The stress build-up due to Covid-19 and the mitigation measures for continued resilience of books figured prominently in the discussions between Reserve Bank of India (RBI) and the chiefs of 11 small finance banks (SFBs) on Friday.

This comes even as SFBs continue to have significant exposure to unsecured advances even as they strive to diversify their portfolio.

Per the RBI’s Report on Trend and Progress of Banking in India, SFBs have smaller low-cost current and saving account (CASA) deposit bases.

While the prevailing easy liquidity conditions facilitate borrowings and refinance on which they rely, SFBs may need to focus on their bottomlines as and when financial conditions tighten, the report cautioned.

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Furthermore, risk absorption cushion in the form of provision coverage ratio (PCR) is low in some SFBs, impacting their ability to withstand adverse shocks.

Diverse themes discussed

RBI, in a statement, said discussions were carried out across a range of themes such as evolution of the business models of SFBs; enhancing Board oversight and professionalism; further improvements in assurance functions — compliance; internal control and risk management.

The meeting also focussed on the need to build up their IT infrastructure both for enhanced customer experience and for cyber security resilience, etc.

Challenges and the way forward were also deliberated upon so that SFBs continue to be important players in the Indian financial intermediation space and contribute in the financial inclusion journey of the nation.

RBI Deputy Governors MK Jain and M Rajeshwar Rao recognised the contribution of SFBs towards financial inclusion by extending credit and reaching out to the underserved sections of society, the RBI statement said.

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