How Has Equitas Small Finance Bank Delivered a Sharp Asset Quality Turnaround in Q3 FY26?
Equitas Small Finance Bank’s Q3 FY26 business update highlights a decisive improvement in asset quality alongside steady credit growth. Strong disbursements, lower delinquencies, improving collections, and disciplined balance-sheet clean-up mark a clear shift from stress management to stability-driven growth.
After a prolonged period of volatility across the microfinance and unsecured lending landscape, Equitas Small Finance Bank appears to have crossed a critical inflection point. Q3 FY26 reflects not only recovery in growth metrics but, more importantly, a visible normalization in asset quality indicators that had earlier been under pressure. The combination of improved collections, lower slippages, and tighter portfolio mix positions the bank on a firmer footing heading into FY27.
Loan Growth Regains Momentum
Advances stood at ₹43,269 crore, up 15.9% YoY and 10.6% QoQ.
Equitas SFB reported advances of ₹43,269 crore in Q3 FY26, registering a healthy 15.9% year-on-year growth and a robust 10.6% sequential increase. The strong quarterly expansion was supported by disbursements of ₹6,557 crore, reflecting improving borrower confidence and normalized credit demand across segments.
The pace of growth is noteworthy given the cautious stance adopted by many lenders in the microfinance and small-ticket lending ecosystem over the past few quarters. Equitas’ ability to selectively scale lending while maintaining underwriting discipline underscores a more balanced growth strategy.
Deposit Base Remains Stable Despite CASA Pressure
Total deposits at ₹43,668 crore, up 7.2% YoY and flat QoQ.
On the liability side, total deposits stood at ₹43,668 crore, reflecting a 7.2% year-on-year increase. Sequentially, deposits remained largely flat, indicating some moderation in incremental deposit mobilisation amid intense competition for retail savings across the banking system.
CASA deposits declined 5.4% QoQ, with the CASA ratio easing to 30% compared to 31% in the previous quarter. While CASA pressure remains a monitorable factor, it is broadly in line with sector-wide trends as banks compete aggressively on term deposit rates.
Cost of Funds Moves in the Right Direction
Cost of funds improved to 7.13% from 7.35% in Q2.
A key positive from the quarter was the reduction in cost of funds to 7.13%, down from 7.35% in Q2. This improvement reflects better liability management, refinancing optimisation, and a gradual repricing of deposits.
Lower funding costs provide margin support at a time when lending yields remain under pressure due to competitive intensity. Sustained improvement in cost of funds could act as an earnings lever over the coming quarters.
Microfinance Segment Shows Clear Recovery
MFI and micro loans grew 52% QoQ on a low base and demand revival.
The microfinance and micro loan portfolio recorded a sharp 52% QoQ growth, aided by base effects and improving borrower activity. This recovery is particularly important, as this segment had been the primary source of stress during earlier quarters.
Importantly, growth in microfinance is now accompanied by significantly better collections and lower delinquencies, reducing the risk of repeating past asset quality issues.
Decisive Asset Quality Clean-Up
Sold ₹55 crore NPAs and ₹294 crore technical write-offs to ARCs.
Equitas undertook a proactive balance-sheet clean-up during the quarter by selling ₹55 crore of NPAs and ₹294 crore of technical write-offs to asset reconstruction companies. This move accelerates normalization of reported asset quality metrics and frees management bandwidth to focus on growth.
Such decisive clean-up actions often mark a turning point in the lifecycle of a stressed lender, particularly when combined with operational recovery.
Sharp Improvement in Delinquencies and Collections
1–90 DPD reduced sharply to 2.77% from 8.45% in April 2025.
Asset quality improvement was visible across all key metrics. The 1–90 days past due ratio declined sharply to 2.77% versus 8.45% in April 2025, indicating a meaningful reduction in early stress.
Fresh overdues also reduced substantially, with POS declining to ₹19.6 crore from ₹97.5 crore earlier. Collection efficiency reached near-peak levels at 98.99%, with Tamil Nadu and Karnataka reporting collection rates above 98%.
Slippages Moderate Across Regions
Net slippages fell to 1.47% from 2.48% in Q2 and 3.22% in Q1.
Net slippages moderated sharply to 1.47% compared with 2.48% in Q2 and 3.22% in Q1. Karnataka, a previously stressed geography, saw slippages fall to 4.61% from 9.35% in Q1, highlighting the effectiveness of region-specific corrective measures.
Portfolio Mix Adds Structural Stability
Secured loans now form 88% of advances; MFI exposure limited to 12%.
The loan book mix continues to improve structurally, with secured loans accounting for 88% of advances, rising to 91% excluding direct assignment portfolios. Microfinance and micro loans are capped at 12% of advances, or 9% excluding DA, limiting concentration risk.
Active traders and positional participants often align such banking recoveries with broader market trends using 👉 Nifty Tip frameworks during inflection phases.
Investor Takeaway
Derivative Pro & Nifty Expert Gulshan Khera, CFP®, observes that Equitas Small Finance Bank’s Q3 FY26 performance reflects a textbook asset quality turnaround backed by disciplined growth and proactive balance-sheet actions. With collections stabilizing, slippages moderating, and portfolio risk reducing structurally, the bank appears better positioned to pursue sustainable growth. Investors should track deposit traction and CASA trends, but the broader recovery narrative now looks firmly intact. Deeper sector insights and structured analysis are available at Indian-Share-Tips.com.
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
