Equitas Small Finance Bank declares raising of ₹500 crore fund via NCDs with 50% green shoe option

Equitas SFB Approves ₹500 Crore NCD Issue with Green Shoe Option

Equitas Small Finance Bank (Equitas SFB), one of India’s leading small finance banks, has announced the launch of a ₹500 crore fundraising initiative through the issuance of Non-Convertible Debentures (NCDs). The board-approved fundraising plan includes a green shoe option of ₹250 crore, allowing the bank to retain oversubscription up to this limit, depending on investor appetite.

The NCDs will be issued in one or more tranches and are part of the bank’s broader capital raising strategy aimed at boosting its long-term resources and meeting future lending requirements.

Strategic Diversification of Fundraising Avenues

The proposed debt issuance marks another strategic move by Equitas SFB to diversify its funding sources. The bank has been focusing on broadening its resource base in line with the evolving credit demand across its priority sectors, including microfinance, small businesses, affordable housing, and vehicle finance.

In a stock exchange filing, the lender stated:

“The Board of Directors of the Bank at its meeting held on July 19, 2025, approved the proposal to raise funds aggregating up to ₹500 crore (including a green shoe option of ₹250 crore) by way of issuance of Rated, Listed, Redeemable, Non-Convertible Debentures on a private placement basis.”

The proposed NCDs are expected to carry competitive interest rates, in line with market conditions and prevailing benchmark yields.

Analyst View: Positive Signal Amid Tight Liquidity

Market experts view this move as a prudent strategy to optimize capital costs and improve asset-liability matching, particularly in the context of a tightening liquidity environment and rising cost of funds across the banking sector.

Vivek Iyer, Partner – Financial Services at Grant Thornton Bharat, commented:

“Given the RBI’s cautious stance on liquidity management and expected rate uncertainty, this kind of calibrated fund-raising effort from Equitas SFB provides it with a good buffer to support growth in high-yield lending segments. The green shoe option reflects confidence in market demand for quality paper from trusted issuers.”

Strengthening Balance Sheet for Long-Term Credit Growth

Equitas SFB’s latest fundraising effort also aligns with its long-term credit growth outlook. As of FY24, the bank’s advances stood at ₹35,210 crore, a growth of 24% year-on-year. It maintains a strong CASA (Current Account Savings Account) ratio of 22% and a Gross NPA of 2.02%, reflecting improved asset quality.

The bank reported a net profit of ₹183 crore for the quarter ended March 2025, driven by robust loan disbursements and disciplined cost control. Capital Adequacy Ratio (CAR) as per Basel III guidelines stood at 20.1%, well above the regulatory requirement.

Despite this healthy capital buffer, the NCD issuance reflects a forward-looking strategy to stay ahead of evolving credit demand, particularly in underbanked segments.

Market Context: SFBs Lean on Debt Capital

The fundraise comes at a time when several small finance banks and mid-tier NBFCs are turning to debt instruments amid muted deposit growth and stiff competition from larger banks. Non-Convertible Debentures offer an efficient route to raise long-tenure funds without diluting equity or affecting promoter holdings.

Given the lower credit risk perception around Equitas SFB—bolstered by its sound governance, prudent underwriting, and stable asset quality—analysts expect strong institutional participation in the upcoming issuance.

Share Price Reaction and Investor Sentiment

Following the announcement, Equitas SFB shares saw modest movement on the bourses, reflecting a neutral investor stance. The stock closed at ₹95.45 on the NSE, marginally up by 0.35%. Analysts believe the impact of the NCD issue will be more long-term, contributing to the bank’s ability to fund growth in a stable and cost-efficient manner.

Siddharth Mehta, Fund Manager at Renaissance Investments, noted:

“Debt issuances like this are a positive from an investor perspective, especially when aligned with profitable deployment. Equitas SFB has demonstrated discipline in asset quality and is building a scalable model.”

What This Means for Retail and Institutional Investors

For institutional investors, the NCD issue presents an opportunity to participate in a high-grade fixed-income instrument with predictable cash flows and attractive yields. For retail equity investors, this move strengthens the bank’s medium-term outlook and balance sheet resilience.

If fully subscribed, the ₹500 crore infusion will enable the bank to expand its lending base without resorting to equity dilution—often a concern for minority shareholders.

Investor Outlook: Favorable with Caveats

While the NCD raise signals robust business plans and access to diversified funding channels, analysts urge investors to monitor deployment of the funds and overall cost of capital impact.

The small finance banking sector remains competitive, with regulatory scrutiny and digital disruption shaping business models. Equitas SFB’s strategic use of debt for asset-side growth, if managed efficiently, could enhance returns on assets (ROA) and equity (ROE).

As the bank proceeds with the issuance in tranches, the exact timing and structure of each tranche will depend on interest rate movements and investor interest. Further details regarding tenure, coupon rates, and redemption structures are awaited.