Kolkata: Equitas Small Finance Bank founder cum managing director PN Vasudevan has announced his plan to step down amid concerns over a perceived conflict of interest related to his daughter who is a co-promoter of a non-banking financial company.

The shares tanked 20% to Rs 52.04 as the sudden announcement stumped investors, before recovering to end at Rs 56.99 on BSE, about 12.4% down from yesterday's close of Rs 65.05.

Vasudevan however agreed to continue to lead till the bank board finds a successor.

Meanwhile, the bank reported a net profit of Rs 218 crore for the second quarter, registering a nearly 10-fold jump.

The issue of conflict of interest surfaced ever since Vasudevan's daughter Varshini Vasudevan Pathangi set up Unico Housing Finance, which received its licence from the Reserve Bank of India in 2023.

"This point has been disclosed as required, to the board and to RBI under various

declarations. My being the MD of a bank and my daughter being the co-promoter of an NBFC are within the regulatory framework of the Banking Regulations Act," he said in his resignation letter addressed to the bank chairman.

However, the perception of conflict persisted, an ‘overhang’ which allegedly caused the stock to underperform. "Under the circumstances, it is important that we remove the ‘overhang’ arising out of the perception issue. Accordingly, I would like to step down from the bank," Vasudevan wrote, adding that there was no transaction between Equitas and the said NBFC except one short term deposit

about two-and-a-half years back and duly repaid on maturity.

In 2022 too, Vasudevan wanted to step down to pursue philanthropic activities which led to a rout in the stock price. He later withdrew his resignation after the board requested him to continue. That was before the formation of Unico.

Meanwhile, Equitas posted higher net profit for the July-September quarter backed by business growth and asset quality improvement. Its net interest margin for the quarter however dipped 55 basis points quarter-on-quarter to 6.69%. Its gross non-performing assets ratio improved to 2.29% from 2.92% a year prior. Its gross advances grew by 30% year-on-year to Rs 50669 crore while total deposits rose 19% year-on-year to Rs 52483 crore.