“We are building SBFC with an aspiration of being a bank one day”

SBFC Finance (formerly Small Business Fincredit India Pvt Ltd) plans to grow its loan portfolio by 15 per cent every quarter and expand branch network to 150 in the next 18 months even as it eyes conversion into a small finance bank (SFB).

The Mumbai-headquartered non-banking finance company, which provides loans to micro, small and medium enterprises, businesses, gold and personal loans, and loan management services to other lenders, currently has assets under management aggregating ₹3,500 crore and 112 branches spread across 15 States.

“We are building SBFC with an aspiration of being a bank one day. This means compliance and governance of bank standards from day one,” said Mahesh Dayani, Chief Business Officer.

Customer profile

Dayani observed that SBFC’s borrowers are general trade customers who are transiting from unorganised borrowing for the first time and ticket sizes are between ₹12-15 lakhs.

Post moratorium, this segment has performed the best in terms of repayment, he added.

Dayani feels that this is a great time to add distribution and scale as infrastructure, human and financial capital are competitively priced. SBFC disburses more than ₹100 crores on a monthly basis, he added.

Also read: ICICI Bank, Small Business FinCredit join hands to provide loans to MSMEs

He opined that the supply side is constrained and SBFC can choose the credit it wants to underwrite across select States.

“Lending is easy but profitability comes from loan repayments. Therefore, it is important that you grow in a manner which dosen’t burn your financial or human capital.

“We’ve seen companies chasing very high growth rates and then slowing down to cover risk costs or adjust manpower or business plans. This punctures the enthusiasm of all stakeholders since surprises in financial services is not welcome,” explained Dayani.

He noted that the micro enterprise segment is largely under-served and synonymous with unorganised borrowings. Hence, SBFC is largely in those districts which are under-served.

After the lockdown and the end pandemic-related loan moratorium, first time borrowers continued to pay monthly installments and were a lot more disciplined than those who had multiple loans running with reasonable credit scores, going by SBFC’s experience.

Conversion into SFB

“We aspire to be a bank one day…We are only three years in the business and the first qualification (to become a SFB) is a minimum of 5 years of operations amongst other conditions.

“There are multiple variables at play to be a bank and hence at the right time, we will take a step in that direction,” Dayani said.

He underscored that in terms of size, most microfinance institutions/NBFCs which applied for SFB license (in 2015) were in the (AUM) range of ₹1,500 crore to ₹4,000 crore at the time of application.

On a pre-qualification basis, SBFC ticks the box on ticket sizes, priority sector lending, consistent profitability and capital requirements, he added.

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