Money & Banking

Dvara KGFS mulls conversion to Small Finance Bank

K Ram Kumar Mumbai | Updated on March 22, 2021

Joby CO, CEO, Dvara KGFS

NBFC is ‘actively’ scouting for acquisition opportunities in the MFI space, says CEO

Dvara Kshetriya Gramin Financial Services Pvt Ltd is planning to convert itself from a non-banking finance company into a Small Finance Bank even as it is actively scouting for acquisition opportunities in the microfinance institution space.

The Chennai-headquartered, rural-focused non-banking finance company (NBFC) is evaluating the conversion possibility, given that the rural population needs not just loans but also right savings products.

"We think a Bank is best suited to serve customers’ holistic financial needs.

"We see it (conversion into a Bank) as the next milestone in our (growth) road map. Now that the (SFB) licenses are also on tap, we are actively considering that (conversion)," Joby CO, CEO, Dvara KGFS, told BusinessLine.

Dvara KGFS (formerly Pudhuaaru Financial Services Pvt Ltd) is in the process of hiring a consultant to shepherd its conversion into a Small Finance Bank (SFB), he added.

As at June-end 2020, Dvara KGFS, which was incorporated in August 2008 by Dvara Trust (formerly IFMR Trust) and is registered with the Reserve Bank of India (RBI) as a non-deposit taking, systemically important NBFC, had assets under management of ₹819 crore, the net worth of about ₹300 crore, and capital adequacy ratio (Tier-I) of 28.50 per cent. It reported a net profit of ₹5.55 crore in the first quarter ended June 30, 2020.

The NBFC's product portfolio includes loans to women borrowers under the Joint Liability Group model, micro-enterprise loans, jewel loans and crop loans, among others. It currently operates in six states - Tamil Nadu (from where a chunk of its business comes), Odisha, Karnataka, Uttarakhand, Chhattisgarh and Jharkhand.

Investors ready to back

Joby underscored that his company is currently well capitalised because it raised a little bit more than what it wanted last year as it was also looking at acquisition opportunities in the microfinance institution (MFI) space. Dvara KGFS raised ₹127 crore equity capital previous year.

So, in the event of moving in for more acquisitions in the MFI space, or getting converted into an SFB down the road, Dvara KGFS has some capital on call, with existing investors themselves being keen to fund, he added.

“...They (existing investors) have kind of more limits for us to build more war chest. Currently, we don't have any fundraising plan on the table,” Joby said.

Dvara KGFS had acquired the business of Varam Capital Pvt Ltd, an NBFC-MFI with presence in Tamil Nadu and Chhattisgarh, through Business Transfer Agreement executed with the company with effect from April 1, 2019

As on June 30, 2020, Dvara KGFS had five shareholders: Dvara Trusteeship Services Pvt Ltd, Trustee of Dvara Trust (32.18 per cent stake), LeapFrog Financial Inclusion India (II) Ltd (23.08 per cent), Accion Africa-Asia Investment Company (21.76 per cent), Nordic Microfinance Initiative Fund IV KS (16.93 per cent) and Stakeboat Capital Fund–I (6.05 per cent).

Acquisition opportunities

Joby observed that there are plenty of acquisition opportunities in the MFI space. “Many of the small MFIs are finding it very difficult to survive in this difficult pandemic period,” he said.

The NBFC is examining acquisition opportunities in the geographies it has set its foot in (such as in the East) but may take a couple of years to deepen its presence.

Published on November 13, 2020

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