Equitas gets final licence for small finance bank

Operations likely to state by Sept-Oct; Firm expect SFB to be profitable from first year onwards

Chennai-based Equitas Holdings has got a licence from the Reserve Bank of India to start a small finance bank (SFB). It is expected to start operations by September or October.

The final licence (the earlier one was in-principle clearance, subject to various conditions to be met) was given to the company on Thursday evening. It has been providing microfinance, used commercial vehicle finance and small enterprise loans, and housing finance services.

Some more approvals still have to be obtained from various departments of RBI and other agencies, said Equitas. It will be the first bank to be set up after 1947 from the state and the first private bank from this city.

P N Vasudevan, managing director, said they expected the SFB to be profitable from the first year onwards, despite an estimated Rs 100 crore a year rise in costs. “Our major strength would be our ability to service the informal economy through our (existing) processes and systems,” he said. The increase in expenditure would mainly be due to relocation of branches and additional staff costS. Over time, the cost of funds would come down. “Every one per cent reduction in cost of funds means around Rs 50 crore saving every year,” said Vasudevan.

The benefit would be visible after two years, he said.

As the new SFB need to focus on liabilities, it needs to add another 3,000 people to the existing 9,000. This would cost Rs 80-90 crore a year. The second major cost would be an increase in rent, as Equitas need to relocate around 400 branches. Of the exiting 580-odd, around 410 will be converted into full SFB branches. The rest will be specalised branches, focusing on lending.

Almost 400 of these branches are located inside lanes or on the second or third floors of a building, which would not be appropriate for a bank, which needs to be on the ground floor and on the main roads, says the management.

Of the branches, around 50 per cent are in the south. There are 30 per cent in the west and the rest are in the north. There are at present 2.8 million clients or about one per cent of Indiam households, says Equitas. The aim is to service five per cent by 2025.

With the conversion to a bank and expansion in the product and service offerings, the company expects to provide a more comprehensive service to low income households.

It plans to leverage the existing network and customer base to build a community banking channel. Business Correspondents would be appointed under each branch to provide convenient access to clients for even small-value banking transactions. There would be multiple channels on offer for clients to access their accounts, including digital channels such as net banking and mobile banking. Also, services such as insurance, pensions and others. The company has invested around Rs 20 crore in information technology.

The company recently completed an Initial Public Offer (IPO) of equity, to reduce the shareholding of foreign institutional investors (FIIs) to below the required 49 per cent. And, merged three entities under the holding company, as in the regulatory requirement, before applying for the SFB licence. In April, the Rs 2,170-crore IPO was subscribed 17 times, despite no participation of FIIs.