Low cost, efficient loan appraisal and reach will help us sustain banking business: Kuldip Maity

Q&A with managing director and chief executive officer, Village Financial Services

Village Financial Services (VFS), a Kolkata-based microfinance institution, is one of the 72 applicants for a small finance bank licence. Kuldip Maity, managing director and chief executive officer of VFS, believes that creating a bank is a natural choice for the micro-lender as it has been working for nearly two decades to promote financial inclusion in remote geographies. In an interview with Somasroy Chakraborty, Maity shares details on the company's preparedness to set up a small finance bank. Edited excerpts:

Why did VFS apply for a small finance bank licence?

The objective of new bank licence is to expand the reach of financial services. We have been working for nearly two decades in the financial services space, offering credit to those who have limited access to bank finance. Hence, it was a natural choice. We believe that we have the required infrastructure to create a small finance bank and drive financial inclusion efficiently. Close to 92% of the areas where we operate are under-banked. We have a customer base of 150,000 and 106 branches across three states – Assam, Bihar and West Bengal. We feel that it will be relatively easier for us to transform into a bank. Also, as a microfinance company we are not permitted to take deposits. We found that many of our customers are willing to keep deposits but are unable to do so due to absence of bank branches. If we convert into a bank, we will be able to offer them deposit products.

The performance of local area banks in India has not been satisfactory. Are you confident of making a profit if you convert yourself into a small finance bank?

Making profit from poverty is not our objective. But we are confident that our banking business will be sustainable. Our staff cost is low and we already have branch infrastructure in deeper geographies. The loan repayment rate in our microfinance business is 99%. In other words, there is less chance of defaults when we lend. This is because we constantly engage with our borrowers and maintain a continuous relationship with them. Our low operational cost, efficient loan appraisal process and reach will help us sustain our banking business.

Will you introduce new products and services if you are permitted to open a bank?

Currently, we have four to five loan products. Initially, we will continue with these and may introduce new products like small-ticket home loans (of not more than Rs 2-3 lakh), education loans and agri-related loans like tractor financing. Our loan book is currently at Rs 125 crore. We do not plan to increase it aggressively if we get a banking licence. Also, the ticket size of our loans (current average is Rs 10,000) will remain more or less same.

Will you need to raise additional capital to start a bank?

Small finance banks are required to have at least Rs 100 crore of capital. So, we will need to raise capital. But that will happen once we get a licence. There are many social investors who are interested in investing money in a small finance bank. Also, capital raising is a regular exercise. Hence, I don't see it as a challenge.

What is VFS' shareholding structure now?

Currently, promoters own 100% shares in VFS. As per the guidelines, the promoters need to reduce their stake in a small finance bank. If we get the licence, the promoters of VFS will gradually reduce their stake in the company.