Recently, a few small finance banks (SFBs) raised their interest rates on fixed deposits (FDs), beating the rates offered by larger banks. R Baskar Babu, managing director and chief executive officer (MD & CEO) of Mumbai-based Suryoday Small Finance Bank, said rates are likely to go up even more on account of a notable gap between credit and deposit growth. In an exclusive interview with Moneycontrol on September 14, Babu also shared his views on the sectors that look promising for credit growth, prevailing trends and the course of interest rates. Edited excerpts:
What is driving the sharp surge in deposit rates in SFBs?
FD interest rates have been in line with the increase in the RBI (Reserve Bank of India) repo rates. Currently, the peak FD rate at Suryoday SFB is 7.49 percent for 999 days’ deposits.
In June 2022, the banking sector’s credit and deposit growth increased by 13.2 percent and 8.3 percent, respectively, compared to the previous year. The difference in growth percentage between credit and deposit growth is approximately 5 percent, which is the highest in the last three years. The reason behind this difference is people have taken more loans from banks compared to that they deposited into the bank.
Therefore, to bridge this gap and attract more deposits, banks are offering higher interest rates on fixed deposits to attract customers. We expect marginal rate hikes in the coming months.
How much of a rise in deposits is expected in the coming quarters?
For Suryoday SFB, total deposits increased by 21 percent, from Rs 3,317 crore in June 2021 to Rs 4,019 crore in June 2022. Out of total deposits, the share of retail deposits in June 2022 was 79 percent and 86 percent in June 2021.
Our bank has started offering small-ticket deposits (minimum Rs 1,000) to customers through banking correspondent agents with the entire process for deposit opening completed in less than 2 minutes. This product provides a seamless digital experience and saves customers time. During Q1FY23 we opened 4,826 deposits with a value of Rs 7.5 crore.
We are focused on having a granular retail book. To this end, we will target 85-90 percent of deposits to come from the retail customer base. The bank does not plan to increase the share of bulk deposits and plans to largely accept non-callable bulk deposits for better stability of deposits.
How will you achieve faster credit growth?
Our gross advances for June 2022 is Rs 5,132 crore whereas it was Rs 4,004 crore in June 2021. We have seen 28.2 percent advance growth on a yearly basis in June 2022. Our inclusive finance loans, where we provide microfinance loans to the country’s unbanked and under-banked, comprised 66.3 percent of the total advances book. In the long term, the bank’s focus will be to increase the share of the secured lending portfolio which includes home loans, secured business loans, commercial vehicle loans and small business loans. As of June 30, 2022, the share of this portfolio in the overall advance book stood at 33.7 percent. The secured loan book grew by 36 percent from Rs 1,285 crore in June 2021 to Rs 1,750 crore on June 2022. However, the bank targets to achieve a secured loan book of 50-55 percent by FY25.
We aim to grow our loan book by 20-25 percent yearly. The bank is focusing on offering a bouquet of products to its microfinance customers who have been regular with their repayment and have demonstrated a healthy credit history. The bank sees an opportunity among this customer base to offer other asset products and garner deposits. Further, the bank will be on-boarding new customers in the micro/non-micro loan sector and expanding the affordable housing loan portfolio. Also, we will look to cautiously expand into new geographies while strengthening our presence in the existing location.
What are the immediate plans for the upcoming quarters for the business growth?
We are committed to growing at 25 percent y-o-y. We are also deepening our existing geography with a new branch set-up by the end of this financial year. We are focusing on growth through cross-selling to our existing inclusive finance customers. Through our product offerings like micro home loans, small business loans and commercial vehicle loans. Suryoday Small Finance Bank plans to scale up the share of secured loans to 50-55 percent by FY25 from 33 percent at present by focusing on self-employed and salaried borrowers. The bank is targeting annual loan growth of 25 percent with the share of secured loans growing faster.
What according to you are the challenges SFBs face currently and how can they be dealt with?
The challenges faced by SFBs post-pandemic are linked to the effects of Covid. Since gathering customers together at central meeting points has become difficult post Covid, collection is no longer easy. Efforts have increased to go individually to each customer.
Under Finacle Core Banking Platform and Finacle Treasury Platform launched in collaboration with Infosys Finacle, what are the major objectives or what are the areas that could be addressed?
The migration to Finacle CBS is a part of an overall technology transformation programme towards achieving our goal for a seamless digital platform. This will help us expand our operations and provide enhanced product offerings and services with a superior customer experience.
The new platform enables the bank to achieve significant improvement in operation and give seamless banking facilities especially to the under-banked and unbanked sections of society across India.
With the Finacle solutions, Suryoday SFB is able to provide unlimited product functionalities, expanding its current offerings and rolling out products and services on demand to suit different financial needs of our customers.
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