Utkarsh Small Finance Bank feels adoption of prudent practices limiting the number of lending relationships for borrowers will have a short-term impact on loan growth and asset quality, a top official said on Thursday.
Utkarsh Small Finance Bank's MD Govind Singh stated that limiting borrowers to four lenders will temporarily affect loan growth and asset quality, though it's ultimately beneficial for the micro-finance industry. The bank is also expanding yields in certain loan categories and expects to maintain a net interest margin above 9% despite rising deposit rates, while a reverse merger with its parent company is anticipated to be completed in 12-13 months
Utkarsh Small Finance Bank feels adoption of prudent practices limiting the number of lending relationships for borrowers will have a short-term impact on loan growth and asset quality, a top official said on Thursday.
The Varanasi-headquartered lender's managing director and chief executive Govind Singh said the microfinance industry took a call from August 1 to limit the number of lenders to four per borrower and the systems have been calibrated such that a lending proposal will get rejected if it is the fifth relationship or higher.
"We can see that in general, the MFI disbursements have come down. People (industry) will follow the norms, there will be a temporary stress in that part but ultimately it is good," Singh told reporters here on the sidelines of a company event.
He said up to 15% of the borrowers have outstanding to four or more lenders at present.
It can be noted that concerns stem from the proclivity of the borrower to raise money from one lender to pay off a debt taken up earlier from some other lender, which leads to the stress not getting recognised in the system. The RBI had few years ago withdrawn a requirement capping the number of banks a single borrower can raise loans from.
"'... as the disbursements are less, the rejection ratio has gone up. So I think you will see ... people will have to relook at the growth. But what is very important is that you will see a big change in 3-4 months time. In short run it may be a bit more challenging," Singh said.
He refused to answer a specific question on collection efficiencies citing the silent period ahead of disclosing the quarterly earnings but conceded that the bank has seen "little impact" on asset quality already.
Contrary to notions of the election exerting an impact on MFIs' loan books as the credit culture weakens, Singh said there is no correlation between polls and asset quality. He, however, said that there are operational challenges like troubles with cash movement which an entity like his has to face, but underlined that there is no trouble on the broader numbers.
He said the bank is witnessing an expansion in yields on advances in select categories like loans against property and small business loans, and added that despite the hikes in deposit rates it will be able to maintain the net interest margin above 9 per cent in the medium term.
The bank is gradually reducing its reliance on bulk term deposits and the percentage has come down to over 31 per cent as of now.
When asked about the RBI's concerns on very few wholetime directors in SFBs, Singh said the bank appointed one last month, and added that the central bank wants these group of lenders to follow responsible practices in areas such as risk, audit, technology and compliance.
To a question on the reverse merger with parent to get down promoter holding to the stipulated 15 per cent, he said the bank expects the transaction to get over in 12-13 months from now.