 "BS BFSI Summit: SFB chiefs call for building services to become universal")
Small finance banks (SFBs) on Tuesday said they need to offer an entire range of products and services to customers at a ‘360 degree level’ before becoming universal banks.
“To become a universal bank, you need to focus on customers, and build more products and services. It can’t be that I don’t have any product, make me universal and only then will I become more of a product bank. I don’t think that is a right strategy,” said Sanjay Agarwal, managing director (MD) of AU Small Finance Bank, at the Business Standard BFSI Insight Summit 2023.
He said SFBs will now need to build all product ranges and if they have that and service customer requirements at a 360 degree level, customers will not see whether you are an SFB or a universal bank.
Pointing out that his bank has got the authorised dealer Category-I licence, which will be operationalised next year, he said he now thinks that the bank can offer any service to call it an international bank.
Ittira Davis, MD and chief executive officer (CEO) of Ujjivan Small Finance Bank, said, there is a roadmap right now indicating the eligibility to become universal banks. “I think if SFBs fulfil their objectives, I don’t see why they can’t turn into universal banks,” Davis said.
The Reserve Bank of India (RBI), in its guidelines for ‘on tap’ licensing of SFBs in the private sector, had stated that after the initial stabilisation period of five years, and after a review, it may liberalise the scope of activities of SFBs.
According to these guidelines, if an SFB wants to become a universal bank, it has to have a satisfactory track record of performance for five years.
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Scope of activities of SFBs is confined to basic banking like accepting deposits and lending to unserved and underserved sections.
If SFBs get a universal banking licence, their capital adequacy ratio requirement would come down to nine per cent from 15 per cent. And, the priority sector lending norm would be 40 per cent from 75 per cent now.
Asked if they are awaiting approval to become universal banks, Davis said, “We at Ujjivan will wait for a reverse merger. We will balance our portfolios. This information is in the public domain. There is nothing to stop our firm from turning into a universal bank.”
The Bengaluru-based SFB is in the process of reverse merging with its holding company Ujjivan Financial Services in two-three months, subject to approvals.
Speaking about digital technology inclusion in SFBs, Davis added, “The technology revolution, which has happened in the Unified Payments Interface (UPI) space will eventually start happening in our space as well. We believe it will make a significant difference."
Digital technology is being used by customers to repay and avail loans. It is happening faster than we think. So, technology will enable financial inclusion. We will see this taking place in the next 5-10 years.
On the potential of SFBs to become universal banks, Inderjit Camotra, MD and CEO of Unity Small Finance Bank, said, “SFBs are created to serve underserved and unserved cohorts. Our business serves more than 25 million people directly. SFBs touch the lives of almost 100 million Indians. SFBs punch much beyond their weight.”
“If we stay true to the course and become pliant and robust institutions, we will prove our mettle,” he added.
On the struggles that SFBs face during the pandemic, Ajay Kanwal, MD and CEO of Jana SFB said,
“All of us in the last six-seven years, especially during Covid, as scheduled commercial banks, have shown that we are well-done institutions. There is always scope for improvement, but all SFBs have been through a tough time.”
Kanwal thinks that being a universal bank would certainly help in branding and the liability side, much more than the asset side.
“And, that is a very important piece of banking. But I believe we should convert to universal banks, and we should be allowed to convert to universal banks,” he said.