Disha Microfin to act as rural and semi-urban focused bank

The micro finance institute in process to raise Rs 300 cr for expansion

Gujarat-based Disha Microfin Private Limited that received in-principle approval for small finance bank (SFB) in September last year, will act as a rural and semi-urban focused bank after being operational. The micro finance institute (MFI) Disha is aiming to launch itself as SFB by end of calander year 2016 and is awaiting regulatory approvals from the concerned authority.

"As an SFB, we will continue to play to our current strengths and be a rural/semi-urban focused bank, with a focus on the MFI and Mudra (MSE) segments for lending. We aim to launch in Q4CY 2016, subject to receiving the necessary regulatory approvals from Reserve Bank of India (RBI), Foreign Investment Promotion Board (FIPB) etc.," said Rajeev Yadav, group chief executive officer of Finance Business Services Private Limited, the parent company of Disha Microfinance.

Initially, Disha is planning to open around 70 branches in six states including Gujarat, Madhya Pradesh, Maharashtra, Karnataka, Tamil Nadu and Andhra Pradesh where it has strong presence as an MFI.

Yadav said, "We are targeting to open 30-70 branches initially. This would be a mix of urban, semi-urban and rural branches. These would be in addition to over 130 existing MFI offices, which would continue to operate as our customer service centers. These branches will be spread across the states we currently operate in, with a greater focus on West and Central India."

For the future expansion it is in process to raise funds of Rs 300 crore. This will be used for restructuring of the company and other expansion.

"We are in the process of raising funds to the tune of Rs 300 crore by way of private placement. The funds would be used for increasing our domestic shareholding to meet the requirement of being a domestically owned and controlled entity (domestic shareholding of over 51 per cent), and also to ensure sufficient capitalization to establish our business model and meet the regulatory requirements on conversion to the bank," said Yadav.

According to the RBI norms, foreign shareholders can own only up to 49 per cent of SFBs. Currently, majority shares of the company owned by private equity fund India Value Fund Advisors (IVFA), which holds a 74 per cent stake in the company through its Mauritius registered entity-Indium IV (Mauritius) Holding Ltd. While 26 per cent are with promoters.

Rajeev Yadav said, "Our foreign stake holder would have to dilute their share to meet the RBI requirement of the bank being a domestically owned and controlled entity."

Talking about challenges Disha has, Yadav said that the immediate challenges are around getting the regulatory structure right, making the right technology choices that balance cost and functionality and building a long-term solution for the business model on the liabilities side.