IndusInd Bank’s takeover of Bharat Financial Inclusion Ltd (BFIL) is indicative of the potential in rural banking and of microfinance, which now appears to have become a viable model for financial inclusion.

The merged entity will have over 3,600 branches and outlets and a customer base of 16.3 million. IndusInd Bank will have an increased outreach of 1,400 MFI outlets and 6.8 million borrowers, as per available data. The net worth of the merged entity will be ₹23,921 crore while total assets will stand at ₹2 lakh crore. IndusInd Bank (IBL) has a comfortable Capital to Risk Weighted Assets Ratio (CRAR) of 16.18 per cent, and the corresponding figure for BIFL is 31.8 per cent.

IBL is now likely to focus on rural banking as it transfers BFIL’s employees and operations into a wholly-owned captive Business Correspondent subsidiary.

For BFIL, which, in its earlier avatar as SKS Microfinance Ltd, lost out on a chance to become a small finance bank — the RBI had denied it a licence in 2015 — the merger with IBL has proved a ‘short-cut’. BFIL’s clients will now have access to all the benefits of a ‘universal bank’, said MR Rao, its Managing Director and CEO.

The cost of funds has been coming down for BFIL in the recent past, allowing the micro lender to charge the lowest interest rates among NBFC-MFIs. As part of IndusInd Bank, it can now look forward to lower cost of funds.

A new journey begins For BFIL, the deal marks the end of a roller-coaster ride, if one takes into consideration its journey to fame and prominence as the country’s first MFI to go public. Before it morphed into an microfinance institution, SKS was an NGO founded by Vikram Akula, who later became a poster boy for the MFI sector.

But soon, crisis enveloped SKS and other MFIs due to allegations of harassment of clients by recovery agents in Andhra Pradesh, and the high rates of interest charged. The AP Regulation of Money Lending Act 2010 and subsequent shrinking of the MFI sector contributed to SKS’ tumble.

Incidentally, Saturday was the seventh anniversary of the Andhra Pradesh MFI Act, which created mayhem in the sector but brought about much-needed protection of the poor borrowers into focus. The legislation helped weed out irregularities in the sector. The RBI, too, chipped in with a new regulatory regime. Both actions restored the credibility and viability of the MFI model.

But SKS survived all these, and staged a comeback by a slew of measures aimed at cost-optimsation, better corporate governance and self-regulation.

With the merger, the microfinance model is on the threshold of a new journey. With corporate lending under a cloud due to NPAs and micro-loans exhibiting a near-99 per cent repayment rate, others players will surely be watching.

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