Equitas Small Finance Bank reported a sharp decline of 80% in net profit for the fourth quarter of FY25, with the figure dropping to ₹42.1 crore, compared to ₹207.6 crore in Q4 FY24. The decline came primarily due to higher provisions and a rise in operating expenses, which significantly impacted the bank’s bottom line.

This underwhelming performance contrasts sharply with the steady growth observed in previous quarters, signalling near-term operational pressure on the small finance bank.

Net Interest Income Shows Positive Trend

Despite the setback in profitability, Net Interest Income (NII)—a key measure of a bank’s core earnings—showed a modest year-on-year growth of 5.5%, reaching ₹829.5 crore in Q4 FY25. This exceeded analysts' estimates and indicates underlying strength in the bank’s lending operations, even as margins may have been under slight pressure.

NII growth reflects a stable loan book expansion and improved yield management by the bank.

Asset Quality Shows Mixed Performance

On the asset quality front, Equitas Small Finance Bank reported a marginal improvement in gross non-performing assets (GNPA) and a slight uptick in net non-performing assets (NNPA):

• Gross NPA Ratio improved to 2.89% from 2.97% in the previous quarter.

• Net NPA Ratio inched up slightly to 0.98%, compared to 0.96% in Q3 FY25.

• Total Gross NPAs stood at ₹1,067.7 crore, marginally lower than ₹1,071.9 crore in Q3.

This suggests that while the bank managed to recover or restructure some of its bad loans, some stress persists in the retail and MSME segments. The bank continues to maintain a close watch on its asset quality.

Provisioning and Operating Expenses Surge

One of the key contributors to the profit decline was the rise in provisions and contingencies, which the bank had to allocate for loan losses and potential delinquencies. While the exact provisioning figures weren’t disclosed, management indicated it was in response to portfolio risk and regulatory prudence.

Additionally, operating expenses rose sharply, putting pressure on the operating profit. This was likely due to expansion in branches, technology investments, and employee-related costs.

Capital Position and Liquidity Stay Strong

Amid the earnings disappointment, the bank demonstrated robust capital strength and ample liquidity, which are critical in the current regulatory and economic environment:

• The Capital Adequacy Ratio (CAR) remained healthy at 23.1%, well above the regulatory requirement of 15%.

• The Liquidity Coverage Ratio (LCR) stood at 120%, indicating the bank's ability to meet its short-term financial obligations comfortably.

These metrics reflect strong financial discipline and preparedness for market volatility or stress scenarios.

Stock Market Reaction and Share Price Performance

As of Tuesday afternoon, shares of Equitas Small Finance Bank were seen trading 3% lower at ₹66.91 on the BSE. The negative market reaction reflects investor disappointment over the sharp profit decline, even though the core banking operations remain relatively stable.

The market may be factoring in continued near-term pressure due to elevated cost levels and provisioning, even as the long-term fundamentals remain intact.

Analyst Outlook and Future Guidance

Going forward, the management is expected to focus on improving operational efficiencies, rationalising costs, and keeping asset quality under control. With sufficient capital and liquidity, the bank remains well-positioned to pursue growth opportunities, particularly in underbanked segments.

However, analysts have flagged concerns over the rising operating costs and the need for more sustainable profitability. Any sustained improvement in return ratios and asset quality would be key triggers for stock re-rating.

Conclusion

In conclusion, while Equitas Small Finance Bank’s Q4 FY25 results were disappointing from a profitability perspective, the bank’s underlying asset quality, capital base, and liquidity position remain strong. The near-term headwinds from higher provisioning and operating costs need to be addressed for improved shareholder returns. Investors may await clarity from management on cost control measures and recovery prospects before taking fresh positions.

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