SFBs: The canter on a chequered terrain as deposit challenges loom

All said, growth prospects for SFBs remain buoyant, anchored by comfortable capitalisation and ever-increasing presence in underpenetrated markets

Segmental and geographical expansion, undergirded by strong and increasing presence in semi-urban and rural markets with large untapped potential, will help small finance banks (SFBs) clock robust 25-27 per cent growth in advances this financial year, just shy of 28 per cent in the previous year.

 

Net interest margins (NIMs) could, however, contract 15 basis points (bps) year-on-year as SFBs continue to diversify into secured asset classes that fetch lower yields.

 

Also, with credit cost expected to increase 40 bps amid rising delinquencies in the unsecured segments (including microfinance), the return on assets is likely to decline nearly 40 bps