Disha Microfin, one of the 10 companies received in-principle approval from the Reserve Bank of India to start operating as a small finance bank, is slated to start operations in the first quarter of FY18.
Disha Microfin, one of the 10 companies received in-principle approval from the Reserve Bank of India to start operating as a small finance bank, is slated to start operations in the first quarter of FY18. Speaking to Pranay Lakshminarasimhan, chief executive officer Rajeev Yadav highlighted the company’s efforts to increase its secured assets portfolio and increase its share in the overall business. Excerpts …
What is the total AUM in the microfinance business right now? How much are you intending to end the financial year with?
Our assets under management under the microfinance business is around Rs 1,750 crore at present. It is difficult to gauge where we will finish the year at, but hopefully it would be closer to Rs 2,000 crore. The long-term vision of Rs 20,000 crore of AUM by the end of FY22 still holds, but because of demonetisation, there has obviously been some impact. A more realistic year-end number would probably be Rs 1,800-1,850 crore.
Will the microfinance business be merged with the small finance bank business once you begin operating as an SFB? And is your long-term target of Rs 20,000 crore of AUM inclusive of the SFB business?
Yes, it will be merged on Day 1 itself. We are a non-banking finance company today. So when we become a bank, on the cut-off date, the combined entity will become a bank. So whatever assets we have as a company now, be it employees or physical infrastructure or loan assets, everything will become a part of the balance sheet of a bank. So in some sense, it is an instant transformation of a company’s balance sheet from that of an NBFC to that of a bank. And yes, the target of R20,000 crore is inclusive of all business verticals.
How much of your AUM under the microfinance business are secured assets? Do you plan to increase the share of this component going forward?
Of the total Rs 1,750 crore, around Rs 100 crore are secured assets. We are working towards increasing the share of secured assets in our overall asset base to around 40% by the end of FY22. Most of our secured portfolio is built on what we call micro enterprise loans which are secured against property. That is a business we have been working on for the last couple of years, trying to get a feel of it and understanding it. So a lot of our secured base will get built on small-value micro enterprise loans or what we call loans against property.
There will also be an affordable housing element that will come in and there will be one or two other smaller product classes such as gold or two-wheeler loans.
What kind of interest rates are you looking to offer on term deposits and savings accounts once you start operating as an SFB?
Rates on term deposits have been declining, particularly due to demonetisation. What we had referenced is that we want to offer something around 50-100 basis points more than what a depositor would earn if he invests with a bank. Today, if you look at some of the players that have already started operations, they are offering rates in the 7%-8.5% range. I think that would broadly be the range, but the final call will be taken closer to the cut-off date.
On the savings account front, some of our peers have kept the interest rate at 4% while some of them have kept it higher at 5% or 6% along with some conditions pertaining to the balance maintained in these accounts. I would think that being slightly higher than 4% is kind of the norm right now.
What is the size of your customer base right now and what is the average ticket size for each loan? Also, is the ticket size expected to go up once you launch operations as an SFB?
Right now, we have just over a million customers. The average ticket size for microfinance loans is between Rs 25,000 and Rs 30,000, while for the micro enterprise loan business, it is between Rs 3 lakh and Rs 4 lakh. With microfinance loans, I don’t expect a radical change in the ticket size going forward, because this is typically the kind of ticket size one sees in the business. But the micro enterprise, I think, will cover one or two more segments. So the Rs 3-lakh size that we are seeing today may go up to between Rs 6 lakh and Rs 8 lakh, maybe even Rs 9 lakh, going forward.