On the special occasion of your Company completing a decade of useful existence whichalso has been embellished by the report on the performance of our Equitas Small FinanceBank I send you all my greetings coupled with thanks for your continued support for thecause for which we started our efforts which is serving the community at large withfervour and dedication.
The past ten years has been a wonderful journey for Equitas from a small urban microfinancier in 2007 to a diversified pan India NBFC by 2015 followed by an IPO in 2016 andnow as India's second Small Finance Bank among the ten that were granted an "inprinciple" approval by RBI in 2015.
Building up the liability franchise
I am happy to share that we opened 284 Liability branches during the year and ourdeposit mobilisation has gained significant traction. Our customer deposits balance standsat Rs. 1886 crore as on March 31 2017. Out of these deposits CASA (Current and SavingsAccount) balances are Rs. 332 crore giving us a CASA percentage of 17%. These early signshave been very encouraging!
We have ~600 Lending branches of the erstwhile NBFC out of which during the year 284Branches have been converted into full fledged bank branches. As per regulatoryrequirement the remaining are also required to be converted into bank branches within aperiod of 3 years from the start of our banking operations.
We have been able to roll-out within a short time frame significant number ofservices over the digital platform. Net and Mobile banking for individuals and the Wallethave been rolled out. Account holders can now perform basic transactions like transfersremittance mobile top-ups bill payments etc. through their net or mobile banking app.
We have also become an issuer of FASTag which is an electronic RFID (Radio FrequencyIdentification) sticker for vehicles through which road toll can be paid electronicallyin the Toll Plazas.
Setting up of other services such as Corporate Net Banking UPI (Unified PaymentsInterface) etc. is in progress. outreach Banking channel:
We are working to supplement our own branch channel with Business Correspondent (BC)channel. We intend to have a network of BCs operationalised over the next one year whichwould help us take banking services to the masses in areas which are currently notsufficiently serviced. Pilots have been already rolled out.
In essence we hope to build a strong Liability Franchise for the Bank using multiplechannels to reach out and service customers with different needs. The initial flow ofdeposits augurs well and we hope to get the benefit of reduced cost of funds over time.
Diversifying our credit offering:
Our journey to have a well-diversified credit offering continues.
Our ability to build new products has been one of the key strengths at Equitas. We haddiversified into Used Commercial Vehicle finance in 2011 and funding of tiny and microentrepreneurs in 2013. These products have grown well over the years with good portfolioquality on a risk weighted return basis.
New product launches:
Post becoming a bank we have rolled out three new loan products viz. Agri LoansBusiness Loans for small and medium enterprises and Gold Loans.
Leveraging our skills:
Over the years at Equitas we have built up capability to be able to do credit andcash flow assessment of borrowers from the informal economy. We have also built up arobust legal collection and operational risk management system to support such clientsegments and loan offerings. These will be leveraged for the new products that have beenlaunched. These skills are to a large extent unique to the banking industry in India andwe hope to continue to strengthen our capabilities in these segments enabling us toestablish a unique franchise on the lending side while also supporting the credit needs ofthese segments of people.
New to Bank borrowers:
Over the past ten years we have funded about 100000 customers for purchasing ofsecond hand trucks out of which about 80% of customers are people who have borrowed from aformal institution for the first time in their life. Similarly in the tiny and microenterprise segment we have funded over 90000 customers out of which about 95% are 'newto bank' customers. In Micro Finance out of about four million borrowers we havefinanced about 60% are 'new to bank' borrowers. With the addition of new loan productswe hope to continue to remain an Institution which helps mainstream large number ofpeople from the low income and under-serviced segments of the society.
We intend to leverage the nimbleness of an NBFC but with the cost of funds andcredibility of a bank to be able to remain the Banker of Choice for these customers.
The third and fourth quarters of FY16-17 have been difficult for the MFI Industry inthe country. The Demonetisation drive of the Government had some unexpected impact on themicro finance industry. The initial cash crunch combined with activism by some anti-socialand other elements have led to significant increase in delinquency levels. The impact wasvery particularly visible in Maharashtra Karnataka and Madhya Pradesh.
This trend is worrisome as the nature of this risk makes it difficult to fathom at thisstage the long-term impacts it could have on customers' repayment culture and creditdiscipline. This uncertainty makes risk mitigation extremely difficult.
We have been a prudent lender in the micro finance space with low loan ticket sizefiltering out customers who have tended to borrow from other lenders etc. We had alsoactively participated in industry initiatives to make available credit bureau services forthe micro finance industry which helps us factor in earlier borrowings by the
Loan applicants. We have stayed committed to the promise of being a 'ResponsibleLender' even though it had meant that our growth over the past few years was much lowerthan the industry average.
Inspite of these our micro finance portfolio has also seen delinquency levels going upover the past 4 months. Though impact on our resources at this stage is not veryworrisome it is felt that the continuance of this phenomenon may significantly affect ourMicro Finance operations. We will be calibrating our product mix such that we are able tobuild a strong and diversified portfolio of various types of loan products which wouldhelp create a sustainable model for the long term.
The year ahead:
As we step into the second decade of our service the year ahead promises to be themost challenging year yet in the history of the Company - on the one hand we need tofocus on accelerating contribution from new loan products to offset the slow down in Microfinance while retaining strong control over quality of portfolio; and on the other tocreate and strengthen the liability franchise of the bank.
Managing this duality calls for innovation and superior execution - the very DNA ofEquitas.
Our social initiatives continue to move forward in creating a meaningful andsignificant social impact.
During the year we conducted medical camps where over eight lakh people benefited ourjob fairs enabled over
30000 unemployed youth to get placed in jobs we were able to impart cottage skilltraining to around 40000 people and our pavement dweller rehabilitation program helpedmove around 480 families from pavements to houses.
Our schools Equitas Gurukuls continue to function well. Currently we are runningseven such schools in Tamilnadu through our Trust Equitas Development Initiatives Trust(EDIT) while the eighth school is expected to start functioning from the coming academicyear. Our students make us proud by excelling themselves in studies.
With the blessing from all our stakeholders I am confident the Group shall continue toserve society in a meaningful manner. The second decade of Equitas' existence will not beany less glorious than the first decade and with these hopes I wish you all the very best.
God Bless You
Date: May 5 2017