How Is Equitas Small Finance Bank Navigating Loan Growth and Deposit Pressures in Q3 FY26?
Equitas Small Finance Bank’s Q3 FY26 business update presents a nuanced picture of a lender that is pushing ahead with credit growth while carefully managing balance sheet risks in a tightening liquidity environment. The quarter highlights strong disbursement momentum, improving asset quality metrics, and a declining cost of funds, even as deposit growth and CASA ratios remain areas that require close monitoring. For investors tracking the small finance bank space, Equitas offers a real-time case study of how lenders are balancing growth ambitions with prudence.
Loan Growth Momentum Remains the Core Strength
Gross advances rose 10.6% QoQ to ₹43,269 crore, driven by robust disbursement activity.
The standout feature of Equitas Small Finance Bank’s Q3 performance is the acceleration in loan growth. Disbursements grew sharply by 22% QoQ, indicating sustained demand across key lending segments. This growth suggests that the bank has been able to leverage its distribution network and underwriting capabilities effectively, even as competition in retail and microfinance lending intensifies.
A rising advance book also reflects improving borrower confidence and normalization in repayment behavior after previous cycles of stress in the microfinance ecosystem. The increase in the credit–deposit ratio to nearly 93% underlines how aggressively the bank is deploying funds into earning assets, a sign of confidence in credit quality trends.
Asset Quality Trends Show Gradual Normalisation
Focused asset clean-up and better collections continue to support credit quality.
Asset quality remains a critical variable for any small finance bank, and Equitas appears to be moving in the right direction. During the quarter, the bank sold NPAs worth ₹55 crore and executed technical write-offs of ₹294 crore through asset reconstruction companies. These actions help clean up legacy stress and improve reported asset quality metrics.
Encouragingly, the MFI and micro loan portfolio showed improvement, with 1–90 DPD reducing to 2.77%. This reflects better collection efficiencies and improved borrower cash flows. For a lender with meaningful exposure to microfinance, sustained improvement in early delinquency buckets is often a leading indicator of stable asset quality over the coming quarters.
Deposit Growth Moderates Amid Systemic Tightness
Deposit traction remains the key area to monitor.
Total deposits stood at ₹43,668 crore, registering a marginal 0.97% QoQ decline. While this moderation is not unique to Equitas and reflects broader system-wide deposit competition, it highlights the challenge small finance banks face in mobilizing low-cost funding in a rising rate environment.
CASA deposits declined 5.40% QoQ, bringing the CASA ratio to around 30%. This drop suggests customers are increasingly shifting toward higher-yielding term deposits or alternative investment avenues. While CASA pressure can impact margins in the short term, the bank’s improving cost of funds indicates that liability management initiatives are beginning to bear fruit.
Cost of Funds Improvement Provides Margin Cushion
Better pricing discipline helps offset CASA moderation.
One of the more positive developments in Q3 FY26 is the improvement in the cost of funds to 7.13%. This suggests better repricing of deposits and disciplined liability management. In a period where many lenders are struggling with rising funding costs, this trend offers some protection to net interest margins.
If the bank can sustain this trajectory while stabilizing deposit growth, margin pressures may remain contained despite intense competition. The ability to balance growth with profitability will be crucial as Equitas scales its loan book further.
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Credit–Deposit Ratio Signals Aggressive Deployment
High CD ratio reflects confidence but warrants vigilance.
The credit–deposit ratio of nearly 93% indicates that Equitas is aggressively deploying deposits into loans. While this supports earnings growth, it also leaves limited buffer if deposit inflows remain weak. Managing liquidity prudently will be essential, especially if system-wide deposit competition intensifies further.
For investors, this underscores the importance of monitoring deposit trends alongside loan growth. Sustained credit expansion without commensurate deposit mobilisation can elevate funding risks over time.
How Does This Fit Into the Small Finance Bank Landscape?
Sector dynamics remain supportive but selective.
Across the small finance bank sector, FY26 is shaping up as a year of recalibration rather than aggressive expansion. Regulatory focus on asset quality, rising funding costs, and competition from larger banks are shaping operating strategies. Equitas’ performance reflects these broader trends, combining selective growth with balance sheet clean-up.
Banks that demonstrate consistent improvement in collections, disciplined underwriting, and diversified deposit profiles are likely to command higher investor confidence over the medium term.
Investor Takeaway
Derivative Pro & Nifty Expert Gulshan Khera, CFP®, believes that Equitas Small Finance Bank’s Q3 FY26 update reflects a lender in transition. Strong advance growth, improving asset quality trends, and a lower cost of funds are constructive signals, while moderation in deposits and CASA remains a short-term watchpoint. Investors should focus on sustainability of credit growth, liquidity discipline, and continued improvement in collections rather than quarter-to-quarter noise. More structured banking and market insights 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.
