Capital Small Finance Bank eyes universal banking permit, hopes to meet eligibility in 12-18 months

The bank plans to cross 200 branches in FY25, the senior management said.

Jalandhar-based Capital Small Finance Bank is aiming to achieve all the eligibility criteria required to seek a universal bank license over the next 12-18 months. In an interaction with Moneycontrol, the bank’s Chief Executive Officer (CEO), Sarvjit Singh Samra and Executive Director (ED) Munish Jain said that the bank has a net non-performing asset (NNPA) of more than one percent which the bank will bring within the norms of the Reserve Bank of India (RBI). As per the eligibility criteria laid out by the RBI, applicants need to have gross non-performing assets (GNPA) and net non-performing assets (NNPA) of less than or equal to three percent and one percent respectively for the previous two financial years.

RBI also said that SFBs aspiring to become universal banks need to have scheduled status with a satisfactory track record of performance for a minimum period of five years. Also, the shares of the bank should have been listed on a recognised stock exchange.

“With regard to the eligibility criteria, we feel that we fulfill all the eligibility criteria except the numbers of NNPA, which is 1 percent. At this point, our priority is firstly to tick all the boxes and grow as an SFB. We believe the opportunity to grow is significantly available in the present avatar as well. And we expect to tick all the boxes to procure a universal bank license in the next 12 to 18 months,” said Jain.

Also read: RBI says eligible SFBs can apply to become universal banks under on-tap licensing

The bank is also keenly looking into the credit card business space. “Our natural progression will be towards the credit card segment. We are waiting for the right time to enter into this so that with the right infra and right type of structure, we enter into the credit card business,” Jain said.

On growing organically or inorganically, Samra said that the bank has been working on an organic growth approach and will look at a branch-to-branch expansion strategy and less inorganic growth. “Till now we have been in a branch-led business model. That's a reason why we maintain a continuity also in our expansion,” Samra said.

Here are the edited excerpts from the interview:

Which segments worked for you in FY24?

Jain: We are a middle income group based lender, with secured lending of over 99.9 percent. In FY24, we closed the agriculture portfolio at 37 percent, which was 39 percent a year back. We closed the mortgage book at 26 percent which was the same a year back and MSME book at 19 percent which was 20 percent a year back. We closed corporate NBFC lending at 9 percent, which was 8 percent a year back. And we closed at a consumption lending of 8 percent which was 7 percent a year back. We continue to grow in a similar direction in which we are going.

What is your growth strategy - organic or inorganic?

Samra: Till now we have been in a branch-led business model. That's a reason why we maintain continuity also in our expansion. We have 177 branches, which are spread across the five states of North India, which is Punjab, Haryana, Delhi, Rajasthan, Himachal and the Union Territory of Chandigarh. So, of course, the key focus till now has been and at present is also on organic growth.

Jain: In the medium term, we want to expand in a contiguous way only. We are now in five states and the union territory of Chandigarh. Jammu is the next, which we like. We have already shortlisted locations and we will be opening a couple of branches in Jammu very shortly. In FY25, we plan to open 24 to 26 branches. Our present count is 177. We will definitely close our next financial year with 200 plus branches. And of these, the majority will be out of Punjab.

Recently, the Reserve Bank of India (RBI) brought in some additional measures for universal bank licenses for small finance banks. How is your bank looking at the same?

Jain: It's a very welcome step from the central bank. But with regard to the eligibility criteria, we feel that we fulfill all the eligibility criteria except the numbers of NNPA, which is one percent.

Samra: And in the present look and avatar of SFB, we believe a huge scalability is available. Yes, we will be very excited that the next journey is visible now. And if we perform well, we intend to tick all boxes over the next 12 to 18 months, as per the decision of the board.

Jain: Yes, rightly so. So, we will take a conscious call at that point of time after we tick all the boxes in 12 to 18 months’ time.

How is your bank looking at the credit card segment?

Jain: Our natural progression will be towards the credit card segment. We are waiting for the right time to enter into this so that with the right infra and right type of structure, we enter into the credit card business

Your credit growth outlook in FY25?

Jain: We want to grow our advances in FY25 by 22 to 24 percent against the 12 percent which we've done in the current year.