R. Baskar Babu, co-founder, MD and CEO, Suryoday Small Finance Bank, talks about the path traversed and the road ahead for the lender that converted from a micro finance institution (MFI) two years ago. Excerpts from an interview:
The bank is completing two years of operation...How has business growth been?
We were mindful of a couple of things when we transformed from an NBFC to a bank. One is on the technology side, what was required to be the best in class bank. I think we did that. The second was regulation. As an NBFC, regulation was not that intense. But for a bank, regulation was the key, so we put compliance as a key pillar. We have grown the loan book to ₹2,500 crore as of December. We will end the financial year closer to ₹3,000 crore. And, [it] should be around ₹4,500 crore by March next year.
We are seeing good demand for individual shopkeeper loans which are between ₹75,000 and ₹3 lakh, but managing delinquency is also a challenge.
How much of the loan book is MFI loans?
Right now, MFI loans are 90% of the loan book. By March 2020, it should be 75:25. [25% non-MFI loans]. The ideal ratio is 50:50.We will continue to do micro finance because it is the platform for the customer to graduate to the next level.
What is your strategy for deposit mobilisation?
After seeing all these crisis, we do not want to build the liability book only with deposits. It will be deposits, refinance limits and capital. Our focus had been to build long-term stable deposits. So, we did not do too many branches, neither focused on current and savings account deposits. Our aim was retail fixed deposits. The deposit base is ₹1,200 crore and we managed to secure good refinance limits from the institutions. We will end the year with ₹1,600 crore. By the end of next year, it should be closer to ₹2,500 crore. Our deposits are 50% bulk and 50% retail.
What about low cost, current and savings account (CASA) deposits?
We are now starting to focus on getting current and savings account deposits. We wanted to make sure that we had a good customer base before we start doing that. Now, we have a base of around one million customers. And, each customer has the potential to save in the savings account. We have to do banking with them when we are fully geared. For that, we have to do doorstep banking. Right now, CASA ratio is 10% and it is inching up every month. We are planning to have 20% CASA by end of FY2020.
How has profitability been?
From a profitability point of view, we have had a very good six months. We ended with a profit of ₹37 crore [HIFY19]. We are likely have around ₹90 crore PAT this year.
Since the net worth has crossed ₹500 crore, the bank has to go for an IPO ...
Our net worth is currently at ₹614 crore. Net worth crossed ₹500 crore last year. So by March 31, 2021, we have to be listed. Which is exactly two years from now. But we are not going to wait till the end. We would do it by mid 2020, or maximum, by end 2020. We have to start the process six months from now.
What is your branch expansion plan?
We have 30 bank branches and 220 microfinance branches which we are converting into bank branches. So, by the end of the year, we will have 100 branches.
We are focussing on four cities now, Mumbai, Pune, Chennai and Coimbatore. Tamil Nadu, Maharashtra and Orrisa are the three states where we have good presence. We also have presence in Gujarat, Karnataka and Madhya Pradesh and small presence in Chattisgarh.
Do you plan to raise funds?
We are raising around ₹175 crore in equity and ₹125 crore by tier-II bonds in this quarter. Equity capital will be raised from existing as well as a couple of new investors. We want to maintain capital adequacy ratio (CAR) closer to 25% for the next two years though regulatory requirement is 15%. Right now, CAR is at 27%.