Kotak Mahindra Bank’s microfinance book will grow from Rs 5,000 crore to Rs 7,000 crore after completing the acquisition of Sonata Finance, a senior official said.
Last week, the bank announced the acquisition of Sonata Finance for Rs 537 crore. The company has reported a total income of Rs 306 crore and net profit of Rs 14 crore in FY22.
Founded in 2006, the Lucknow-based NBFC-MFI has a network of 502 branches, largely focused in northern India. It has close to 9,00,000 customers, who are largely women borrowers under the joint liability group model. The company has a total book size of roughly of Rs 1,900 crore.
The bank entered the MFI business in 2017 through the acquisition BSS Microfinance and has crossed a million customer base in Q3FY23.
Since BSS Microfinance is south-India based NBFC, it is a good complementary kind of a fit to expand presence in northern part of the country, Manish Kothari, president and head of commercial banking, Kotak Mahindra Bank, told FE.
“Microfinance is an area of focus for us. We want to increase the unsecured portfolio from current single digit to mid-teens and microfinance forms part of the unsecured portfolio of the bank,” he added.
In Q3FY23, the bank’s MFI book grew by 121%. Though the bank does not expect to grow at the same pace in the coming year, it believes its growth will be faster than usual.
While the industry will likely grow at 15%, the bank is expecting to grow at twice the industry rate, Kothari said.
Even as the pandemic impacted the growth prospects of the MFI industry, the hit was absorbed in the first three quarters of FY23, India Ratings & Research said in a report, pegging the growth rate at 20-30% in FY24.
The bank is planning to structure Sonata Finance as a subsidiary as it did in case of BSS Microfinance. However, it will operate as a separate entity with its earlier staff. The business of the subsidiary will get absorbed in the bank and the employees of the company will operate as banking correspondents.
“BSS Microfinance is a 100% subsidiary of the bank. The entire team has largely stayed in the company after the acquisition. We will definitely look for a similar structure for Sonata,” Kothari said.
Though the bank has not yet decided on infusion in Sonata Finance after the acquisition, it will need the support of the company to increase its footprint and also has plans for cross-sell of products.
Currently, the bank offers secured business and two-wheeler loans apart from microfinance loans, Kothari said, adding that the bank expects to close the acquisition by the end of Q1FY24 or beginning of Q2FY24, after it receives approval from the Reserve Bank of India.