Suryoday Small Finance Bank (SFB) will build 1%-1.5% of its total assets as contingency provisions during the current and next financial year to comply with expected credit loss (ECL) model of provisioning, MD & CEO R Baskar Babu told FE.
"We are working on a sharpened model at this point in time. Irrespective of ECL coming in this year or in years to come, we are preparing ourselves to hold contingency provisions," the MD said. "Starting this year, we will make 1%-1.5% of our assets…as contingency provisions and similar (contingency provisions) we will add next year, which as per our internal calculations will be much higher than what all will required through the ECL methodology," he added.
The Reserve Bank of India (RBI) in January had released a discussion paper suggesting banks to make provisions on an ECL model basis as against the current framework of incurred loss method. The implementation of the model will be spread over a five-year period. However, banks are free to choose a shorter transition period.
As on March end, Suryoday SFB's gross and net non-performing asset (GNPA, NNPA) ratio stood at 3.1% and 1.5% as against 11.8% and 6% a year ago, respectively. Provision coverage ratio, excluding the technically written off accounts, stood at 51.5% as on March end, lower than 52.5% a year ago. SFB is aiming to lower its GNPA ratio further to below 2% in FY24, and NNPA ratio below 0.5%.
Business growth
During FY24, Suroyday SFB is aiming for a loan growth of 35%-40% on a year-on-year (y-o-y) basis, half of which is expected to come from new customers and half from existing customers, the MD said. As of March end, SFB's total advances stood at Rs 6,114 crore, up 20.7% y-o-y .
"…we have been successful in scaling up a product called 'Vikas Loan', which is primarily focused on graduating microfinance customers into taking an individual loan with no guarantee from anybody, clearly on their own capacity to repay, we fund them directly…," he said.
"Our focus on secured assets such as commercial vehicle funding and mortgages will continue and they are long-term assets…so even at current pace of disbursements, the growth in the mortgage business will be closer to around 35%-40%." the MD said.
He added that during FY24, the SFB will also launch shopkeeper loans of Rs 75,000-300,000 with an interest rate of between 17%-18% for customers with better credit score and 22%-24% interest rate for customers with not well-established businesses.
For FY24, Suryoday SFB has given a 35% y-o-y deposit growth guidance. When asked on how the bank will compete with other lenders, he said it will deepen its customer base by opening newer branches in localities where it already has presence.
"…around 40 new branches will come in this financial year. Any new branch opened in a locality generally garners around Rs 15-20 crore of deposits in the first year…and we are also adding people in our existing branches to deepen business in geographies we are present."
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