Small financial banks to dominate low-cost lending in India, analysts say

“The accumulated growth in assets under management (AUM) of 48% between fiscal year 18 and December 2020 for SFBs against a systemic credit growth of 7% testifies to the ability of SFBs to carve out a niche in the space of loan at low cost. Its small loan market share remains as high as 6% versus 1% of the total credit market share in December 2020, ”ICICI Securities said in a note Thursday.

Given the government’s push on financial inclusion, a huge untapped opportunity of around ₹10,000 billion and the experience of SFBs in underwriting loans based on unstructured data will dominate the low-cost lending space in the future, he said. Their additional market share in these loans was on average 20% before the outbreak of Covid in March of last year.

“Within four years of SFB operations, the market share of SFB deposits has grown to 1%, with the additional market share remaining well above 3%. An end-to-end digital integration process, personalized product offerings and relatively higher interest rates have helped them gain shares from incumbents at an accelerated pace, ”the report noted.

Additionally, a compound annual growth rate of deposits (CAGR) of 89% between FY18 and FY20, versus systemic deposit growth of 9%, also reflects the growing confidence of depositors in investing their savings with SFBs. and the acceptance of SFBs as a new banking partner. A rapidly evolving liability franchise would ensure a sustainable source of funds at competitive rates and further strengthen the position of SFBs in the lending space, analysts said.

“We believe that personal liability and diversified asset allocation are two important pillars in building long-term sustainable business models, and we rank listed SFBs based on these two criteria. While Suryoday Small Finance Bank and Ujjivan Small Finance Bank steadily improve their retail deposits and guaranteed asset portfolios, Equitas Small Finance Bank ranks first with the share of retail deposits and guaranteed asset products at more 80% in March, ”he said.