‘SFB licence will be a major force multiplier’

Gurugram-based Satin Creditcare Network (SNN) is set to apply for a small finance bank (SFB) licence. It was badly singed as a microfinance institution during demonetisation, but has since bounced back. SNN’S chairman and managing director, H P SINGH, spoke to Raghu Mohan on the need to transform into an SFB for reasons ranging from stability in funding to hawking a wider suite, given its reach in the hinterland. Edited excerpts.

Why do you want to convert into a small finance bank (SFB) from a micro-finance institution (MFI)?

We are present in 330 of the 720odd districts, or say in half of the districts in the country. Even a retail non-banking financial company (NBFC) will not have Satin Creditcare’s reach. Then, as an MFI, you are dependent on a few players for your debt requirements which are mostly banks and financial institutions. If we were to get into retail liabilities, it will bring down the cost of funds, and its availability is always there.

You know in all the financial crises over the years, banks have been the first to turn their backs and stop lending; they just run away! Even now, it is very difficult for state-run banks to lend. Of course, banks will remain banks and NBFCS will remain NBFCS. But I am absolutely clear that you are far more stable as a bank when compared to an MFI.

Would it be correct to assume that since you are already listed, the issue of which company to list — the holding company (Holdco) or the operating company (Opco) — does not arise for you?

Yes. We don’t have to create a Holdco, list it, and then go in again for the Opco’s listing. That confusion does not hold for us. Right now, we have a listed Holdco — Satin Creditcare Network. And then, you have the three whollyowned subsidiaries — Taraashna Services, which is into the business correspondent activity; Satin Housing Finance; and Satin Finserv, which serves micro, small, and medium enterprises (MSMES). These will get folded into the Holdco; and it is not a difficult task to do. But we are awaiting the final guidelines from the Reserve Bank of India (RBI).

You see conversion into an SFB also does away with the restriction placed on us an an MFI. The central bank has said an MFI’S lending rate cannot be more than 10 per cent over its cost of funds, or 2.75 times the average base rate of the five large banks, whichever is lower.

Within the SFB universe, is it possible to differentiate in terms of the business profile?

To be very honest, the biggest factor, which probably has to be monetised, is the number of borrowers and the reach you have. And Satin Creditcare has both. For us to transform the products, besides microfinance, is probably one of the USPS we have to gain.

My borrowers who have reached the seventh or the eighth cycle (of being serviced) may not be satisfied with only a gold loan of ~50,000. They may require a higher amount as a loan which could range from anything to anywhere. In Firozabad, you have bangle making; in the outskirts of Agra, you find shoe factories. They may not be satisfied with just a loan from an MFI. So, a major advantage we will carry is the reach, and I think this is something which will have to be really worked upon.

In effect, you plan to bet big on the cross-selling game. And within that, you need not necessarily manufacture the products, but sell third-party products…

Absolutely. We have started to leverage cross-selling from last year for solar, bicycles, water and sanitation and now are exploring consumer goods for rural India. From insurance to mobile phones, everything will be delivered to the client’s doorstep. There is a huge potential to scale up for companies which want to reach out to the rural population. And we have more than three million clients and 6,000-plus feet on the street. It is a big advantage, which we will carry in terms of developing our fintech space, as compared to someone who is just a pure fintech player.

In the way e-commerce has created the revolution for tier-1 and tier-2 markets, microfinance companies can also enhance brand visibility, push sales in the remotest areas, and in return, enhance the quality of life of our clients with affordable financing products.

After being around for nearly four years, SFB’S market share is just 0.6 per cent and 0.2 per cent of the systemic advances and deposits…

The ramp-up will happen. Look at Equitas SFB, Bharat Financial (which has now merged into Indusind Bank), Spandana Spoorthy or Bandhan Bank — it took them about 15 years as an MFI before they finally came of age. So, it is a slow process, but it (ramp-up) will happen for sure.

Have you started talks with investors?

We haven't started that deliberation because we will have to look at the final SFB guidelines. Right now, the capital adequacy is about 30 per cent as on end-june 2019. So, maybe as we transform, we will see as to how to bring in investors. That is, if we really need them at that point of time. With an SFB licence, we will have the ability to diversify products and services; diversify the funding base and mitigate political risks. And, have the opportunity to bring an overall positive impact on the customer’s financial wellbeing.

You had missed out an SFB licence in 2015. Do you think the central bank will indulge you again?

Well, it is the regulator. It is the one to give out the licence and never gives a reason (when an application is turned down). So, I don't know. We are still doing our business and will be ready with whatever we need to do.

Do you mean to say that if you don’t get an SFB licence, it will not materially affect your business?

No, not at all.

“THE BIGGEST FACTOR, WHICH PROBABLY HAS TO BE MONETISED, IS THE NUMBER OF BORROWERS AND OUR REACH. SATIN CREDITCARE HAS BOTH. FOR US TO TRANSFORM THE PRODUCTS, BESIDES MICROFINANCE, IS PROBABLY ONE OF THE USPS WE HAVE TO GAIN”