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Equitas Small Finance Bank is looking to nearly triple its advances to ₹1.2 trillion over the next five years. In a face-to-face interview with Shine Jacob, its Managing Director and Chief Executive Officer P N Vasudevan talks about the SFB’s future and universal banking dreams. The small finance bank (SFB) has already fulfilled the asset-quality conditions for becoming a universal bank, such as keeping gross NPA below 3 per cent and NNPA below 1 per cent.
Edited excerpts:
What is your growth outlook for the next five years?
We are targeting our advances to grow from ₹45,000 crore now to ₹1.2 trillion over the next five years, with a growth of 20 per cent per annum. Our CAGR for the last 10 years was 26 per cent. So, we believe that this 20 per cent can be achieved comfortably.
We have something called landed cost of money, which includes interest cost plus several other components. That determines my competitive ability to lend. This was 12.8 per cent in the first year we became a bank in 2017; in March 2026, it was 8.2 per cent, and in the next three years, we expect it to go to around 7.5 per cent and, in five years, even below that.
On the lending side, almost 90 per cent of our loans are now to the informal to semi-formal category of borrowers, and only 10 per cent (MSMEs & NBFC lending) is for the formal category of borrowers. In the next five years, we expect our informal to semi-formal borrowers to be around 70 to 75 per cent. The risk will reduce.
In the semi-formal and informal category of borrowers, we should be the number one choice of banker; that is our strategic positioning. When my landed cost of money comes down as we expect, we should be the most competitive in that segment because lenders in that segment are largely NBFCs.
What is your roadmap with regard to applying for a universal banking licence?
We should be able to deliver whether we become a universal bank or not. There is no restriction on an SFB on growth.
When we look at it from Equitas’ perspective, in our view, we feel that we are in line with the guidelines to convert to a universal bank. There are so many more things, like supervisory comfort of RBI; there are some things beyond just the numbers that RBI will look at. We are in touch with RBI, and we may end up applying within a year. We do not want to rush into it.
The Reserve Bank of India (RBI) returned the universal banking licence applications for both Ujjivan Small Finance Bank and Jana Small Finance Bank. What did you learn from this?
We have been diversifying our portfolio for the last 15 years. And that is why we are today in a position where we are well diversified. That’s the journey we started 15 years back to diversify. So, it’s not like I have learned the lesson from them and I am diversifying now.
We are now in a position of big comfort on a diversified portfolio. In terms of lessons, the question that you are asking, the lesson for us is not to rush. Even if we apply two quarters late, it doesn’t make any difference, and we will do it when we feel comfortable and confident.
How much diversification is required before going for universal banking?
We are well diversified even now. Those small business loans (SBL) constitute 40 per cent. That is loans to small businesses secured by house property. Then vehicle finance is 25 per cent, which is used for commercial vehicles and used cars, affordable housing is 13 per cent, microfinance is 10 per cent, MSME and NBFC lending is 10 per cent, and gold loan is 2 per cent.
When we become ₹1.2 trillion, most of these businesses should continue to remain where they are. The small differences may be that personal loans and credit cards could form 5 per cent, and gold loan could become 7-8 per cent over the period of five years. And this will get adjusted in all the other products marginally.
In May 2022, you expressed a desire to resign from the post. However, later in December 2022, you came back. What was the reason, and what is your succession plan?
I expressed my desire to focus on my social work, and I wanted to start a new NBFC to create a corpus to fund my family trust’s social-sector initiatives, which include an adoption centre and doorstep therapy service for special children through specially fitted therapy buses.
At that point in time, a friend of mine started an NBFC, and my daughter became a co-promoter in that. My objective was not to run an NBFC, but only to create a corpus for the trust. With my daughter investing in an NBFC, we could meet that objective. She is not in any way connected to the operations of the NBFC. She is a psychologist.
Given that our objective was met, I didn’t have the need to step down from the bank. Hence, I returned. As far as my future is concerned, I have got an extension till July 2029 and will still have another two years of extension left after that as per RBI guidelines. I am committed to being associated with the bank till then, subject to God’s grace and subject to approvals, including from the Board and RBI.
How are you planning to position the microfinance segment going ahead?
We were a microfinance institution (MFI) long back and then, from 2011, we have been diversifying our portfolio. When the microfinance crisis happened in 2024, there was MFI overleveraging in the market that led to a lot of defaults across the industry.
At that time, microfinance was 20 per cent of our advances, and that hurt us. There were certain recurrent issues, and that did affect our bottom line. However, over the last two years, we have also been able to bring down our microfinance to 10 per cent.
Today, we have strengthened the position of our bank by having only 10 per cent that is unsecured, whereas 90 per cent is secured for the bank. Microfinance itself has come back to better shape now, and in the rest of the non-MFI business, we have never had a problem in the last 15 years. This will now enable us to grow faster without credit cost as a concern.
What are the differences between an SFB and a bank?
There are only three differences between an SFB and a universal bank. One is the perception advantage for a depositor of being an Indian bank by dropping ‘small finance’ from the name. Another is our capital adequacy; SFBs are required to have 15 per cent capital adequacy, while universal banks are required to have 9 per cent, plus they have some extra capital required for other reasons. All put together, it will come to around 11 per cent, which is a 3 percentage point difference, which means I can leverage more. The third difference is that we have a PSL requirement of 60 per cent, but universal banks have a requirement of 40 per cent. I am at 75-80 per cent, so that makes no difference to me.
Also, SFBs are required to lend at least 50 per cent of their loans below ₹25 lakh. Universal banks have no such conditions. In my case, more than 75 per cent of our loans are below ₹25 lakh, which means I don’t have a problem with that criterion either.
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