Equitas Small Finance Bank Ltd Management Discussions

Global Economy

In 2024, the global economy expanded at a moderate pace of 3.3%, reflecting a period of relative stability despite ongoing geopolitical and economic disruptions. Ongoing geopolitical tensions, including the continued Russia-Ukraine war, the prolonged Israel-Gaza conflict, and several other regional flashpoints, weighed heavily on global sentiment in 2024. In early 2025, the United States announced sweeping tariffs, prompting retaliatory actions from major trading partners and adding a fresh layer of uncertainty to the global trade environment. Trade disputes influenced global stability and investment decisions as economies continued to navigate these challenges through strategic adjustments and policy responses. Inflationary pressures showed some signs of easing in 2024 due to improving supply chain efficiencies and moderating energy prices. However, global headline inflation is now expected to decline more slowly than previously anticipated, from 5.6% in 2024, now projected to ease to 4.3% in 2025 and 3.6% in 2026.

This reflects upward revisions for advanced economies, partially offset by marginal declines in emerging and developing markets. Central banks across key regions are pivoting towards accommodative policies, helping improve credit availability and supporting investment sentiment over the medium term.

Looking ahead, the International Monetary Fund (IMF) forecasts global growth to moderate to 2.8% in 2025, before recovering slightly to 3.0% in 2026. Advanced economies are expected to grow at 1.4% in 2025 and 1.5% in 2026, supported by gradual monetary easing and fiscal adjustments, though trade realignments and supply chain shifts may temper the pace of recovery. Meanwhile, emerging markets and developing economies are projected to expand by 3.7% in 2025 and 39% in 2026, driven by resilient domestic demand, infrastructure investments, and accelerating digital transformation.

Source: IMF World Economic Outlook, April 2025

Outlook

While the global economy continues to face heightened uncertainty, driven by trade disruptions, inflationary pressures, and financial vulnerabilities, particularly in emerging markets, signs of stabilisation are emerging.

Easing inflation in major economies, improving financial conditions, and anticipated monetary policy adjustments are expected to support a gradual recovery in global demand. At the same time, multilateral efforts around debt resolution, energy security, and supply chain diversification are likely to shape a more resilient and inclusive global growth path over the medium term.

Source: IMF report on World Economic Outlook, April 2025

Indian Economy

The Indian economy continues to demonstrate resilience and dynamism amidst a complex and evolving global landscape. Despite persistent external challenges including prolonged geopolitical tensions, global supply chain adjustments, and imported inflation, India has maintained strong momentum. Real GDP stood at 6.5%* in 2024-25, with estimates for 2025-26 similar at 6.5%, reaffirming Indias position as one of the fastest-growing major economies in the world.

Sources: Economic Survey 2024-25, IMF World Economic Outlook, April 2025

Indias nominal GDP stands at US$ 4.19 trillion, and has surpassed Japan to become the worlds fourth-largest economy. A major pillar of this momentum has been the resilience of domestic consumption, supported by a rising middle class, rapid urbanisation, and growing disposable incomes. The Union Budget for 2025-26, which raised the income tax exemption limit to Rs. 12 lakhs, is expected to further stimulate household spending, boosting demand across sectors such as retail, lifestyle, and consumer durables. This incremental demand, especially in urban and semi-urban centres, is expected to translate into higher capacity utilisation, improved business confidence, and stronger private sector investment, reinforcing a virtuous cycle of growth in the coming years.

Further, rural demand has shown signs of meaningful recovery, aided by a favourable monsoon and consequent agricultural output, which expanded by 3.5% in 2024-25. Early indicators suggest that rural demand is regaining traction. A decline in MGNREGA employment demand, typically countercyclical, signals improving income opportunities in rural areas, while the uptick in sales of FMCG, two- wheelers, and agri-inputs reflects a rebound in consumption sentiment. This recovery is expected to gather pace, aided by favourable monsoon projections, expectations of a healthy kharif harvest, and strong rabi sowing supported by improved reservoir levels. Government investments in rural infrastructure, housing, and irrigation under schemes like PMAY-Gramin and PM- KUSUM are further enhancing rural disposable income and employment generation.

Sources: Economic Survey 2024-25, IMF World Economic Outlook, April 2025

Indias sectoral growth has remained broad-based, with the services sector accounting for over 53% of GDP, driven by continued expansion in information technology, financial services, and digital platforms. Services exports remain a key contributor as India exported US$ 387.5 billion worth of services, a 13.6 % increase over the previous year. Merchandise exports, excluding petroleum products, reached US$ 374.1 billion, growing by 6.0%. The financial sector has provided robust support to economic expansion. Policy initiatives under the EASE (Enhanced Access and Service Excellence) reforms framework and schemes such as the Grameen Credit Score are facilitating greater inclusion across previously underserved geographies.

The industrial sector, which includes manufacturing and infrastructure, has also exhibited strength, with an estimated growth rate of 6.2% in 2024-25, reflecting higher investments in capital goods, energy, and construction. Within this landscape, the Micro, Small, and Medium Enterprises (MSME) sector plays a pivotal role. With over 7.34 Crore enterprises employing 26 Crore people, MSMEs contribute approximately 30% to GDP and nearly 45% of exports.

The sector is experiencing greater formalisation through initiatives like Udyam Registration, with 6.2 Crore enterprises registered as of March 2025. However, a Rs. 30 lakh Crores credit gap, infrastructure challenges, and skilled labour shortages continue to constrain growth. Government measures such as digital credit scoring models, collateral-free loans, and targeted skilling programmes aim to address these issues and enhance MSME productivity.

Sources: SIDBI Report on MSMEs, PIB Press Release on MSMEs June 2025; PIB Press Release on Sectoral Growth, January 2025

Complementing this domestic financial resilience, Indias external sector remains robust. During 202425, merchandise exports grew by 6.01% and services exports increased by 18.6%. The current account deficit narrowed to 1.1% of GDP, aided by strong services trade and remittance inflows. Foreign direct investment rose by 14%, and foreign exchange reserves stood at US$ 685.7 billion, providing a solid buffer against external shocks.

Source: https://www.moneycontrol.com/news/ business/economy/india-s-current-account- deficit-narrowed-to-l-l-at-H-S-billion-in- q3fy25-12978874.html, https://www.pib.gov.in/ PressReleasePage.aspx?PRID=2131716, https:// www.livernint.com/econorny/indias-forex- reserves-drop-4-9-bllllon-to-68S-7-bllllon-as- of-may-16-rbi-data-shows-11748174593306.html

Indias digital transformation continues to accelerate, reshaping how citizens access services and how businesses operate. The digital economy, which includes digital infrastructure, online commerce, fintech, IT services, digital communication, and platform- based services expanding at nearly twice the pace of overall GDP and is expected to account for 20% of national income by 2029-30, surpassing traditional sectors such as agriculture. The digital public infrastructure, including Aadhaar, UPI, and DigiLocker, has significantly enhanced access to services. In March 2025 alone, UPI transactions crossed Rs. 24.77 lakh Crores, reflecting widespread digital adoption. Emerging technologies such as Artificial Intelligence (AI) are also poised to transform sectors like agriculture, logistics, education, and healthcare, with AI projected to contribute US$ 438 billion to Indias GDP by 2029-30.

Source: RIB Press Release on Indias Digital Economy Contribution, Business Standard - AIs impact on Indias GDP

Outlook

Indias medium- to long-term economic outlook remains fundamentally strong. With favourable demographics, a youthful and aspirational population, rising urbanisation, expanding digital integration, and a forward-looking policy environment, India is well placed to achieve sustained and inclusive growth. At the same time,

Indias policy focus on infrastructure development, reflected in sustained high capital expenditure and initiatives such as the Production- Linked Incentive (PLI) schemes, is accelerating the shift towards domestic manufacturing and integration into global supply chains. Financial inclusion, formalisation of the economy, and targeted support to MSMEs are helping broaden the base of economic participation.

With institutional reforms, climate adaptation efforts, and a growing innovation ecosystem, India remains well on track to achieve its vision of becoming a developed economy by 2047.

Sources: Economic Survey 2024-25, IMF World Economic Outlook, April 2025, NITI Aayog Vision Document 2047

Indian Banking Sector

The Indian banking sector experienced a year of recalibration in 2024-25, marked by a moderation in credit growth and continued focus on asset quality and capital strength. In the months leading up to March 2025, banks adopted a cautious approach, reducing their credit-to-deposit (CD) ratios and exposure to unsecured retail loans and non-banking financial companies (NBFCs). However, supportive regulatory interventions by the Reserve Bank of India (RBI) including the deferral of changes to the liquidity coverage ratio (LCR) framework and the rollback of increased risk weights for NBFCs and unsecured retail segments helped improve sentiment and credit availability. Consequently, ICRA as of January 2025 has revised its credit growth estimate upwards to 10.8-11.5% for 2024-25, reflecting a more optimistic outlook compared to its earlier projection of 10.5-11.0%.

Asset quality continued to improve, with gross non-performing assets (GNPA) and net non-performing assets (NNPA) declining to 2.3% and 0.5%, respectively, as of March 2025, down from 2.8% and 0.6% in March 2024. Although fresh slippages were expected to rise, they were likely to be granular, in contrast to large corporate defaults seen in previous years. Margin pressures emerged due to high deposit rates and a potential decline in lending yields if repo rate cuts materialise. Net interest margins (NIMs) were expected to compress, particularly with slower growth in high-yielding segments.

The capital position of banks remained robust, with a solvency ratio (NNPAs/core equity) improving to 4.5% by December 2024. No major capital-raising needs were anticipated due to moderate credit growth. Looking ahead, while profitability may moderate in 2025-26, Indian banks remain well- capitalised and resilient, supported by sound asset quality and stable earnings.

Source: Indian Banking Sector - ICRA Limited, https://www.businessworld. in/article/scbs - gross-npas-fall-to-23-in-fy25-lowest-on- record-558125, https://www.cnbctv18.com/ business/finance/indias-banks-may-be-in- for-a-tough-year-19612354.htm, https://www. business-standard.com/economy/news/ regulatory-easing-to-support-10-8-credit- growth-in-fy26-icra-125040800930_1.html

Overview of Small Finance

Banks in the Financial Ecosystem

The fiscal year 2025 was a period of consolidation and recalibration for Small Finance Banks (SFBs) in India. After a phase of robust expansion, the sector faced headwinds from asset quality deterioration, profitability pressures, and rising funding costs, particularly due to stress in the microfinance segment. As a result, credit growth moderated to an estimated 18-20% in 2024-25, down from 24% in 2023-24. Despite this slowdown, the medium-term outlook remains positive, with growth expected to rebound to 20-23% in 2025-26, led by continued portfolio diversification and operational streamlining.

Sources: https://timesofindia.indiatimes.com/ business/india-business/small-finance- banks-growth-to-slow-down-to-18-20-in- fiy2025-icra/articleshow/H7234867.cms, https:// www.thehindubusinessline.com/money- and-banking/small-finance-banks-credit- growth-to-slow-in-fy25-profitability-to-face- challenges/article69098594.ece,

In 2024-25, profitability across the sector declined, primarily due to elevated credit costs and provisioning, particularly in the second half of the year. The Return on Assets (RoA) is estimated to have dropped to 1.41.6% in 2024-25 from 2.1% in 2023-24. A modest improvement in profitability is expected in 2025-26, contingent upon enhanced risk controls, improved asset mix, and greater cost efficiency.

In summary, 2024-25 was a year of measured correction for Small Finance Banks. While challenges around asset quality, profitability, and funding persisted, the sector has responded with strategic shifts aimed at secured lending, deposit mobilisation, cost control, and digital integration. With the right execution of these priorities, SFBs are well- positioned to navigate the current environment and lay the foundation for sustained, resilient growth in the coming years.

About Equitas Small Finance Bank

At Equitas Small Finance Bank (also referred to as Equitas, ESFB, The Bank or We), we are committed to delivering credit tailored to the needs of Indias financially underserved and unserved communities while offering the best-in-class banking services for depositors.

Our customer base spans across the informal, semiformal, and formal sectors, including individuals with limited access to traditional financing,

We focus on leveraging our robust technological capabilities to address the diverse and evolving requirements of our customers.

At the heart of our approach lies a strong foundation built on the principles of fairness and transparency with the highest standards of corporate governance. This allows us to serve people from a wide range of backgrounds while providing them with a new, empowering way to bank.

Over the years, we have evolved from a product-led to a customercentric institution. In addition to credit, we offer a suite of noncredit services, such as Savings and Current accounts for various customer segments, life and general insurance products from leading insurance companies, a platform to invest in mutual funds, lockers, FASTags, and more. We continue to focus on building a well-diversified product and customer segments.

Opportunities ^and Threats

We see robust growth potential in secured lending segments such as Small Business Loans, Used Commercial Vehicle, Car Finance and Affordable Housing Finance, which cater to the largely underpenetrated customer segments with significant credit demand being currently addressed by informal money lenders. Within these product segments we see an opportunity to expand our customer base by focussing acquiring customers with a strong repayment track record and being serviced by NBFCs. Our Liability Strategy 2.0 driven by new offerings and supported by technology upgrades is improving customer engagement and will help us reduce cost of mobilising deposits and creating longterm customer loyalty and may impact the Banks profitability in the near term.

Segment-Wise Performance

Our asset strategy is focussed on understanding and addressing the evolving credit needs of Indias underbanked and informal segments. We offer a diverse portfolio that includes Small Business Loans (SBL), vehicle loans, affordable housing loans, loans to MSMEs, Microfinance and MicroLoans, credit cards, personal loans and gold loans. This range reflects our commitment to financial inclusion, economic mobility, and supporting underserved communities. During the year, we added 20 new branches to strengthen our presence across Andhra Pradesh, Tamil Nadu, Karnataka and Telangana, improving customer access. Additionally, our revamped Loan Origination System (LOS) has streamlined end-to-end processing, increased productivity and ensured a smooth digital onboarding experience for customers.

During the year, we recalibrated our portfolio towards secured and stable asset classes, which grew by 19% year on year, while the overall advances grew by 11% year-on- year to Rs. 37,986 Crores as of March 31, 2025, as microfinance loan book contracted. Small Business Loans remain our largest segment, expanding by 25% with stable yields and strong credit quality. Network expansion, coupled with the implementation of a robust LOS, enabled higher productivity, faster turnaround times, and contributed to the deepening of our Small Business Loan (SBL) portfolio.

In Vehicle Finance, there was sluggishness in demand for new commercial vehicles (NCVs), driven by the rising cost of ownership and a business slowdown among small road transporters, which affected their ability to service loans. In response, we strategically increased our focus on used commercial vehicles (UCVs) and used cars segments. Consequently, UCVs saw a 24% growth and used cars recorded a robust 53% growth in advances and a degrowth of 13% in New CV segment.

MSE portfolio saw a robust growth of 41% year-on-year (YoY), supported by improved disbursements. Affordable housing continued its growth, driven by rising aspirations and increasing formalisation. In the coming year, we are focussed on driving profitability in these two segments through improved operational efficiencies.

During the year, we introduced Credit Card and Personal Loan segments, targeting existing depositors through pre-approved offers. These are part of our broader effort to deepen customer engagement.

Digitisation remains a key enabler; our Selfe Loan App is the go-to app for loan enquiries by potential borrowers, designed to enhance customer experience and streamline the loan application process.

During the year, the app played a pivotal role in increasing digital lead sourcing and enabling seamless onboarding.

We are tapping opportunities to scale up cross-selling of loans to our customers, aiming to enhance customer stickiness and increase the number of products per customer. Through these strategic initiatives and portfolio shifts, we continue building a resilient, customer-centric asset base that supports sustainable growth, and financial inclusion goals.

During the year, as microfinance stress elevated, we invested time and resources in sharpening our collection strategy. We strengthened the collection workforce to improve collection efficiency and customer engagement. Further, the uncertain regulatory and political climate in Karnataka affected the MFI portfolio.

At Equitas Small Finance Bank, we offer a broad suite of liability products including savings accounts, current accounts, and fixed deposits and distribute third-party products like insurance and mutual funds along with ASBA-enabled accounts for investing in IPOs. Our liability strategy focusses on catering to mass and mass-affluent customers, with steady growth in the Elite segment and an expanded NonResident Indian (NRI) customer base spanning over 140 countries. During the year, we opened 10 liabilities branches in Karnataka, Gujarat, Maharashtra, Uttar Pradesh and Uttarakhand, strengthening our reach and deepening our presence in key markets.

In 2024-25, we crossed Rs. 40,000 Crores in total deposits, driven primarily by a 26% year-on-year growth in retail term deposits.

Despite a high-interest rate environment encouraging term deposits, we maintained a CASA ratio of around 29%. The retail deposits (Retail TD+CASA), comprising 73% of the total deposits, highlights the granularity and stability of our funding base. The credit-deposit ratio stood at 85.65% as of 2024-25, positioning us well for sustainable asset growth while maintaining balance sheet strength.

During the year, we implemented our Liability 2.0 strategy aimed at lowering the cost of funds and improving operational efficiency in mobilising deposits. Key initiatives included expanding customer acquisition in mass and mass-affluent segments, tapping HNI opportunities through Family Banking, and scaling up D2C business via 100% digital onboarding. We also focussed on growing the NR and FX segment to drive NRI deposit growth and non-interest income. The institutional business is being scaled up by offering customised solutions.

In the household segment, we are deepening engagement through cross-sell of consumer products like credit cards and personal loans.

To engage the new-age, tech- savvy Gen Z population, we are significantly scaling our digital banking and direct-to-consumer (D2C) business with 100% digital onboarding and services, including virtual bankers and an advanced mobile app with phased rollouts aimed at superior user experience, personalised nudging, and seamless product integration. As part of this effort, we launched Equitas 2.0, our next-generation internet and mobile banking platform designed to offer a modern, intuitive, and fully DIY digital experience with cloud-native architecture and comprehensive onboarding and servicing capabilities.

Moving ahead, we are transitioning from a product-led to a customer and family-focussed approach, combining digital-first platforms with high-touch relationship management to deliver holistic financial solutions.

This year, we strengthened our third-party product offerings by building on our customer-centric platforms and expanding our partner ecosystem. Our wealth management and third-party distribution businesses gained traction through fresh addition of ~20,000 Systematic Investment Plans (SIPs), 6,000 broking accounts and 15,000 ASBA registrations. Our platforms also enabled 6,10,048 IPO applications, resulting in a total application value of over Rs. 20,192 Crores, driven by a buoyant IPO market and growing retail participation. Catering primarily to saver segments, our focus remained on simplifying access to investment and insurance products through seamless digital journeys.

ENVI, our InsureTech, platform has evolved into a robust digital marketplace with an open architecture model, integrating nine insurance companies. During the year 12 new life insurance products went live. Our retail life insurance premium registered a 12% y-o-y growth, while general insurance premium saw a 21% growth. This serves as an inclusive platform that facilitates the selection of the most suitable product for customers through a robust onboarding process. This assisted model enables relationship managers to offer personalised insurance options, while also leveraging up-selling and crossselling opportunities through our Virtual Relationship Banking model. Efficiency in lead management is being enhanced through the CRM system, as we steadily move towards a do-it-yourself (DIY) platform for greater customer convenience.

In the investment space, our mutual fund platform ENVEST integrated with mobile and internet banking continues to gain traction, empowering customers to track and invest with ease. During the year, more than 85% of lump-sum investments and 80% of SIPs were executed through digital channels. Our 3-in-1 account proposition offers a seamless integration of banking, trading, and demat services, providing customers with a convenient and efficient way to manage their finances and investments on a single platform.

The product has gained strong acceptance among digitally savvy customers seeking a comprehensive and hassle-free investment experience. We are also working to expand this offering by adding more partners to provide customers with greater choice and enhanced service capabilities. Our Portfolio Management Services (PMS) and Alternate Investment Funds (AIF) services also continued to expand, with a 32% YoY growth in AUM. This reflects the growing demand from

HNI and affluent customers seeking active, differentiated strategies to optimise returns and diversify their portfolios.

We also saw meaningful expansion in our toll plaza acquiring business, allowing us to further diversify offerings and engage with a broader customer base. Our approach this year has been rooted in convenience, accessibility, and personalised solutions, creating a stronger foundation for long-term customer relationships.

Outlook

As we move into 2025-26, our focus is on building a resilient, and sustainable business model that is largely poised to deliver consistent growth, stable profitability and low volatility in overall business performance. With key pivots already implemented, including the resizing of our microfinance portfolio and a continued focus on our secured lending products, we are better positioned to deliver stable and consistent performance. As we move away from microfinance, we expect our margins to be under pressure until efforts taken to reduce the cost of funds show results. We also expect the credit cost to remain elevated, as microfinance stress is expected to continue for a few more quarters in 2025-26.

Financial Performance

2024-25 was a year of strategic consolidation for Equitas Small Finance Bank, marked by deliberate steps to improve asset quality and operational stability amid a challenging environment. Our total income grew by 15% year-on-year to Rs. 7,223 Crores, supported by a 6% rise in net interest income to Rs. 3,252 Crores and a 14% increase in other income to Rs. 911 Crores. Growth in secured lending segments and stronger third-party distribution and treasury income contributed to this performance.

Operating expenses increased by 13% to Rs. 2,829 Crores, driven by investments in technology, workforce expansion, and branding, reflecting our long-term focus on improving customer engagement and digital capabilities. This led to a slight rise in the cost-to-income ratio from 64.49% in the previous year to 6795%.

Gross NPA stood at 2.89%, while Net NPA improved to 0.98% from 1.12% last year, supported by better collections and a shift towards secured lending. The Provision Coverage Ratio, remained at 66.83%. Elevated credit costs at 3.14% were largely attributable to stress in the microfinance book and floating provision of Rs. 180 Crores to ensure that the Banks NNPA remains below 1% in order to align with the application of the Universal Banking License. Excluding this, credit costs were around 2.65%, indicating improving portfolio quality. To maintain higher provision coverage in the unsecured book (MFI), the bank has raised the provision percentage for NPA buckets falling in 121-455 days to 100%, as against the RBI norms of 25%

Profit Before Tax stood at Rs. 199 Crores and PAT at Rs. 147 Crores.

Return on Assets was 0.30% and Return on Equity 2.45%, reflecting the impact of higher provisioning and strategic investments. Our balance sheet grew to Rs. 52,836 Crores from Rs. 45,304 Crores in the previous year, supported by a strong retail franchise. The capital adequacy ratio stood at 20.6%, with Tier I capital at 1784%.

While short-term profitability was moderated, our actions during the year have positioned us for more resilient and sustainable growth in the future.

Profit and Loss Summary ( in Crore)

	2024-25	2023-24
Net Interest Income	3,251.61	3,079.76
Other Income	911.49	798.67
Net Income	4,163.10	3,878.43
Operating Expenses	2,828.83	2,501.07
Operating Profit	1,334.27	1,377.36
Provisions	1,135.42	266.94
Provisions for Security Receipts	-	4729
Profit Before Tax (PBT)	198.85	1063.13
Taxes	51.80	264.17
Profit After Tax	147.05	798.96 1

Key Ratios (%)

	2024-25	2023-24
Yield on Advances	16.25	17.29
Cost of Funds	7.50	7.26
Spread	8.74	10.03
Net Interest Margin	7.51	8.36
GNPA	2.89	2.52
‘Credit Cost	3.14	1.01
Provision Coverage Ratio	66.83	56.06
*NNPA	0.98	1.12
*ROA	0.30	2.00
*ROE	2.45	14.43
Debt-Equity Ratio#	0.23	0.11
Total Debt to Total Assets$	4.04	3.95

* The impact is more than 25% for these parameters on account of higher loan loss provisions mainly attributable to stress in the Microfinance Industry. #The mentioned ratio is in times and not in %. Debt represents borrowings with residual maturity of more than one year.

$Total debt represents total borrowings of the Bank.

Balance Sheet ( in Crore)

	2024-25	2023-24
Capitals and Liabilities Capital	1,139.86	1,134.89
Reserves and Surplus	4,932.66	4,833.81
Deposits	43,106.72	36,129.20
Borrowings	2,136.99	1,78753
Other Liabilities and Provisions	1,519.40	1,418.44
Total	52,835.63	45,303.87
Assets Cash and Balances with RBI	4,954.11	3,500.35
Balances with Banks and Money at Call and Short Notice	582.19	78.60
Investments	9,288.69	9,065.27
Advances	36,208.89	30,964.30
Fixed Assets	695.70	604.73
Other Assets	1,106.05	1,090.62
Total	52,835.63	45,303.87 1

Business Review

Gross Advances ( in Crore)

Particulars	2024-25	2023-24	YoY (%)
Small Business Loans	16,383.10	13,151.74	25%
Vehicle Finance	9,455.97	8,323.60	14%
Housing Finance	4,768.72	4,184.47	14%
Microfinance and Microloans	4,526.62	6,265.45	-28%
MSE Finance	1,688.98	1,200.93	41%
NBFC	524.89	716.30	-27%
Others1	638.16	494.31	29%
Total2	37,986.44	34,336.80	11% 1

1Note: Others include loans against gold, unsecured business loans, overdrafts against fixed deposits and staff loans.

2Gross advances, including IBPC, securitisation/assignments.

Liabilities ( in Crore)

Particulars	2024-25	2023-24	YoY (%)
Demand Deposits	1,648.04	1,215.02	36%
Savings Bank Deposits	10,762.18	10,337.39	4%
Term Deposits	30,696.50	24,576.79	25%
-Retail Deposits	18,446.57	14,669.68	26%
-Bulk Deposits	12,249.93	9,907.11	24%
Total	43,106.72	36,129.20	19%

Disclosure of Accounting Treatment

We have adopted accounting policies which are in line with the Accounting Standards and as prescribed by the regulators.

Information Technology

The past year marked a pivotal chapter in Equitas digital transformation journey, underscored by significant technological advancements. We rolled out several strategic initiatives, including the implementation of a Customer Relationship Management (CRM), the launch of Equitas 2.0, our redesigned internet and mobile banking platform, and the successful migration of our UPI infrastructure from a SaaS model to an in-house, cloud-based solution. Additionally, we adopted a microservices architecture to enhance scalability and agility. These initiatives have significantly strengthened our digital foundation, reinforcing our position as a technology-led bank, aligned with the best in the Indian banking landscape. Our Loan Origination System has automated the entire loan journey, enabling a seamless digital experience for 90% of our borrowers who are new to banking.

Customer Relationship Management (CRM)

Over the past year, we have successfully rolled out a new CRM platform built on Microsoft Dynamics 365 across all branches, enabling seamless, paperless servicing and improved customer journey tracking. The Lead and Opportunity Management module will provide a structured sales pipeline, expected to significantly enhance revenue generation.

Mobile Applications

We launched Equitas 2.0 - our next-generation internet and mobile banking platform—built from scratch using cutting-edge, cloud-native technology. It offers an intuitive user experience, advanced DIY capabilities, and supports all major payment modes including NEFT, RTGS, IMPS, and UPI (Scan and Pay). With downloads nearing 1,00,000, Eguitas 2.0 sets the stage for our future-ready SUPERAPP, designed to unify customer onboarding and enrich our depositor experience. We have introduced innovative products such as the Selfe Loans app, which saw strong adoption, demonstrating the growing digital engagement of our customers. Additionally, initiatives like Banker on Wheels and our cloud- based loan origination platform for personal loans and credit cards are driving efficiency and helping us cross-sell effectively.

We transitioned our UPI platform from a SaaS-based model to a licensed, in-house cloud solution.

As part of our All Payments on UPI initiative, we have enabled UPl-based loan and credit card repayments. We aim to expand this further, ensuring that most customer payments to Equitas are facilitated through the UPI framework.

Our ongoing efforts in Robotic Process Automation (RPA) have automated numerous repetitive tasks, saving substantial man-hours and enhancing accuracy, all while maintaining a lean team. In 2024-25, we automated 100+ processes through bots, saving approximately 45,000+ person-days, while maintaining optimum license usage.

Looking ahead, technology and automation are at the core of our transformation into a full- service, differentiated bank.

Through sustained investments in digitalisation, DIY capabilities, and emerging technologies like Generative AI, we aim to enhance efficiency, expand reach, and deliver personalised experiences, strengthening our mission to serve a broader customer base, especially underserved communities across India.

Risk Management

Effective risk management is fundamental to ensuring the Banks sustained profitability, stability, and long-term success. Recognising risk management as a core organisational competency, the Bank proactively identifies, assesses, and mitigates diverse risks in alignment with our business strategies. Our robust risk management framework integrates risk and capital management to protect financial strength and reputation, while enabling value creation for customers and sustainable returns for shareholders. Supported by an independent risk governance structure, the Bank remains agile in responding to dynamic business conditions and evolving regulatory requirements.

Risk Culture and Governance

Risk is inherent in every business activity, and we have consistently demonstrated resilience amid geopolitical uncertainties, financial market volatility, tight monetary policies, and natural calamities. By embedding a strong risk culture across the organisation, we maintain a vigilant and responsive posture towards external changes. The Board of Directors holds ultimate responsibility for risk governance and policy approval, delegating detailed oversight to the Risk Management Committee of the Board.

At the management level, several specialised committees steer risk oversight, including:

These committees regularly review risk exposures in their domains, ensuring comprehensive coverage and timely escalation. An independent risk management function, led by the Chief Risk Officer, underpins these efforts with objective risk assessment and monitoring.

Risk Appetite and Capital Planning

The Bank operates under a Board- approved Risk Appetite Framework, which sets defined thresholds and tolerances aligned with strategic goals. The framework is rigorously monitored via key parameters, with quarterly Board reviews to ensure adherence. Emerging risks are also regularly reported to the Board, enabling informed guidance to management on necessary actions.

Our capital planning is detailed through the Internal Capital Adequacy Assessment Process (ICAAP), which forecasts capital needs over a five-year horizon while linking risk exposures to capital requirements. Stress testing forms a vital part of our risk monitoring, evaluating the impact of severe scenarios and market developments on the Banks risk profile and capital adequacy, thereby strengthening our preparedness.

Credit Risk Management

Credit risk, the potential loss arising from borrowers inability to meet their obligations, is managed through rigorous controls spanning borrower evaluation, limit setting, disbursement, and continuous account monitoring. The Banks Credit Risk Management framework, governed by a formal policy and overseen by the Credit Risk Management Committee (CRMC), seeks to maintain healthy asset quality while balancing risk and rewa rd.

In addition to regulatory prudential limits, the Bank sets forward-looking internal caps on critical credit ratios, aligned with growth plans. Detailed analyses of portfolio segments by geography, ticket size, and customer type identify stress points, prompting proactive measures to preserve asset quality. Large borrower exposures are closely monitored through loan-level assessments to prevent deterioration into Non-Performing Assets (NPA).

The Early Warning Signal framework further supports timely identification of potential credit stress. The Bank maintains conservative provisioning policies, including additional provisions for stressed sectors and vulnerable portfolio segments.

To support quality growth in advances, we have advanced automation of credit risk monitoring processes, targeting real-time tracking of key ratios. This initiative will continue, enhancing the precision and efficiency of credit risk oversight.

Asset Liability Management (ALM) and Market Risk

Market risk, exposure to losses from fluctuations in interest rates, credit spreads, equity prices, and foreign exchange rates, are actively managed by a dedicated Market Risk team.

This team promptly identifies and escalates risks, operating within a comprehensive risk management policy covering liquidity and interest rate risk.

Interest rate risk is assessed from two perspectives:

Impact on Net Interest Income in the short term

Impact on the Banks Market Value of Equity over the long term

Stress testing of banking and trading books evaluates potential earnings and capital volatility under adverse scenarios.

The Market Risk mid-office monitors the Treasurys investment activities daily, ensuring compliance with risk limits such as VaR (Value at Risk), PV01, and modified duration. For foreign currency transactions, stringent risk limits and controls enforce adherence to regulatory and internal policies, minimising exposure to market volatility.

Liquidity Risk Management

Liquidity risk, the risk of being unable to meet financial obligations due to insufficient liquid assets or funding, is managed under a Board-approved ALM policy. The Bank actively monitors both funding liquidity and market liquidity risks, supervised by the Asset Liability Committee (ALCO).

Liquidity assessment employs multiple methodologies including stock, cash flow, and stress testing approaches. Key metrics tracked include the Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), Structural Liquidity Statement, and Short-Term Dynamic Liquidity Statement. The Bank maintains a robust Contingency Funding Plan that outlines strategies to address potential liquidity shortfalls, ensuring operational continuity in stressed environments.

Information Security Risk

Recognising the critical importance of information security, we have implemented a comprehensive risk management framework overseen by the Information Security and Cyber Risk Committee and the IT Strategy Committee. Operating under Board- approved policies, the Information Security Team is dedicated to managing cybersecurity risks, including assessments of vendors, technologies, and applications.

During 2024-25, significant strides were made to strengthen data privacy risk management, aligning internal controls with regulatory requirements and embedding privacy into risk assessments. The Bank also established structured evaluation processes for safely integrating emerging technologies, balancing innovation with security.

Operational Risk Management

Operational risk arises from inadequate or failed internal processes, personnel, systems, or external events and includes legal risks (excluding strategic and reputational risks). We have reinforced our Operational Risk Management framework and fostered a risk-aware culture across all business lines and support functions.

Risk Identification and Assessment

All new or modified processes undergo review by the Organisational Operational Risk Function (OORF) via Risk and Control Self-Assessments (RCSA).

The Process Approval Panel (PAP) reviews identified risks before process authorisation.

Key Risk Indicators (KRIs)

Monitored quarterly by the Operational Risk Management Committee (ORMC) to track risk trends and corrective actions.

Loss Data Management

Systematic collection and classification of operational loss events facilitate root cause analysis and remediation planning.

High-severity incidents are escalated for focussed control strengthening.

Fraud Risk Management

OORF reviews fraud incidents and preventive measures, reporting to ORMC and the Special Committee of the Board for Monitoring and Followup of Frauds (SCBMF).

Third-Party Risk Assessment

The Bank conducts rigorous assessments for third-party service providers, both at pre-onboarding stage and thereafter, at defined periodicity as per approved framework. All such assessments include review of supply chain and related dependencies on fourth and nth parties.

Business Continuity and Disaster Recovery

To ensure uninterrupted customer service during unforeseen events, we have established a zonal Business Continuity Management Committee. This committee meets quarterly to oversee business continuity readiness, including simulations and drills.

A Board-approved annual Business Continuity Plan is deployed across zones, incorporating disaster recovery (DR) exercises, mock scenarios, sudden impact simulations, and call-tree testing. These efforts collectively bolster the Banks resilience and ability to recover swiftly from disruptions.

Compliance

At Equitas, compliance is foundational and driven from the very top, reflecting our unwavering commitment to regulatory integrity. Our core philosophy - When in doubt, the benefit of the doubt goes to the Regulator, not the Bank underscores a proactive approach to compliance. Whenever regulatory requirements are unclear, we seek timely clarifications directly from the Regulator. This strong stance is supported by our zero-tolerance policy towards noncompliance and a simple guiding principle embraced across the organisation - Compliance over Everything.

The Compliance Function, led by the Chief Compliance Officer, operates as an independent unit within the Bank.

It plays a critical role in identifying, managing, and mitigating compliance risks by formulating appropriate policies, procedures, and oversight mechanisms. This unit ensures the Banks adherence to all applicable regulatory standards through a comprehensive compliance framework, continuous training on regulatory and conduct risks, and clear communication of compliance expectations across all levels.

Core Responsibilities and Activities

The Compliance team undertakes a broad spectrum of activities focussed on embedding compliance in every facet of the Banks operations:

Key Achievements in 2024-25

During the year, the Compliance team made significant strides in strengthening the Banks control environment and regulatory adherence:

Strategic Roadmap

Looking ahead, we are focussed on further strengthening our compliance capabilities by establishing a dedicated internal data centre to efficiently manage regulatory information requirements and expanding automation for regulatory data submissions to the RBIs Regulatory Banking System (RBS) - Tranche I. We are also actively collaborating with technology vendors and the RBI Innovation Hub to develop advanced solutions to detect and prevent the onboarding of potential mule accounts, as well as identify mule account activity through transaction monitoring. Additionally, we will continue conducting in-depth thematic reviews on critical regulatory areas such as compromise settlements, technical write-offs, stressed loan sales, IT governance, digital payment security, fraud risk management, and customer risk categorisation, to ensure robust controls and comprehensive compliance across all dimensions.

Internal Audit

The Internal Audit function plays a pivotal role in upholding the financial integrity and regulatory compliance of the Bank, an imperative for any growing financial institution. At Equitas Small Finance Bank (ESFB), Internal Audit operates as an independent and objective function, providing assurance to the Board of Directors and senior management on the robustness of risk management practices, control mechanisms, and governance frameworks. Empowered with adequate authority, resources, and autonomy, the function ensures thorough and unbiased reviews across key operational areas.

We have implemented a Risk-Based Internal Audit (RBIA) framework and designed our annual audit plan that incorporates inputs from management, the Audit Committee of the Board, and regulatory feedback. Audit coverage includes branches, Business Correspondents (BCs), head office functions, assets/ credits disbursed, critical processes through concurrent and thematic audits.

A vital part of this framework is the Information System (IS) Audit, which assesses technology infrastructure, cybersecurity, and information security as envisaged by RBI in its guidelines. These audits are conducted by a team of CISA- qualified professionals and CERT-In- empanelled external firms.

Additionally, the department conducts reviews on the adequacy and effectiveness of Internal Financial Controls (IFC) in line with ICAIs audit guidelines for financial reporting (IFC-FR).

The Internal Audit function works in tandem with the second line of defence, risk management and compliance teams, ensuring an integrated and layered approach to governance.

The department is actively developing capabilities to transition from manual, off-site audits to an exception-based audit model, leveraging the Banks IT infrastructure, thereby enhancing efficiency and coverage.

Treasury

The Treasury function at ESFB is instrumental in ensuring financial resilience through strategic balance sheet management, liquidity planning, and adherence to regulatory norms. The department is responsible for maintaining compliance with statutory requirements, including the Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), and Basel III guidelines such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). Liquidity risk is managed proactively under the Banks ALCO-defined framework, with adequate buffers maintained to meet both regulatory expectations and internal risk thresholds.

Treasury operations are guided by a seasoned team of professionals adept in balance sheet optimisation and market operations. During the year, Treasury achieved our highest-ever profit of Rs. 142 Crores through investment and trading activities spanning Government Securities, Non-SLR Debt instruments, Equity Markets, and Mutual Funds. This was a result of well-informed asset allocation strategies tailored to prevailing market conditions, economic indicators, and the Banks risk appetite.

The investment portfolio comprises Treasury Bills, Central and State Government Securities, Equity, Mutual Fund units, and Non-SLR instruments. Treasury actively trades in SLR securities to generate incremental returns, while surplus funds are deployed in Non-SLR instruments to enhance net interest income. We also strengthened our presence in equity markets, both primary and secondary, as part of our broader strategy to diversify income streams.

Further strengthening our capabilities, Treasury established a dedicated Foreign Exchange (FX) Desk during the year, poised to unlock additional revenue opportunities in the coming periods. On the funding side, Treasury successfully raised Rs. 500 Crores through Basel II-compliant Tier II Bonds, marking a milestone as the Banks first such issuance since commencing operations. Treasury also worked closely with the liabilities team to support deposit mobilisation initiatives, optimise the cost of funds, and broaden the Banks liability profile. The function continues to leverage strong market relationships to facilitate efficient fund-raising and investment activities, playing a critical role in the Banks financial strategy and long-term growth.

Human Resources

At Equitas Small Finance Bank, our people are our greatest strength, embodying our values and shaping our organisational culture. Our journey towards a Value-Driven Culture, initiated in 2018, has evolved through key phases, Values Identification, Awareness Creation, and Reinforcement, leading us towards the final milestone of Alignment and Demonstration. Our mission to Create the Most Valuable Bank for All Stakeholders through Happy Employees, reflects our commitment to keeping our people engaged, motivated, and fulfilled in their roles. Guided by our philosophy of Care and Connect, we are committed to building a Happy Workplace by engaging, enabling, and empowering employees through structured, thoughtful people practices. As on March 31, 2025, our total number of employees stands at 25,409 people.

Talent Acquisition

Equitas has built a robust talent acquisition framework to attract and onboard the best talent, aligning with the Banks business needs. A strong focus on technology-driven recruitment, structured onboarding programmes, and strategic partnerships ensures a seamless hiring experience.

HR Technology Platform

Implemented an integrated system to streamline hiring processes, reduce turnaround time, and enhance the candidate experience.

Hire-Train-Deploy Programme

Strengthened our programme for our Liabilities Business, where newly recruited freshers undergo specialised, branch-focussed training before deployment.

Campus Hiring

Recruited IT Engineer Graduates from top Tamil Nadu campuses and onboarded Management Trainees from premier B-Schools for corporate functions.

New Business Hiring

Strengthened recruitment capabilities for new businesses, including Credit Cards and Retail Forex, launched during the year.

Diversity and Inclusion

Women employees accounted for 12% of total hires during the year, reinforcing our commitment to diversity and inclusivity at the workplace.

Talent Management

Our talent management approach fosters leadership at all levels, ensuring a steady pipeline of capable professionals ready to drive the Banks growth. At our core, we believe that each persons unique skills, strengths, and perspectives are vital to our success. We integrate structured development programmes with a culture of continuous learning and engagement.

Induction Programmes

Through initiatives like Aarambh and Integrate - New Joiner Experience, employees are culturally aligned, well-supported, and seamlessly integrated into the ESFB family from day one.

Performance Management and Compensation

Performance framework ensures transparent goal-setting, fair evaluations, competitive compensation, and holistic benefits, empowering employees to grow, perform, and feel valued.

Employee Engagement Practices

Fostering a culture of engagement through holistic wellness programs, creative initiatives, and timely communication, earning us the #1 Ambition Box Employee Choice Award 2024 in the Large Banking and Large Companies categories.

Reward and Recognition

Recognition culture is driven by structured initiatives like the High Achievers Club, Long Service Awards, and a centralised R&R platform that ensures fair, transparent, and brand-aligned appreciation of performance.

Data Driven Agile HR Analytics

Data-driven HR practices leverage predictive analytics, hiring and attrition insights, and real-time BI dashboards to enable proactive, agile, and informed talent decisions across the employee lifecycle.

Beyond Policy Initiatives

Personalised support beyond policies through initiatives like 0% interest emergency loans, leave donation, and enhanced medical coverage to support employees in times of need.

Talent Development

To nurture internal talent, we focus on structured learning programmes that prepare employees for key roles within the organisation. Our initiatives foster career progression, enabling employees to take on greater responsibilities. During the year, participating leaders in the Leadership Development Programme (LDP) undertook cross-functional projects aligned with their development goals.

Aggregator Role Development

Designed training like Leaders Edge and ELEVATE programmes to enhance capabilities in Assets and Liabilities divisions.

Women Leadership Development

A cohort of high-potential women employees was nominated for the 1000 Women Leaders Programme by Jombay, aimed at accelerating their readiness for leadership roles.

E-Learning Platforms

Leveraged People Strongs e-learning platform (LMS) providing accessible learning opportunities to all our 25,000+ employees.

Custom Digital Learning Solutions

Developed online modules catering to diverse business functions, work environments, and employee skill levels.

Product and System Training

Conducted system and product enhancement trainings across our pan-India branch network, covering platforms like MS Dynamics CRM, Hetra LoS, and Newgen to strengthen employees operational proficiency.

Leadership Exposure and Learning

Select CXOs and MANCO leaders participated in industry conferences, seminars, and masterclasses to stay current with emerging technologies, regulatory trends, and ESG developments.

Cultural Initiatives

Our workplace culture is shaped by leadership-driven efforts, peer-driven influence, and structured engagement programmes. These initiatives reinforce our Core Values, fostering an inclusive and high-performance environment.

Culture Development Programmes

Leaders and employees actively promote our values through structured engagement and recognition programmes.

Ethical Excellence Programme

The programme was launched, using structured communications, contests, and real-life scenarios to promote ethical practices under the Equitas Way initiative.

Culture Pulse Survey

Conducted annually, measuring employee engagement and alignment with core values. Received an overall average response score of 4.43 out of 5.00, reflecting high levels of participation and commitment.

Corporate Social Responsibility

At Equitas Small Finance Bank, giving back is a fundamental part of who we are. We believe in standing beside the communities we serve as a true partner in their journey towards a better life. Our CSR efforts are driven by a deep commitment to care, inclusion, and empowerment, ensuring that financial progress goes hand in hand with social well-being.

Through meaningful initiatives in education, skill development, and healthcare, we strive to create lasting change and uplift those who need it the most.

Our CSR philosophy is deeply rooted in transparency, fairness, and a profound understanding of our customers needs. We are dedicated to empowering them with the knowledge and skills necessary to elevate their lives and contribute positively to the development of their communities. Our approach to CSR is innovative, collaborative, and impactful, striving to forge sustainable change and upliftment.

Healthcare Initiatives

Access to quality healthcare is a crucial pillar of our CSR strategy. Our commitment to affordable medical care has led to impactful collaborations and initiatives.

Sringeri Sharada Equitas Hospital (SSEH)

A 100-bed multi-speciality hospital in South Chennai, established in partnership with Sringeri Sharada Mutt, providing accessible and high-quality treatment, with a focus on cancer care and specialised medical services. We have preventive health programmes for regular screenings, health awareness sessions, and medical support for underserved communities.

Details of CSR Initiatives	Number of Beneficiaries for the Year 2024-25	Number of Beneficiaries as of 2023-24
No. of Eye-Camp Participants (A)	3,05,997	29,99,900
No. of Free Spectacles	16,857	1,27,572
Cataract Operations	3,925	37,392
Vaccination Camp Participants (B)	-	5752,876
General Medical Camp Participants (C)	3,40,127	43,04,250
Other Camps (Homoeopathy Camps/Ayurveda Camp Participants) (D)	42,011	56,475
Total (Eye Camps + Other Med Camps+ Covid19 + Health Clinic) (A) + (B) + (C) + (D)	7,08,917	1,31,13,501
Sugam Health Clinic Beneficiaries (E)	-	80,029
Veterinary Camp	19,670	28,868
Health Help Line	132	95
No. of Health Camps	5,576	46,498
No. of Vaccination Camp	-	54,252
Health Screening Vehicle Finance Clients	3,034	50,416
Participants in Skill Training Programmes (A)	37,573	6,66,439
EGK Tailoring Centre (B)	140	716
EGK Computer Centre (C)	-	720
Skill Training Programmes (A + B + C)	37,713	6,67,875
Placements for Unemployed Youth	40,393	2,89,524
Swasth Mahila Health Education	4,49,443	9,77,860
Persons with Disability	7,934	1,71,930
Persons with Disability (Visually Impaired)	3,578	30,878
Equitas Birds Nest-Rehab of Homeless	1,471	4,517
Equitas Birds Nest-Rehab of Homeless-Pune	76	24
Equitas Birds Nest-Scholarship	125	2,604
Transgender Inclusion	74	490
Equitas Temporary Market	126	158

Cautionary Statement

This Management Discussion & Analysis (MD&A) includes forward-looking statements that reflect the Banks goals, projections, and expectations based on current market trends and assumptions. However, actual results may vary significantly due to a range of risks and uncertainties. These may include the Banks ability to implement its strategies effectively, fluctuations in non-performing advances, business growth, regulatory changes, credit loss provisions, technological shifts, market risks, investment income, and cash flow fluctuations. Additionally, unforeseen challenges, such as those arising from the COVID-19 pandemic or other external factors, may also impact future outcomes.