Microfinance business has faced challenges in the aftermath of demonetisation. However, it is a key driver of financial inclusion and an integral part of the overall banking business, said R. Baskar Babu, MD and CEO of Maharashtra-based Suryoday Small Finance Bank Ltd. In an interview, he said that microfinance institutions are on a comeback trail.
With interest rates firming up, how do Small Finance Banks intend to cope, as against established banks?
Rates offered by SFBs are at a 150-200 bps premium to those offered by other players, even on savings accounts. So this has led to a high proportion of savings deposits forming part of retail deposits in the first year itself. Further, we do not expect rates to go up significantly in the near term post March 2018. The key differentiator will be quality of service offering and customer experience which will drive customer acquisition
How did demonetisation impact banks like yours that primarily had a microfinance book?
Demonetisation had impacted all the players in the microfinance industry alike. In November 2016, we had a collection efficiency of 94% and today that portfolio runs with an efficiency of 97%, and on the new JLG (joint liability groups) portfolio acquired post April 2017, the collection efficiency has been restored to 99.8%.
How has your cost of funds been changing?
The cost of funds has [declined] by 240 basis points from the beginning of the year primarily because of low-cost deposits and borrowing from money markets post receiving the scheduled status from the RBI.
What are your plans with third-party products?
We are actively working on adding third-party products. Currently we distribute life, general and health insurance products, and social security schemes like Jeevan Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana.
Soon we will be launching a mutual funds platform. Work for offering the Atal pension Yojana is also underway.
How are you placed on deposits and loans now?
We are positioned well both in terms of assets and liabilities. Currently (end of Q3 FY18), we have a deposit base of more than ₹500 crore a gross loan portfolio of around ₹1,352 crore, with a year-on-year growth of 37%.
While the microfinance industry holds tremendous potential, it is yet to bounce back to normalcy in terms of delinquency ratios. Hence, our attempt is to balance the two by continuing to lend to businesses with a more intense risk control framework.
What is it that small finance banks will be able to achieve that traditional banks couldn’t?
Established banks are yet to fully foray deep into the microfinance segment, and their size and scale may not allow them to recognise the needs of the micro segment of the society, which is as ambitious and as much in need of regular banking services.
This gap is what the SFBs can easily cater to since SFBs have strong relationships with these customers as most of the transactions are at the client’s place.
Further, the branch network of SFBs is vast, and this can be leveraged to bring in financial inclusion much faster and in a more effective manner.
What deposit rates do you offer?
On the liabilities side, we offer CASA, FD, Tax saver FD and RD products on which we offer one of the most competitive deposit rates in the industry.
A savings account can get an interest rate of up to 7.25%, whereas for an FD, the customer can earn up to 8.75% interest. For senior citizens, the interest rate offered is 9%.
How is the transition taking place for you and your older micro-finance customers?
Our strategy has been to take small, but firm steps so that we move ahead with conviction. The first year has been about getting things right. In the next financial year, we will be focussing on conversion of our 216 microfinance branches to banking outlets, to bring doorstep banking for our microfinance customers.
We want to deepen the relationship with our customers and move from being lenders to wealth creators for them, hence we are developing customised products and working towards bringing in more social security schemes.
How do you compete with other institutions that have a lot more resources to muster business?
Resources are not a constraint for a good business model based on sound processes.
Even for us, it is not a constraint, which is why we have been successful in delivering banking services and building a healthy book. For that matter, even on the digitisation front we are proceeding one step at a time, not because of any resource constraints but because of our calibrated approach to growth.
