Equitas Small Finance Bank shares tumble 27% in two days; analysts say good Q2 numbers marred by CEO exit
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Equitas Small Finance Bank shares extended their losing streak for the second consecutive session on Friday, taking the two-day decline to over 27%, as the sudden resignation of managing director and chief executive officer P.N. Vasudevan overshadowed the lender’s strong September-quarter performance.
The Equitas Small Finance Bank shares tumbled 12.4% to settle at ₹56.99 on Thursday, after hitting its 20% lower circuit limit during the session. The decline continued on Friday, with shares falling as much as 17% in early trade to a fresh 52-week low of ₹47.26. At the time of reporting, the stock was trading 13.7% lower at ₹49.18 on the BSE, with a market capitalisation of ₹5,630 crore.
The counter also saw surge in trading volumes, with over 50 lakh shares changing hands, compared with the two-week average of 3.54 lakh shares.
In his resignation letter dated October 29, Vasudevan cited a persistent perception of conflict of interest linked to his daughter’s association with a non-banking financial company (NBFC). He said investors had repeatedly raised concerns over the past three years, despite his explanations that there was no conflict in the bank’s dealings with the NBFC.
“My daughter is the co-promoter of an NBFC which has received its licence from RBI in 2023,” he wrote, adding that the relationship had been disclosed to the bank’s board and the Reserve Bank of India.
Vasudevan said there had been no transactions between Equitas Small Finance Bank and the NBFC, apart from a short-term deposit placed around two-and-a-half years ago and repaid on maturity. He added that investors had told him the perceived conflict-of-interest overhang was hurting the stock’s performance and affecting value creation for shareholders and employees.
The bank’s board has accepted his resignation and asked him to continue until a successor takes over. The lender expects to complete the succession process, including regulatory approvals, within three to four months.
Strong Q2 performance, but risks remain
The leadership change comes after Equitas reported its highest-ever quarterly profit of ₹218 crore for Q2 FY27. Total business crossed ₹1 lakh crore during the quarter.
JM Financial said the bank reported a record profit of ₹2.2 billion, up 19% sequentially and 13% above its estimate, driven by healthy loan growth and lower provisions. Advances grew 30% year-on-year and 6% sequentially, while deposits rose 19% and 7%, respectively.
However, higher funding costs and surplus liquidity weighed on margins. JM Financial noted that net interest margin (NIM) contracted 55 basis points sequentially to 6.69%, while Systematix Institutional Equities calculated a 42-basis-point decline to 6.43%.
Management raised its FY27 loan growth guidance to 25% and return on assets (RoA) guidance to around 1.35%, from 1.2% earlier, according to Systematix. It expects RoA to reach 1.5% in FY28.
Brokerages, however, flagged the CEO transition and asset quality trends as key monitorables. JM Financial maintained its ‘Add’ rating but cut its target price to ₹65 from ₹77, citing near-term uncertainty and the bank’s reliance on insurance distribution income.
Systematix retained its ‘Buy’ rating and target price of ₹95, while Elara Capital also recommended ‘Buy’ with a target price of ₹77, arguing that improving business growth and asset quality provide support to the bank’s fundamentals despite the leadership overhang.
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