Small finance banks lose market share in micro lending

New Delhi: Though most of the small finance banks were micro finance institutions earlier, they are losing market share in micro lending. Both loan outstanding and disbursements are growing much slower for them compared to other lenders. Share of SFBs in the total micro finance market has dropped to 20 per cent in Q1FY19 against 27 per cent in Q1FY18. SFBs together had a total loan outstanding of Rs 31,030 crore in Q1FY19, but their growth was much lesser at 8 per cent compared to 50 per cent growth witnessed by micro-finance institutions (MFIs) and banks.

Their share in total micro finance disbursements too has been declining. It dropped from 24 per cent in FY16 to 21 per cent in FY17 and further down to 14 per cent in Q1FY19. ESAF, Equitas, FinCare, Janalakshmi, RGVN, Suryoday, Ujjivan and Utkarsh are some of the key players among SFBs. Many of the SFBs were earlier operating as NBFC-MFIs and started functioning as banks in the past two years. They had the advantage of leveraging their MFI clientele. However, the growth of their micro finance portfolio has been slower.

 As NBFC-MFIs they could do only micro-lending, but as SFBs they are allowed to give away other loans as well and this includes personal loans, working capital loans and home loans. The SFBs have been diversifying their portfolio and hence their micro finance book has been witnessing a slowdown,” said Karthik Srinivasan, senior vice president, Icra. Micro finance typically being a shorter term product compared to other loans, their share in the total loan book will remain smaller, he added. Further, the entities needed more time to stabilise in terms of achieving bandwidth, putting technology in place and securing investments and this transition too slowed growth. 

According to Kotak Institutional Equitas, the slowdown witnessed by some of the large SFBs also resulted in the loss of market share of the segment. Jana SFB was one of the companies that was worst affected during demonetization. It’s asset quality declined, leading to capital erosion. The MFI had reported losses to the tune of Rs 2,504 crore at the end of March 2018.

Jana was one of the last entities to get the bank licence and the bank launch of the entity also got delayed as it was looking for fresh capital infusion of Rs 2,000 crore. The bank lost many customers due to the delayed launch.