‘Challenges see growth at SFBs slow to 17% in FY18’

The growth of small finance banks (SFBs) in fiscal 2018 has slowed down due to the process of transition from their erstwhile avatar as NBFCs. According to a report by ICRA, SFBs reported a 17 per cent growth in their assets under management (AUM) at ₹51,498 crore as on March 31, 2018. However, in FY2017, when SFBs were operating as micro finance institutions, their AUM had grown by 26 per cent.

SFBs started their operations as banking institutions in June 2018 and managed to transition well from MFIs, despite challenges such as raising of capital, diversification of liability profile, identifying and converting branches, diversifying the product portfolio, and recruiting staff.

Supreeta Nijjar, Vice-President, ICRA Ratings, said: “Apart from the migration process, SFBs’ growth was also affected by demonetisation. While microfinance dominates the asset mix of SFBs, focus on product diversification has led to a reduction in the share of microfinance to 51 per cent as on March 31, 2018, from 61 per cent as on March 31, 2017, with SFBs establishing their presence in retail asset classes, such as vehicle loans, loan against property (LAP) and housing finance.”

As per the report, demonetisation severely impacted the asset quality of SFBs, largely driven by slippages in microfinance loans, with gross NPAs at 8.95 per cent as on March 31, 2018. Incrementally, while on a consolidated basis, the asset quality of SFBs is likely to be supported by diversification into relatively lower-risk products and providing for/writing-off legacy NPAs.

On deposit mobilisation, ICRA said SFBs have made good progress with deposits forming 43 per cent of the borrowings as on March 31, 2018. Further, funding from refinance institutions accounted for 20 per cent of the borrowings, while the share of bank funding and debentures declined due to the repayment of older borrowings.

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