Exclusive: Kotak Bank expects RBI approval for Sonata Finance acquisition anytime in FY24

Kotak Mahindra had acquired BSS Microfinance in an all-cash deal for Rs 139 crore in September 2016.

Kotak Mahindra Bank said it hopes to get regulatory approval for its acquisition of Lucknow-based microlender Sonata Finance in this financial year.

“We are expecting the approval from the Reserve Bank of India on our acquisition of Sonata Finance before the end of FY24,” said Tapobrat Chaudhuri, President and Head of microfinance business of Kotak Mahindra Bank.

The country’s fourth-largest private sector bank bought the microfinance company on February 10 in a Rs 531 crore all-cash deal. Regulatory approval will likely take a year, after which the bank plans to leverage Sonata Finance's network to provide a wider suite of products to its customers.

The company had 450 branches with 2,879 employees. Its gross non-performing assets (GNPA) and net NPAs stood at 2.27 percent and 0.68 percent, respectively. Sonata's advances of March 31, 2023 stood at Rs 1859 crore.

Kotak Mahindra acquired BSS Microfinance in an all-cash deal for Rs 139 crore in September 2016. The RBI approved that deal in September 2017.

Also read: Kotak Mahindra Bank to acquire Sonata Finance for Rs 537 crore

Many banks recorded significant growth in the microfinance segment in the April-June quarter. Kotak Bank’s microfinance business increased 91 percent to Rs 6,963 crore in June from a year earlier.

What next for Kotak?

Chaudhuri said the bank is working on risk metrics and the growth of the microfinance business geographically.

“Since BSS is predominantly in the southern part, we saw an opportunity in the northern part of the country and that is how we zeroed in on Sonata Microfinance. This should give us a very good foothold in the northern states,” Chaudhuri said.

He said there has been significant demand in three segments - agriculture-allied, microenterprises and petty trade.

“We have seen good growth in the agri-allied segment, wherein people take loans for the purposes of animal husbandry, sericulture, poultry, etc. Also, microenterprises have shown good numbers, which include some small manufacturing activities or cottage industries. And petty trade has been a good business too,” Chaudhuri said.

Banks and MFIs

The microfinance segment has expanded across the country, experts said. After the crisis in 2010, when curbs by the then Andhra Pradesh government resulted in loan recovery rates dropping, there has been robust demand across customer segments.

Banks, experts said, are bullish on the segment and are looking at expanding their portfolio.

Also read: Exclusive: Microfinance will always remain a focus area for us, says Utkarsh SFB MD & CEO Govind Singh

“Banks target the MFI segment to serve the underserved customers. With time, the banks have been increasingly introducing new products and services, thus intensifying the competition,” Chaudhuri said.

Shyam Srinivasan, MD of Federal Bank, in an interview with Moneycontrol, said the bank has expanded its presence in the segment and aims to introduce digital services.

“We are actively diversifying our MF portfolio across states and currently, we are operating in 11 states. We have also put in a lot of technology from a point of view of underwriting and onboarding,” said Srinivasan.