Equitas Small Finance Bank May Raise Capital Through NCDs on July 21

Board To Consider Debt Plan For Growth Amid Market Worries

Can a bank keep giving loans without adding more long-term capital? That’s the concern Equitas Small Finance Bank seems to be preparing for. With loan growth rising and funding costs staying sensitive, Equitas plans to stay strong by raising money through Non-Convertible Debentures (NCDs).

The board of directors of Equitas Small Finance Bank will meet on July 21, 2025, to consider raising funds by issuing subordinated, unsecured, redeemable, non-convertible debentures through private placement. These bonds, called Tier II debt, are treated as part of the bank’s capital under the Reserve Bank of India’s (RBI) Basel II rules.

What Does the Announcement Include?

The meeting was disclosed in a filing to the stock exchanges on July 10. As per the statement, the bank is looking at issuing NCDs to enhance its Tier II capital, which is a requirement under the Capital Adequacy Framework. The move comes after the bank already raised equity earlier this year.

This potential NCD issue, if approved, would support the bank’s lending activities, help in maintaining regulatory buffers, and meet funding needs for the second half of FY26.

Digging Into The Capital Levels

The most recent capital position was disclosed in the Pillar III Basel II Disclosure Report For Q4 FY25, published by Equitas in May 2025. The report reveals that as of March 31, 2025, Equitas Small Finance Bank had a Capital to Risk-Weighted Assets Ratio (CRAR) of 20.60%, well above the regulatory minimum of 15 per cent for small finance banks.

Here is a breakdown of the capital structure as per the report:

Out of the total Tier II capital, ₹50,000 lakh comes from subordinated debt instruments. These are long-term borrowings that qualify under RBI rules to be treated as capital, unlike regular bank loans.

Recent Fundraising And Rating Data

This NCD plan comes after the bank’s earlier Qualified Institutional Placement (QIP) of ₹1,250 crore, done in May 2025. That equity helped improve its Tier I capital, giving it more space to add debt now. Together, the two moves show a balanced plan to keep funding costs low while chasing growth.

Rating agencies also seem confident about the bank. In a CARE Ratings update dated July 10, 2025, the bank’s planned Lower Tier II bonds were given a CARE AA– rating with a stable outlook. Its Certificates of Deposit (CDs) still hold the CARE A1+ rating.

These ratings matter because they show investors trust the bank’s ability to repay. That trust may help Equitas offer the NCDs at better interest rates when they are launched.

Here's how the rating position stands:

The bank’s strong CRAR and credit rating may ease subscription among institutional investors. But investors will still look for clarity on the coupon rate, tenure, call options, and repayment structure, details expected only after the board's approval.

Why Tier II Capital Is Being Prioritised

The move to boost Tier II capital now seems to match wider compliance needs under Basel rules. While Tier I capital covers losses during normal operations, Tier II gives extra protection if the bank faces major losses or has to shut down.

As per RBI rules, subordinated debt must have at least five years of maturity, no step-up features, and must rank below depositors and other creditors in case of repayment.

Here’s a brief summary of Tier II debt features as per RBI regulations:

The bank has not disclosed the exact issue size or coupon range yet. These will likely be part of a detailed private placement offer once the board finalises the proposal.

Conclusion 

Investors and analysts will closely follow the board’s final decision on July 21. The main focus will be on the terms of the debt issue, especially the interest rate, which will show how appealing the bonds are in the high-inflation environment.

Other key details, like how long the bonds will last (maturity), who gets paid first if things go wrong (repayment priority), whether the bonds will be listed for trading, and who can invest, will all influence how the market reacts. Regulatory approval will also play a big role in shaping the final offer.

With this plan, Equitas Small Finance Bank joins other small banks trying to strengthen their capital as they support financial inclusion and aim to grow lending. The next thing to watch for will be the official offer document and how the bank plans to reach out to investors, which may be released soon after the board meets.
 

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