Small finance banks are eyeing premium customers, both in terms of income and credit worthiness, to improve profitability through diversifying their client base, boosting customer stickiness and bringing in more high transacting customers.

After the difficult covid period, when SFBs saw ballooning delinquencies and capital shortages, these lenders have since staged a comeback on the back of economic recovery and pick up in credit demand.

With listing plans of several SFBs getting delayed due to the pandemic, hit on banks’ performance and weak market conditions, debt capital raising by these banks picked up pace in FY23, with CARE Ratings pegging fresh capital requirement for SFBs at ₹4,000 crore in FY24.

SFBs offering industry best interest rates on savings, fixed deposits

Meanwhile, SFBs have also been aggressively building their liability profile through expanding the profile and stickiness of retail and small business deposits, offering industry best interest rates on savings and fixed deposits, and growing their secured portfolios to reduce cost of funds and boost profitability, according to analysts.

Those with high microfinance exposure have been increasing the share of high credit score customers through personal loans, financial institutional group (FIG) lending and affordable housing. On the liability side, especially players with no microfinance exposure such as AU SFB and Capital SFB, have been looking at high-income segments through credit cards, premium offerings, high interest rates and other banking services such as insurance and wealth management.

Accounts with add-ons to woo customers

Last week, Ujjivan SFB introduced the Maxima Savings Account and Business Maxima Current Account for premium customers. The bank offers a high 7.5 per cent interest on the savings account, which has a minimum requirement of ₹1 lakh. It also comes with a Rupay Select Debit Card that entails rewards such as complimentary airport lounge access, annual premium health check-up free of cost, travel coupons, golf lessons, personal accident and permanent disability insurance coverage of up to ₹10 lakh, among other benefits. 

The Maxima Current Account has features like customised cash deposit limits, higher daily ATM withdrawal limit of up to ₹5 lakh, account services for merchants, and free installation and rental fees for POS services.

“We strive to elevate the standard for banking excellence by providing a suite of premium benefits, personalised services, and exclusive deals. We are confident that our premium customers will find our solutions to be of immense value” MD and CEO Ittira Davis had said, adding that over 1,000 customers opted for the Maxima accounts within 30 days of their soft launch.

Earlier this month, AU SFB rolled out its premium credit card offering, the ‘Zenith+ metal card’, to attract new deposits and retain existing high-end customers. The card has an annual fee of ₹4,999 which includes complimentary services such as rounds of golf and free movie tickets. It has also launched ‘AU IVY’, an invite-only premium banking program for wealth management services to HNI customers, and a RuPay Business Credit cards for MSME customers.

Small Finance Banks break stereotypes

MD and CEO Sanjay Agarwal had at the time of the launch of the Zenith card said that there is a perception that SFBs don’t deal with HNIs or high-end customers, which the bank wants to break.

“From where will we get money to do the financial inclusion? If we want to lend to priority segments, which is our objective and design, we need money. And to get money is about the HNIs, affluent class and major cities,” he had then said, adding “the word says small finance, it doesn’t say small deposit,”

As of June 2023, 15 per cent of the bank’s customer had two or more products. Of the 21.6 lakh digital customers, 10.3 lakh were eligible for pre-approved loans; and of the 6.1 lakh cards-in-force, a whopping 76 per cent were existing credit card holders of other banks, reflecting higher lending to customers with an established credit history.

Fincare SFB also launched a prepaid card as part of its festival season offerings to offer modern and efficient banking services to its customers.