SFBs hope to give large private banks a run for their money: BFSI panelists

When we started five years ago, we thought it would be a marathon but it has turned out to be a steeplechase: Samit Ghosh

Heads of small finance banks (SFBs) on Wednesday exuded confidence of strong growth on the back of product diversification, network expansion and lower costs.

“When we started five years ago, we thought it would be a marathon but it has turned out to be a steeplechase,” said Samit Ghosh, founder, Ujjivan SFB. Despite suffering twin shocks of demonetisation and Covid, Ujjivan SFB has seen an increase in its book size from Rs 7,000 crore in 2017 to Rs 21,000 crore. This fiscal year, Ujjivan SFB has made a record profit of around Rs 500 crore in the first two quarters. “We hope to maintain the profit run rate this year,” he said.

Ghosh was also optimistic that in the next 5-10 years, SFBs will compete with any large private bank. “We will give them a run for their money,” Ghosh said. 

He was speaking at a panel discussion on small finance banks at the Business Standard BFSI event in Mumbai.

The theme of the discussion was — can the small finance banks make it big?

K Paul Thomas, founder, managing director (MD) and chief executive officer (CEO) of ESAF SFB, said the bank has been profitable except for two quarters during the second wave of Covid.

The bank’s assets under management (AUM) increased from Rs 2,000 crore to Rs 13,000 crore and it has also been able to build a retail base.

“Ninety two per cent of our deposits are retail deposits,” he said.

Thomas said the bank is also focusing on widening its product and customer base. “Earlier, we were present in eight states and now we are in 23,” he said.

“It has been a rough road but I hope it leads to an expressway,” said Baskar Babu Ramachandran, co-founder and CEO, Suryoday Small Finance Bank. He added that banking is a long-haul game and not a tactical one. Ability to tap the last mile is a great opportunity.

P N Vasudevan, MD and CEO of Equitas SFB said the bank has succeeded in lowering its cost of funds.

“Over the next five years, our cost of funds should trend down,” Vasudevan said.

For a non-banking financial company (NBFC)-turned bank, it can take up to 10 years to have similar cost of funds as that of a bank, he added. He also said that the bank has launched an overdraft facility and is also creating awareness about its products.

Alok Misra, CEO and director, MFIN, said that SFBs have come a long way, increasing their footprint and network. In just six years (excluding the two Covid years), the SFBs have managed to corner a 2 per cent share of deposits. In comparison, the regional rural banks have managed to achieve only 3 per cent over the last 30 years.

He also sees an opportunity for further growth, saying that there are over 60 million medium and small enterprises in the country. He added that their unmet credit demand is huge.

Misra also said that he does not foresee chances of consolidation or merger among SFBs.

Out of the 12 SFBs, there is only one with credit-quality issues. This is due to an external situation and not of its own making.