 "Equitas Holdings: Risk-reward favourable")
Chennai-based Equitas Holdings has received the banking regulator's final approval to launch a Small Finance Bank (SFB). The new SFB is expected to start operations by September or October.
The final license was given to the company by the Reserve Bank of India (RBI) on Thursday late evening, Equitas said.
Equitas will be the first bank after indepedence from the state and first private bank from Chennai.
P N Vasudevan, managing director, Equitas Holdings said, "We are planning to launch the bank by September or October, this year".
He said that the SFB will be profitable from the first year onwards despite it incurring around Rs 100 crore additionally every year.
"Our major strength would be our ability to service the informal economy through our process and system," he says.
The increase in expenditure is mainly due to relocation of the existing branches and additional staff cost. But over the period as the cost of funds will come down it will not only compensate the increase, it will also help the bottom line.
"Every one% reduction in cost of funds means around Rs 50 crore saving every year," says Vasudevan. He says the benefit will be seen after two years.
Currently, Equitas got around 9,000 employees of which only three are employed to get money, while balance are in lending and collection.
As the new SFB needs to focus on liability, it needs to add another 3,000 people. This alone would cost around Rs 80-90 crore every year.
The second major cost would be increase in rent as Equitas need to relocate around 400 branches.
Of the little over 580 branches of Equitas, currently around 410 will be converted into full-fledged SFB branches, while the balance will be specialised branches, which will focus on lending.
Almost 400 of these branches are located inside the lanes or on the second or third floors of a building, which will work for a bank, which needs to be on the ground floor and on the main roads.
Of the total branches around 50% of it are in South, in West around 30% and balance are in North.
While Equitas’ mission would be "empowering through financial inclusion" its vision is to serve 5% of households by 2025. Currently, Equitas got around 2.8 million clients.
Equitas currently serves about 1% of the Indian households. With the conversion to a bank and expansion in the product and service offerings with inclusion of savings, deposits, remittance and third party products such as pension and insurance, the company expects to provide a more comprehensive service to the low income households.
The proposed SFB will focus on four key strategies including offering existing range of credit products such as micro-finance, small enterprise loans, business banking loans for tiny to small commercial establishments, commercial vehicle finance and affordable housing finance.
Besides, the company would be looking to offer a few cross sell products such as loan against gold, etc.
It is also planning to leverage its existing network of branches and customer base to build a community banking channel. Business correspondents (BCs) appointed under each branch, would be able to provide easy, convenient and comfortable access to clients for doing even small value banking transactions.
Equitas offers multiple channels to clients to access their accounts with the bank including digital channels such as net banking and mobile banking, offer third party products and services such as insurance, pension and 3-in-1 accounts to enhance the value to clients. The company invested around Rs 20-25 crore in IT infrastructure.
Equitas hopes to improve its operational efficiency and risk management through technology-enabled operating procedures which would help in reducing cost to borrowers over time.
The company, which has recently completed initial public offering (IPO), in order to reduce the shareholding of foreign institutional investors (FIIs) to below 49% and merged three entities under the holding company as per the regulatory requirement before submitting an application for the SFB licence in the end of April, 2016, under Section 22 of the Banking Regulation Act, 1949.
In April, the Rs 2,170-crore IPO was subscribed 17 times more, despite no participation of FIIs.
