In the past three days, the stock has surged 20 per cent after rating agency CRISIL re-affirmed the ratings on the bank facility and debt instruments of Equitas SFB.
“The ratings continue to reflect the diversified product profile, adequate capitalisation, and growing deposit base of the bank, and the experience of its senior management. These strengths are partially offset by the modest credit risk profiles of borrowers, average profitability, and geographical concentration in business and relatively high cost of funds compared with the banking system,” CRISIL said in rating rationale.
After transforming into a bank, it has expanded focus from core segments such as microfinance and vehicle finance to small business loans, MSE, corporate lending, housing finance and others. The diversity in asset mix helped curtail the impact on collections post demonetisation and subsequent political issues faced by microfinance players in some geographies, as well as Covid-19. As the bank continues to grow its secured loan book, replacing a large portion of the existing unsecured portfolio, the volatility in asset quality due to inherent shortcomings of the unsecured segment will reduce, the rating agency said.
However, despite diversification in the portfolio across asset segments and increased focus on secured lending, the bank’s customer base has not changed materially. The borrower base still comprises people living in rural and semi-urban areas, carrying out small business operations or doing petty jobs which may be associated with irregular cash flows.
Equitas has been a highly process driven entity having robust systems and processes with strong technical backing ever since the commencement of microfinance operations. This attribute has helped scale up the business fast and to replicate similar models with modifications for vehicle and other portfolios, CRISIL said.
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