equitas holdings ltd share price Management discussions

Global Economic Overview

The year 2021 was characterised by uncertainty and volatility as the pandemic continued to shift shape and form and impacted life with varied intensity. Although global economic output grew by 5.5% in 2021, recording the sharpest post-recession rebound in decades, the recovery remained non-uniform across advanced, emerging and developing economies. The divergence in recovery could be attributed to the varied pace of vaccination and the magnitude of fiscal or monetary policy support extended by Central Banks and Governments.

As the world prepared to leave the worst of the pandemic behind in the first quarter of 2022, the Russia-Ukraine conflict significantly pushed up global crude oil prices and dampened trade sentiment with the imposition of economic sanctions by western nations on Russia, one of the worlds largest producers of oil and gas. Further, rising inflation on the back of continued supply chain challenges, elevated commodity and freight costs, coupled with the emergence of new virus variants, poses significant threat to the fragile economic recovery. The possible acceleration in the US rate hike cycle to rein in inflation could increase volatility in the forex markets.

Indian Economic Overview

In FY22, Indias economic output rebounded sharply by 8.8%, after contracting 6.6% in FY21 following the pandemic-induced disruptions. Despite the overwhelming negative impact of the second wave of the pandemic especially in rural India, the economy demonstrated resilience and returned to growth path, aided by rapid vaccination and continued policy support through various initiatives of Government Further, the governments focus on public investment-led capex to crowd in private investment, bodes well for overall sentiment.

However, the rural economy that had led the recovery following the first wave remains under stress while soaring oil prices, high cost of raw materials, supply chain constraints weigh heavily on the growth trajectory. The RBI in its April 2022 Monetary Policy Committee (MPC) meeting revised its FY23 inflation forecast to 5.5% from 4.5% but kept its policy rate unchanged. The Central Bank, however, returned with a 40 bpsoff-cycle rate hike in May, 2022 ending its accommodative policy stance adopted since March 2020 to support the economy caught in the pandemic storm. The RBI is likely to adjust rates "in coordination with governments fiscal measures" to check inflation.

The Indian economy has demonstrated its resilience over the past two years of the pandemic and is on a firmer foundation maintain a growth path and, at the same time, deal with future external shocks.The near-term is likely to be volatile.

Small Finance Bank (SFB) Industry Overview

Despite banking sector liberalisation in 1991 and a series of new bank license issuances since then, financial penetration in India remained low. The RBI formed a committee led by Dr. Nachiket Mor to boost financial penetration and provide banking services to the nations underserved and unserved population and solicited its recommendations. The Committee recommended differential licencing in the form of Payment Banks and Small Financing Banks. In 2014, in line with the recommendations, the RBI released guidelines for a new class of banking entity called ‘Small Finance Banks. On September 16, 2015, the central bank awarded 10 SFB licenses of which 8 were NBFCs. As of March 2022, twelve SFBs were operational in the country.

With years of experience in servicing underserved and unserved population (including individuals and small businesses) since their NBFC days, SFBs have carved a niche in financing the low-Income self-employed segment. SFBs operate in four major segments with strong growth potential – MSME finance, vehicle finance, microfinance and affordable housing loans. There are 6.3 crores MSMEs in India, employing 11.1 crores and contributing ~30% to GDP. As per Industry estimates (MicroSave Report), total addressable demand for loans is Rs56 trillion while supply is about Rs 30 trillion, leaving a significant credit gap and thus an untapped opportunity for SFBs.

With a digital first mindset, deep distribution reach, focus on secured, small-ticket loans, SFBs are not only expanding the market size but are also attracting market share from the larger and more experienced private and public sector incumbents at a rapid pace. They are well positioned to address the outsized credit gap in small-ticket loans across customer segments.

Performance

SFBs total advances clocked a 26% CAGR during FY16-21. The top three (Equitas, AU & Ujjivan SFB) accounted for ~60% of the aggregate AUM as of FY21, up from 55% as of FY17. These three players logged a 29% CAGR during the period. According to CRISIL Research, the sectors loan portfolio is likely to see a strong ~22% CAGR in the near term as most of the SFBs have completed their transition phase and are likely to benefit from operating leverage.

Immediately after commencing operations, all SFBs focussed on increasing their deposit base. Their overall deposit base doubled to around Rs375 billion, as of FY19, and further to Rs 877 billion in FY21. Share of CASA deposits increased from ~20% in FY20 to ~30% in FY21.

During FY21, SFBs aggregate deposits grew by 40%. CRISIL Research expects SFBs deposit to record a 40-45% CAGR over FY21-24 as players focus on popularising convenient banking habits to cover the last mile and widen financial inclusion by deepening penetration in untapped geographies.

Industry Growth Drivers

Untapped opportunity in the rural segment

Despite its larger contribution to GDP of 47%, the rural segments share in credit remains fairly low at ~9-10% of the overall credit outstanding. This provides a huge market opportunity for SFBs and other players present in the segment

Presence of informal credit channels

In remote areas, informal credit channels have a major presence. In other words, there is a huge section of unbanked population. SFBs have an opportunity to tap this market

Geographic diversification

With increased focus on diversifying their portfolio and expanding their reach, SFBs are expected to log higher growth as they tap newer geographies

Loan recovery and control on aging NPAs

SFBs are experienced in collection and monitoring of default risk. This will help them keep asset quality under check

Access to low-cost funds & huge cross sell opportunity

SFBs cost of funds is substantially low, having been granted scheduled banks status, as they are allowed to raise CASA deposits and participate in various RBI windows. This will also help them lend at more reasonable rates to its customers, hence enhancing their cross-sell opportunity in terms of asset products, insurance etc. As a result, SFBs can forge meaningful partnerships with various entities to achieve exponential growth and take benefit of various RBI regulations that support the same

Business Overview

The consolidated financial results for FY 2021-22 include:

• Equitas Holdings Limited [EHL]

• Equitas Small Finance Bank Limited [ESFB]

• Equitas Technologies Private Limited [ETPL]

On a consolidated basis, EHL reported a PAT of Rs 203 crores versus Rs 514 crores for the previous year.

Financial performance – FY 2021-22

Consolidated

		(Rs in Lakh)
	Consolidated
Particulars	2021-22	2020-21
Revenue from Operations	3,97,784	3,73,499
Other Income	6,706	8,570
Total Revenue	4,04,490	3,82,069
Finance Costs	1,48,101	1,44,485
Other expenses	2,21,354	1,71,975
Total Expenses	3,69,455	3,16,460
Profit before taxation and	35,035	65,609
exceptional item
Exceptional Item	6,119	-
Profit before tax	28,916	65,609
Provision for taxation	8,585	14,230
Profit after taxation	20,331	51,379
Other Comprehensive Income	(231)	400
Total comprehensive Income	20,100	51,779
for the year, net of tax

Standalone

		(Rs in Lakh)
	Standalone
Particulars	2021-22	2020-21
Total Income	1,922	17,773
Total Expense	1,905	829
Profit before tax & Exceptional	17	16,944
Item
Exceptional Item	6,119	-
Profit before tax	(6,102)	16,944
Provision for tax	(176)	2,249
Profit after tax	(5,926)	14,695
Other Comprehensive Income	(2)	1
Total comprehensive Income,	(5,928)	14,696
Net of Tax

Overview of Subsidiaries

Equitas Small Finance Bank Limited (ESFB)

Equitas Small Finance Bank (Equitas Bank) is one of the largest small finance banks in India. As a new-age bank in one of the fastest growing economies, Equitas Bank offers a bouquet of products and services tailored to meet the needs of its customers – individuals with limited access to formal financing channels, as well as affluent and mass affluent, Micro, Small & Medium Enterprises (MSMEs) and corporates. The Banks firmly entrenched strategy focuses on providing credit to the unbanked and underbanked micro and small entrepreneurs, developing products to address the growing aspirations at the ‘bottom of the pyramid, fuelled by granular deposits and ‘value for money banking relationships.

The Banks asset products are suited to a range of customers with varying profiles. These include provision of small business loans comprising loan against property, housing loans, and agriculture loans to micro entrepreneurs, microfinance to joint liability groups predominantly comprising women, used and new commercial vehicle loans to drivers and micro-entrepreneurs, MSE loans to proprietorships, and loans to non-banking financial companies (NBFCs). On the liability side, the Banks target customers comprise mass and mass-affluent individuals to whom it offers current accounts, salary accounts, savings accounts, and a variety of deposit accounts. In addition, the Bank provides non-credit offerings comprising ATM-cum-debit cards, third party insurance, mutual fund products, and issuance of FASTag.

Besides being technologically agile, the Bank has gained a pan-India presence, impacting the lives of its customers through diversified loan portfolios, comprehensive banking services and non-credit offerings. While the Banks business model has transitioned over the years, providing sustainable credit to the unserved and underserved segments continues to be its core focus. The Bank is well positioned to capitalise on exponential industry growth potential while contributing to the national.

Equitas Technologies Private Limited (ETPL)

ETPL, incorporated on October 27, 2015, is a subsidiary of EHL. ETPL is in the freight facilitation-cum-aggregation business and operates the ‘Wowtruck platform. ETPL has branches in Chennai, Coimbatore and offers services throughout Tamil Nadu.

Business Model and Value proposition

Wowtruck provides technology-based services that are mutually beneficial to freight operators and their customers. While customers benefit from ease of booking, transparency in pricing, and non-cash payment options, transporters benefit from reduced idle time. The platform will also help formalise the transport sector, which will translate into improved banking facilities for the sector participants as transactions on the platform improve their digital footprint.

Wow Truck also launched intercity operations from April,2019 and has been rendering its services to clients like, Amazon, Bigbasket, FlipKart, Pansonic,Samsung, Hitachi, L&T,Century ply, Apollo Pharmacy, Godrej, Linfox (HUL), Nippon Express, etc., Wow Truck distinguishes itself from others by providing more tech based services.

Business Update

• The platform has on boarded 40,000 Vehicles So far

• The platform has delivered 25,800 shipments during FY. 2021-2022

• Offering vehicles on fixed contract basis as well to clients such as Hitachi, Amazon, Samsung, Godrej etc.,

• Dedicated Logistics Web Page for Corporate clients - facilitating Corporate clients to access more services.

• Launching Tech-based Warehousing solution on Space Aggregation Model.

Performance of Key Segments

Small Business Loans

The sheer size of the gap between the supply and demand of credit and the number of enterprises impacted indicates a veritable opportunity in financing. According to CRISIL Research small ticket size secured (SORP – self occupied residential property) small business loan market potential is estimated at Rs22 trillion. Examples of such businesses include provision stores, building materials stores, tea shops, vegetable vendors and others.

The small business in manufacturing and services include small fabrication units, machine tools manufacturers (using lathe machines), tailors, saloons, gym owners, vehicle service centres, etc.

Small Business Loans of less than Rs10 lakhs ticket size

• CRISIL Research estimates outstanding small business loans given out by banks and NBFCs to be around Rs1.7 trillion as of March 2021

• Small business loans grew at a fast pace with the portfolio registering a CAGR of 36% over fiscal 2017 and 2020

• Disbursements of small business loans of lower than Rs10 lakhs ticket size declined by as much as 57% year-on-year to Rs468 billion in fiscal 2021 on account of Covid-19

Penetration of small business loans is increasing in smaller cities

• Over the years, share of smaller cities has increased in the small business loans segment owing to increasing penetration of financial services and players focusing on the underserved customer segment.

• Share of loans outside top 50 cities increased from 58% in fiscal 2017 to 64% in fiscal 2021. Small business loans portfolio in smaller cities has grown at a relatively high CAGR compared to that in top 50 cities.

Share of new to credit customers has been increasing in small business loans segment

• Share of new to credit (NTC) customers has increased over the years, indicating rising penetration of small business loans. Overall, share of new to credit customers in the small business loan segment with ticket size less than Rs10 lakhs increased from 9% in fiscal 2017 to 25% in fiscal 2020.

Vehicle Finance

• In FY21, the Commercial Vehicles (CV) industry faced its biggest challenge in the form of COVID-19. The COVID-19 outbreak hit freight demand, significantly impacting CV sales volume in FY21. In addition, weak private consumption hampered demand for both LCVs and MHCVs. In FY22, volumes were to improve over a low base; however, the recovery was lower than anticipated due to the continued effect of the pandemic as well as chip shortage.

• The second wave of COVID-19 led to lockdowns in key affected regions in Q1FY22. This impacted volumes across segments post a healthy Q4FY21. Consequently, LCV, MHCV and bus volumes declined ~42%, ~63% and ~43% quarter-on-quarter in Q1FY22, resulting in ~50% sequential decline in overall CV volumes.

• In Q2FY22, chip shortage impacted pickup sales with volumes declining 9% year-on-year limiting LCV sales volumes to increase marginally by ~2% year-on-year (pickups account for ~55-60% of total LCV volumes) and ~49% quarter-on-quarter. MHCV volumes, however, fared better with ~82% quarter-on-quarter and ~117% year-on-year growth in volumes in Q2FY22.

• Volumes remained robust in Q3FY22 amidst the festive season with ~18% and ~17% q-o-q growth, respectively, in the LCV and MHCV segments.

• Volumes in Q4FY22 improved marginally on a sequential basis, aided by recovery in infrastructure activities in line with the economic recovery.

Domestic CV sales trend
Domestic Sales	FY20	FY20	FY21	FY22P	FY23P
Segments	Volume	Growth	Growth	Growth	Growth
LCV	3,95,783	-21%	-12%	9-14%	9-14%
MHCV	1,53,366	-47%	-17%	37-42%	12-19%
Bus	19,388	-6%	-77%	50-55%	87-92%
Total CV	5,68,537	-29%	-21%	18-23%	13-18%

Affordable Housing Finance

The housing shortage in India is estimated to increase to 100mn units by 2022 as compared to ~25mn units in FY07 where in 95% of the housing shortage is expected to be in EWS and LIG segment. The total incremental housing credit opportunity if the entire housing shortage is addressed is estimated at Rs50-60 TN i.e. approximately 3 times the existing housing finance market.

Category	Shortage (mn)	Value of units (Rs tn)	Aggregate loan demand (Rs tn)
EWS	45	34	5
LIG	50	75	30
MIG & Above	5	40	22
Total	100	149	58

Historically, companies in the Affordable Housing Finance segment had been growing at high rates in comparison to overall housing credit, partly aided by the lower base and support from the Governments thrust on ‘housing for all

The long-term growth outlook for the segment remains favorable, given the large underserved market, favorable demographic profile, housing shortage and Government support in the form of tax sops and subsidies.

Micro Finance

The industry loan portfolio stands at Rs2.85 Lakh Crore, as of March 31, 2022, with 11.3 crores active loan accounts and 5.8 crores unique borrowers. Banks hold the largest share at 40% in the micro credit universe with total loans outstanding at Rs1,14,051 crores. NBFC-MFIs are second largest providers with a 35.2% share and total loans outstanding of Rs1,00,407 crores. SFBs, with total loans outstanding at Rs48,314 crores account for 16.9% while NBFCs and Other MFIs constitute 6.9% and 1.0% of the micro lending universe, respectively.

In addition, NABARD SHG Bank Linkage Programme (SBLP) makes significant contribution, with around 57.8 Lakh SHGs having an outstanding loan portfolio of Rs1,03,290 Cr. The Top 10 states constitute 82.4% of the gross loan portfolio (GLP), with Tamil Nadu being the largest in terms of portfolio outstanding followed by Bihar and West Bengal. With regard to average loan outstanding per unique borrower, West Bengal leads with Rs53,708 followed by Kerala with Rs46,074.

MSE Finance

The MSME segment was hit the hardest by the pandemic. The government stepped up support, along with the RBI, to enable these businesses tide over the crisis. In 2021, the definition of MSMEs was modified while the ECLGS was extended till March 31, 2023. Further, proposed changes in CGTMSE, restructuring, stressed MSME scheme and current account opening guidelines relaxation bode well for the sector. The implementation of ECLGS led to an increase in credit within the ‘existing to bank customer segment, with Rs 2.3 Lakh Crore disbursed as part of the Aatmanirbhar Scheme.

Public Sector Banks (PSBs) have traditionally been the dominant lenders to MSMEs. In the last few years, private banks and NBFCs have managed to get a larger share of MSMEs from PSBs. PSBs, domestic private banks and NBFCs+HFCs have ~50%, ~32% and ~7.5% share, respectively, as on November 2021.

Formal sources of funding

MSME lending accounted for ~25% (Rs23 Lakh Crore) of the total commercial credit exposure in the Indian banking system, as on November 30, 2021.

On balance sheet commercial credit exposure

Type	Amount (Rs Lakh Cr)	Delinquency
Very Small (<Rs10 Lakh)	1.02	16.75%
Micro	4.40	10.77%
Small	9.07	11.07%
Medium	8.32	16.30%
Large	71.95	15.66%
Total	94.72	15.82%

Source: TransUnion CIBIL Commercial Lending Overview

Financial Highlights

Financial Performance:

We delivered a robust performance during the year under review. Net interest income increased 13.38 % to Rs 2,038.53 crores, up from Rs 1,797.96 crores in the previous year. Non-interest income grew by 28.59% to reach Rs 537.56 crores from Rs 418.05 crores.

Operating expenses rose to Rs 1,704.14 crores, compared to Rs 1,329.43 crores in the previous year. We increased our employee strength during the year, which resulted in higher staff expenses. The cost-to-income ratio came in at 66.15% from 59.99% in the previous year. Total provisions and contingencies were recorded at Rs 493.84 crores, compared to Rs375.32 crores in the previous year. Our Provision Coverage Ratio stood at 42.73%.

Our Gross Non-Performing Assets (GNPA) were at 4.06%, as against 3.59% in FY21. Net NPA stood at 2.37%, as against 1.52%. Profit before tax came in at Rs 378.11 crores.

After providing for Income Tax of Rs 97.38 crores, net profit came in at Rs 280.73 crores from Rs384.22 crores during the previous year. RoA was at 1.10% and RoE was at 7.75%. As on March 31, 2022, our total balance sheet size increased to Rs 26,951.90 crores from Rs24,708.47 crores, as on March 31, 2021.

Profit & Loss Summary:

	FY22	FY21
Net interest income	2,038.53	1,797.96
Non-interest income	537.56	418.05
Operating revenue	2,576.09	2,216.01
Operating expenses	1,704.14	1,329.43
Operating profit	871.95	886.58
Provisions	493.84	375.32
Profit before tax (PBT)	378.11	511.26
Provision for tax	97.38	127.04
Profit after tax (PAT)	280.73	384.22

Financial Highlights & Business Review numbers are based on Banks iGAAP financials

Key Ratios:

	FY22	FY21
Yield on advances	17.62%	18.66%
Cost of funds	6.78%	7.43%
Spread	10.84%	11.23%
Net interest margin (NIM)	8.54%	8.44%
GNPA	4.06%	3.59%
Credit cost	2.60%	2.26%
Provision coverage	42.73%	58.59%
NNPA	2.37%	1.52%
ROA	1.10%	1.70%
ROE	7.75%	12.70%

Balance Sheet:

	FY22	FY21
Capital and liabilities
Capital	1,252.03	1,139.28
Reserves and surplus	2,994.14	2,257.06
Deposits	18,950.80	16,391.97
Borrowings	2,616.40	4,165.32
Other liabilities and provisions	1,138.53	754.84
Total	26,951.90	24,708.47
Assets
Cash and balances with RBI	956.99	514.81
Balances with banks and money at Call and short notice	1,175.52	2,863.90
Investments	4,449.85	3,705.17
Advances	19,374.21	16,848.19
Fixed assets	200.44	185.05
Other assets	794.89	591.35
Total	26,951.90	24,708.47

Business Review:

Vertical wise performance: Advances:

Particulars (Rs Cr)	FY22	FY21	YoY %
Small Business	9,521.91	7,971.14	19.46%
Loans (incl. Housing Finance)
Vehicle Finance	5,046.97	4,530.11	11.41%
Micro Finance	3,906.81	3,235.73	20.74%
MSE Finance	1,163.94	1,179.91	(1.36%)
(Working Capital)
NBFC Loans	758.42	782.66	(3.10%)
Others*	198.86	225.25	(11.72%)
Total	20,596.91	17,924.80	14.91%

*Note: Others includes loan-against-gold, unsecured business loans, overdrafts against fixed deposits and staff loans.

Financial Highlights & Business Review numbers are based on Banks iGAAP financials

Liabilities:

Particulars (Rs Cr)	FY22	FY21	YoY %
Demand Deposits	772.15	520.07	48.47%
Savings Bank Deposits	9,083.22	5,093.76	78.32%
Term Deposits	9,095.43	10,778.14	(15.62%)
Retail Deposits	7,093.02	5,868.83	20.86%
Bulk Deposits	2,002.41	4,909.31	(59.22%)
Total Deposits	18,950.80	16,391.97	15.61%

Information Technology

The banking industry is moving towards a customer-centric business model where leaders are looking at scaling volumes using partner-driven businesses; this can be delivered using a service-oriented architecture. Open banking is also gaining popularity. It is necessary for Equitas now to embark on new technology trends to leverage the power of social, mobile, analytics and cloud. Envisaging the above, the Technology team at Equitas has chosen a path towards architectural transformation for infrastructure, applications and information security using cutting-edge tools.

Increased digital footprint has resulted in more and more online, non-physical interactions with customers, which emphasises the need to provide a safe and secure platform to build customer confidence. The Bank has laid a strong foundation for ensuring information and cyber security, which it aspires to take to the next level. The team is in the process of defining a risk approach that focuses on enabling quick delivery, near zero vulnerabilities during deployment, addressing data leakage in channels, advanced system behaviour-based detection, threatless end devices, frameworks for upcoming technologies and regulatory compliance. The key projects include – Big Data

& Analytics, Cloud Initiatives, Customer 360, and Loan Origination Systems.

Initiatives – FY22

• Technology innovation, state-of-the-art infra with ample network bandwidth for scalability, futuristic partnerships and disruptive business models

• Adoption of agile development methodologies to stay ahead in digital/FinTech space

• Improving network efficiency and availability across branches

• Improving speed and efficiency of accessing varied datasets, empowering corporate decision-makers with insights to formulate business and marketing strategies

• Effective customer acquisition system to automate decisions and allow straight through loan processing

• Upgrade of core banking software, environment software and hardware (nearing end of life/end of support) around core banking

• Further strengthening risk-weight scoring in line with BASEL II norms as per NCAF guidelines

• Early warning signal implementation for customer exposure above Rs3 crores basis loan data as well as data in public domain

Focus areas – FY23:

• Private and public cloud initiatives

• State-of-the-art unified CRM (Sales + Service)

• Enhance customer experience (CX) for internet banking and mobile banking

• Rehash ESB – for seamless API integration and API monetisation

Treasury Operations

Treasury primarily focuses on funds management and maintenance of statutory reserve ratios and Basel ratios comprising Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). Treasury manages liquidity risk by maintaining sufficient liquidity under the LCR framework set out by ALCO. Investments in SLR securities and non-SLR securities are maintained in compliance with regulatory norms as well as the Banks Treasury and Investment Policy. Treasury is active in SLR trading and investments, generating incremental revenue in addition to interest income earned with focus on maximising portfolio yield. Treasury also participates in the equity market (both primary and secondary), focusing on additional revenue generation and diversification. During the year under review, Treasury raised funds using a mix of instruments such as Inter Bank Participatory Certificates (IBPCs) and refinance from financial institutions at optimal cost. Treasury functions as the Banks interface with market counterparts and has successfully leveraged excellent relationships with them, to aid fund raising and other activities. Treasury also closely works with the Liabilities team to aid deposit mobilisation while optimising cost of funds and seeking to broad base the Banks liabilities profile. Treasury raised funds of Rs 1,875 crores at an average rate of 4.22% as against the average funding cost of 6.58%* for the year.

*daily average cost of fund

Risk Management

Managing risk is fundamental for ensuring sustained profitability and stability of an organisation. Risk management is the process of identifying, assessing, and controlling threats to an organisations capital and earnings and focuses on proactive approach to manage both existing and emerging risks.

The Bank views risk management as one of its core competencies and endeavours to ensure that risks are identified, assessed, and managed in a timely manner. The Banks risk management framework aligns risk and capital management to business strategies; aims to protect its financial strength and reputation; and ensures support to business activities for adding value to customers while creating sustainable shareholder value.

The Bank has risk management structure that augments the risk evaluation and management capabilities while staying nimble to adapt to the changing business and regulatory environment in an efficient and effective manner. The Board of Directors has the overall responsibility for management and governance of risk and approves the risk management policies. To ensure dedicated focus, the Board has delegated the responsibility to a sub-committee (Risk Management Committee of the Board), which reviews the implementation of Risk Management in the Bank and monitors the risk mitigation measures. The Bank has management-level committees – Executive Risk Management Committee, Asset Liability Management Committee, Credit Risk Management Committee, Operational Risk Management Committee and Information Security & Cyber Risk Committee – which meet on a periodic basis to review the risks comprehensively in the respective areas. The bank has an independent risk management function headed by Chief Risk Officer.

During FY22, the Bank focused on further strengthening its risk management framework and implemented several steps to improve the processes. The Bank carried out periodic stress testing to measure the effect of the pandemic in order to gain insights on the impact of extreme situations on the Banks risk profile and capital position. The Bank further enhanced its portfolio monitoring and analytics, data management and information reporting capabilities. Assessment of liquidity and other risks was carried out daily, fortnightly and monthly for effective liquidity planning and funding strategies. The Banks operational risk management focused on adequate internal controls through the Risk and Control Self-Assessment process to strengthen the controls effectively. The Banks Information Security management extended its focus on strengthening data security measures to protect information from cyber threats. The Bank participated in the Category A of the cyber drill conducted by the Institute for Development and Research in Banking Technology, an establishment by the RBI, and achieved 100% detection of all cyber-attacks.

Compliance

The Bank is committed to adhering to the highest standards of regulatory compliance, governance and ethics. The Compliance Department, headed by the Chief Compliance Officer (CCO), functions as an independent unit to assist the Management team in identifying compliance risks across the Bank and mitigating them by framing appropriate policies, procedures and oversight. The Compliance Department also provides advisory support by reviewing policies and products rolled out by the Bank and has in place the required framework for transaction monitoring and testing the implementation of regulations. It also oversees Governance structures and handles regulatory relationships, including proactively engaging with the regulators for industry-level initiatives.

Internal Audit

The Banks Internal Audit function provides independent assurance to the Board of Directors on an ongoing basis on the quality and effectiveness of its internal controls, risk management, governance systems and processes. Internal Audit Department undertakes various Audits like Risk Based Internal Audit (RBIA) of the branches, Credit Audit, Revenue Audit, Information System Audit, Thematic Audits and Management Audit of the Head Office Departments. Concurrent Audit is being carried out for various areas like Treasury operations, KYC compliance, Payroll, Operations of central processing units, other expenditure etc., based on the risk assessment and regulatory requirements. Despite the restricted mobility during the year, Internal Audit was carried out diligently and the reports were reviewed at appropriate levels and remedial actions were taken.

Human Resources

The Human Resources (HR) function equips the diverse businesses and functions of the Bank through relevant people policies, processes and services. At the forefront of all HR services delivery stand the Core Values of the Bank. FY22 was an equally challenging year as the previous year with the second and third waves of Covid affecting the entire nation. The Human Resources (HR) function of the Bank continued to demonstrate and deliver through the pillars of its People Philosophy – Employee Care and Employee Connect.

Headcount details:

ESFB Headcount Details (as of March 31, 2022)
Total employees	17,607
Employees on contractual basis for the year	6
Women employees	1,897

Overcoming the Pandemic

The Bank adopted a two-pronged approach of medical treatment and support for employees and their family members while facilitating and building awareness on vaccination across its branches pan-India. Almost all the employees are vaccinated with around 95% of them being double vaccinated. The Banks nimble and empathetic approach to the fast-developing situation on the ground helped employees overcome the challenges of the second and third waves of the pandemic with minimal disruption to banking services.

Talent Attraction

The Bank ended the year with an employee strength of 17,607, up by about 6.2% from last year. Women comprised 11% of the total workforce of the Bank. The Bank has digitised its onboarding process to seamlessly onboard new employees remotely. All new employees are contacted by HR periodically from their date of selection in a structured manner to help them settle down in their workplace and address any challenges they may face. HR continued to help cement a strong value-based people culture across the organisation through various learning interventions for new employees.

The Management Trainee programme was introduced in the Bank in FY22. The entire Campus Connect and Hiring programme was conducted virtually in leading business schools including IIMs. The Bank looks forward to welcoming these dynamic Management Trainees during the first quarter in diverse and exciting roles at its Corporate Office.

Talent Management

The Bank completed the Annual Performance Review in June 2021 for FY21 covering around 12,000 eligible employees. The Performance Review process is based on the Banks Core Values of Fairness & Transparency and Pride of Performance. Its High Achievers Club (HAC) had around 950 employees in the year with consistent high-performance ratings, up from about 650 the previous year.

As part of the Connect Program, the HR team ensured that every branch in the country was visited by HR at least once during the year, either virtually or physically. They interacted with employees and helped provide solutions through collaboration with other functions. In FY22, the Bank continued the second year of ‘Sampark where HR telephonically connected with every employee in the Bank to enquire about their and their familys well-being and offer support wherever required. In the Assets Division, the Potential Hero Program helped employees at the branches improve their performance through focussed group discussions, mentoring and support.

The Bank hosted a series of programmes such as health camps for women employees, guest talks by prominent women achievers, self-defence sessions and exciting contests to celebrate Womens Day. Women entrepreneurs from diverse marginalised communities who were provided Skill Training by Equitas and supported with Micro Finance loans were invited to the Corporate Office to showcase their products. The ‘SHEROS initiative was launched for hiring women for specific roles in the Bank.

Talent Development

Learning & Organisational Development (L&OD) continued to create a culture of continuous learning and improvement by designing and delivering immersive, insightful and structured Talent Development initiatives:

• Training Architecture (TA): During FY22, a robust Training Architecture was developed to identify the key learning needs catering to diverse business roles constituting from Branch (Assets and Liabilities) and Centralised Processing Centre (CPC) teams. The architecture captured the key learning priorities of the Banks employees across various stages of their career.

• Induction and Regulatory Mandated Training:

Induction Campaigns: Every on-boarded new joiner undergoes the ‘Induction program that facilitates them in their quick integration with the Bank and fast tracks their settling process with their respective teams. 99% of new joiners completed their induction within 30 days from their date of joining.

Regulatory Mandated Training: Continuous monitoring ensured the successful completion of Regulatory Mandated training requirements. These trainings focus on areas such as Risk, Finance, Credit, Treasury, POSH Compliance, Information Security, Code of Conduct, Prevention of Insider Trading, Prevention of Fraud, among others. 100% of the Banks eligible employees successfully completed their mandated KYC training.

• Specialised Training

The training content and interventions focuses on two broad areas i.e., Behavioural and Functional. The organisation possesses the in-house capability to develop and deliver the learning content as well as seamlessly collaborate with external learning partners wherever deemed necessary. Behavioural: An array of behavioural interventions was designed and delivered by tapping both in-house and external capabilities. Some key external interventions delivered include – programmes for Regional Managers and the Digital Solutions team. The Bank designed and delivered 44 in-house behavioural sessions covering 525 learners. Functional: The market dynamics and evolving job roles determine the functional learning agenda. In-house functional interventions were focused more on Selling Skills, Products, Digital Solutions, Process, Systems & Software, Risk, Credit and Legal aspects. The Banks collaboration with the Manipal Institute of Banking and Confluence Learning has strengthened the capabilities of its branch staff in the areas of Relationship Management, Cross Selling, Wealth Management, Productivity Enhancement, Regulatory Compliance, among others. The Bank also partnered with a world leader in the sector, Skillsoft to digitally deliver key training initiatives.

• Training Man-days

The Bank clocked 68,788 training man-days in FY22, an improvement of about 30% as over the previous year. An average of 4.30 man-days per employee was achieved this year, of which nearly 60% of the trainings were delivered through the e-learning platform and 40% were delivered through instructor-led programmes. In FY22, training was provided to 15,722 unique employees.

• Culture Initiatives

Equitas Bank is built on the bedrock of ‘Value Based Culture. Having a shared belief and core values system has become an integral part of the Equitas DNA and work structure ever since its inception. The team continued to help institutionalise and internalise the Banks Mission and Core Values among its employees by designing and implementing various culture developmental initiatives.

• Culture ‘awareness workshop:

The HR team stepped up its momentum and delivered 361 culture workshops comprising 6,428 employees till date. The Bank institutionalised two special cultural award programmes that were launched and rolled out during the year.

High Five Champion: A monthly recognition event of the top five branches, which highlights and rewards the collective demonstration of core values behaviours at the branch level

Value Victor Award: A quarterly event, which recognises an individual employees contribution above and beyond the call of duty through nomination and evaluation by value champions. Till date, the programme has recognised 15 trophy winners and 26 certificates of appreciation. Celebration moments and the winning experience of these culture award winners were captured and circulated across Bank to create buzz and visibility.

Recognitions

The efforts of the Bank to build a values-based thriving workforce was recognised in the industry. Equitas was certified as Great Place to Work by the Great Place to Work Institute for the period February 2022-February 2023. It was also awarded the Best Place to Work in India 2021 in the category of Mid-size Banking Companies by AmbitionBox.

Corporate Social Responsibility

The Mission of Equitas Group is ‘Empowering through Financial Inclusion. In line with this Mission, besides providing quality and affordable financial services to underserved and unserved people, Equitas has developed a wide range of initiatives towards improving the quality of life of its low-income constituents. These initiatives are carried out through a ‘not-for-profit Trust – Equitas Development Initiatives Trust [EDIT] – established by the Company.

As per the CSR Policy, contributions up to 5% of net profit in each financial year, subject to minimum contribution stipulated under the Companies Act, 2013, are made to EDIT to carry out CSR initiatives. The various CSR activities undertaken include: i) running eight schools (seven owned schools and one belonging to the VSKD Trust). Student strength for the 2021-22 academic year stands at around 5,700; ii) skill development of women through training in tailoring and embroidery, doll making, artificial jewellery making, candle making etc.; iii) pavement dwellers rehabilitation programmes (Equitas Birds Nest); iv) placement coordination for unemployed youth of low-income communities by networking with employers through job fairs; and v) conducting primary health camps through tie-ups with hospitals.

The Bank through EDIT joined hands with local state government agencies to accelerate the nationwide vaccination drive and ensure vaccine access to the last mile. While the government provided vaccines free of cost and health workers to administer the doses, the Bank set up the vaccination camps equipped with communications materials, water and face masks, and transport for health workers, and leveraged its ecosystem to address hesitancy and create awareness. More than 41,000 vaccination camps were organised immunising 5 million people by July 2021.

Advances

Nature of activity	FY22	Cumulative
No. of eye-camp participants [A]	27,002	25,60,939
No. of spectacles [free of cost]	1,023	1,18,186
No. of cataract operations [free of cost]	58	32,712
People covered in other Medical Camps [B]	34,509	38,60,389
People covered in Vaccination Camps [C]	44,62,729	44,62,729
Total [Eye camps + Med. Camps+ Vaccination Camps[A]+[B]+[C]	45,24,240	1,08,84,057
Veterinary camps in Rural areas	2,800	12,028
Participants in skill training programs	21,072	5,84,014
No. of people accessing Health Helpline	68	32,263
Placements for Unemployed youth	25,204	2,23,929
SwasthMahila Health Education	21,790	3,11,890
Equitas Birds Nest [Pavement Dwellers Rehabilitation program]	128	2,229

Support to women with Disabilities and Transgender

In addition, the Bank through its Micro Finance loan programme supported 54,897 persons with disabilities during FY22 and cumulatively 1,28,051 persons. Of these, 33,447 visually challenged persons were supported during the year and cumulatively 54,764. Encouraged by this inclusive model, the Bank has mainstreamed 282 transgenders in the womens group.

Cautionary Statement

Statements made in this MD&A describing the Banks objectives, projections, estimates, general market trends, expectations, etc., may constitute ‘forward looking statements within the ambit of applicable laws and regulations. Actual results could differ materially from those suggested by the ‘forward looking statements as those statements involve a number of risks, uncertainties and other factors. These risks and uncertainties include, but are not limited to, the Banks ability to successfully implement its strategies, future levels of non-performing advances, growth and expansion, the adequacy of allowance for credit losses, provisioning policies, technological changes, regulatory changes, investment income, cash flow projections, exposure to market risks, uncertainties arising out of the COVID-19 pandemic or other risks.

	For and on behalf of the Board of Directors
John Alex	Rangachary N
ED & CEO	Chairman
Chennai	Bengaluru
May 28, 2022