Equitas SFB CEO Resigns, Shares Hit Lower Circuit: October 29

It’s not every day an Equitas SFB CEO resigns over a perception problem, but that’s what happened on Thursday. P N Vasudevan, who built Equitas Small Finance Bank from a microfinance lender in 2007, quit as MD and CEO on October 29. The filing reached the exchanges after 3 PM, and the shares fell 20% to the lower circuit of ₹52.11 before closing 12.2% down at ₹57.17 on the NSE, Mint reported.

Equitas SFB CEO resigns: the reason he gave

The reason is unusual. Vasudevan’s daughter, Varshini Vasudevan Pathangi, is a co-promoter of Unico Housing Finance, an unlisted NBFC that got its RBI licence in 2023. In his letter to the board, he said this was disclosed to the board and to the RBI, and that there is no actual conflict of interest. According to Mint, he said the bank’s only dealing with the NBFC was one short-term deposit about two and a half years ago, which was repaid on maturity, and the bank has given it no loans.

Investors kept asking about it anyway. Vasudevan wrote that he had been told this “overhang” was making the stock underperform, and that “sometimes, perceptions are stronger than reality.” So he chose to step aside.

Speaking to ETBFSI later, he said there was no nudge from the regulator and no single trigger. He also said his own holding in the bank is around 0.1%, while his daughter held about 1.5% in 2022 before exiting it.

Strong quarter, lost in the noise

The timing stings because the same day brought the bank’s best quarterly profit. CNBC-TV18 reported net profit of ₹218 crore for the September quarter, against ₹24 crore a year earlier. Net interest income rose 32.6% year-on-year to ₹1,026 crore. Gross NPAs eased to 2.29% of loans from 2.42% in the June quarter, and net NPAs to 0.7% from 0.71%. Operating profit did slip 0.7% quarter-on-quarter to ₹402 crore.

The balance sheet kept growing too. Gross advances were up 30% year-on-year and 6% quarter-on-quarter at ₹50,669 crore, and deposits rose 19% year-on-year and 7% sequentially to ₹52,483 crore, per Mint. None of that held the stock. CNBC-TV18 noted it fell 25.3% from the day’s high of ₹69.65 to a low of ₹52.04.

The succession question

This is what the market is really pricing. An analyst quoted anonymously by Mint called it “a major event risk”, saying there doesn’t seem to be anyone second in line. It isn’t the first time succession has come up. Vasudevan tried to step down in 2022 and withdrew after the board asked him to stay, and the RBI then approved his reappointment for a three-year term from July 2023, followed by another term starting July 2026.

The board has accepted his resignation and asked him to stay on until a successor takes over. Its nomination and remuneration committee will look at internal and external names, and any appointment needs RBI approval. Management told analysts it doesn’t expect the search to take more than a month, per ETBFSI.

Vasudevan also pointed out in his letter that unsecured microfinance is now only about 10% of advances, and the bank has guided for over 20% compounded growth in advances and deposits through March 2031, with an average return on assets of 1.5%.

What we’d watch

For now, the strategy hasn’t changed. The leadership has. The next big signal is the name the board picks and how quickly the RBI clears it. Thursday’s sell-off came on a day the broader market rallied, as we covered in our October 29 market close report, and institutional flows for the session are in our FII DII data for October 29.

Disclaimer: This article is for information and education only and is not investment advice. Please do your own research or consult a SEBI-registered adviser before making any investment decision.