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With the microfinance space rebounding from asset quality issues and posting healthy growth since mid-FY22, banks are again pursuing this segment closely. The latest to join the race is YES Bank.
In an exclusive interview with businessline, Prashant Kumar, MD and CEO of YES Bank, said the bank has started due diligence on a few non-banking financial companies in the microfinance space (NBFC-MFIs). “We have started exploring and doing diligence on some of the assets in the last two to three months,” he said, adding that the bank may close in on a deal this financial year.
For YES Bank, acquiring an MFI business is expected to solve two problems in one go — meeting a specific priority-sector loans (PSL) requirement; and gaining entry into high-yielding asset book. “There is one subcategory (of PSL) — small and marginal farmers — where we are not meeting the target. We are trying to solve this problem organically and inorganically,” Kumar explained.
“Basically, this would take care of the drag on PSL and we would have an asset class which is the high-yielding. Currently we don’t have such a portfolio”.
Why MFI?
To put things in context, MFI loans are categorised as unsecured and the rate of interest charged by banks could be 17–24 per cent, translating into gross yields upwards of 12 per cent.
For banks, the implication for their profitability or net interest margin (NIM) could be significant. RBL Bank, IDFC First Bank, and Kotak Mahindra Bank have 8-10 per cent exposure to MFI loans, which has helped them consistently outperform peers in terms of a 5-plus per cent NIM. IndusInd Bank has over 10 per cent exposure to MFI loans.
YES Bank has been exploring MFI loans for almost a year. “Last year, this was the intent. But after the recent fund raise, we are in a better position to go for the actual deal,” Kumar said.
A week back, there were news reports that the bank could be in exploratory talk with Spandana Sphoorty Financial, the second largest MFI with assets of Rs 8,511 crore in FY23. When asked if YES Bank was looking at acquiring such large-sized MFIs, Kumar replied that size wasn’t quite the consideration. “Size doesn’t help anyone. We are looking for those opportunities where there is a capability to scale it.”
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