was established in 2016 as part of the Reserve Bank of India’s initiative to promote financial inclusion by granting licenses to small finance banks. It commenced operations on September 5, 2016, with the aim of providing financial services to the underserved and unbanked sectors of the population.

The bank is a subsidiary of Equitas Holdings Limited, which was originally founded in 2007. Equitas Holdings started as a microfinance institution, focusing on providing various financial products, including loans to micro-enterprises. By transitioning into a small finance bank, ESFB expanded its product offerings to include savings accounts, fixed deposits, and other retail banking services.

Upon receiving its banking license, ESFB made a significant impact with its unique banking model, leveraging technology to enhance customer experience and operational efficiency. As part of its growth strategy, the bank aimed to reach over 4 million customers by leveraging its extensive branch network and digital platforms.

As of March 2023, Equitas Small Finance Bank reported a consolidated net profit of ₹236 million for the financial year 2022-2023, marking an increase from the previous year. The bank's total deposits stood at ₹177 billion, with a year-on-year growth of approximately 21%.

Equitas Small Finance Bank strategically chose to open branches in rural and semi-urban areas, building a network of over 400 branches across India by the end of March 2023. This branch expansion is accompanied by a significant investment in digital banking initiatives, enabling customers to access banking services through mobile applications and online platforms.

The bank's commitment to sustainability and social responsibility is evident in its lending practices, with a significant focus on micro and small enterprises, agricultural financing, and affordable housing. It has contributed to a considerable amount of loans disbursed, reaching nearly ₹80 billion in loans to micro and small businesses by 2023.

Equitas Small Finance Bank has also made strides in improving financial literacy among its customers, conducting various initiatives and workshops to educate the community about banking services, investment options, and savings strategies.

In terms of stock performance, Equitas Small Finance Bank was listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in November 2020. Its stock price has experienced fluctuations but generally trended upward, with a share price of around ₹68 as of March 2023, showcasing investor confidence in its growth trajectory.

Overall, Equitas Small Finance Bank has established itself as a pivotal player in the Indian banking landscape, focusing on inclusivity, technology adoption, and customer-centric services while maintaining robust financial health.

A Who Owns Equitas Small Finance Bank Limited

Equitas Small Finance Bank Limited, incorporated in 2016, is a prominent financial institution in India, primarily focusing on providing financial inclusion through various banking products. As of March 2023, the ownership structure reflects a diverse blend of institutional and retail shareholders.

The majority of the bank's stakes are held by the parent company Equitas Holdings Limited, which had a holding of approximately 82.5% in Equitas Small Finance Bank. This indicates a strong control by the holding company over the bank's operations and strategies.

Here is a breakdown of the major shareholders:

The bank's distinct customer-centric model has garnered attention and investment from various institutional entities. As per the latest reports, the market capitalization of Equitas Small Finance Bank was around INR 9,500 crores as of late September 2023. This reflects the confidence of investors in the bank’s growth potential and stability.

Equitas Small Finance Bank has been successful in expanding its footprint across India, with over 410 branches and a strong digital banking presence. The bank reported total assets of approximately INR 22,000 crores as of FY 2023, showcasing significant growth and a diversified loan portfolio.

• Net Profit for FY 2023: INR 300 crores
• Net Interest Margin (NIM): 7.7%
• Capital Adequacy Ratio (CAR): 18.5%

As the banking sector continues to evolve, Equitas Small Finance Bank's ownership structure, driven by major institutional players, suggests a high level of confidence in its operational model and future growth trajectory.

Equitas Small Finance Bank Limited Mission Statement

Equitas Small Finance Bank Limited aims to provide comprehensive financial solutions to the underserved segments of society while maintaining high standards of service and transparency. The mission is structured around several key drivers: customer satisfaction, financial inclusion, and sustainable growth.

The bank focuses on empowering individuals and small businesses with a diverse range of financial products, ranging from savings accounts to loans tailored for micro, small, and medium enterprises (MSMEs). In FY 2023, Equitas recorded a total income of ₹1,049 crore, showcasing a growth of approximately 24% from the previous fiscal year.

Equitas operates with the following core principles:

• Customer-centric approach
• Innovation in financial services
• Fostering economic empowerment
• Commitment to social responsibility

The bank's financial performance can be summarized in the table below, outlining key metrics relevant to its mission statement:

Equitas Small Finance Bank focuses on financial inclusion through various initiatives. The bank has served over 3.5 million customers across India, primarily targeting rural and semi-urban demographics. The bank's mission is further underscored by its commitment to digital banking solutions, which have grown significantly post-pandemic, with digital transactions increasing by 60% in FY 2023.

Additionally, Equitas has successfully disbursed loans amounting to ₹25,000 crore to MSMEs, reflecting its dedication to fostering economic growth among small businesses. The bank operates more than 800 branches across the country, catering to a broad customer base and ensuring accessibility to financial services.

Equitas Small Finance Bank’s mission is to align its financial goals with long-term social impact, striving to improve the financial literacy of its customers through educational programs and partnerships with various NGOs. By focusing on customer satisfaction and innovative solutions, the bank is positioning itself as a leader in the small finance banking sector in India.

How Equitas Small Finance Bank Limited Works

Equitas Small Finance Bank Limited (ESFB) operates as a small finance bank in India, providing a variety of banking products aimed at underserved segments of the population and small businesses. As of March 31, 2023, ESFB reported a total asset size of approximately ₹15,671 crores. The bank focuses on microfinance, vehicle loans, personal loans, and deposits.

The structure of ESFB allows it to lend primarily to individuals who do not have access to traditional banking services. The bank's lending portfolio includes:

• Microfinance loans
• Commercial Vehicle Loans
• Housing Loans
• Two-Wheeler Loans
• SME Loans
• Personal Loans

As of the end of FY 2022-2023, ESFB's total loan book stood at ₹9,855 crores, reflecting a year-on-year growth of 27%. The bank's microfinance segment constitutes about 63% of its total loan portfolio, while vehicle loans account for around 17%.

Deposits play a critical role in the bank's operations. ESFB had a total deposit base of approximately ₹10,257 crores as of March 31, 2023, with a CASA ratio (Current Account Savings Account) of 36%. The average savings deposit rate offered by the bank is around 6.25%.

ESFB's focus on technology-driven banking solutions has enabled it to enhance customer experience and streamline operations. The bank has made substantial investments in digital banking platforms, resulting in over 1 million mobile banking users as of early 2023.

The capital adequacy ratio (CAR) of ESFB stood at 19.85%, significantly higher than the regulatory requirement of 15%, indicating strong financial health. The bank's net non-performing assets (NPA) ratio was reported at 1.95% as of March 31, 2023, showcasing its asset quality management.

Equitas Small Finance Bank Limited has a presence across 1,600 banking outlets, facilitating its widespread outreach. The bank's customer-centric approach focuses on financial literacy and inclusivity, aiming to empower small business owners and individuals through accessible financial products.

In terms of profitability, ESFB reported a net profit of ₹102 crores for the fiscal year 2022-2023, which reflects a growth of 110% compared to the previous year. The return on equity (ROE) stood at 11.87%.

ESFB's sustainability efforts have also been noteworthy, as the bank has integrated eco-friendly practices in its operations. They have committed to financing sustainable projects, thus aligning with the growing emphasis on environmental responsibility.

How Equitas Small Finance Bank Limited Makes Money

Equitas Small Finance Bank Limited generates revenue primarily through interest income, fees and commissions, and various financial services. The bank's focus on small businesses and economically weaker sections of society allows it to tap into a growing customer base.

Interest Income

Interest income is the largest revenue contributor for Equitas Small Finance Bank. As of the financial year ending March 2023, the bank reported total interest income of INR 1,940 crore. This represents a growth of 12% from the previous year, reflecting increasing loan disbursements and a higher average yield on loans.

The bank's loan book primarily comprises:

• Microfinance Loans
• Small and Medium Enterprises (SME) Loans
• Agricultural Loans
• Vehicle and Housing Loans

The average interest rate on loans stands around 12.5%, contributing significantly to net interest margins, which are reported at 5.5%.

Fee-Based Income

In addition to interest income, Equitas earns revenue through service fees and charges. For the financial year 2022-2023, fee-based income amounted to INR 170 crore. This segment includes:

• Processing Fees
• Late Payment Charges
• Service Charges on Savings Accounts

The bank's fee income grew by 8% compared to the previous fiscal year, driven by an expanding customer base and increased digital transactions.

Investment Income

Equitas also generates income through investments in government securities and corporate bonds. As of March 2023, the bank held investments worth INR 1,500 crore, yielding an average return of 6.0%. This contributes around INR 90 crore to the bank's total income annually.

Financial Performance Overview

Equitas Small Finance Bank's profitability is further supported by its low Non-Performing Assets (NPAs), which stood at 1.3% as of March 2023, compared to 1.4% in the previous year. This indicates effective risk management and collection practices.

Digital Banking Initiatives

The bank has made significant investments in its digital banking platform, which has led to an increase in customer engagement and transactions. As of March 2023, digital transactions accounted for approximately 75% of total transactions, contributing to lower operational costs and enhanced customer service.

Conclusion

Equitas Small Finance Bank Limited has carved out a unique niche in India’s banking sector by focusing on underserved segments while leveraging technology to streamline operations. Its multifaceted revenue streams ensure consistent growth and financial stability.