Small finance banks to seek
RBI clarification on loan book diversification
Small finance banks (SFBs) are likely to seek clarification from
the Reserve Bank of India (RBI) on loan portfolio diversification, as the
regulator has not specified the extent of diversification that should be seen
as desirable.
In the recent glide path provided by the RBI for the voluntary
transition of SFBs to universal banks, the regulator said eligible SFBs having
diversified loan portfolios will be preferred .
Currently, there are 11 SFBs, following the merger of AU and
Fincare earlier this year. Of these, two Unity and Shivalik have not completed
five years of operation, while NE SFB is not listed.
A satisfactory track record of performance for a minimum period of
five years and being listed on a recognised stock exchange are the first two
criteria mandated by the regulator for conversion into a universal bank.
The only area where they have not been very specific, and they
may evaluate case by case, is the diversification of loans, said a top
official from an SFB. It is not clear to what extent the regulator will prefer
diversification while considering the application for converting into a
universal bank, the person said.
Of the 10 SFBs that were licensed in the first phase in 2015,
eight were converted from microfinance institutions. As a result, most of them
started with a loan book that was predominantly composed of microloans, which
are unsecured. Over the years, SFBs began to diversify their loan books as they
started offering products, such as home loans, car loans, and gold loans, which
are secured loans. By doing so, the share of microloans declined.
According to norms, all SFBs have to lend at least 75 per cent to
the priority sector. And 50 per cent of the loans have to be below Rs. 25 lakh.
So their exposure is more in the priority sector. The other diversification is
regarding secured and unsecured loans. The RBI has been cautioning about the
rapid growth of the unsecured loan book, said another senior industry
official.
The largest SFB in the country, AU SFB, which has a well-diversified
loan book, meets all the parameters set by the regulator for conversion to a
universal bank.
At the same time, AU SFB, which merged with Fincare SFB earlier
this year, said the bank s current focus was on integrating with Fincare.
Prima facie, it looks like we are meeting most of the criteria
set out by the regulator. However, we are in the process of studying the
circular in detail and will discuss with our board in the near future on the
next course of action, said Uttam Tibrewal, executive director and deputy
chief executive officer, AU SFB.
Currently, we are fully focused on ensuring a smooth integration
with Fincare SFB and scaling our recently launched Authorised Dealer-I business
of cross-border trade and forex for our customers."
Jaipur-based AU SFB has a total business of over Rs. 1.61 trillion
as on March 31, with a loan book of almost Rs. 74,000 crore and deposits of Rs.
87,182 crore.
www.business-standard.com
dt. 02.05.2024