Small finance banks’ capital raising challenge beginning to ease; over Rs 3,200 cr raised in Q2 FY23: CareEdge | The Financial Express

Small finance banks’ capital raising challenge beginning to ease; over Rs 3,200 cr raised in Q2 FY23: CareEdge

Credit and finance for MSMEs: SFBs raised equity and Tier II capital aggregating to Rs 3,275 crore during the second quarter ended September in the current fiscal as against nil in Q1 FY23.

Small finance banks’ capital raising challenge beginning to ease; over Rs 3,200 cr raised in Q2 FY23: CareEdge
The advances for SFBs grew from Rs 1.08 lakh crore in FY21 to Rs 1.35 lakh crore in FY22.

Credit and finance for MSMEs: The challenge of raising capital faced by small finance banks (SFBs) seems to be beginning to ease. With a majority of SFBs already absorbing credit cost and growth coming back to the sector, capital mobilization has gained momentum, said credit rating agency CareEdge Ratings on Monday. SFBs raised equity and Tier II capital aggregating to Rs 3,275 crore during the second quarter ended September in the current fiscal as against nil in Q1 FY23. Many more SFBs also reviving their capital raising plans including IPOs, the rating agency said. 

This momentum in capital raising is expected to continue but is likely to see 24 per cent year-on-year (YoY) growth in advances recorded in FY22 to be maintained in FY23 as well because some SFBs continue to face constraints on capital. The advances for SFBs grew from Rs 1.08 lakh crore in FY21 to Rs 1.35 lakh crore in FY22. However, if 30 per cent CAGR growth in advances is to be considered for FY24 along with a 2 per cent cushion over the regulatory capital requirement, most of the SFBs will have to mobilise capital, CareEdge Ratings noted. 

“The (SFB) industry needs to raise capital of around Rs 4,000 crore (for 30 per cent growth). Though the regulations allow SFBs to have a higher proportion of Tier-II capital as compared to universal banks due to limited demand for Tier-II issuances, SFBs capitalisation is skewed towards Tier-I. CareEdge Ratings expects the same to continue going forward too,” the agency said. SFBs’ share in advances of the banking industry has increased from 0.4 per cent as of March 31, 2018, to 1.14 per cent as of March 31, 2022. 

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Raising capital for SFBs remained a key challenge with the deferment of a number of initial public offerings (IPOs) in FY22 and Q1 FY23 largely because of an unfavourable equity market scenario and moderate performance of SFBs during FY22, CareEdge said. Moreover, in respect of many of the SFBs, the present level of capital would be adequate to grow advances in the range of 15 to 20 per cent only instead of the estimated 24 per cent for FY23. The major chunk of this growth will be garnered by SFBs with comfortable capitalisation level or SFBs which can generate healthy accruals.

Currently, there are 12 SFBs operational in the country including AU Small Finance Bank, Equitas, Ujjivan, Jana, ESAF, Utkarsh, Fincare, etc. As of FY22, the total business of SFBs stood at Rs 2.79 lakh crore with deposits of Rs 1.44 lakh crore. SFBs aim at enhancing the financial inclusion of unserved and underserved people and supply credit to small businesses, small and marginal farmers, and other unorganized sector entities. 

Also read: MSME credit appetite likely to be robust with ECLGS extension till March 2023: Finance Ministry

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First published on: 31-10-2022 at 15:53 IST