Some experts believe the SFB performs better than its peers. “Their asset and liability profiles are separately managed, which gives them control over the asset quality, unlike larger banks, which sell their asset products to liability customers,” says Vinit Bolinjkar, Head of Research, Ventura Securities. “Considering the low asset base for SFBs, they can be picky about high-quality customer profiles to sell their products,” explains Bolinjkar.
On the cautious side, the analyst at Emkay Global feels that funding cost is typically higher for these banks, as garnering sizeable low-cost Current Account and Savings Account (CASA) will be difficult. Hence, they have to depend on high-cost term deposits.
However, the SFB business model harps on the niche and relatively underserved customer segments with virtual or below investment grade rating, and are thus ready to take a loan at a higher rate, leading to a higher margin.
From the longer horizon, the script prospects look promising. “ESFB can also surprise in terms of delivering higher profitability, which is comparable with the likes of HDFC Bank, Kotak Bank and can deliver Return on Assets (ROAs) in the range of 2 per cent, possibly in the next two to three years,” says Rajiv Mehta, Lead Analyst – Institutional Equities, YES Securities. ESFB is the third IPO under the SFB segment after AU Small Finance Bank and Ujjivan Small Finance Bank.