Tag: small finance banks

Small Finance Banks gear up for expansion, higher disbursements

Banking & Finance

[ad_1]

Read More/Less


With collection efficiencies slowly moving back to normalcy, small finance banks hope to be in expansion mode in the coming months even though a segment of customers remain impacted by the Covid-19 pandemic.

Along with higher disbursements, branch expansion and the listing exercise for some of them are likely to gather pace in the coming months.

Small finance banks came into existence after 2016 and were set up with the aim of furthering financial inclusion to the unbanked and under-served areas and customers. There are 10 entities that had started SFB operations, of which three are listed.

The total size of balance sheet was ₹1.33 lakh crore, noted a recent report by CARE Ratings based on RBI’s recent Report on Trend and Progress of Banking in India. “Their share in the overall banking system was very insignificant at 0.7 per cent,” it noted.

‘Reset’ opportunities

SFBs say that while collection efficiencies are now normalising, some customer segments and geographies are still lagging behind.

A large chunk of their customer base is from the unorganised sector or are urban workers and amongst the worst hit by Covid-19 and the lockdown, in the form of job losses and salary cuts. For segments like mall and restaurant staff, cab and auto drivers, commercial vehicle owners and housemaids, their salary and jobs are yet to get back to normal, which has meant that their loan repayments too are yet to go back on track.

States like Maharashtra, West Bengal, Assam and Punjab too are lagging in collections in micro banking due to a variety of reasons.

Collection efficiencies have been showing month-on-month improvement, ranging from 80 per cent to 95 per cent for most banks. For the quarter ended December 31, 2020, the three listed SFBs — AU Small Finance Bank, Equitas Small Finance Bank and Ujjivan Small Finance Bank — saw improving collection efficiency across most segments and geographies.

“Collections in non-delinquent accounts are also moving close to pre-Covid levels; as of January 2021, around 95 per cent of customers are paying EMIs as against 91 per cent as of October 2020,” said Nitin Chugh, Managing Director and CEO, Ujjivan SFB.

Equitas SFB reported collection efficiency of 105.36 per cent in December 2020 and billing efficiency of 88.73 per cent. It also said that collections are reaching the pre-Covid level.

AU SFB too reported in its third quarter results that collection efficiencies and activation rates have achieved normalcy across most segments.

Among the unlisted banks, ESAF SFB reported collection efficiency of 94 per cent in January.

“Collection efficiency has not come back fully but with the economy having substantially opened up, reverse migration has also happened,” noted the head of an SFB, adding there are now opportunities to grow and “reset” finances and processes.

 

Renewed credit demand

Banks have reported renewed credit demand across most segments from borrowers, including micro finance, affordable housing, small business loans and personal loans. Provisioning has also been done upfront to ensure that the focus can now be on growth.

Both Equitas SFB and AU SFB have reported net profits for the third quarter of the fiscal and though it reported a net loss, Ujjivan SFB has made significant provisions in the quarter.

Gross non-performing assets ratio has also been contained for all three listed SFBs at less than 2.5 per cent at the end of the third quarter.

Till now, advances have seen muted growth. AU SFB reported 14 per cent increase in advances growth on annual basis, 11 per cent growth on quarter-on-quarter basis in December 2021 quarter. For Ujjivan SFB, disbursements for the third quarter of 2020-21 fell to ₹2,184 crore vs ₹3,403 crore a year ago.

To address issues faced by them, small finance banks plan to set up separate industry body

PN Vasudevan, MD and CEO, Equitas SFB, said the lender disbursed around ₹2,500 crore in the third quarter, which is about 80 per cent of pre-Covid levels, and expects it to grow in the fourth quarter. “As of December, our advances grew by 19 per cent year-on-year and now about 79 per cent of our advances is secured,” he said in an investor call post the third-quarter results.

“Disbursements are more or less back to pre-Covid levels and even exceeded it in January, when we disbursed ₹650 crore of micro loans. Most of the micro businesses are getting back to normal, except a few sectors, even though challenges are there. Over a period, recovery is very promising and demand is also coming,” said K Paul Thomas, MD and CEO, ESAF SFB.

CARE Ratings noted that an advantage that most SFBs enjoy is that they have been paying higher interest rates on deposits to garner funds which, in turn, gets translated on the lending side too. “This can be seen in the returns on advances, which is around 20 per cent and is higher than the other banks’ by 8-11 per cent,” it said.

Small Finance Banks have greater presence in well-banked States, says RBI report

Branch expansion

Branch expansion is also likely to be high on the agenda for most of these lenders. The RBI’s latest monthly bulletin had noted that SFBs have greater concentration of branch network in relatively well-banked States.

While there has been a rapid growth in the branch network of SFBs since their inception, this growth has been markedly concentrated in the Southern, Western and Northern regions, which are known as the relatively well-banked regions in the country, RBI officials Richa Saraf and Pallavi Chavan said in an article in the bulletin.

[ad_2]

CLICK HERE TO APPLY

2 Comments , , , , , ,

Small Finance Banks have greater presence in well-banked States, says RBI report

Banking & Finance

[ad_1]

Read More/Less


Small Finance Banks (SFBs) have greater concentration of branch network in relatively well-banked States, according to an assessment in the Reserve Bank of India’s (RBI) latest monthly bulletin.

While there has been a rapid growth in the branch network of SFBs since their inception, this growth has been markedly concentrated in the Southern, Western and Northern regions, which are known as the relatively well-banked regions in the country, RBI officials Richa Saraf and Pallavi Chavan said in an article in the bulletin.

SFBs penetration in the North-Eastern region, which is known to be the least banked region, remains low, they added.

Following the issuance of the licensing guidelines in 2014, 10 SFBs have commenced operations so far. The first two, Capital Small Finance Bank and Equitas Small Finance Bank, started operations in 2016 followed by seven more in 2017, and one more in 2018. SFBs had 4,307 branches as at March-end 2020.

At the State level, while SFBs are making their presence felt in some of the under-served states such as Madhya Pradesh (7 per cent share in total branches) and Rajasthan (8 per cent). They continue to be concentrated in Tamil Nadu (16.6 per cent), Maharashtra (13.1 per cent), Karnataka (7.7 per cent), Kerala (5.5 per cent) and Punjab (4.7 per cent) – States with some of the lowest population per bank branch in the country, as per a preliminary assessment of these banks.

Among these, the States from the Southern region have had a high concentration of MFIs (microfinance institutions) since the time micro finance originated in India in the early-1990s, the article said.

SFBs too, many of which are MFIs turned into banks, have largely followed this pattern of branch expansion.

Furthermore, there appears to be some similarity in the branch spread of private sector banks and SFBs, with both showing a greater concentration in the relatively well-banked regions/states.

Branch expansion in semi-urban and urban centres

The article said the rapid increase of SFB branches has been in semi-urban and urban centres; in March 2020, about 39 per cent of the total SFB branches were semi-urban in nature followed by 26 per cent in urban centres

“Considering their small finance focus, the limited spread of SFBs at rural centres and even at smaller semi-urban centres leaves much to be desired,” the officials said.

Asset concentration

The authors observed that, at present, there is considerable concentration of assets within the SFB group. Top-two SFBs accounted for 46 per cent of total assets of all SFBs in March 2020 with top-three SFBs accounting for 60 per cent share.

However, the relatively big-sized SFBs have displayed lower growth of assets in more recent years. Hence, the concentration of assets within the SFB group may come down over time, the officials said

At present, SFBs constitute a minuscule portion of the financial sector (comprising the Scheduled Commercial Banks, including Regional Rural Banks and Urban Co-operative Banks, and Non-Banking Finance Company segments). Their share in total assets of the financial sector was 0.4 per cent in March 2019.

Priority sector

At the systemic level, priority sector lending accounted for about 75 per cent of the total credit of SFBs.

SFBs reported a greater concentration of loans to agriculture, trade and professional services. These three sectors accounted for about 65 per cent of the total credit of SFBs in March 2020 as compared to SCBs which lent about 66 per cent of their credit to industry, personal loans and finance.

In March 2020, 99.9 per cent and 83 per cent of SFBs total loan accounts and total loan amount, respectively, had a credit limit of up to ₹25 lakh.

Even within these, an impressive focus on very small-sized loans by these banks was evident; about 96 per cent and 48 per cent of their total loan accounts and total loan amount, respectively, had a credit limit of ₹2 lakh, or what are called as small borrowal accounts.

[ad_2]

CLICK HERE TO APPLY

10 Comments ,

SFBs should focus on bottomlines to withstand adverse shocks: RBI

Banking & Finance

[ad_1]

Read More/Less


Small Finance Banks (SFBs) may need to focus on their bottomlines as and when financial conditions tighten, according to a Reserve Bank of India (RBI) report.

The “Report on Trend and Progress of Banking in India 2019-20” observed that the prevailing easy liquidity conditions facilitate borrowings and refinance on which SFBs rely. Currently, there are 10 SFBs in the country.

The central bank said the risk absorption cushions in the form of provision coverage ratio (PCR) is low in some SFBs, impacting their ability to withstand adverse shocks.

The report said those SFBs, which were earlier NBFC micro finance institutions (NBFC-MFIs), continue to have significant exposure to unsecured advances even as they strive to diversify their portfolio.

Green shoots in the form of revival of agriculture and allied activities may augur well for financials of these banks, it added.

The RBI noted that collection efficiency of these banks had dropped substantially during the strict lockdown period but since then there is a strong improvement on a month-to-month basis and a catch-up with pre-pandemic levels may, in fact, be under way.

In FY20, SFBs deposits jumped 48.1 per cent year-on-year (y-o-y) to ₹82,488 crore. Their loans and advances rose 29.7 per cent y-o-y to ₹90,576 crore. Investments were up 40 per cent y-o-y to ₹24,203 crore.

The RBI observed that these banks have smaller low-cost current and saving account (CASA) deposit bases.

SFBs were set up in 2016 to provide basic banking services such as accepting deposits and lending to the unserved and the under-served sections of society, including small businesses, marginal farmers, micro and small industries, and the unorganised sector.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , ,

What are the less risky options for higher returns on your FDs

Personal Finance

[ad_1]

Read More/Less


My wife has a fixed deposit of ₹3-lakh in Dena Bank. Now, with the merger of the bank with Bank of Baroda, we would like to discontinue it and switch it over to some other bank. On checking with Indian Overseas Bank, we found they offer 5.2 per cent for 3- to 5- year tenures . I am looking to invest with a horizon of 3-5 years in a safe and less risky asset with a 7 to 8 per cent yield. Please suggest a suitable investment avenue.

— N.P. Desai

Given that the full financial impact of Covid-related moratoriums and concessions on bank financials is not yet known, it is best to stick to larger and financially stronger banks and NBFCs for deposits at this juncture. Switching your deposit out of Bank of Baroda into Indian Overseas Bank (IOB) for a 5.2 per cent rate is not a prudent course of action in this context as Bank of Baroda is a stronger and larger bank. In the quarter ended September 2020, IOB had reported net profits of ₹148 crore, managing a turnaround from losses in the previous year, with gross NPAs of over 13 per cent and capital adequacy ratio of 10.9 per cent. The bank was also placed under RBI’s Prompt Corrective Action framework.

Bank of Baroda, apart from being consistently profitable, had comfortable capital adequacy of 13.2 per cent as of the same date. Given that RBI’s policy rates today are at their lowest levels in two decades at 4 per cent and market interest rates for highly rated entities are at rock-bottom too, you can get a 7 to 8 per cent return only from riskier entities. Given that the rates may go up at least a bit once the economic situation normalises from Covid, locking into these low rates for periods beyond a year is not advisable. Therefore, it is best not to consider 3- to 5-year fixed deposits currently and stick with up to 1 year deposits even if rates seem unappealing.

Having said this, we can suggest three courses of action given the situation. If you would like a slightly higher yield on your fixed deposits, you can consider the one-year post office time deposits offering 5.5 per cent which offer superior safety with a higher return. If you really seek higher returns and don’t mind some risks with it, you can stay with Bank of Baroda for some of your money and diversify into 1- year deposits from small finance banks such as Equitas for say, one-third of the money. Such banks, however, do lend to riskier segments of small borrowers and, therefore, your deposits are subject to higher risks than with the leading commercial banks like Bank of Baroda.

Deposits with top-rated NBFCs such as Sundaram Finance or HDFC which offer about 5.7 per cent on cumulative deposits of up to 1 year can also be an option. If monthly income is your objective, the Post Office Monthly Income Account offering 6.6 per cent is an option to look at too, though the long lock-in of five years is a deterrent. If your wife is a senior citizen you can also consider the post office senior citizens savings scheme offering 7.4 per cent, albeit with a 5-year lock-in period.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , ,
1 2 3