Small finance banks (SFBs) have been capable to preserve non-performing assets (NPAs) beneath manage by way of comparatively improved management of their portfolios, the Reserve Bank of India (RBI) mentioned in a report released on Thursday. At the similar time, the report pointed out that the expansion of SFB branches has been concentrated in the similar regions as private banks.
“One of the creditable features associated with micro finance has been its lower loan defaults, which have been made possible by better management and supervision of the credit portfolio through the employment of social collateral of self-help groups. SFBs, many of which were erstwhile NBFC-MFIs, too have reported low NPA ratios,” the report mentioned.
Furthermore, the dispersion in the NPA ratio amongst SFBs has also declined more than time. In the close to future, the NPA positions in SFBs, as in other banks, might be shaped by a variety of regulatory interventions, like the moratorium and resolution framework, introduced to address Covid-connected tension. In the case of micro, compact and medium enterprises (MSMEs), the Covid-connected resolution framework has been aligned with the MSME restructuring package announced earlier in January 2019.
“Effectively, this has ensured a continued regulatory support to MSMEs, which form a major part of the loan portfolio of SFBs,” RBI mentioned.
While the deposit base of SFBs has been expanding, they nonetheless have a lengthy distance to cover as compared to other banks in mobilisation of existing and savings accounts (CASA). Despite a choose-up in the share of CASA in total deposits for SFBs, it stood at 15% in March 2020 as compared to 41% for other SCBs.
Also, the speedy development in the branch network of SFBs has been markedly concentrated in the southern, western and northern regions, which are recognized as the comparatively nicely-banked regions in the nation. Their penetration in the north-eastern area, which is recognized to be the least banked area, remains low. At the state level, although SFBs are creating their presence felt in some of the beneath-served states of Madhya Pradesh and Rajasthan, they continue to be concentrated in Tamil Nadu, Maharashtra, Karnataka, Kerala and Punjab – states with some of the lowest population per bank branch in the nation.
Among these, the states from the southern area have had a higher concentration of microfinance institutions (MFIs) considering that the time microfinance originated in India in the early 1990s. SFBs as well, a lot of of which are MFIs turned into banks, have largely followed this pattern of branch expansion. Furthermore, there seems to be some similarity in the branch spread of private sector banks and SFBs, with each displaying a higher concentration in the comparatively nicely-banked regions and states.
“Interestingly again, SFBs show a branch distribution pattern similar to Private Sector Banks (PVBs); semi-urban centres had the highest share of about 32% in total branches of PVBs with rural centres having a share of 21% in March 2020,” the report mentioned.