‘Our Book Size will Be ₹ 10,000 Cr in 5 Years’

The Economic Times - - Money -

Utkarsh Small Fi­nance Bank is look­ing to tap into mul­ti­ple op­por­tu­ni­ties af­ter it started op­er­a­tions in Jan­uary as the first com­mer­cial bank head­quar­tered in the Hindi heart­land, its man­ag­ing di­rec­tor Govind Singh told Joel Re­bello in an in­ter­view. It was among the 10 en­ti­ties which were given an in-prin­ci­ple ap­proval by the Re­serve Bank of In­dia in Septem­ber 2015 to start a new kind of banks lend­ing to small busi­nesses. Edited ex­cerpts:

How do you see this op­por­tu­nity to op­er­ate a small fi­nance bank? We have an ex­ist­ing client base but as an MFI (mi­cro­fi­nance in­sti­tu­tion), we could only give loans. As a bank, we can of­fer all prod­ucts. An NBFC (non-bank­ing fi­nan­cial com­pany) re­quires a li­cence for each fi­nanc­ing ac­tiv­ity. We can now cater to all types of cus­tomer seg­ments. So, in terms of op­por­tu­nity it’s huge in the core ge­og­ra­phy of Ut­tar Pradesh, Bi­har and the east­ern In­dia we are op­er­at­ing in. It’s a win-win for all — our clients re­quire it, we need more clients and we can of­fer more prod­ucts to our clients. We are also look­ing at MSME (mi­cro, small and medium en­ter­prises) with a ₹ 1-lakh ticket size on av­er­age right now. Our MSME loan book is just ₹ 80 crore. We are look­ing at a higher ticket range, which we have not done so far. In hous­ing also, we have started a pi­lot and are also look­ing at com­mer­cial-ve­hi­cle fi­nanc­ing in a year’s time, along with twowheeler pro­gramme and per­sonal loan. In per­cent­age terms, the mi­cro­fi­nance port­fo­lio will come down to 50% in the next four years. We will build more MSME and in the per­sonal seg­ment, but not large ticket cor­po­rate be­cause we don’t have the money or ca­pa­bil­ity for that.

What kind of busi­nesses will you lend to? Our sweet spot in terms of in­di­vid­u­als is be­tween ₹ 6,000 and ₹ 1 crore, and even if we do whole­sale lend­ing it will be ₹ 5-10 crore, where we will do very small trans­ac­tions – five to 10 trans­ac­tions for ₹ 100 crore port­fo­lio; 95% of our port­fo­lio will be be­low ₹ 5 lakh. But the main part is we can now raise li­a­bil­i­ties also. Our cur­rent cost of funds is more than 12% be­cause we have to take loans from banks. It used to be in the 13.5% to 14% range a year ago. We ex­pect it to come down to 9-9.5% in the next one year de­pend­ing on how quickly we can gar­ner de­posits. It will also be broad-based be­cause we will have a few lakh de­pos­i­tors. My fo­cus will be on lower and mid­dle seg­ment but it will be broad­based with many prod­ucts.

Which ar­eas will you fo­cus on? At least in the near fu­ture we in­tend to re­strict to our core ge­og­ra­phy like UP, Bi­har, Jhark­hand, Ch­hat­tis­garh, Mad­hya Pradesh, some por­tions of Haryana and Ut­tarak­hand. We are also con­tem­plat­ing Odisha. More than 65% branches are in UP and Bi­har, and that will be the case for the next few years. We will not com­pete with large banks. There could be a chal­lenge from NBFCs, but we have ad­van­tages com­pared to them. We are the only bank li­censed from that ge­og­ra­phy and the only non-co­op­er­a­tive non-RRB (re­gional ru­ral bank) head­quar­tered in that area. So we face lim­ited com­pe­ti­tion.

Which small in­dus­tries are you tar­get­ing? What we have been do­ing is giv­ing loans, not for con­sump­tion but for in­come gen­er­a­tion. As long as there is an ac­tiv­ity that is sus­tain­able and scal­able, and which re­quires fund­ing, we are will­ing to sup­port it. In vil­lages, you have clus­ters like an­i­mal hus­bandry in Mirza­pur; in Varanasi, there is a loom busi­ness. There are some clus­ters where even from a credit an­gle we have bet­ter ex­per­tise. Our pref­er­ence is for those busi­nesses. But it does not mean that we won’t fund out­side the clus­ter. This fis­cal year we are tar­get­ing more than ₹ 300 crore from MSME. MSME, to­gether with hous­ing and CV (com­mer­cial ve­hi­cles), will be in the range of ₹ 3,000 crore in five years’ time. Our book size will be around ₹ 10,000 crore in five years from ₹ 1,800 crore now; 35% of our book will come from MSME and 12-15% from per­sonal and other loans; 50% of the loans will come from non-mi­cro­fi­nance.

How do you judge the credit pro­file of the first-time bor­row­ers? We cre­ate a rough fi­nan­cial state­ment by ask­ing them about their in­come, ex­penses and busi­ness, which is what the es­tab­lished banks don’t do. That is where our ex­per­tise comes handy. Get­ting fool­proof ac­count­ing books is dif­fi­cult. We do it on our own. Our sales team and credit team meet the peo­ple and see their ac­tiv­ity, and make their as­sess­ment on that ba­sis. That’s why it is not a bal­ance sheet as­sess­ment. Our peo­ple look at cash flows and try to match to what the bor­rower is say­ing. Our em­ploy­ees are trained spe­cially for this.

Your plan in terms of branches and peo­ple? Our new branches will not be into mi­cro­fi­nance. The new branches, es­pe­cially in the cities, will be fo­cused on per­sonal loans and li­a­bil­i­ties. Our mi­cro­fi­nance branches will also do li­a­bil­i­ties to­gether with third-party prod­ucts like in­sur­ance and mu­tual funds. We have about 3,900 em­ploy­ees now, up from 2,300, when we got li­cence. We ex­pect to be close to 4,700 by March 2018 and, as the book size grows, around 9,000 in five years’ time. We have a big fo­cus on get­ting lo­cal em­ploy­ees and fresh­ers be­cause their stick­i­ness is higher and fresh­ers can be mod­elled eas­ily. In new ge­ogra­phies we are look­ing at busi­ness cor­re­spon­dent model be­cause we will not have to set up new branches and it will help us grow in new places like Odisha at a faster pace.

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