While its borrowing costs will fall meaningfully only in another year, Utkarsh Small Finance Bank (SFB) is already pricing some loans cheaper as ticket sizes increase with the transition from the microfinance institution (MFI) model. Managing director and CEO Govind Singh tells FE the bank is targeting an asset base of `3,500 crore and a liability franchise of `2,000 crore in FY18. Edited excerpts:
How are you scaling up to an SFB from an MFI?
Unlike a lot of other players, the entire microfinance business has moved to CBS, or the core banking system. We have some pilot branches for our new segments, mainly liabilities and third-party products. Now we have started onboarding customers from the general public, to begin with, from two branches, but we have 30-plus branches ready. During the next 30 days, we’ll be opening those branches. We had 351 microfinance branches when we got the (SFB) licence. In a year’s time we’ll upgrade all those branches to micro-bank branches.
What will be your branch strength by the end of FY18?
In March 2018, we should close at around 400 branches. So, 351 will be our existing branches, which we’ll convert into bank branches and we’ll add 50-odd additional branches, which we are in the process of making. All the 50 new branches will be up and running in a quarter’s time. We don’t intend to open too many new branches in Q2 and Q3, unless we see some specific reason for doing so.
How many states will you be present in?
We are already in 10 states. We are not going to add any new state this financial year. We might go to some new centres, for example, as an MFI, we were not in Lucknow or Kanpur or even Mumbai, for that matter.
To what extent will your customer profile change?
Our current customer profile remains intact for microfinance. For MSME, our ticket size was up to `3 lakh till last year. Similarly, for housing, we would lend up to `5 lakh. We’ll continue to work for that profile, but we’ll go for higher ticket sizes also. Most of our lending will happen in the `1 lakh to `25 lakh bracket. Those businesses which require `10 lakh to `25 lakh will also be our clients. We’ll look at some wholesale lending in the range of `5 crore to `10 crore. So 90% of my lending profile will remain the same, but 10% will consist of new segments. In deposits also, our existing profile will supply almost 90% of my customer base and the rest will be new customers. But, the ticket size of new customers will be much larger than that of the existing customers.
What are your full-year targets for assets and liabilities?
We expect Rs 1,000 crore in retail liabilities at the end of this financial year, plus a similar number from wholesale deposits. We might end up with around `1,800 crore-`2,000 crore in overall deposits. In terms of assets, we should be at around `3,000 crore-3,500 crore at the end of the year. Broadly three-fourths will come from microfinance because that is an up-and-running business and the rest will come from MSME, housing and things like commercial-vehicle finance.
What are interest rates like?
As far as term deposits are concerned, we’ll be 100 to 150 basis points higher than the large banks, at around 8.25-8.5%. For savings deposits, we are offering a flat 6% rate. Our lending rates will remain the same because our cost of funds is yet to come down. My funding is still from the old term loans we had taken from banks. We expect around 100 to 200 basis-point reduction in the cost of lending for the asset side, but that will happen gradually. For JLG (joint lending group) or microfinance, it is still 24%. The only difference this year is that we are not charging loan processing fees for loans over `25,000. But, in case of MSME, rates have come down to 18-20% from 24-26% earlier because the ticket sizes are larger.
Will your borrowing costs fall this year itself?
My overall blended borrowing costs will come down by 100 to 150 basis points this year because of the accretion of deposits. The current cost of loans I have taken from banks would range between 11-13%. We expect overall cost of deposits to be in the range of 8-8.5% because most deposits in the initial phase would be fixed deposits. The average ticket size of term deposits will be in the range of Rs 25,000-30,000.
RBI had offered a dispensation for loans under Rs 1 crore in the wake of demonetisation. Have collections from those accounts improved?
Our collections had taken a hit in the November to January period. There has been a large improvement in the last two months, except in some pockets, such as Vidarbha in Maharashtra, western Uttar Pradesh and