We keep looking at meaningful growth opportunities: Suryoday SFB CEO

Suryoday Small Finance Bank was in the news recently after reports emerged of its potential merger talks with a non-banking finance company. In a freewheeling interaction, R Baskar Babu, MD & CEO of the bank talks about its growth opportunities and business environment to Manojit Saha. Edited excerpts: The media recently reported that Suryoday SFB is in talks with Clix Capital for a possible merger. In this context I would like to know what is the reason behind this move? As a process, as all institutions do, we keep looking at all growth possibilities – organic and inorganic.....
Suryoday Small Finance Bank was in the news recently after reports emerged of its potential merger talks with a non-banking finance company. In a freewheeling interaction, R Baskar Babu, MD & CEO of the bank talks about its growth opportunities and business environment to Manojit Saha. Edited excerpts:

The media recently reported that Suryoday SFB is in talks with Clix Capital for a possible merger. In this context I would like to know what is the reason behind this move?

As a process, as all institutions do, we keep looking at all growth possibilities – organic and inorganic. But when it goes to a point where it has to be disclosed, we will make all the appropriate disclosure in total compliance.

What I can say is we always look for meaningful, solid, compliant opportunities – both organic and inorganic and will continue to do so.

What is the reason for looking for a partner? Is it because you see some challenges, which the bank would overcome by inducting a partner?

There are no such challenges that would make us look for a partner.

As present, we cater to over 1.5 million households and the segment we operate in are essentially low-income households. We do not want collection efficiencies to get impacted. After the second Covid wave, customers have started to come back slowly and steadily. Whatever defaults have happened, they happened due to circumstances, due to twin blows on both economic and health fronts. As we have said earlier, the customers will come back slowly, given that the loans are short term for small amounts, so if it was to get over in 24 months, now it will get over in around 30 months.

We are into inclusive finance [micro loans], affordable home loans and now also into micro home loans, which are small ticket home loans – Rs 5 lakh to Rs 10 lakh. We are also in commercial vehicle finance – catering to the mid-sized freight operators. On a standalone basis, there are quite a bit of organic opportunities.

We have a high capital adequacy closer to 52% at this point of time. On the growth front, we have been fairly guarded, not chasing crazy growth. We always wanted to have sound, consistent growth of 25%-30% annually as we have demonstrated in the past.

So, if there are any opportunities that come our way that are meaningful and fit into our strategy, we would look at them.

Our business is at Rs 4,000 crore, we really do not have to crave for opportunities only through other means because we can grow organically. So, simply put, we are not looking at opportunities to overcome some challenges.

Disbursement took a hit during the April-June quarter, that is during the second wave of the Covid-19 pandemic. Has the disbursement recovered since then? What is the bank’s credit growth target for the full financial year?

In the first quarter, total disbursements were Rs 361 crore. The disbursements in the month of July alone were equal to that of the first quarter. So, growth is coming back.

We have not given any guidance. What we have always said is that we will be a steady 25%-30% year-on-year growth player.

Collections were also impacted during the first quarters. Has that recovered?

On an one-EMI basis, the collection in March was 85% for inclusive finance (microfinance portfolio]. It dropped to 67% in the month of June, then it improved to 78% in July. From June to July, we have seen a positive momentum. We believe the robustness in collections will continue.

The bank’s gross non-performing asset ratio sharply increased during the pandemic year, which was 9.52% at the end of June as compared to 2.82% a year ago? Do you think the worst is over for asset quality?

Once an account turns into an NPA, it continues to be classified as an NPA till the customer makes all the overdue payments and becomes current.  The GNPA as on June was 9.52%; but on a 90+ DPD [days past due] basis, it was only around 6%. That is to say, only around 6% of customers had dues for more than 90 days and the remaining customers have come back below 90 DPD. But since they have not become fully current, they continue to be classified as GNPA.  Earlier in the pre-pandemic days, this divergence was not much. The point to note is that not all the GNPA customers are non-paying customers, that around one-third of them are less than 90 DPD.

What gives us comfort is that the customer is paying even if they remain GNPA for three to four months. To that extent the worst is over. But in terms of numbers the NPAs may not immediately come down as some of the 60+ DPD customers may become 90+ DPD before they make the movement towards becoming current again.

One way is to look at the GNPA numbers. Another is the number of customers who are paying and those who are not paying. The number of customers who have paid either in July or August or both the months, is around 90%. That is what gives us comfort.

Do you have a roadmap on applying for a universal bank licence?

As per regulations, SFBs become eligible to apply for universal bank licence after completing five years, which for us will be January 2022.

Universal banks have certain advantages as there are few activities, which they can do that a small finance bank cannot do. We have not taken any decision on the issue so far. We will evaluate as and when the time comes – which is four months away. But yes, over time, it will be a natural progression for any SFB to look at a universal bank licence.

Some of the small finance banks are facing a very high level of attrition. Are you too experiencing the same?

Not really. We are conscious about the fact that any attrition, which is over and above an acceptable number is not good. More importantly, it also puts a stress on the overall culture of an entity. As of now, we have no issues about it.

The bank’s CFO has quit recently. Have you finalised a replacement?

The CFO is moving on to start an entrepreneurial venture. We are in the process of finalising his replacement.

The share of current and savings account (Casa) deposit in total deposits were 17% at the end of June? How do you plan to increase it and where do you like to see it?

CASA has to be low cost, has to be granular, has to be sticky and there should be reasonable transaction flows, leading to a float. We look at savings deposits as completely retail. We are paying only 4% for Rs 1 lakh, 6.25% for above Rs 1 lakh and below Rs 10 lakh and 6% for more than Rs 10 lakh. We want to build granular CASA deposits. That is something that takes time to build and does not happen very quickly. We are clearly staying out of anything which is bulk in nature. We are aware that this is going to be a slow, steady process. Over the medium term, we would like to see it at 35%-40% in 3-5 years.


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