ET Now: Are you seeing signs of a bounce-back in the economy? What does that mean for your business?
Baskar Babu Ramachandran: The situation has been improving month on month and continued in the December quarter as well. We expect the trend to continue. The entire economy is bouncing back and in line with it, the entire financial inclusion segment customers are also coming back on track. Livelihood acceleration is taking a little more time. It will lag by a couple of months but otherwise, we seem to be on track to come back to near normalcy in the next couple of months.
ET Now: There has been a rise in Covid cases especially in Maharashtra. You have a high presence in the microfinance segment. So, would that be of concern to you?
Baskar Babu Ramachandran: We are all a little better off in terms of knowing how to handle it. There is likely a second wave, but we are fairly confident that with the wisdom gained from last year’s pandemic, we will manage it far better than we kind of did in the first round. However, in a state like Maharashtra where we have a substantial presence, the increase seems to be a little worrying. Hopefully, all of us will become more disciplined and help reduce the acceleration of cases. So it will have an impact but it may not be as negative as it was the first time around.
ET Now: What kind of provisions do you expect for FY22 and also which states do you see improvement coming in from?
Baskar Babu Ramachandran: Across the board, in all the states that we operate in, we have been seeing improvements month on month. Some have been lagging right in the beginning. They are taking time to catch up but the fortunate thing this time around is that there have been no local level disturbances triggered by people who were not even connected with the customers. That is a good sign except in a couple of states, with respect to probably the eastern states. As long as there is not much external interference, the inclusive finance segment has come back on track. Their loans are of a smaller amount and of a shorter tenure and that means usually the delay probably would be a couple of months and as long as the customers are paying, you do not really incur any credit losses.
That is very different compared to any other retail segment. But as long as there has been no disturbance, it is smoother going. We have not really seen any disturbance mainly on account of two things. One, there has been a regulator blessed moratorium for six months which allowed customers not to default. In spite of that, 40-50% of the customers were paying depending on the state and we as microfinance players or small finance banks continued to keep in touch with the customers in this segment.
As long as you are in touch with the customer, the customer is in touch with you and they pay some money. We are seeing an improvement in collections across the board. Some states like Maharashtra will lag. They were at 60% when others were at 70%. But the percentage growth in terms of collections broadly has been the same across all the states that we operate in.
ET Now: Your IPO was a combination of OFS and fresh issue. What kind of funds have the bank mopped up and how has it improved your capital adequacy ratios?
Baskar Babu Ramachandran: We had a net worth of closer to Rs 1,200 crore before the IPO and we raised closer to Rs 450 crore in terms of primary capital. Put together, our net worth now moves beyond Rs 1,650 crore and capital adequacy closer to 50%. So it is substantially higher capital adequacy than the regulator required. We have to do the IPO for compliance with regulatory requirements which required small finance banks to list within three years of net worth crossing Rs 500 crore. We had to do it by November 2020. It has got delayed by a couple of months because of the pandemic. In the process, we have raised Rs 450 crore in terms of primary capital which will enable us to grow strongly over the next couple of quarters and certainly for the next one, one and a half years without compromising on capital adequacy at all.
Our intent was to always have a start-up bank closer to around 25% in the initial five, six years With that in mind, we will still be able to deliver robust growth in the next couple of quarters. That is what we are looking forward to.
ET Now: Let us talk about the strategy to garner more deposits especially retail deposits. Also what sort of digital transformation do you think you are witnessing? Also, what are the investments you have made in that regard?
Baskar Babu Ramachandran: Many of the digital capabilities that we will have to deliver today is more of a factor. It is no longer a competitive advantage. We will have to deliver the best digital experience from a customer experience point of view. We have delivered it right from the day we became a bank in the last four years and we will continue to do that. We have also invested pretty highly in terms of both time and financial investment in developing and with the best in class analytics platforms that is what is likely to help us substantially both in terms of efficiency and effectiveness for the reasons that customers even in inclusive finance are aspirational lower middle class. On graduating, it is very important that they get the experience of getting various products delivered to them in a very meaningful manner — be it of micro home lending or other products including overdraft products and consequently the other asset-based products. Our ability is to deliver that to the customer effectively in a cost-effective manner because we have all the data.
As a bank, we have close to 15 lakh household customers. The ability to understand them is what will not only give a great customer experience. From a bank’s point of view – both from risk management as well as from profitability — it will be very useful. We will enhance our capabilities. We do have pretty good capabilities developed over the last four years and specifically, we will invest more to deepen the customer relationships.
ET Now: Ujjivan, AU Small Finance both have shared their intent to convert to a universal bank soon. Do you think that for Suryoday as well that would perhaps be a medium to long term goal converting to a universal bank?
Baskar Babu Ramachandran: That will be the long-term goal for every small finance bank but we all become eligible only after completing five years of operations. We are one year away from that. As we complete five years of operations, we will assess the need for converting ourselves or applying to become a universal bank. We will have to apply and then the regulator at that point of time will see whether the institutions are ready to become universal banks.
That said as a small finance bank, we want to cater to the underserved and unserved segments. We can do all that a universal bank can do. So to that extent, there has been no constraints except that we will have to maintain a 70% sector lending of a portfolio while universal banks are required to maintain 40%. Other than that, either on the liability side or on the retail side, we have no concern because of the regularity structure.