Page 54 - BANKING FINANCE November 2015 ONLINE
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FEATURE
While most of the lenders have survived the Andhra MFI. "Our calculation suggests that even after adjusting
Pradesh crisis, including SKS Microfinance, the regulator, for SLR and CRR, the cost of funds for the small finance
it seems, is still treading with caution. Despite huge ex- banks will be 100-150 basis points below NBFCs and MFIs.
pectations that it would get a licence, SKS Microfinance
failed to obtain one. Its stock plunged 15.5 per cent on In our base case, we assume a very low savings account
September 18 after its name did not figure in the list. proportion of 5 per cent of liabilities, retail term deposits
Analysts, however, say that not getting a small finance of 15 per cent and the rest through bulk deposits or bor-
bank licence is not end of the road for SKS Microfinance. rowings; this translates into a 10.1 per cent cost of funds,"
Religare Securities said in a report.
"SKS Microfinance probably enjoys 300-400 basis points fund-
ing cost benefit over the smaller MFIs that have won the Small finance banks whose prime responsibility will be to
small bank licence. We believe the benefits from bank con- provide savings instruments to the financially underserved
version for MFIs, if at all, are not immediate but will accrue and extend credit facility to small farmers and small busi-
over the long term (5+ years in most cases). Thus, we do not nesses can become successful if they manage three pa-
feel SKS Microfinance's competitive positioning would be rameters well: risk management, cost management (tra-
negatively impacted in any material way in the foreseeable ditionally, an MFI's operational costs are high), and quality
future," Credit Suisse said in a note to its clients. of customer services through adoption of technology.
Things will improve further for the MFIs that have re-
The business case ceived the licence for small finance banks if they can next
convert themselves into universal banks. This conversion
However, experts believe conversion to a bank is the only will not be automatic but will need RBI's approval which
way that NBFCs (MFIs too are a category of NBFC) can will depend on their track record.
survive because it will give them access to low-cost sav-
ings and current account deposits. Banks typically pay 4 "In our view, this is a giant leap towards financial inclu-
per cent interest on savings bank deposits. (Some private sion; as these small banks will be able to serve the
sector banks pays more, up to 6-7 per cent). MFIs depend underserved within the ambit of stable regulatory frame-
mostly on banks for their resources, and their cost of funds work. Moreover, in due course, these applicants would be
is therefore upward of 12 per cent. considered for universal banking licence if they are suc-
cessfully able to build a profitable business model and
Even if small finance banks have to maintain statutory li- achieve the desired objectives," Motilal Oswal Securities
quidity ratio, or SLR, and cash reserve ratio, or CRR, un- said in a report. (Source : BS)
like NBFCs, their overall cost of funds will be lower than an
BIT PLAYERS: MICROFINANCE INSTITUTIONS WITH A BANK LICENCE
FY 15 Disha Equitas ESAF Janalakshmi RGVN Suryoday Uijivan Utkarsh
Micro- Micro (North East)
Gross loan finance finance 3,774 Microfinance
portfolio 233
(Rs. cr) 201 2,144 1,016 2.3 229 581 3,274 728
Branches
Clients 99 361 224 104 145 423 240
(million)
0.2 2.3 0.6 0.2 0.5 2.2 0.6
Source : Motilal Oswal
54 | 2015 | NOVEMBER | BANKING FINANCE
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