Becoming a bank is a natural progression for us: Sanjay Chamria

Interview with Vice-Chairman & MD, Magma Fincorp

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Magma Fincorp is one of the four Kolkata-based financial services firms to have applied for banking licence. Sanjay Chamria, vice-chairman and managing director, explains to Somasroy Chakraborty about the company’s preparation to enter the banking business. Edited excerpts:

Why did Magma choose to enter the banking business?
Magma has a 25-year track record of servicing the un-banked and under-banked through its network of 278 branches. We have already serviced nearly one million customers and have been propeller of progress to the economically disenfranchised. Today, 81 per cent of our branches are located in semi-rural and rural markets. Over 70 per cent of our customers are from these remote places. A good 35 per cent of our customers took the first loan of their life when they came to us. We have also launched our general insurance and housing finance businesses last year, which further established our credentials as a vastly diversified financial services group. We believe becoming a bank is a natural progression for us. It will help us expand our existing successful model of inclusive financial services across India and also offer a whole bouquet of liability products to our existing customers.

If you get a banking licence, will you focus on expanding your presence further in the under-banked markets of eastern India or create a pan-India retail bank?

We have strong presence in the rural and semi-rural markets, which are un-banked and under-banked to a great extent. Having an established network and business model, I don’t see our primary focus of serving the economically disenfranchised will change. Our existing pan-India deep presence along with our experience of serving the under-served is a major positive for us.

Many banks in the private sector have not been able to penetrate rural geographies successfully. What will be your strategy?

We have already established a successful business model that focuses on under-banked areas. We also have a deep presence in these geographies.

Did you appoint a consultant or hire senior bankers to sketch your banking business strategy?
We have a board-appointed empowered group of directors and experts who have been involved in this initiative. The group has also been advised by Deloitte.

Will you continue to use the ‘Magma’ brand for the bank?
The brand ‘Magma’ has a good recall in the target markets and we propose to use the same.

Will you initially focus on building a corporate loan portfolio and retail liability base for the bank before offering consumer loans?

We have been focusing on retail lending in the under-served and un-banked areas as a business opportunity and not (only) as a priority sector target set by the regulator. Therefore, our strategy of building our banking franchise will serve the purpose and objective of the regulator on account of financial inclusion.

What are the challenges you foresee in setting up a bank?
There are several challenges for any new entrant in the banking business. Building capacity and expertise on risk management including governance and compliance is one of the challenges as it is much more rigorous in case of banks as compared to NBFCs (non-banking finance companies) or other businesses.

Also, new players need to create branch infrastructure in a way that will provide a bank type of environment and facilities to customers. Technology infrastructure needs to be strengthened to provide cost-effective services to customers across all regions. The leadership teams need to be widened with requisite experience as certain skill sets are unique to the banking model. Complying with SLR (statutory liquidity ratio) and CRR (cash reserve ratio) requirements from Day One may pose a challenge as it is going to be difficult to build a deposit franchise in the initial few years. Magma, as an NBFC and given its strengths and weaknesses, is well poised in respect of meeting some of the challenges like risk management, governance and compliance besides building technology infrastructure. We will need to work on other issues like branch infrastructure, building leadership skills on unique functions related to banking and complying with SLR/CRR requirements.