Equitas Small Fi­nance Bank aims to cre­ate ‘fun bank­ing’

Equitas Small Fi­nance Bank is the bank to watch in the days to come with its fo­cus on dig­i­ti­za­tion and help­ing the bot­tom of the pyra­mid cus­tomers. P.N. Va­sude­van, MD and CEO of the bank, out­lines the plans

Banking Frontiers - - Contents - Mo­han@bank­ingfron­tiers.com

Equitas Small Fi­nance Bank is the bank to watch in the days to come with its fo­cus on dig­i­ti­za­tion and help­ing the bot­tom of the pyra­mid cus­tomers. P.N. Va­sude­van, MD and CEO of the bank, out­lines the plans

N. Mo­han: Can you briefly out­line the ge­n­e­sis of Equitas Small Fi­nance Bank and how it man­aged the trans­for­ma­tion from a mi­cro­fi­nance com­pany into a bank?

P.N. Va­sude­van: Equitas was started 10 years ago as an ur­ban fo­cused mi­cro-fi­nance in­sti­tu­tion with a prom­ise to de­liver fair­ness and trans­parency to a so­cio-eco­nomic seg­ment ne­glected by banks and other large fi­nan­cial in­sti­tu­tions. Over the years, the com­pany di­ver­si­fied its prod­uct of­fer­ing with the in­tro­duc­tion of used com­mer­cial ve­hi­cle fi­nanc­ing, loan against prop­erty and af­ford­able hous­ing fi­nance. This fur­ther strength­ened our pres­ence within the in­for­mal seg­ments across the coun­try.

Apart from a strong busi­ness growth, Equitas through its CSR ini­tia­tives like health camps, job fairs, skill devel­op­ment pro­grams etc touched close to 50 lakh lives and re­ha­bil­i­tated more than thou­sand pave­ment dwelling fam­i­lies. Today, through Equitas Devel­op­ment Ini­tia­tives Trust, we pro­vide qual­ity ed­u­ca­tion to about 6000 stu­dents in 8 schools (Equitas Gu­rukul Schools) where all the chil­dren are from the lower strata of the so­ci­ety.

The last decade saw our trans­form from an ur­ban cen­tric MFI to well a di­ver­si­fied NBFC with a na­tional foot­print to one among the few to start its small fi­nance bank within a year of RBI’s ap­proval, post a siz­able IPO of over `2200 crore.

The ba­sic DNA of our or­ga­ni­za­tion is in­no­va­tion and ex­e­cu­tion. This has helped us man­age growth and suc­cess­fully tran­si­tion our­selves into a bank.

You had an IPO even be­fore you be­came a bank, which was over-sub­scribed by 17.2 times. This is a sort of a record. How could a mi­cro­fi­nance com­pany achieve this?

Equitas has been for­tu­nate to have mar­quee pri­vate equity in­vestors like CDC, Se­quoia, IFC etc in­vest dur­ing the early stages of the com­pany and for­tu­nate to re­ceive an over­whelm­ing re­sponse in the IPO. Right from the start in 2007, we have built a strong gov­er­nance struc­ture and today we can proudly say that our gov­er­nance is prob­a­bly the best among any cor­po­rate in In­dia.

And con­firm­ing this, SEBI ap­proved our IPO al­low­ing us to take the com­pany pub­lic. And Equitas is the first pri­vate com­pany in the coun­try to go pub­lic as a com­pany without a pro­moter, which speaks vol­umes about our gov­er­nance stan­dards.

As an MFI, you been working for trans­for­ma­tion at the bot­tom of the pyra­mid level. Will this fo­cus con­tinue as you op­er­ate as a bank? Can you ex­plain the tar­get au­di­ence of the bank? Which other sec­tors are you go­ing to fo­cus?

We have been fo­cus­ing on this seg­ment not only as an MFI but as also when we di­ver­si­fied into ve­hi­cle fi­nance and prop­erty fi­nance. Today, the non-MFI book is more than half of the over­all loan book. Trans­form­ing into a bank has only added to our vigor in trans­form­ing lives. We not only con­tinue to fo­cus on the un­der and un­banked pop­u­la­tion, but post be­com­ing a bank, we have in­tro­duced more prod­ucts to cater to their needs. Agri­cul­tural loans, small busi­ness loans and gold loans are the prod­ucts we in­tro­duced in the be­gin­ning of the year. Our cus­tomers are pre­dom­i­nantly tiny, mi­cro and small en­trepreneurs be­sides agri­cul­tur­ists.

In most of the prod­ucts we fi­nance, we have lit­tle com­pe­ti­tion. In the used com­mer­cial ve­hi­cle fi­nance, about 80% of our cus­tomers are cus­tomers who had no ex­pe­ri­ence of bor­row­ing from any for­mal in­sti­tu­tion be­fore. Sim­i­lar per­cent­age in our mi­cro loan against prop­erty ad­dress­ing the tiny en­ter­prises is 95%!!

What is the level of tech­nol­ogy in­duc­tion in the bank? Will the bank be a fully dig­i­tized en­tity with paperless trans­ac­tions?

Tech­nol­ogy has al­ways been in­stru­men­tal in driv­ing ef­fi­ciency at Equitas. We were early tech­nol­ogy adopters in MFI. Con­sul­ta­tive Group for Ac­tion against Poverty (CGAP), an arm of the World Bank, had writ­ten a blog in their web­site about our tech­nol­ogy and men­tioned that it is the best ex­am­ple of an MFI lever­ag­ing tech­nol­ogy around the world.

As a bank, we in­tend to do the same. Since the bank ac­count hold­ers are spread

across var­i­ous pop strata and so­cial eco­nomic classes, the of­fer­ing will have to be suit­ably de­liv­ered. Within just six months of the bank, we had rolled out mobile and in­ter­net bank­ing, Green PIN for debit cards and all our branches have been equipped with cash de­posit ma­chines cum ATMs. Our mobile bank­ing al­ready in­cor­po­rates fea­tures that em­pow­ers cus­tomers to do lot more than one would get from some of the pre­vail­ing mobile bank­ing apps in the coun­try.

Our Busi­ness cor­re­spon­dents who of­fer bank­ing within their community are en­abled with tech­nol­ogy to help cus­tomers ex­e­cute tiny trans­ac­tion without the need to visit a branch or have mobile phones with high-speed in­ter­net.

Can you talk about the FASTag ser­vice you have just launched?

The bank has been one of the early adopters to is­sue Fastag, the elec­tronic toll col­lec­tion tags. Equitas is the sixth bank to be cer­ti­fied by NPCI to is­sue Fastag. We are also the only bank in the coun­try as on date, to of­fer an on-line Fastag or­der­ing ser­vice. Cus­tomers can visit our web­site and or­der a Fastag in a jiffy! While ex­ist­ing bank ac­count hold­ers can seam­lessly link it to their sav­ings ac­counts, oth­ers can cre­ate a wal­let and load money to use at the tolls and zip pass high­way toll plazas like a boss! We are pas­sion­ately driv­ing this ini­tia­tive as it truly makes In­dia digital and re­duces the need for car­ry­ing cash! How­ever, such ini­tia­tives need the gov­ern­ment’s sup­port to drive adop­tion at a mass level. Dis­count for card users at petrol pumps and Fastag users at high­way tolls are some ex­am­ples.

We have also cus­tom­ized our plat­form to cater to large in­ter­state fleet own­ers as we see them as the big­gest ben­e­fi­ciary of dig­i­tiz­ing toll pay­ments.

Apart from Tamil Nadu, which other states are you propos­ing to in­clude in your planned ac­tiv­i­ties? How many branches are there cur­rently and how many are en­vis­aged in 2017-18?

Equitas added about 350 branches post be­com­ing a bank. We have now close to 900 out­lets spread across 13 states. This gives us a rea­son­ably large pan In­dia pres­ence spread over South, West, Cen­tral and North.

As an MFI, what has been the to­tal value of as­sets un­der man­age­ment? And as a bank, what would be the busi­ness you will be tar­get­ing in the first 5 years?

Our to­tal loan out­stand­ing in­clud­ing off­book is about `7200 crore in March 2017. Out of this, mi­cro fi­nance was about 45%. While we have been do­ing used com­mer­cial ve­hi­cle fi­nance and tiny en­ter­prise loan against prop­erty for many years now, a few new prod­ucts such as busi­ness loans and working cap­i­tal loans, agri loans and gold loans have been in­tro­duced post be­com­ing a bank. With a large de­mand for such loans and not enough sup­ply from the main­stream fi­nan­cial in­sti­tu­tions, we look for­ward to a strong growth over the com­ing years.

What is the USP for the bank? What are the in­no­va­tive prod­ucts that are planned? How do you pro­pose to make a dif­fer­ence?

We see tech­nol­ogy as not only a great lev­eler but also a com­pet­i­tive edge, given that we are not bur­dened with any legacy sys­tem ar­chi­tec­ture. Today, we have al­ready made a mark in the num­ber of prod­ucts, fa­cil­i­ties and fea­tures that we have in­tro­duced on our digital bank­ing plat­form. Digital plat­forms would re­main the ba­sic plat­form around which all our in­no­va­tions in prod­ucts and ser­vices would be wo­ven to­gether for our cus­tomers.

As our tag line states, we in­tend to make bank­ing fun for In­di­ans. Today, go­ing to the bank or in­ter­act­ing with the bank is con­sid­ered a pain and cus­tomers are in­creas­ingly los­ing the emo­tional con­nect with their banks. ‘Fun bank­ing’ is an ap­proach we hope will re­vive this like IPL or T20, which just made cricket fun for the mil­len­ni­als.

Have all the cus­tomers of mi­cro­fi­nance com­pany be­come cus­tomers of the bank?

All our mi­cro­fi­nance cus­tomers have other bank ac­counts and post de­mon­e­ti­za­tion, our dis­burse­ment to mi­cro fi­nance clients are fully done into their bank ac­counts. We have to­tally stopped dis­burse­ments by way of cash. We are in the process of rolling out our BC chan­nels. As and when BC out­lets come up in any area, our mi­cro­fi­nance clients in that area would be open­ing their sav­ings ac­counts through the BCs who would then also ser­vice their re­quire­ments, how­so­ever tiny the trans­ac­tion size may be.

As a small fi­nance bank, you have a higher tar­get for pri­or­ity sec­tor lend­ing? How would you be achiev­ing this?

Mi­cro­fi­nance, small busi­ness loans, agri loans, used com­mer­cial ve­hi­cle loans and af­ford­able hous­ing loans are all pri­or­ity sec­tor lend­ing. Our strength built over the years has been to as­sess the credit and cash flow of such tiny and mi­cro clients and then put in place a ro­bust col­lec­tion mon­i­tor­ing sys­tem. We will con­tinue to lever­age on these strengths as we roll out more prod­ucts ad­dress­ing this mass mar­ket. Since al­most 100% of our lend­ing qual­i­fies for PSL, we do not see any prob­lem in achiev­ing this rather high look­ing tar­get of 75%.

Can you give de­tails of the cap­i­tal struc­ture of the bank? What are the plans to strengthen this struc­ture? How do you pro­pose to bring in cap­i­tal?

We are well cap­i­tal­ized at the mo­ment with our Cap­i­tal Ad­e­quacy Ra­tio above 35%. Fur­ther, we have a very small com­po­nent of Tier II cap­i­tal cur­rently. Hence, even if we are able to main­tain an an­nual growth of over 35-40%, we may not need to raise Tier I cap­i­tal for quite a few years.

P.N. Va­sude­van as­serts that digital plat­forms would re­main the ba­sic plat­form around which all the in­no­va­tions of the bank would be wo­ven

Crick­eter Ravichan­dran Ash­win is the bank’s brand am­bas­sador

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