While ten entities are on the cusp of becoming small finance banks, aiming to bring the financially excluded population of the country under the banking purview, technology will be the game changer in the space, said Samit Ghosh, chief executive officer and managing director, Ujjivan Financial Services Private Limited.
“We need technology disruption in the financial services space, which includes assisted ATMs, mobile technology, mobile wallets and other services. Both the government and the Reserve Bank of India (RBI) have put financial inclusion on top of their agenda. So, there is an enabling environment for us to succeed. If we bring in technology and a change in mindset in terms of providing the kind of service these people require, I think we will be successful,” said Ghosh, who received the Entrepreneur with Social Impact award at the fifth Forbes India Leadership Awards (FILA) in Mumbai on Wednesday evening.
Last month, Bengaluru-based Ujjivan was among the 10 entities that bagged an in-principle nod for a small finance bank (SFB) from the central bank. A total of 72 entities had applied to become SFBs. According to the RBI, the objectives of setting up SFBs are greater financial inclusion, through the provision of savings vehicles, and the supply of credit to small and micro businesses.
Ghosh points out that the SFB is a specialised institution, whose main purpose is to provide financial inclusion, and cannot be operated as a regular commercial bank. For an SFB, 75 percent of the loan portfolio has to be earmarked for the priority sector. “If we follow the same track of a commercial bank to provide services to our customers, we won’t be successful. There are over 600 million people in our country that need banking services and their transaction sizes are very small,” he said at the event.
“We have to develop new ways of doing this business. And one of the key ingredients to that is technology. Customers want simple products with easy access and efficient service. How do we provide to such a large number of people these attributes? For this, we need to bring in technology across all our services and product offerings,” noted Ghosh.
Other key players who were granted the preliminary licence for a small finance bank include Suryoday Microfinance Private Ltd, Janalakshmi Financial Services and Equitas Holdings. “The 10 institutions, including Ujjivan, who got the preliminary licence together serve about 10.5 million people across the country and the total loan book size is approximately Rs 20,000 crore,” said Ghosh, during his address at the FILA event.
Started 10 years ago, Ujjivan Financial Services currently serves 2.7 million customers in India and has a loan book size of about Rs 4,000 crore with a repayment rate of around 99.8 percent.
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For the SFB, Reserve Requirements need to be maintained as they will be accepting demand and time deposits and the balance available for disbursement of loan will be Rs.74.5. If we disburse 75% of it to the Priority Sector Loan, the balance available to others will be Rs. 18.62 (74.5 - 55.88). Which is a small amount available for disbursement and can charge a higher rate of interest. For their long sustenance and survival, SFBs have to maintain a higher CASA (Current & Savings Account) ratio to increase their bottom line. There should be a provision for SFBs to borrow money from RBI or from other Financial Institutions at a lower rate when compared to borrowing from the Interbank.on Oct 2, 2015