We are in no hurry to become a universal bank: Suryoday SFB MD & CEO

There's nothing I can immediately think of. Our current roadmap is built around one core idea: how do we build a real, meaningful customer relationship on both sides of the balance sheet, he said

Suryoday Small Finance Bank (Suryoday SFB) intends to continue focusing on individual loans even as it plans to move into small-ticket secured loans of ₹10-20 lakh, diversify the asset mix, strengthen deposit franchise, and leverage digital platforms. “We prefer steady, sustainable growth,” Baskar Babu Ramachandran, Suryoday SFB’s managing director and chief executive officer, told Raghu Mohan. Edited excerpts from a telephonic interview:

 

If you are, or were to become, an aspirant for a universal banking license — aside from the change in nomenclature — what would this shift mean?

 

We’ll take at least a couple of years before applying. Even if we are allowed to do everything a universal bank does, our portfolio is not likely to consist of, say, 50 per cent or more of loans above ₹25 lakh. I’m quite certain the regulator will keep revising those limits over time, so I’m not overly fixated on that figure. For instance, they’ve already made a gradual shift in priority sector loan requirements: to 60 per cent from 75 per cent. I believe, in a couple of years, that it may further come down to 50 per cent. Another mandate is that 50 per cent of our portfolio must be of loans less than ₹25 lakh. I’m quite sure that this threshold will also move up to ₹50 lakh eventually. If those adjustments are made, from an operational perspective, there isn’t much of a difference between a SFB and a universal bank. The real difference lies in the nomenclature. 

 

Assuming you do become a universal bank, what can you bring by way of differentiation?

 

There’s nothing I can immediately think of. Our current roadmap is built around one core idea: how do we build a real, meaningful customer relationship on both sides of the balance sheet. As of today, we are largely lenders to one set of customers and borrowers from an entirely different set. The convergence hasn’t really happened. The average bank balance with us is less than even a Jan Dhan account, which is typically around ₹5,000. So, there is a long way to go in terms of deepening that relationship.

 

Assuming for a moment that all of us are given a glide path, theoretically, all of us will become eligible to convert into universal banks, but I’d say 90 per cent of what we do would probably remain the same. Now, if you’re able to have access to the lower cost of deposits, it will help in terms of looking at a larger, different kind of segment (at least for a part of the portfolio), which will make the balance sheet more robust. The core objective for SFBs should be to gradually bring the cost of funds down, maybe by 25-50 basis points (bps). Our cost is 7–7.5 per cent; and with additional costs for infrastructure and awareness building, it goes up by 200–250 bps.

 

You’ve spoken of a long-term deposit product: something with 20-year structure. What is the status?

 

It’s actually a 22-year structure: 11 years of investment, followed by 11 years of payout. It’s gradually picking up. To give you context: I’ve been investing in a private insurance product for the last seven years — ₹5 lakh annually, totalling ₹35 lakh so far. Today, I get a surrender value of ₹21 lakh. Now, contrast this with our product, where a customer investing similarly would, even in case of premature withdrawal, get back not just the principal, but also reasonable interest. It’s structured so that the surrender value is at par with, or slightly higher than, what they would’ve earned on a 5-6 per cent fixed deposit over that period. Right now, we open around 2,000 such deposits every month; the intent is to build this into one of our star liability products.

 

The Reserve Bank of India has revised norms to allow a wider set of lending opportunities for SFBs. Which segments do you have in mind?

 

We’re focusing on the slightly higher end of the micro, small and medium enterprises spectrum. Our branches offer quasi-digital, instant approval for shopkeeper loans between ₹50,000 and ₹5 lakh; and we’re expanding this to ₹10 lakh. With the unified lending infrastructure (ULI) and credit-on-UPI (unified payment interface) framework coming up, I can technically extend credit lines that allow shopkeepers to directly buy goods through UPI. In effect, credit-on-UPI becomes a quasi-cash credit or OD (overdraft) product.

 

The next step is to move into small-ticket secured loans of ₹10-20 lakh for the same customer profile. We believe that once you’ve acquired the customer through unsecured lending — which is easier to originate — the opportunity lies in retaining and upgrading them through secured offerings. Commercial vehicle loans will continue to grow steadily — we’re currently at about ₹1,500 crore and expect that portfolio to grow at about 40 per cent annually. But we’re clear that no segment should grow just because it’s available. Even in home loans and mortgages, where the principal runoff is low, a 20 per cent increase in disbursements typically translates to a 50 per cent rise in the portfolio. We prefer steady, sustainable growth.