Re­search Re­port-SFBs

Banking Frontiers - - News -

Small fi­nance banks (SFBs) have re­ported a 17% growth in FY2018 with as­sets un­der man­age­ment (AUM) of `514.98 bil­lion as on 31 March 2018 (26% AUM growth in FY2017), says a re­port from rat­ing agency ICRA. The re­port said the pace of growth had slowed down in the last 2 years, the pri­mary rea­son be­ing their fo­cus on the mi­gra­tion process – from NBFCs to SFBs. All the SFBs were op­er­a­tional by June 2018 and most of the play­ers have man­aged the tran­si­tion well with re­spect to the ini­tial chal­lenges iden­ti­fied ear­lier like rais­ing of cap­i­tal, di­ver­si­fi­ca­tion of li­a­bil­ity pro­file, iden­ti­fy­ing and con­vert­ing branches as well as di­ver­si­fy­ing the prod­uct port­fo­lio and re­cruit­ing staff.

Supreeta Ni­j­jar, vice pres­i­dent and sec­tor head, Fi­nan­cial Sec­tor Rat­ings, ICRA, says apart from the mi­gra­tion process, the growth of SFBs was also af­fected by the de­mon­e­ti­za­tion re­lated im­pact on the mi­cro­fi­nance sec­tor. “While mi­cro­fi­nance dom­i­nates the as­set mix of SFBs, fo­cus on prod­uct di­ver­si­fi­ca­tion has led to a re­duc­tion in the share of mi­cro­fi­nance to 51% as on 31 March 2018 from 61% as on 31 March 2017 with the SFBs es­tab­lish­ing their pres­ence in re­tail as­set classes such as ve­hi­cle loans, loans against prop­erty and hous­ing fi­nance. How­ever, the share of mi­cro­fi­nance for the erst­while NBFC-MFIs, which con­verted to SFBs, stood higher at 79% as on 31 March 2018 (84% as on 31 March 2017),” she adds.

On the de­posit mo­bi­liza­tion front, the re­port states that SFBs have de­posits form­ing 43% of the bor­row­ings. Nev­er­the­less, most of the de­posits are bulk de­posits/cer­tifi­cates of de­posit. Fund­ing from re­fi­nance in­sti­tu­tions ac­counted for 20% of the bor­row­ings, while the share of bank fund­ing and deben­tures de­clined due to the re­pay­ment of older bor­row­ings. The cost of funds for SFBs has re­duced on the back of a higher share of fund­ing from fi­nan­cial in­sti­tu­tions and de­posits, de­spite the rate of­fered on de­posits be­ing 50-100 bps higher than that of­fered by other full-ser­vice banks.

The re­port also finds that the over­all cap­i­tal­iza­tion lev­els for the SFBs have been good (net worth/man­aged ad­vances of 20% as on 31 March 2018) sup­ported by reg­u­lar cap­i­tal in­fu­sion by most of the en­ti­ties. The SFBs raised `60 bil­lion dur­ing FY2016 to FY2018 for meet­ing the reg­u­la­tory norms on share­hold­ing as well as for fu­ture growth. ICRA’s es­ti­mate is that the SFBs would re­quire ex­ter­nal cap­i­tal of `40 bil­lion to `60 bil­lion (40%-60% of present net worth) till FY2022.

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