SFBs eye diversification to boost secured lending

Of gross advances of Rs 21,688 crore made in Q1FY23, 38% were meant for small businesses and agricultural loans while 24% comprised vehicle finance. The bank has guided that microfinance loans will constitute 10-15% of overall loans.

SFBs eye diversification to boost secured lending
The bank is also in the process of launching products like two-wheeler loans, Rajeev Yadav, MD and CEO, had said in an earlier interaction.

By Shashank Didmishe

Small finance banks (SFBs) are keen on increasing the share of secured loans, which they intend to do by diversifying into gold loans, loans against property and vehicle loans. They are exploring existing customer bases as they prepare to launch these products.

Equitas Small Finance Bank (SFB) has already made notable progress. Only 18% of the lender’s book comprises microfinance loans while the rest consists of secured credit, Dheeraj Mohan, head of strategy and investor relations, said during the analyst call for Q1FY23. Of gross advances of Rs 21,688 crore made in Q1FY23, 38% were meant for small businesses and agricultural loans while 24% comprised vehicle finance. The bank has guided that microfinance loans will constitute 10-15% of overall loans.

Bengaluru-based Fincare Small Finance Bank, which mostly caters to low-income individuals, is planning to focus on secured lending through loans against property, loans against gold, affordable housing loans and institutional finance, the lender said in its re-filed draft red herring prospectus for IPO. The share of microfinance loans in its portfolio has come down from 95% to 76% at the end of FY22 with secured loans accounting for the remainder. The bank is also in the process of launching products like two-wheeler loans, Rajeev Yadav, MD and CEO, had said in an earlier interaction.

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Suryoday Small Finance Bank plans to scale up the share of secured loans to 50-55% by FY25 from 33% at present by focusing on self-employed and salaried borrowers. The bank is targeting an annual loan growth of 25% with the share of secured loans growing faster, a spokesperson for the lender said. The bank’s gross advances in Q1FY23 grew 28% to Rs 5,132 crore. Incremental disbursements were mainly driven by customer acquisition in microfinance business and aided by new loan products, analysts at ICICI Securities said.

Ujjivan Small Finance Bank plans to reduce the share of microfinance loans in the overall portfolio to 60-65% in three years from around 70%. As of June 30, affordable housing comprised 15%, MSME loans 9.1% and micro-individual loans 10.5% of overall loans. The affordable housing segment saw a slightly higher growth in Q1FY23 as the housing sector as a whole is recovering, Ittira Davis, MD & CEO, had earlier said. The bank is also focusing more on gold loans and vehicle finance to add to the product mix. So far, the Reserve Bank of India has given permission to 12 entities to operate as small finance banks. Most have transitioned from a microfinance lender to a bank.

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