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The potential of small finance banks (SFBs) was a key topic of discussion at the Business Standard BFSI Insight Summit on Wednesday, with industry leaders sharing views about how these institutions were at the doorstep of becoming big, potentially evolving into universal banks.
During a panel discussion titled ‘Can SFBs Go Big?’ moderated by Manojit Saha, banking editor at Business Standard, K Paul Thomas of ESAF Small Finance Bank shared his perspective on the benefits for SFBs by turning into a universal bank. In his words, the main benefit would be the shift in public perception of these community-focused institutions, and enhance their broader appeal.
“We have already become the big small finance banks… when the licences were given, former Reserve Bank of India Governor Raghuram Rajan had said that these are ‘big banks for small people’....if you look at the last seven years growth….we have all grown, exceeding the growth rate of other commercial banks….,” Thomas said.
The session also featured other industry leaders, including: Ajay Kanwal of Jana Small Finance Bank, Govind Singh of Utkarsh Small Finance Bank, and R Baskar Babu of the Suryoday SFB. The three-day event, which began on Wednesday, is being held at the Jio World Convention Centre, Mumbai.
Are SFBs in a hurry to turn into universal banks
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When asked about whether SFBs were in a hurry to transition into universal banks from being community-focused banks, Babu of the Suryoday SFB said, “There is nothing SFBs can’t do, except for co-lending… We don’t have any constraints. It makes us nimble. I don’t feel any hurry to turn into a universal bank…”
“Each one of us is doing well regionally… but turning into a universal bank will help us enter new territory. However, I would not give it a shot for the next three years…”
Singh of Utkarsh Small Finance Bank also echoed similar sentiments, noting that the institution was not in a hurry to transform into a universal bank. “Our plans are to once the reverse merger process is completely over then we will look at the next step for Universal Bank. It is very useful that RB has come with very clear-cut guidelines…,” he said.
Ajay Kanwal excited about the change
Sharing his insights, Kanwal was rather excited at the prospect of becoming a universal bank and emphasised that SFBs were already growing fast. “We are bigger than a lot of universal banks in size, we have a profitable model. We are growing very fast. One big advantage of turning into a commercial bank is that the risk factor goes down as per customer’s perspective.. employees will feel happy, and so will investors... The cost of deposits will go down…”
Leaders also agreed that all SFBs were largely prepared to be universal banks and no big cost impact is expected from the shift.
For those unaware, SFBs were created by the Reserve Bank of India to extend basic financial services to unserved sections such as farmers, small business units, micro and small industries and unorganised entities.
Catch all special coverage of the Business Standard BFSI Summit 2024 here: BS BFSI Summit 2024
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