BFSI Insight Summit 2026: Universal banking is the goal, say SFB CEOs

SFB chiefs say financial inclusion remains incomplete amid ₹85 trillion in unmet credit demand, while a shift to universal banking could help expand services and ease deposit costs

Small-finance banks (SFBs) have made significant strides in bringing underserved customers into the formal financial system, but the scale of unmet credit demand means their financial inclusion mandate remains far from complete, according to Baskar Babu Ramachandran, managing director (MD) and chief executive officer (CEO) of Suryoday Small Finance Bank, and P N Vasudevan, MD and CEO of Equitas Small Finance Bank.

 

Speaking at a panel discussion at the Business Standard BFSI Summit on Monday on the topic “Mandate Fulfilled. Universal Bank Next?” they said that while SFBs had expanded access to credit and savings products, becoming universal banks represented a natural next step for the sector.

 

 

Vasudevan said unmet credit demand among informal and semi-formal borrowers in India was estimated at around ₹85 trillion, equivalent to one-third of the country’s banking credit.

 

“If you ask me whether SFBs have delivered the mandate at a universal or at a national level, the answer is obvio­usly ‘no’. The size of the problem is just too huge. It’s impossibly huge,” he said.

 

Vasudevan said that if the country’s 11 SFBs continued to expand at a compound annual growth rate (CAGR) of 15 per cent, and unmet credit demand did not rise with inflation, it would take them 65 years to meet the entire demand.

 

However, the banks have made a meaningful contribution at an individual level, he said. While SFBs account for around 1.5 per cent of bank credit, they contribute almost 10 per cent of the banking industry’s client base, reflecting their progress on the financial inclusion mandate.

 

Ramachandran said financial inclusion needed to be viewed beyond credit, with greater attention paid to the gap on the savings side of the household balance sheet.

 

“As a microfinance institution you cater only to the small credit side and the rest has to be handed over to banks. That missing middle asset is famously called everywhere ‘a pipe’,” he said.

 

He said SFBs had expanded to offer products such as small-ticket and affordable home loans and vehicle loans, with many having grown at least fivefold in the last 10 years. The next step, he said, was to help customers move from being small-ticket borrowers to managing their household finances more holistically.

 

“Every Indian today probably has an operative savings account, which was a huge challenge before we became an SFB. Today that challenge does not really exist, 99.9 per cent have an operative savings account,” Ramachandran said.

 

The push towards universal banking is also driven by the limitations associated with the SFB tag, he said. The designation can influence how depositors perceive a bank.

 

“The tag ‘small finance’ makes us look risky, and sometimes we also start feeling risky. This puts in a weight in terms of cost of deposits, with everybody asking the question ‘small finance bank means what’.” Ramachandran said. “That’s one of the reasons why some of us SFBs want to move quickly to drop the tag of ‘small finance’.”

 

Vasudevan described the transition to universal banking as a natural progression for SFBs because their regulatory responsibilities were already broadly similar to those of universal banks, with relatively few corresponding advantages.

 

He said that the real benefit of an SFB was that the probability of getting the licence might be much more than that for applying directly for the licence to start a universal bank.

 

“If you ask me whether we aspire to be a universal bank, then the answer is a clear ‘yes’, because that is the natural maturity model for us,” he said.