Small finance banks to dominate small-ticket lending in India, say analysts
Premium- SFBs witnessed a 48% loan growth between fiscal 2018 to December last year, analysts noted.
India’s small finance banks (SFBs) are expected to dominate the small-ticket lending space going ahead after having witnessed a 48% loan growth between fiscal 2018 to December last year, analysts said.
“Accumulated assets under management (AUM) growth of 48% between FY18-December 2020 for SFBs vs 7% systemic credit growth speaks of SFBs’ ability to carve a niche in small-ticket lending space. Its market share in small loans remains as high as 6% vs 1% total credit market share as of December 2020," ICICI Securities said on a note on Thursday.
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Considering the government thrust on financial inclusion, a huge untapped opportunity of about ₹10 trillion and SFBs’ experience in underwriting loans based on unstructured data, will dominate the small-ticket lending space going ahead, it said. Their incremental market share in such loans was at an average of 20% before covid onset in March last year.
“In a short span of four years in SFB operations, deposit market share of SFBs increased to 1% with incremental market share remaining much higher at 3%. End-to-end digital onboarding process, customized product offerings and relatively higher interest rates helped them gain share from incumbents at an accelerated pace," the report pointed out.
Moreover, an 89% deposit compounded annual growth rate (CAGR) between FY18-FY20 as against a 9% systemic deposit growth also reflects increasing trust of depositors in parking their savings with SFBs and acceptance of SFBs as a new banking partner. Fast-evolving liability franchise would ensure sustainable source of funds at competitive rates and would further strengthen SFBs’ position in the lending space, analysts said.
“We believe retail liability and diversified asset mix are two important pillars to build long-term sustainable business models, and we rank listed SFBs based on these two criteria. While Suryoday Small Finance Bank and Ujjivan Small Finance Bank are steadily improving their retail deposits and secured asset portfolios, Equitas Small Finance Bank ranks highest with the share of retail deposits and secured asset products at over 80% as o March," it said.
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